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Milton Friedman on the fallibility of monetary and fiscal policy

Just a reminder that neither fiscal nor monetary policy is well-suited to fine-tune the economy. Efforts to do so generally cause more harm than good. I can vouch for the wisdom of these words, having observed the interaction of politics and economics for the past 35 years. Milton said this in 1958, and it is still true today, if not more so:

The available evidence…casts grave doubt on the possibility of producing any fine adjustments in economic activity by fine adjustments in monetary policy....and much danger that such a policy may make matters worse rather than better…The basic difficulties and limitations of monetary policy apply with equal force to fiscal policy.

Political pressures to ‘do something’ …are clearly very strong indeed in the existing state of public attitudes.

The main moral to be had from these two preceding points is that yielding to these pressures may frequently do more harm than good. There is a saying that the best is often the enemy of the good, which seems highly relevant. The attempt to do more than we can will itself be a disturbance that may increase rather than reduce instability.
HT: John Taylor

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