(Excerpt from The Great Deformation: The Corruption of Capitalism in America by David A. Stockman. Published by PublicAffairs.)
When Professor Friedman Opened Pandora’s Box: Open Market
Operations
At the end of the day, Friedman jettisoned the gold
standard for a remarkable statist reason. Just as Keynes had been, he was
afflicted with the economist’s ambition to prescribe the route to higher
national income and prosperity and the intervention tools and recipes that
would deliver it. The only difference was that Keynes was originally and
primarily a fiscalist, whereas Friedman had seized upon open market operations
by the central bank as the route to optimum aggregate demand and national
income.
There were massive and multiple ironies in that stance.
It put the central bank in the proactive and morally sanctioned business of
buying the government’s debt in the conduct of its open market operations.
Friedman said, of course, that the FOMC should buy bonds and bills at a rate no
greater than 3 percent per annum, but that limit was a thin reed.
Indeed, it cannot be gainsaid that it was Professor
Friedman, the scourge of Big Government, who showed the way for Republican
central bankers to foster that very thing. Under their auspices, the Fed was
soon gorging on the Treasury’s debt emissions, thereby alleviating the
inconvenience of funding more government with more taxes.....To Read More.....
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