Jul 26, 2022ยทedited Jul 26, 2022

Hmm. The question is whether these theories allow us to do more than tell compelling stories about what's already happening. My sense is that they do.

By understanding that tightening credit conditions dampens aggregate demand, the central bank can, at the very least, know which way to pull its levers to fight inflation. Does it matter what X is? Why should it?

More money chasing fewer goods is just another way of saying that the prices for goods are higher. It's almost a tautology. The main problem I see with monetarism is that they seem to be hung up on some notion of the *money stock* and monetary aggregates. But if "more money" means just means "a relatively greater level of spending" rather than "a larger money stock," then I see no problem here.

A supply shock can trigger inflation. But that doesn't mean you need to fix the supply problem to end the inflation. You don't need to explain what caused the inflation to know how to stop it. Just tighten credit and suck money out of the system. Done.

This is assuming you have no other policy goals beyond price stability, of course.

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Your "folk Keynesianism" reminds me of the rule, or at least the myth, that everything in economics is common sense except the law of comparative advantage.

This is the "law" which gives us the grammatical curiosities "more better" and "worse bad" -- both of them necessarily and correctly. (I just Googled it up in the hope of providing a handy-dandy reference -- and found instantly, and to my disgust, that the first answer returned by Google was the incorrect one at Investopia: they have enrolled themselves among the many fools who think it means simple advantage. Learning the difference is left as an exercise to the reader. ๐Ÿ˜Ž๐Ÿ˜…)

The whole law is probably stated more elegantly by its originator -- who may be Paul Krugman, or the equally excellent (the late) Milton Friedman. More likely, though, it has been both of them and many others.

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