In the first place, the attitude of monetarist central bankers that they should concentrate on getting the money supply right and controlling inflation and otherwise be non-interventionist played right into the hands of financiers bent on leveraging more and more money in an ever-expanding speculative bubble that was bound to burst.
In the second place, exclusive reliance on monetary stimulus while keeping budgets balanced when interest rates are near zero would guarantee a much worse recession.
Clearly, right-wing monetarists have as much reason for humility in the face of this crisis as Keynesians did in the inflationary crisis of 25-30 years ago.
An Expert Agrees With Me (Sort of):
I’d more or less agree. The term Monetarism is used in the profession to describe monetary targeting. As there are no central banks that do that, the term isn’t used much anymore. Inflation targeting is the new approach. However, it is “monetarist” in the sense that central banks have concentrated on inflation and have advocated that it should be the only goal of monetary policy. In the abstract, this is a compelling position provided there are in place other mechanisms for controlling credit. David Dodge at the Canadian meetings argued for an umbrella institutional structure for dealing with the various dimensions of credit. In the absence of such a structure, the Bank should have been cognizant of asset price targeting.---M.E. (UVIC Economics Department)