Dirt poor?

jaguar · 04-03-2004, 01:03 AM

Now I'm a little more awake I feel I am going to have to call you on your dated theory. Doing otherwise I'm simply leaving the possability that others will fall from your simplistic understanding of economic texts that some feel were made a little to accessaible for those with not enough background.

What you are espousing is a very narrow view of an economic school of thought called monetarism that developed initially as opposition to Keynesian policies of demand management. This of course goes back further into older debates (Mercantilism vs Classical Economics in particular) but that's not relevant here. Of course even Friedman understood that the supply of money had to grow a little each year in line with the economy otherwise you get ickyicky deflation like Japan.

The theory goes that if you do that, market forces will solve pretty much everything else. Nice idea. Pity it never worked and certainly doesn't today. It was very trendy for a while, particularly around the early 1980s resulting in overanalyisis of every new money-supply stat for intel of interest rates movements.

The problem with this theory is relies on the basis that the relationship between money supply, nominal GDP and therefore inflation is stable. This is simply not the case in the real world. Velocity of circulation can simply change too rapidly and this can have a significant impact on the way money supply affects prices and output making it a very hamfisted approach.

There is a good reason central banks the world over dropped this policy in favor of simply setting target rates of inflation.

You would be well advised to look up more recent comments by Friedman in particular who admitted in 2003 that targeting money supply had not been a success. In particular:

'The use of quantity of money as a target has not been a success.' He added: 'I'm not sure I would as of today push it as hard as I once did.' (FT, 7 June 2003).

I can understand how you became attached to the passion of Friedman in particular but that's no excuse for expousing economic theory from the 70s, let's keep retro to flares thanks.

(edited for typos and clarification/extension of a couple of points)

04-03-2004, 01:03 AM	#11
jaguar whig Join Date: Apr 2001 Posts: 5,075	Now I'm a little more awake I feel I am going to have to call you on your dated theory. Doing otherwise I'm simply leaving the possability that others will fall from your simplistic understanding of economic texts that some feel were made a little to accessaible for those with not enough background. What you are espousing is a very narrow view of an economic school of thought called monetarism that developed initially as opposition to Keynesian policies of demand management. This of course goes back further into older debates (Mercantilism vs Classical Economics in particular) but that's not relevant here. Of course even Friedman understood that the supply of money had to grow a little each year in line with the economy otherwise you get ickyicky deflation like Japan. The theory goes that if you do that, market forces will solve pretty much everything else. Nice idea. Pity it never worked and certainly doesn't today. It was very trendy for a while, particularly around the early 1980s resulting in overanalyisis of every new money-supply stat for intel of interest rates movements. The problem with this theory is relies on the basis that the relationship between money supply, nominal GDP and therefore inflation is stable. This is simply not the case in the real world. Velocity of circulation can simply change too rapidly and this can have a significant impact on the way money supply affects prices and output making it a very hamfisted approach. There is a good reason central banks the world over dropped this policy in favor of simply setting target rates of inflation. You would be well advised to look up more recent comments by Friedman in particular who admitted in 2003 that targeting money supply had not been a success. In particular: 'The use of quantity of money as a target has not been a success.' He added: 'I'm not sure I would as of today push it as hard as I once did.' (FT, 7 June 2003). I can understand how you became attached to the passion of Friedman in particular but that's no excuse for expousing economic theory from the 70s, let's keep retro to flares thanks. (edited for typos and clarification/extension of a couple of points) __________________ Good friends, good books and a sleepy conscience: this is the ideal life. - Twain Last edited by jaguar; 04-03-2004 at 01:35 PM.

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