Towards a Humbler Monetary Policy

Is it possible for opposite policies to both be wrong? Over at the Washington Examiner, I argue that it is. The U.S. is ending its quantitative easing program just as Japan is ramping its up. Those seemingly opposite policy paths are rooted in the same mistaken philosophy. I argue instead for a humbler monetary policy:

 Both Yellen and Kuroda should move their focus away from stimulus, exchange rates and constant tinkering, and toward stability, honesty and predictability in their price systems. Easing of $1.66 trillion has had almost no effect on the U.S. economy. How reality will stack up against the Bank of Japan’s predictions, no one knows.

Along the way there are discussions of Keynesian liquidity traps, the Taylor rule, NGDP targeting, and Bitcoin. The larger point is that central bankers are barking up the wrong tree. Instead of manipulating various economic indicators, they should concentrate on creating a stable, predictable, and honest price system that enables more investment, better investment decisions, and more innovation. Entrepreneurship, not interest rate tinkering, is what causes economic growth and mass prosperity.

Read the whole thing here; see also a facsimile of the print edition here, starting on p. 26.

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