How to respond, to recent assertions that monetarism is dead? Granted, monetarism as a discipline is changing. Where it was once approached from a somewhat quantitative stance, this viewpoint has shifted towards a supply and demand approach in terms of aggregate spending capacity. Both economic time and resource capacity are represented by money, and their relation to one another is constantly changing. Indeed, market monetarism opens up additional ways of conceptualizing money in terms of economic freedom, which have yet to be explored.
For purposes of this post, imagine the output of aggregate supply as a "race for growth potential" between public and private interests. How to think about these efforts, in real economy terms? Many assume that government is now capable of growth capacity to a greater extent than private interests. While this is viewpoint is understandable, given government involvement across the economy - alongside a growing private sector reticence - few realize what's at stake for growth and economic stability. This issue is all the more confusing for the public, when discussions between opposing economists mostly involve technical complexities or political oversimplification.
Much of it really boils down to this. In a temporarily stalled economic environment, which "side" is best equipped to address a lack of economic dynamism: fiscal policy or monetary policy, and why? That is, who is prepared to make the first meaningful step forward? After the Great Depression in the twentieth century, some government "first steps" for renewed growth had measurable impact, even though monetary assistance was quite uneven. What had become new infrastructure patterns in those decades, also meant a broader economic framework in several respects. Even the expansion of square footage for housing played a role, in that it provided "storage" for the additional supply side capacity of mass manufacture.
However in the present, it is no longer possible for government funded infrastructure - or related strategies - to have the same dramatic effect. Neither Washington - or Main Street for that matter - had sufficient response to the fact the 21st century would not/could not be a redo of the 20th. Today, the digital realm means far less physical space is needed for living and working, even though non tradable sectors have yet to adjust. And while millions of individuals desire to produce and partake of experiential product, again, organizational patterns still need to take this important shift into account.
Today, fiscal revenue for physical infrastructure - while it is needed for maintenance - is a vastly different component, than the multiplier effect of infrastructure which previously contributed to supply side dynamics across the spectrum. And while new forms of infrastructure are needed to generate more closely spaced living/working patterns, national infrastructure dialogue is mostly that of increased competition with already existing infrastructure patterns of general equilibrium - many of which are far from being fully utilized to begin with.
So called government multipliers lose their effectiveness, as government debt comes to include more economic roles that include high levels of ongoing obligation. Today, government debt includes continuous budget responsibilities which make it all but impossible, for policy makers to respond to changing economic circumstance. Again, think about the "race for growth" in which governments have to take two half steps (debt funded activity) to account for each single monetary step on the part of private industry. Until the Great Recession, government was able to access sufficient revenue that it could take enough half steps to stay ahead in the race, if need be.
Private industry has long since lost confidence in government, as capable of providing meaningful assistance for economic prosperity. But by the same token, private interests are also not inclined to make the first move, or - if they are - remain blocked by other players. Just the same, it's Main Street's turn to make the first step in a race towards stronger growth. Even though some will insist they can't, or possibly even insist it's not their responsibility to do so.
In an important sense, the Great Recession was a "contained" depression - a fact which underlies the paradox of those "return to normal" scenarios the Fed continues to speak of, only years later. Perhaps "normalization" reflected the fact that government was no longer well positioned to contribute to a broader growth pattern. There was just one problem. Too many private interests had become content with a protected and limited marketplace which left too little room for economic access.
Fortunately, there are still ways to move forward which do not require the "half step" matched revenue of fiscal policy. Matched time value can renew non tradable sector activity, through coordinated settings which combine public/private efforts into a single monetary framework. Matched time value would represent wealth which requires no debt, public or private. With enough "whole" steps, output would finally return to a level capable of accommodating all who wish to take part.