"Discipline and Punish" Monetary Policy at Cato

A blog about business and economics.
Sept. 18 2012 12:05 PM

Central Bankers Should Create The Best Economic Conditions Possible

WASHINGTON, DC - SEPTEMBER 13: Chairman of Federal Reserve Board Ben Bernanke speaks during a news conference September 13, 2012 in Washington, DC.

Photo by Alex Wong/Getty Images

The absolute worst idea in monetary policy today is what I think of as Discipline and Punish Central Banking, the idea that one downside to appropriate monetary policy is that inappropriate monetary policy encourages legislatures to enact good policies and so we should be wary of letting them "off the hook" with good monetary policy.

William Poole at the Cato Institute offers a particularly explicit version of this peculiar idea:

In his press conference, Chairman Bernanke appropriately emphasizes the need for fiscal policies to stabilize federal finances. Yet, he is promising that the Fed can make a material contribution to bringing down unemployment. That promise reduces the pressure on Congress to act. Why should Congress deal with the tough political issues if the Fed can do the job, even if more slowly than if Congress acted?

This just proves much too much. Ben Bernanke could refuse to reduce unemployment until Congress acts to restrict greenhouse gas emissions or ban abortion or bomb suspected Iranian nuclear weapons facilities or anything else people think might be desirable. But that would completely subvert the purpose of having created an agency to which authority over monetary policy has been delegated. The idea is to set up a government where different institutions are responsible for doing different things. Those agencies ought to do the best possible job of doing the job they've been tasked with. The central bank should try to stabilize demand. Not because that solves every problem but because it solves the problems that monetary policy can solve. Having the central bank target political outcomes is a recipe for endless paralysis.

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



More Than Scottish Pride

Scotland’s referendum isn’t about nationalism. It’s about a system that failed, and a new generation looking to take a chance on itself. 

What Charles Barkley Gets Wrong About Corporal Punishment and Black Culture

Why Greenland’s “Dark Snow” Should Worry You

Three Talented Actresses in Three Terrible New Shows

Why Do Some People See the Virgin Mary in Grilled Cheese?

The science that explains the human need to find meaning in coincidences.


Happy Constitution Day!

Too bad it’s almost certainly unconstitutional.

Is It Worth Paying Full Price for the iPhone 6 to Keep Your Unlimited Data Plan? We Crunch the Numbers.

What to Do if You Literally Get a Bug in Your Ear

  News & Politics
Sept. 16 2014 7:03 PM Kansas Secretary of State Loses Battle to Protect Senator From Tough Race
Sept. 16 2014 4:16 PM The iPhone 6 Marks a Fresh Chance for Wireless Carriers to Kill Your Unlimited Data
The Eye
Sept. 16 2014 12:20 PM These Outdoor Cat Shelters Have More Style Than the Average Home
  Double X
The XX Factor
Sept. 15 2014 3:31 PM My Year As an Abortion Doula
  Slate Plus
Slate Plus Video
Sept. 16 2014 2:06 PM A Farewell From Emily Bazelon The former senior editor talks about her very first Slate pitch and says goodbye to the magazine.
Brow Beat
Sept. 16 2014 8:43 PM This 17-Minute Tribute to David Fincher Is the Perfect Preparation for Gone Girl
Future Tense
Sept. 16 2014 6:40 PM This iPhone 6 Feature Will Change Weather Forecasting
  Health & Science
Medical Examiner
Sept. 16 2014 11:46 PM The Scariest Campfire Story More horrifying than bears, snakes, or hook-handed killers.
Sports Nut
Sept. 15 2014 9:05 PM Giving Up on Goodell How the NFL lost the trust of its most loyal reporters.