Paul Krugmans The Accidental Theorist :: Federal Reserve Monetary Policy

Paul Krugman's The Accidental Theorist In the piece entitled Four Percent Follies from The Accidental Theorist Krugman discusses how some people think Alan Greenspan should let the economy grow faster. Four Percenters, those against Greenspan, feel that he is not putting enough currency into circulation therefore slowing growth. If more money is put into the economy then it will grow faster but if too much is put in, inflation will occur. Also, they feel that this will remedy the low rate of unemployment which will soon cause inflation to spiral upward if it continues to decrease below the standard 6%. Adam Smith would surely understand the Four Percenter’s plea. He would want the economy to be free from too much government control. Greenspan is abusing his place and should let the currency flow into the market rather then hold back. Sure, Smith would say some mediation is necessary to keep too much money from pouring in so inflation doesn’t occur. Smith believes that the economy should be free from the government yet the government should still silently oversee it to prevent any problems. Greenspan is preventing problems but is being too cautious and Smith would want him to let more currency into our market but still keep it from getting out of control. My view on this matter is quite similar to that of Adam Smith’s view on the matter. I also feel that an economy should be allowed to flourish and grow to its fullest capacity. As the article illustrates, inserting more money into the economy will certainly cause the economy to grow and also help fix the unemployment rate. So I feel that Greenspan should loosen his control over the money and let more currency be distributed into the economy. But I also feel that it is very important that Greenspan maintains a watchful eye over this inserting of money into the economy. His job is to keep the economy prosperous and safe. So while he must let more money flow he still must be sure to keep too much money from entering our market.