> If you insist on controlling the noise in monetary phenomena through fiscal policy you'll have a really bad time.
Isn't that more a political problem than an economic insight though? We know fiscal policy impacts monetary phenomena (PPP loans, stimulus checks, the child tax credit, etc had inflationary effects), but it's too politically easy to spend more, and too politically difficult to raise taxes, and it's definitely too hard to do either in a timely manner in response to changing economic conditions.
But if we had given a politically independent body like the Fed control of tax / spend knobs instead of interest rates, and allowed them to evaluate whether to change those things on a scheduled basis as economic data arrive ... maybe that would also work, we'll just never get the opportunity to try it.
Nope, it's a completely mathematical reality. If you ditch monetary intervention you'll lose control of the economy by the simple fact that the noise in monetary markets is orders of magnitude larger than the economy.
You'll regain your power after you destroy enough of the economy that it runs with a smaller monetary market. Your government will certainly get bankrupt a few times in the process.
The fiscal and monetary interventions are almost independent things. One can not really replace the other.
Isn't that more a political problem than an economic insight though? We know fiscal policy impacts monetary phenomena (PPP loans, stimulus checks, the child tax credit, etc had inflationary effects), but it's too politically easy to spend more, and too politically difficult to raise taxes, and it's definitely too hard to do either in a timely manner in response to changing economic conditions.
But if we had given a politically independent body like the Fed control of tax / spend knobs instead of interest rates, and allowed them to evaluate whether to change those things on a scheduled basis as economic data arrive ... maybe that would also work, we'll just never get the opportunity to try it.