Re: Re: ECON: Jane Jacobs Epiphany
Sun, 17 Aug 1997 21:44:57 -0400 (EDT)

In a message dated 8/17/97 12:36:46 PM, you wrote:

>I re-read that part. She doesn't say explicitly what monetarism said
>about stagflation. For all the other theories she shows an explicit
>contradiction, but elsewhere implies that stagflation defeated all
>macro-economic theories. Monetarism was called in after stagflation
>took effect but failed (as of her writing) to cure the problem, so there
>is probably no contradiction. Monetarism seems adequate theoretically
>but failed in practice, and thus was defeated. "In sum, measures
>contrived to fight inflation were proving ruinous to producers and their
>work forces, while measures contrived to help producers were enlarging
>government deficits."

Monetarism is a "kinda" failure. It had two big conclusions:

1) Playing with the inflation rate cannot improve the long-term function of
the economy, only mess it up.

This has basically turned out turn, although there still is some work that
indicates a little (less than 3%) inflation may help.

2) The inflation rate is determined by the size of the money supply.

This has turned out to be true only when the financial markets don't innovate
and are fairly restrictive. It used to work passably well, but is a major
bust today, due to deregulation and computers.

Right now the major central banks achieve monetarist goals with
non-monetarist means. The current state of the money markets in
industrialized countries seems to validate their approach.