By Diane Coyle
"In the mid-1980s I worked on monetary policy in the UK Treasury (this was before Bank of England independence), and monetary targeting was the policy of the Thatcher Government. It was based on the simplistic monetarism Professor Rosenberg criticises toward the end of his blast against economics: control monetary growth and you would control inflation as the two were supposed to be closely related.
It didn’t work, and the reason was quickly apparent: innovations such as ATMs and credit card use were changing the ‘velocity’ of money, the speed of its circulation, so the simple relationship broke down. The lesson was absorbed; there are no simplistic monetarist models in use now, more than 30 years on. It is clear that US economists are divided about the likely inflationary impact of the Biden stimulus, but those who are forecasting inflation now are not doing so for 1980s monetarist reasons, but in general for Keynesian reasons of demand growth far exceeding the supply side potential of the economy. Larry Summers, for instance, puts his concerns in terms of the output gap.
About the Author
Diane Coyle co-directs the Bennett Institute for Public Policy. She was previously Professor of Economics at the University of Manchester. She has held a number of public service roles including Vice Chair of the BBC Trust (2006-2014), member of the Competition Commission (2001-2009), the Migration Advisory Committee (2009-2014), and the Natural Capital Committee (2016-2019). She was awarded a CBE for her contribution to the public understanding of economics in the 2018 New Year Honours.
Alex Rosenberg's Money Problems here
EJ Spode's response is here
Don Ross's response is here