The Wall Street Journal must think Milton Friedman was a Keynesian
By Scott Sumner
This has to be one of the most amusing things I’ve read all year:
The problem comes from believing that QE is some magic growth elixir. The world’s Keynesians have convinced themselves that the U.S. is now growing faster than Europe simply because the Federal Reserve implemented QE while Europe hasn’t.
Where does one begin? Keynesians believe that QE does not work at the zero bound. Indeed that’s pretty close to a defining characteristic of Keynesianism. Both Milton Friedman and John Hicks claimed that the liquidity trap was the key insight of the General Theory.
Market monetarists have been arguing that QE does work, and before us Milton Friedman made that argument for America in the 1930s, and Japan in the 1990s. Instead, Keynesians believe the eurozone has done worse than the US because of fiscal austerity, even though the US has done more austerity than the eurozone over the past 4 years.
If a few heterodox Keynesians have come to believe that QE works, it’s not because they “convinced themselves” but rather because they became convinced that the market monetarists were correct.
I guess there are worse things than being ignored by the WSJ; look how the Financial Times describes market monetarism:
The market monetarists argue that the central bank should target a certain measure of broad money in circulation to achieve price stability.
PS. If you read between the lines, the rest of the WSJ article suggests that they want the ECB to push the eurozone into a grinding depression so that voters will be persuaded that socialism doesn’t work and the continent can adopt the supply-side policies that the WSJ (and I) favor. That’s a really bad idea, for all sorts of reasons.