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Debate: Fed Policy target



Debate:
======

The basic issue - proposed earlier in the Manifesto - of Fed policy
targets, has been questioned. Good point. I hope Neel joins the debate and
we are able to arrive at a reasonable consensus. 

To prepare the material for the debate, I have put up two ancient home
work assignments of mine at

	http://www.indiaconsult.com/indiapolicy/Notes/MACRO1.html

and 

	http://www.indiaconsult.com/indiapolicy/Notes/basic.html

Please go through this basic material to familiarize yourself with the key
issues in the debate.

Also, keep in mind the following para from Chapter 23 of The General
Theory ... by Keyenes:

"The purpose of this book as a whole may be described as the establishment
of an anti-Marxian socialism, a reaction against laissez-faire built on
theoretical foundations totally unlike those of Marx in being based on a
repudiation instead of an acceptance of the classical hypotheses, and on
an unfettering of competition instead of its abolition."

The so-called socialism which Keyenes talked about was clearly
anti-communist in the first place. Let us be very clear on that. Never
make a mistake of mixing up the welfare state which was Keynes'
contribution to the world (a doubtful one, I would say, in retrospect -
but we can leave that at this point) with Socialism the way socialism was
originally defined by Marx.

Second, Keynes is clear about UNFETTERING of competition, not its
abolition, or even its control. We have that clearly stated in the
Preamble.

Third, the dispute Keynes had with the original Classicals was in terms of
what is called the rigidity of prices. I think Keynes was completely wrong
with respect to prices of commodities while he may have been partially
correct on the prices of labor. However, on the whole, Hayek was far more
correct, as was Frieman and his followers - the New Classicals. The
dispute now, with the introduction of this econonomist, Keynes, into the
debate, can at best be on a matter of degree since there are no Keynesians
now. At best there are the so-called neo-Keynesians who are searching for
evidence to uphold Keynes and sometimes find some, but not conclusive
enough. There can be no dispute that the Central Bank needs to be
independent. It must also focus primarily on inflation. 

Growth is not generated by the Central Bank. It is generated by the
institutions and technology in the economy. I would hold on to my view
that the Fed should not concern itself with growth - and Greenspan has
never shown any indication that he has bothered one bit about growth.
However, I am willing to be corrected in debate. Plus, I know of some
excellent monetary economists who are currently not signed up on this list
and I will entice them to join this debate depending on the quality of
argument brought in by my competition, Neel.

So let the debate begin. Sound the bugles!

SS


On Thu, 25 Jun 1998, Kush Khatri wrote:
> ---Indranil DasGupta  wrote:
> >
> > Kush: I have the following modest comments to offer:
> > 
> > Friedman vs. Keynes: I still believe that Keynes is the most 
> > influential economist TODAY (50 years after his death!). If
> > anyone asks why, watch Alan Greenspan who swears by him. Federal
> > Reserve Policy is still to calibrate economic growth with inflation
> > to acheive an optimal mix just as Keynes advocated, rather than
> > Friedman's notion that controlling inflation is the only goal of
> > the Fed.
> > 
> > The Great Depression: Friedman is only partially right. President
> > Hoover's tight money policy AFTER the Crash of '29 exacerbated
> > the depression but did not CAUSE it. That was a result of capitalism's
> > oscillating nature between boom and bust. In fact, it is Keynes' 
> > advocacy of "automatic fiscal stabililizers" such as unemployment
> > benefits, infrastructure spending and bond financing which have 
> > reduced the volatility in the US economy in the past 60 years.
> > 
> > Natural Rate of Unemployment: Friedman's big contribution to macro
> > economics in the 1970s is fast losing credibility as a concept.
> > The US now has 4% unemployment with 1% inflation. The lowest
> > combination in the post war era. Other concepts of Friedman have 
> > fared better like the "negative" income tax (EITC) and deregulation.
> > 
> > I would love to join this discussion group , if you would only tell
> me how. Take
> > care, Neel.
> Neel DasGupta(email:wanabond@hotmail.com)
> > 
> > 
> > 
> >
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