From: hal@finney.org
Date: Tue Apr 25 2000 - 18:15:56 MDT
Forrest Bishop, <forrestb@ix.netcom.com>, writes:
> In our vast understanding of macroeconomics we have lost sight of something
> rather fundamental: What is money? Let us ask our master:
>
> Responding to a question by Congressman Ron Paul (Rep., Tex.), Federal
> Reserve Chairman Alan Greenspan spoke to the subject of the nation's
> money in his Humphrey-Hawkins testimony on February 17, 2000:
>
>[...]
> Question by Dr. Paul: "So it's hard to manage something you can't define?"
>
> Answer by Mr. Greenspan: "It is not possible to manage something you can't
> define."
I think when you look at Greenspan's full analysis, his point is that
the Fed is no longer constructing its policy strictly around attempting
to monitor and regulate the growth of the monetary aggregates M1, M2,
and M3. They recognize that none of these are fully suitable as a proxy
for "the money supply", a poorly defined term whose meaning changes with
the context.
Rather, the Fed is basing its decisions on a larger set of statistics that
reflect economic activity. They are still trying to keep the economy
running smoothly and avoiding extremes of either growth or recession.
But they recognize that with the tools we have today you can't do it
just by looking at M1 & company.
Hal
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