August 4, 2010 Reading Time: < 1 minute

“Not long ago, many economists were convinced that monetary policy should aim at achieving ‘full employment’. Those who looked upon monetary expansion as a way to eradicate almost all unemployment failed to appreciate that persistent unemployment is a non-monetary or ‘natural’ economic condition, which no amount of monetary medicine can cure. Today most of us know better: both theory and experience have taught us that trying to hold unemployment below its ‘natural rate’ through monetary expansion is like trying to relieve a hangover by having another drink: in both cases, the prescribed cure eventually makes the patient worse off.

Heeding this ‘natural rate’ perspective, several governments – including those of Great Britain, the US, Canada, Australia, and New Zealand – have taken or are considering steps to relieve their central banks of responsibility for creating jobs, allowing them to focus instead on something central banks can do: limiting movements in the general level of output prices. This new trend in monetary policy raises a question of fundamental importance to both economists and policy makers: how should we want the price level to behave?” Read more.

“Less than Zero: The Case for a Falling Price Level in a Growing Economy”
George Selgin
Via the Ludwig von Mises Institute.

Image by jscreationzs / FreeDigitalPhotos.net.

Tom Duncan

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