Are Liberals Ignoring Monetary Policy?

One accusation that's been flying around a lot over at Yglesias' place is that liberals are ignoring monetary policy.  Matt makes the assertion today in a post called Job Creation is the Fed's Job.  The story, basically, is that liberals know that the Fed could easily create millions of jobs by changing its policies, but we're fixated on fiscal policy.

Of course this is not the case.  The problem is that lots of us, myself included, don't believe that the Fed can do much right now.  One thing that's been suggested is that the Fed could increase its inflation target from 2% to something higher.  I favor that but don't think it will help the current situation.  Another is that the Fed should target NGDP growth instead of inflation.  I think that's an interesting idea but don't think it will help the current situation.

Yglesias keeps hammering on two ideas to justify his fixation with monetary policy - one, that Bernanke himself says that the Fed has tools that could help the economy but isn't using them for some reason.  This isn't true - Bernanke says the Fed has things it might try if conditions warrant.  That's not the same as saying there are things that would help now that he's refusing to do.

The second idea is that there are central banks around the world that are succeeding with the monetary policy ideas he's hawking.  Matt's first obsession was Sweden - he linked to an article about Sweden setting its policy rate negative.  Unfortunately Sweden never set a negative policy rate - it was an apparent misunderstanding by a reporter that had been debunked before Yglesias ever got involved.

Yglesias continues to claim that Sweden did what they did not do, and has never addressed the Economix piece to my knowledge.  And now he's got a new dead horse to flog:  Bank of Israel's alleged targeting of NGDP growth.  Evan Soltas started a rumor that Bank of Israel was NGDP targeting and that this policy had led to Israel's impressive growth path since the 2008 financial collapse.

Once again, though, Matt has simply catapulted a myth into the mainstream.  Bank of Israel is not NGDP targeting.  Sweden never had a negative policy rate.  All these little mistakes add up to a big imaginary set of data that monetarists seems to have agreed to pretend is actual data.  This is no way to discuss the finance policy of the most important nation in the world.