Why did conservatives abandon monetary stimulus?

Reform conservatives used to be part of the "market monetarist" crowd. Not anymore.

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During the dog days of the Great Recession, several economists developed a persuasive case that the Federal Reserve was badly bungling monetary policy. Led by Scott Sumner, these "market monetarists" argued that the Fed should be far more prepared to unleash monetary stimulus. To do this, the central bank would have to abandon its dual mandate of keeping unemployment and inflation low, and adopt a much simpler metric: a nominal gross domestic product (NGDP) growth target.

Nominal GDP is the total economic output not adjusted for inflation (as opposed to "real" GDP, which is adjusted). The yearly change in GDP is thus the sum of real growth plus inflation. As Steve Randy Waldman explains, if we kept NGDP on a clear and consistent growth path, as opposed to trying to balance the competing forces of inflation and employment, we could very well banish mass-unemployment recessions forever, since it would act as a kind of informal trigger to activate stimulus when necessary. If the economy were ever hit with another 2008-style shock, it would merely result in a brief burst of inflation. There are examples of this working in the real world: Israel seems to have managed this trick.

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