by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Harvard historian Niall Ferguson‘s latest Newsweek column focuses on the other major political event in the United States last week: the Federal Reserve’s annual economic-policy symposium in Jackson Hole, Wyo. Why focus on “one of the highlights of the wonk calendar,” rather than the Republican National Convention in Tampa?
Everyone knows about the fiscal cliff of spending cuts and tax hikes that the United States is going to hit at the end of this year, barring some miraculous bipartisan agreement. But could there also be a monetary cliff?
After a brief synopsis of the Fed’s activity over the last few years, Ferguson points to a critical piece of this year’s Jackson Hole gathering.
This year’s hit paper was published ahead of Jackson Hole: William White’s “Ultra Easy Monetary Policy and the Law of Unintended Consequences.”
Get this: “Ultra easy monetary policies have a wide variety of undesirable … unintended consequences. They create malinvestments in the real economy, threaten the health of financial institutions and the functioning of financial markets, constrain the ‘independent’ pursuit of price stability by central banks, encourage governments to refrain from confronting sovereign-debt problems in a timely way, and redistribute income and wealth in a highly regressive fashion.”
Amen. Monetary policy alone is not a sufficient remedy for our economic ills. All central banks have done, White argues, is “to buy time” for governments: “If governments do not use this time wisely, then the ongoing economic and financial crisis can only worsen as the unintended consequences of current monetary policies increasingly materialize.”
In his final line, Ferguson points to just one politician — Paul Ryan — who understands the severity of the monetary predicament.