Monetary Policy Is Not a Panacea, But Monetary Policymakers Should Do Their Jobs

A blog about business and economics.
June 22 2012 12:27 PM

Monetary Policy Is Not a Panacea, But Monetary Policymakers Should Do Their Jobs

WASHINGTON, DC: Federal Reserve Board Chairman Ben Bernanke speaks during a news conference June 20, 2012, in Washington, D.C.

Photo by Alex Wong/Getty Images

I last wrote about the panacea canard with regard to Bundesbank head Jens Weismann, and it's a sign of how far we've fallen that at his press conference this week Ben Bernanke was cribbing hard money talking points from Germany:

Monetary policy is not a panacea. Monetary policy by itself is not going to solve our economic problems. We welcome help and support from any other part of the government, from other economic policy makers. Collaboration would be great.

Again, this is nonsense. There are, in life, no panaceas. There are only institutions that are functioning well or functioning poorly. If America had more widely available preschools, then over the long term, the productivity of our workforce would increase. But excellent education is no panacea; you could still have a level of aggregate demand that's inconsistent with full employment. Alternatively, if the Federal Reserve wanted to generate a level of aggregate demand that's consistent with full employment, we would still have a very inadequate system of early childhood education in the United States. If Baltimore had a lower murder rate, that wouldn't reduce traffic jams in Los Angeles. For that matter, if Baltimore had a lower murder rate, it wouldn't generate a level of aggregate demand consistent with full employment. If the Federal Reserve generated a level of aggregate demand consistent with full employment, that would make Southern California's traffic problems worse.

So, yes, monetary policy is no panacea. If you want to improve education, you have to improve education. If you want to fight crime, you have to fight crime. If you want to manage transportation infrastructure well, you have to manage your transportation infrastructure better. But if you want full employment, you have to have full employment. Israel currently has many problems that the United States doesn't have. Monetary policy is no panacea. But Israel doesn't have the problem of mass unemployment because monetary policy can solve that problem. The question for Bernanke isn't why he doesn't solve the problems he can't solve, it's why he doesn't solve the problems he could be solving.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.



The Democrats’ War at Home

How can the president’s party defend itself from the president’s foreign policy blunders?

An Iranian Woman Was Sentenced to Death for Killing Her Alleged Rapist. Can Activists Save Her?

Piper Kerman on Why She Dressed Like a Hitchcock Heroine for Her Prison Sentencing

Windows 8 Was So Bad That Microsoft Will Skip Straight to Windows 10

Homeland Is Good Again! For Now.


Cringing. Ducking. Mumbling.

How GOP candidates react whenever someone brings up reproductive rights or gay marriage.


How Even an Old Hipster Can Age Gracefully

On their new albums, Leonard Cohen, Robert Plant, and Loudon Wainwright III show three ways.

The U.S. Has a New Problem in Syria: The Moderate Rebels Feel Like We’ve Betrayed Them

We Need to Talk: A Terrible Name for a Good Sports Show by and About Women

Trending News Channel
Oct. 1 2014 1:25 PM Japanese Cheerleader Robots Balance and Roll Around on Balls
  News & Politics
The World
Oct. 1 2014 12:20 PM Don’t Expect Hong Kong’s Protests to Spread to the Mainland
Oct. 1 2014 2:16 PM Wall Street Tackles Chat Services, Shies Away From Diversity Issues 
The Eye
Oct. 1 2014 1:04 PM An Architectural Crusade Against the Tyranny of Straight Lines
  Double X
The XX Factor
Oct. 1 2014 2:08 PM We Need to Talk: Terrible Name, Good Show
  Slate Plus
Behind the Scenes
Oct. 1 2014 3:24 PM Revelry (and Business) at Mohonk Photos and highlights from Slate’s annual retreat.
Brow Beat
Oct. 1 2014 3:02 PM The Best Show of the Summer Is Getting a Second Season
Future Tense
Oct. 1 2014 3:01 PM Netizen Report: Hong Kong Protests Trigger Surveillance and Social Media Censorship
  Health & Science
Oct. 1 2014 2:36 PM Climate Science Is Settled Enough The Wall Street Journal’s fresh face of climate inaction.
Sports Nut
Sept. 30 2014 5:54 PM Goodbye, Tough Guy It’s time for Michigan to fire its toughness-obsessed coach, Brady Hoke.