The false premise held out by Friedman was that it is easy to get monetary policy right all of the time. It certainly wasn't the case for Friedman's pet rule, and I don't think that there is any monetary rule out there that we can be sure will keep us safe and secure and fully employed...We just have no theoretical base for saying that the free market economy is stable.He also referred to the deflationary spiral concept which Earl Thompson had constructed - a possibility I am somewhat concerned with as well. In certain respects the economy was set so as to grow at a certain rate, for well over a century. However, supply side "rules" for economic participation, have gradually grown more rigid. This is why I believe it might be more reasonable to reach for new growth through alternative equilibrium options. Glasner sums up his post:
...I still agree with Scott's bottom line: if the economy is operating below full employment, and inflation and interest rates are low, there is very likely a problem with monetary policy.As a monetarist I agree with this, and would also emphasize that adequate monetary representation is the primary economic component which could be managed with any degree of efficacy, from a national perspective. Other aspects of growth potential - including growth levels - remain dependent on supply side circumstance, and to a lesser degree (presently), government intentions. Hence policy makers are remiss, when they pretend that monetary policy is also "helpless" in terms of the appropriate management capacity it actually holds.
Presently, internal aspects of general equilibrium remain relatively stable, and the more pressing issues for equilibrium tend to exist in an external sense. Further, external factors contribute to changing dynamics over long periods of time, hence gradually change the shape of equilibrium in ways that don't readily show up in ongoing business cycles. These include changes in perceived potential for resource use, which can dramatically affect both growth levels and the vital relationship between time value and resource capacity.
The main reason income polarization is problematic, is the fact that little recognizable structure presently exists (in the U.S.) for low income strategies, beyond prison formation, increased use of civil asset forfeiture, and the War on Drugs. As a result, general equilibrium is becoming mostly oriented towards a higher income standard, where economic conditions are sufficiently complex for full societal integration. Whereas lower income levels are often unable to remain engaged, in ways that allow them to fully exercise either personal freedom or personal responsibility. And this is just a domestic aspect, of the problems for general equilibrium which come from external sources.
Why did policy makers find it necessary to generate "normalization" discussion, as though nothing about the economy had essentially changed? In a sense this approach was less complicated, than a full explanation as to why the economy was expected to resume activity at a lower trajectory, than what existed prior to the Great Recession. However, this "new" equilibrium is far from complete, given the fact income polarization has also taken a toll on potential output. If it has become impossible to consider what potential output might consist of, that is mostly because policy makers continue to hope - or reason - it won't be needed. Perhaps 2016 will tell the story, whether or not this is true.