Jeremiah loves to find debates where the traditional right and left are both wrong, and economics is a good place to look. The right has “hard money” pundits like Larry Kudlow, who bash Chairman Bernanke for devaluing our cherished greenback. We have never had a strong economy without a strong dollar, he says, confusing cause with correlation.
The paths were straight, the bridges were strong … everything bore an impress of tidiness and good management.
On the left, we have people begging the Fed for easy money to shore up the stock market (?) and create jobs. They seem to believe that inflating asset prices will stimulate the economy.
Here again, a rising market would be an effect – not a cause – of a strong real economy. This may be hard to grasp because the market is a leading indicator. It can rally months ahead of a pickup in earnings, but the economy is still the driver.
The other thing wrong with this argument is that, while the Fed has a mandate to try and control unemployment, it does not have a mandate to pump up the stock market.
The dollar and the stock market will both go up when the economy recovers. Devaluing the dollar, as Bernanke has already done, can give a boost to exports and investment – but the boost is temporary.
So, if monetary policy is out, what can the government do to stimulate the economy? Well, the idea of “stimulus” is flawed. Economic growth depends on savings and investment, exports, a skilled and mobile labor force, and balanced budgets. All the government can do is keep its own house in order, and not impose undue burdens on business.
There is no magic, only – as Tolstoy put it – good management.