In one of the best oped’s TAFKAS has read in a while, Warren Hogan in the AFR writes:
Many of the problems economies face cannot be solved by easy money. They are structural, so can only be remediated through adjustments to economic arrangements, such as taxation, competition, industry and trade policy.
Over the past two decades there has been a loss of perspective about what monetary policy can and cannot achieve. It is a tool to impact on demand in the economy in the short term. It cannot impact on demand over the long run nor can it influence the supply side of the economy – at least, not in a positive manner.
Easy monetary policies distort private sector decision making and ultimately reduce the productivity and efficiency of the economy.
Economies are dynamic and in a constant state of adjustment to changes in technology, preferences and regulation. While it may be desirable to smooth these transitions of labour and capital, central banks should be careful not to hobble the pace of change – or halt the process altogether.
The conduct of monetary policy has created a policy inaction bias in many countries. Central banks have let governments off the hook on politically difficulty fiscal and structural policies by boosting spending in the short term, potentially at the expense of economic activity down the track.
FYI, Hogan was the Chief Economist for ANZ Bank before taking up a senior role with the Commonwealth Treasury. Perhaps seeing the writing, or Sanskrit on the wall, from Treasury he went into academia.