Mundell Nails It Harder

Looks like Robert Mundell has nailed it even harder than Allan Metzler did today. We missed this item until just now, but apparently CNBC commentator Larry Kudlow met with the Nobel economist recently to ask his opinion on the appropriate mix of fiscal and monetary policies to put the U.S. and global economies on a more stable footing. Not surprisingly, it’s lower taxes and stable money, the same mix we put forth — based largely on Mundell’s work from decades ago — in September.

According to Kudlow, Mundell also advocates more stable foreign exchange rates. As we’ve pointed out before, this is a sticky issue, and one that the fixed exchange rate crowd has been on the losing end of for decades. But the costs — both explicit and hidden — of floating exchange rates deserve more attention, as does one of the primary motivations for floating exchange rates — insulating fiscal policy makers (primarily those in the U.S. and developed economies) from the harsh judgements of the global market place. Also deserving of attention is the fact that floating exchange rates allow large developed countries to shift the adjustment costs of bad policies onto smaller less developed countries. 

URLs:

http://www.columbia.edu/~ram15/ 

http://www.symmetrycapital.net/newsandviews/newsandviews/2008120101.html 

http://kudlowsmoneypolitics.blogspot.com/2008/11/robert-mundells-new-wisdom.html 

http://www.symmetrycapital.net/idlespeculation/20080925_policy_mix.pdf