Peter Boettke at Coordination Problem highlights a new IEA has publication by Pascal Salin, Money and Micro-Economics that should be of interest to advanced readers of this blog.
Insights from Professor Salin:
General:
In any human activity, we need to know the causes of a problem in order to define the best ways to solve it. This requirement often seems to disappear when people discuss economic problems.
Relevant to today’s misguided monetary policies in U. S., Europe, and Japan:
If low growth is due to excessive taxation and regulation, monetary expansion cannot help. It can, at best, create short-run illusions in some cases. But, by focusing on monetary policy, one diverts attention from the true problems. As the illusions created by monetary policy fade away, the outcome is increased instability without any of the underlying problems being solved.
On market monetarism or nominal GDP targeting:
The intellectual revolution which is needed is not one which consists of substituting a nominal GDP target for an inflation target; it is one which consists of not defining policy in terms of global quantities inspired by Keynesian economics and, instead, considering the system of incentives that face economic agents given the institutional, tax and regulatory environment.
On institutional reform:
But there may not be a better rule and set of constraints than having to compete with others. However, even if competition between private money producers was not accepted, it could be possible to increase the degree of competition in existing monetary systems. To such an end, it would be necessary to repeal legal tender laws, i.e. to allow citizens of a country (or those of a monetary area such as the euro zone) to hold and to use the currencies they prefer. This would also imply the freedom to pay one’s taxes with the currency one would choose, in order to avoid the national currency (or the currency of the monetary area) having a privileged position and being protected from competition.
The full monographhttp://www.iea.org.uk/publications/research/money-and-micro-economics and Boettke’s more detailed discussion are both worth a careful read.
