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Banking, Monetary Policy and the Political Economy of Financial Regulation

Banking, Monetary Policy and the Political Economy of Financial Regulation

Essays in the Tradition of Jane D'Arista

Edited by Gerald A. Epstein, Tom Schlesinger and Matías Vernengo

The many forces that led to the economic crisis of 2008 were in fact identified, analyzed and warned against for many years before the crisis by economist Jane D’Arista, among others. Now, writing in the tradition of D’Arista's extensive work, the internationally renowned contributors to this thought-provoking book discuss research carried out on various indicators of the crisis and illustrate how these perspectives can contribute to productive thinking on monetary and financial policies.

Chapter 3: From Milton Friedman to Jane D’Arista: the financial crisis and the dilemma facing the central banks

James K. Galbraith

Subjects: economics and finance, financial economics and regulation, political economy, politics and public policy, political economy


Twenty-five years ago, on a brilliant winter day at Alta, I skied off the top of the Sugarloaf lift and heard a familiar voice asking for directions. It was William F. Buckley Jr. I pulled off my hat and skied over to say hello. Buckley greeted me, then turned to a small man at his side wrapped in a quilted green parka topped with a matching forest-green stocking cap and wraparound sunglasses in the punk style. “Of course,” Buckley said, “you know Milton Friedman.” In the fall of 2007, I received an invitation to deliver the 25th Annual Milton Friedman Distinguished Lecture at Marietta College. My first act was to notify Buckley, already then quite ill. I warned that he couldn’t publish on it or the invitation might be revoked. The e-mail came back instantly, full of exclamation points, block caps, and misspellings. “Congratulations! What a wonderful opportunity to REPENT!” But I went to bury Milton, not to praise him. I did so on the terrain that he favored, where he was strong and over which he ruled for many decades. This is the area of monetary policy, monetarism, the natural rate of unemployment, and the priority of fighting inflation over fighting unemployment. It is here that Friedman had his largest practical impact and also his greatest intellectual success. It was on this battleground that he beat out the entire Keynesian establishment of the 1960s, stuck as they were on a stable Phillips curve.

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