Principles Of Government

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(A) Articles are foundational content and (B) Articles are urgently important but may be replaced as they become dated

(Foundational) Monetary Policy

Paul Volcker’s Recipe for Prosperity AA

By Judy Shelton - Jan. 31, 2023

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By Judy Shelton – Going back those 40 some years, we can draw lessons … about how to coordinate monetary and fiscal policy effectively. …The Reagan plan consisted of four parts: “(1) substantial reduction in the growth of federal expenditures, (2) significantly reduced federal tax rates, (3) prudent relief of federal regulatory burdens, and (4) a monetary policy on the part of the independent Federal Reserve System consistent with those policies.”…“The goal of this Administration is to nurture the strength and vitality of the American people by reducing the burdensome, intrusive role of the federal government; by lowering tax rates and cutting spending; and by providing incentives for individuals to work, to save, and to invest. It is our basic belief that only by reducing the growth of government can we increase the growth of the economy.” Read More

Lessons From the Great Inflation of 1973-81 AA

By Phil Gramm and Mike Solon - Aug. 2, 2022

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By Phil Gramm and Mike Solon – Then as now, what drove higher prices was excess demand owing to runaway government spending. Ronald Reagan and Paul Volcker understood. History withholds its wisdom from those who ignore its lessons. Forty years ago this month, the fiscal policy of President Ronald Reagan and the monetary policy of Federal Reserve Chairman Paul Volcker broke the back of the 20th century’s most destructive inflation, ushered in an economic expansion that effectively lasted a quarter of a century, and banished inflation—until now. Read More

How Government Spending Fuels Inflation AA

By Tunku Varadarajan and John Cochran - Feb. 18, 2022

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By Tunku Varadarajan and John Cochran – The present crisis may “reteach our politicians, officials and commentariat the classic lessons that there are fiscal limits, that fiscal and monetary [policy] are intertwined.” It may also teach them, Mr. Cochrane says, “that a country with solid long-term institutions can borrow, but a country without them is in trouble.” Read More

Congress Needs to Rein In a Too-Powerful Federal Reserve AA

By Judy Shelton - Sept. 1, 2021

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By Judy Shelton – Our nation’s central bank has become too prominent, too political and too powerful. The Fed’s ability to purchase massive quantities of U.S. Treasury securities is the dominant factor influencing interest rates across the board and thus the valuation of financial assets. The entire term structure of bond yields reflecting the relationship between short-term and long-term rates is keyed to the 10-year Treasury note rate. What would that benchmark yield reveal if Fed purchases weren’t distorting the market?

The Fed’s prominence not only undermines supply-and-demand interactions for accurately pricing the cost of investment capital; it also compromises the relationship between fiscal and monetary policy. The Fed’s accommodation of deficit spending by lawmakers poses a conflict of interest with political implications. Besides ensuring that the government’s interest expense for servicing debt is reduced, the Fed remits back to Treasury the earnings on its own holdings. Read More