The 1970s Economic Theory That Needs to Die
If you were trying to engineer a representative of the mainstream economics establishment, you might come up with Austan Goolsbee. He became an economics professor at the University of Chicago at age 26 and went on to chair Barack Obama’s Council of Economic Advisers. He is now the president of the Chicago Federal Reserve. So when Goolsbee says that the conventional wisdom on economic policy is dangerously wrong, it’s worth paying attention.
Last month, Goolsbee gave a criticizing what he calls the “traditionalist view” of monetary policy: the belief that the only way to tame inflation is by causing a recession. This view so thoroughly dominates the economics profession that it is often considered something closer to a law of nature. It is why, when inflation began taking off last year, nearly every economist, forecaster, and CEO a recession was around the corner. Then the seemingly impossible happened. The inflation rate, which peaked in June 2022, fell to of the Fed’s 2 percent goal, and the much-anticipated recession never
