The Sunday Telegraph publishes a letter from the rump monetarists---many familiar names from the economic crusades of the 1980's.
It is interesting to see how those old arguments play today.
Take this chestnut:
"It is misguided for the Government to believe that it knows how much specific sectors of the economy need to shrink and which will shrink "too rapidly" in a recession. Thus the Government cannot know how to use an expansion in expenditure that would not risk seriously misallocating resources."
This is true, of course, in some absolute sense of "know". However, as these very same economists have been quick to point out whenever it comes to governments dealing with clear errors of markets, for example with environment or anti-competition issues, the ideal does not make for a good benchmark. Just a market failure should be remedied if imperfect government can do better, so imperfect governments should be compared to actual markets, not imagined ones.
Look at the argument again: the financial system, which brought us massive over-investment in technology, in housing, in commodities, in conceptual art ... this is the process that should be trusted with avoiding "serious resource misallocations"?
The financial crisis has brought the government back into policy not so much because it has any answers, but because the market has demonstrated so unequivocally that it does not.
