Monetary Policy is Policy; The Fed is a Government Agency

Justin Wolfers offers up a chart showing economists’ greater interest in research questions relating to monetary policy and remarks:

I’m not sure why fiscal policy is the ugly stepsister. Perhaps the problem is ideology, and pro-market economists don’t like any discussion that gives government a greater role.

This reflects one of the weirdest features of contemporary discussion of the economy, the idea that monetary policy somehow isn’t a “government role” in the economy. To this day I remember when I was in eighth grade and my father first explained to me that there was a man named Alan Greenspan who ran a government agency that watched with an eagle eye for the day when there might be an insufficient number of unemployed people. If too many people had jobs, he was supposed to swoop in, tighten the money supply, and make sure some people lost their jobs. Otherwise, wages might get too high! This was followed by a small disquisition on Marx and the reserve army of the unemployment.

Today, I’m not a Marxist. But I do recognize that public policy has a pervasive impact on the economy, not only through the actions of Congress and the White House but through monetary policy. As you can tell from the name, monetary policy is a kind of policy. And the Federal Reserve is a government agency, even when it’s run by an Ayn Rand acolyte. That doesn’t mean you have to turn into a Communist. But insofar as right-of-center economists are worried that admitting to the efficacy of fiscal policy as a macroeconomic stabilizer will legitimize all sorts of other policy interventions, we need to understand that admitting to the efficacy of monetary policy is just the same from a logical point of view.