[[{“value”:”Today on the MR Podcast Tyler and I discuss the “New Monetary Economics”. Here’s the opening TABARROK: Today we’re going to be talking about the new monetary economics. Now, perhaps the first thing to say is that it’s not new anymore. The new monetary economics refers to a set of claims and ideas about monetary economics
The post Marginal Revolution Podcast–The New Monetary Economics! appeared first on Marginal REVOLUTION.”}]]
Today on the MR Podcast Tyler and I discuss the “New Monetary Economics”. Here’s the opening
TABARROK: Today we’re going to be talking about the new monetary economics. Now, perhaps the first thing to say is that it’s not new anymore. The new monetary economics refers to a set of claims and ideas about monetary economics from the 1980s, more or less, coming from people mostly in finance, like Fischer Black and Eugene Fama, and making some very bold claims that macroeconomics had gotten some things completely wrong. You and Randall Kroszner also wrote a great book, Explorations in the New Monetary Economics, and that appeared in 1994. [Someone should reprint this book!, AT]
Now, most people thought that the ideas of the new monetary economics were simply crazy. Black and Fama, for example, they argued that the Fed was essentially impotent; that it couldn’t control the money supply or even the price level, let alone the economy, at least in some circumstances.
COWEN: Fischer Black started the new monetary economics with a 1970 article, very early. Not in a standard journal, of course. Black argued that the Fed doesn’t matter. The supply of money and the price level were not closely related in any obvious way. There’s a well-known story where Fischer Black showed up at Chicago to present a paper at Milton Friedman’s monetary seminar. Friedman started off by introducing Black as, “Fischer Black’s paper is totally wrong. He’s going to present it to us. We have two hours to figure out why.”
At the same time, people like Paul Samuelson, Robert Solow, the MIT crowd, they also just said Black is totally wrong. He’s a genius on finance and options pricing, but when it comes to monetary economics, just forget about it. Dismiss him. They even said this in print at times.
The ideas of the NME remain as counterintuitive as ever–is it really possible that the Fed has no power over inflation let alone the real economy??? Yet the ideas seem increasingly relevant to modern, sophisticated, highly liquid financial markets and monetary systems including crypto. If anything, the NME has become harder to dismiss, as the world theorized by its proponents in the 1970s and 1980s now mirrors today’s reality far more than their own. While the NME may be now be old, the ideas remain as challenging and even as inspiring as ever.
I am not sure that either Tyler or I have a solid conclusion on the NME but we invite you to join us on this exploration.
Subscribe now to take a small step toward a much better world: Apple Podcasts | Spotify | YouTube.
The post Marginal Revolution Podcast–The New Monetary Economics! appeared first on Marginal REVOLUTION.
Economics, Education, Fama, Fischer Black, new monetary economics, NME
Leave a Reply