Monetary policy is one of the most important aspects of our world. It is also among the most misunderstood, reads the article in The Week, 17th October 2014, entitled How to get America to full employment — and fast
This is not some esoteric lesson. Few things matter more than monetary policy. For instance, more than 70 years after the Great Depression, it is commonly agreed upon by economic historians that disaster could have been avoided if the U.S. Federal Reserve had known what it was doing in the wake of the 1929 Wall Street crash. And many historians think that without the Great Depression, the rise of Hitler would not have happened. Oops.
Monetary policy matters a lot (it can drive up inequality and inflate asset bubbles, among many other things). The money supply is sort of like the oxygen supply: You don’t think about it unless there’s a problem with it.
The whole article is very well worth a read, it explains clearly and in plain English how the money supply affects the economy and how the FED hasn’t “pumped” anything into the economy through its “quantitative easing” program.
It also outlines “a much easier way to go about our monetary policy — one that is both more efficient and more egalitarian:
The government should cut payroll taxes on lower-income jobs, lowering the prices of hiring people and thereby increasing employment. This should be funded directly by Fed-printed money (not bonds bought by Fed-printed money), thereby directly increasing the money supply. This would kill two birds with one stone: It would guarantee that new money is pumped directly into the economy, and not highly circuitously; and this new money creation would go directly to workers who need it the most, not to the richest people first and then maybe trickling down to everyone else.
The point is that we could actually get what we want out of our monetary policy: control over inflation and unemployment, and less inequality. All we need is to start thinking a little bit out of left field.
Read the whole article here.