In many ways I appreciate this kind of post because at least it doesn't try to smooth out differences.
"Yes, Krugman has endorsed NGDP level targeting as do Market Monetarists. However, just because we share the policy recommendation (and I am not sure we really do…) that does not mean that our theoretical thinking is close."
"I do fundamentally think that Keynesians (including Krugman) and Market Monetarists (and old style Monetarists) are quite far away from each other theoretically."
"That said, for the US and the euro zone Market Monetarists and New Keynesians (at least Krugman, DeLong and Romer) agree that monetary easing is warranted and that this could be done within the framework of NGDP level targeting. That said, Market Monetarists do not want to “fix” the economy and unlike keynesians we do not think that the problems are real, but rather nominal. The crisis is a result of a monetary policy mistakes rather than a “market failure”.
I'm not a fan of the game of "all cats are grey" and think it's just as well for him not to pretend there is more in common than there is between Keynesians-old or new-and Monetarists-old or Market. I myself thought NGDP targeting sounded promising when I first heard about it.
But I understood it as a stimulus and Lars is also clear he doesn't see NGDP as "stimulus." As we saw in a previous post here-that Lars also looked at-they-and this is largely true of all Monetarists old or new-see the problem as nominal. For me that on first glance seems like a reassuring diagnosis-I mean it would be great to think that the problems in the economy were only "nominal."
However I have to disagree with it. This idea that even the worst crises of economic history-the Great Depression, our current Lesser Depression(lesser for us, actually greater for Britain and much of Europe-are simply nominal shocks that could be easily handled with the right monetary policy is just a little too easy.
For all that I think that Monetarists are in reality on the same side as the Austrians and all other libertarians. The real enemy is Keynesianism with the idea that the government can play a positive role in a downturn. Ultimately that's the enemy and the argument really doesn't matter as long as the job is done-to create uncertainty and doubt that the government can ever play a positive role.
I didn't get this before. At one point it almost seemed to me that the Keynesians have more in common with the Monetarists while the Austrains were-from one point of view at least-more different from either. After all, the Austrains claim to believe that the answer always is to do nothing-they oppose fiscal stimulus, they also oppose monetary stimlus or easing.
But I have come to see this is wrong. Notice how Sumner and company always try to defend Hayek any chance they get. When Hayek was at Friedman's Chicago School in the early 50s, he wasn't even allowed to teach economics. It is often forgotten now how badly beaten he was in the debate with Keynes and Sraffa in the early 30s.
Keynes later got Hayek a job himself out of plain pity more or less. Years later during the revisionism that tries to remember Hayek as a great macroecomist-his most notable work was decidedly when he stopped being a macroecomist-the Monetarists have conspired in this as much as anyone. Friedman himself years later after Hayek's death spoke of his greatness, forgetting how unimpressed he himself was with Hayek in his own field.
The reason for this is that the Austrians and Monetarists are on the same side-against the hated idea that the government has a positive role to play. This is where the true battle lines are.
As I suggested in previous posts the real breakthrough may be with the Modern Monetary Theorists (MMT) and their idea that the whole premise of Monetarism, other libertarian and indeed most mainstream economics that there was once an age of barter and Pace the Monetarists, the goal is to take out the "distortions" of money in order to as closely approximate this age of barter as possible is wrongheaded. MMT also is the signature anti-libertarian theory-it sees that there is a positive government role, indeed the market could barely function without the government.