I teach a course on Money and Banking, so I try to read some of the modern literature on international financial markets. This paper came across my desk:
Fetters of Gold and Paper
We describe in this essay why the gold standard and the euro are extreme forms of fixed exchange rates, and how these policies had their most potent effects in the worst peaceful economic periods in modern times. While we are lucky to have avoided another catastrophe like the Great Depression in 2008-9, mainly by virtue of policy makers’ aggressive use of monetary and fiscal stimuli (wintercow emphasis added), the world economy still is experiencing many difficulties. As in the Great Depression, this second round of problems stems from the prevalence of fixed exchange rates. Fixed exchange rates facilitate business and communication in good times but intensify problems when times are bad.
Two quick points:
- I read the abstract and knew who must have been a coauthor without even looking at who it was. Is that science? This author, it seems to me, is an idea in search of a theory and a theory in search of an application.
- Read the sentence I highlighted. That is not science. It is certainly not up to the standards of what one would expect in a (soon to be) published academic economics paper. The above paper is not based on research which proves that monetary and fiscal policy staved off the Great Depression 2.0. The paper itself does nothing to demonstrate that aggressive monetary and fiscal policy staved off the Great Depression. But hey, the policymakers in DC are all my friends, so they must have gotten it right. This article from Greg Mankiw is well worth the read if for the only reason to understand economic epistemology.
