Unused tools of monetary policy could restore economic growth, according to the latest Milken Institute Review

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Unused tools of monetary policy could restore economic growth, according to the latest Milken Institute Review

LOS ANGELES -- Clark Johnson, the author of an acclaimed book on the causes of the Great Depression, challenges those who believe that, in the fight to restore the American economy to full employment, monetary policy has run out of gas. "It's hard to imagine a time in which getting monetary policy right has mattered more," he concludes in "Monetary Policy and the Great Recession," published today in the Milken Institute Review. "It will largely determine whether the economic recovery stalls or succeeds, whether the budget deficit appears more manageable in the next few years, and perhaps even whether the unemployment-fueled violence that has swept through Greece and Britain will be visited on America."

Also in this issue:

Phillip Swagel, a senior fellow at the Milken Institute and an economics professor at the University of Maryland School of Public Policy, was assistant secretary of the Treasury for economic policy (where he was a member of the TARP investment committee). He offers a plan for re-privatizing the mortgage market in "Fannie, Freddie and the Future of Housing Finance." "Attracting private capital into housing finance will require a clear framework for what the government will and will not do to support the market -- and would almost certainly require higher rates of return on the capital directed to housing than the government has been demanding to date," he writes. "This, in turn, will translate into higher interest rates on mortgages, a reality that is bound to be controversial on Main Street as well as on Wall Street."

Jeff Frankel, an economist at Harvard's Kennedy School, explores in "The Curse" the reality that many countries possessing oil reserves or other mineral wealth have not prospered. "Commodity abundance is a double-edged sword," he writes, "one that brings both benefits and risks. It sometimes does lead to setbacks in economic or political development, but it need not. Thus, the first priority for any country with the good luck/bad luck to come into a mineral windfall should be to find ways to sidestep the pitfalls that have afflicted other commodity producers in the past."

In "Africa and Climate Change," G. Pascal Zachary, a professor at Arizona State University's Consortium for Science Policy & Outcomes, challenges the conventional wisdom that global warming will prove catastrophic for Africa. "On balance," he argues, "Africans may actually benefit from global warming, in large part because the urgency of their predicament will compel them to embrace new practices and policies -- more efficient use of water in agriculture, better organized cities, well-defined land rights, expanded freedoms for women -- that will greatly enhance their productivity."

Matthew Kotchen, an environmental economist at Yale, argues in "Energy Efficiency Codes" that it is time to set federal minimum energy efficiency requirements for buildings. "Even if Washington sees the light on pricing energy to reflect its societal costs," he concludes, "building codes may still be a worthwhile component of national energy policy. Indeed, the evidence suggests that simply getting fuel prices to reflect true social costs isn't sufficient to induce myopic consumers to make efficient choices. Energy codes, it seems, are a good idea as well as an expedient one."

In "Supertrains," John Rosenthal, a California-based journalist, assays the daunting cost -- and necessity -- of building intercity corridors for high speed passenger trains. "If our collective vision for the America of 2050 includes more McMansions located in sprawling mega-cities where it's impossible to get around without a car (and not easy with one), then any rail project will be seen as diverting funds from converting open land into highways," he concludes. "On the other hand, if we can imagine a future with discrete, pedestrian-friendly urban centers linked by fast, efficient, environmentally friendly transportation, high speed rail is an essential component. And a smart social investment, if only because the alternative of growth-as-usual is so grim."

The Milken Institute Review is sent quarterly to the world's leading business and financial executives, senior policy makers and journalists. Its editor is Peter Passell, former economics columnist for The New York Times.

Published April 8, 2019