The Money Illusion : Market Monetarism, the Great Recession, and the Future of Monetary Policy

Is it possible that the consensus around what caused the 2008 Great Recession is almost entirely wrong? It’s happened before. Just as Milton Friedman and Anna Schwartz led the economics community in the 1960s to reevaluate its view of what caused the Great Depression, the same may be happening now to our understanding of the first economic crisis of this century. Foregoing the usual relitigating of the problems of housing markets and banking crises, renowned monetary economist Scott Sumner argues that the Great Recession came down to one thing: nominal GDP, the sum of all nominal spending in the economy, which the Federal Reserve erred in allowing to plummet. __The Money Illusion__ is an end-to-end case for this school of thought, known as market monetarism, written by its leading voice in economics. Based almost entirely on standard macroeconomic concepts, this highly accessible text lays a groundwork for a simple yet fundamentally radical understanding of how monetary policy can work best: providing a stable environment for a market economy to flourish. Contents Preface Introduction: The Real Problem was Nominal Part I. The Value of Money Chapter 1. Cognitive Illusions in Economics Chapter 2. The Value of Money and Money Illusion Chapter 3. What Determines the Value of Money? Chapter 4. The Quantity Theory of Money and the Great Inflation Chapter 5. Money at the Extremes: Hyperinflation and Deflation Chapter 6. It’s (Almost) All about Expectations Part II. The Dance of the Dollar Chapter 7. The Great Depression and the AS-AD Model Chapter 8. One Derivative beyond Hume Chapter 9. Rational Expectations and Efficient Markets Part III. Never Reason from a Price Change Chapter 10. The Musical-Chairs Model Chapter 11. What Is Monetary Policy? Chapter 12. Nominal and Real Exchange Rates Part IV. How to Think about Macroeconomics Chapter 13. The Path to Market Monetarism Chapter 14. I See Dead Patterns Chapter 15. Good Economists Don’t Forecast, They Infer Market Forecasts Chapter 16. The Secret History of Monetary Policy Part V. The Great Recession Chapter 17. Fed Policy in 2008: A Case of Self-Induced Paralysis? Chapter 18. A Confession of Contractionary Effect Chapter 19. Schadenfreude on the Titanic Chapter 20. Alternative Explanations of the Great Recession Part VI. What Does It All Mean? Chapter 21. Policy Implications of Market Monetarism Chapter 22. Why Should You Believe in Market Monetarism? Acknowledgments Notes Bibliography Index The first book-length work on market monetarism, written by its leading scholar. Is it possible that the consensus around what caused the 2008 Great Recession is almost entirely wrong? It's happened before. Just as Milton Friedman and Anna Schwartz led the economics community in the 1960s to reevaluate its view of what caused the Great Depression, the same may be happening now to our understanding of the first economic crisis of the 21st century. Forgoing the usual relitigating of problems such as housing markets and banking crises, renowned monetary economist Scott Sumner argues that the Great Recession came down to one thing: nominal GDP, the sum of all nominal spending in the economy, which the Federal Reserve erred in allowing to plummet. The Money Illusion is an end-to-end case for this school of thought, known as market monetarism, written by its leading voice in economics. Based almost entirely on standard macroeconomic concepts, this highly accessible text lays the groundwork for a simple yet fundamentally radical understanding of how monetary policy can work best: providing a stable environment for a market economy to flourish. The first book-length work on market monetarism, written by its leading scholar. Is it possible that the consensus around what caused the 2008 Great Recession is almost entirely wrong? It's happened before. Just as Milton Friedman and Anna Schwartz led the economics community in the 1960s to reevaluate its view of what caused the Great Depression, the same may be happening now to our understanding of the first economic crisis of the 21st century. Foregoing the usual relitigating of problems such as housing markets and banking crises, renowned monetary economist Scott Sumner argues that the Great Recession came down to one thing: nominal GDP, the sum of all nominal spending in the economy, which the Federal Reserve erred in allowing to plummet. The Money Illusion is an end-to-end case for this school of thought, known as market monetarism, written by its leading voice in economics. Based almost entirely on standard macroeconomic concepts, this highly accessible text lays the groundwork for a simple yet fundamentally radical understanding of how monetary policy can work best: providing a stable environment for a market economy to flourish "The Money Illusion is George Mason University economist Scott Sumner's end-to-end case for an evolved, less discretionary approach to monetary policy, which he and his cohort have termed "market monetarism." The nominal use of "market" here is telling: Sumner argues that public confidence in central banking institutions like the Fed is central, and as critical as forecasting, to ensuring the health and stability of the economy. To achieve it, he makes a case that monetary policy should be indexed against a pre-set growth trajectory (in the form of a steadily increasing nominal GDP), not regulated ad-hoc through interpretations of short-term market changes. As Sumner tells it, the Fed is simultaneously responsible for the Great Recession and our best safeguard against having it happen again. Part of that is a responsibility to chart a course, and to do so with transparency"-- Provided by publisher