Today the world is on a pure fiat money standard. Unlike the classical gold standard, there is no mechanism for maintaining long- run price stability. Once the inflation genie is out of the bottle, the central bank may be able to tame inflation, but returning to the pre- inflation price level is not a viable option. Therefore, it is essential that the monetary powers of central banks be strictly limited and that there be a clear separation of monetary and fiscal policy so that the central bank is unable to monetize government debt. The challenge is to enforce a monetary rule that anchors the long- run price level and avoids excess or deficient monetary growth. That is a difficult task because politicians are typically myopic. They tend to think in terms of policies that have immediate results rather than what needs to be done to achieve long- run prosperity. Argentina is a prominent case: it was once one of the wealthiest nations in the world and now is plagued by hyperinflation and a 57.4 percent poverty rate.
Authors
- Published in
- United States of America
