It seems I need to respond to Paul Krugman.
"The neomonetarist movement starts from an acknowledgement of reality: shortfalls of aggregate demand do happen, and they do matter, and we need an answer. Like the original monetarists, however, they reject any government role in the form of discretionary fiscal policy. Instead, they argue that the Fed and its counterparts can do the job all on their own if they really want to."
OK. That's me. I'm a "neomonetarist" by that definition.
But there's absolutely nothing "neo" about that policy position. It's the neofiscalist position that is new.
What I call a "neofiscalist" is exactly the same as what Paul calls a "neomonetarist", except at the Zero Lower Bound. When the central bank hits the ZLB, neofiscalists throw up their hands in despair, and call for fiscal policy to manage aggregate demand.
Paul says: "The more important point is that the neomonetarists are deluded in imagining that there is any constituency for their ideas in the modern [US] conservative movement."
OK. Let's ask the parallel question about the neofiscalists. Is there any constituency for their ideas in the modern (US?) left-of-centre movement? Well, if we look at actual existing fiscal policy by an actual existing modern US left-of-centre government, I think the answer is "no".
There are many left-of-centre people who would like a bigger government, and some who would like a bigger role for fiscal policy, but how many are there who would immediately shrink the size of government, and stop using fiscal policy for aggregate demand management, when the economy lifts off the ZLB?
Actual existing policy by the actual existing Canadian government has been neofiscalist, or certainly looks like it. But this is a Conservative government.
Neofiscalism is a fundamentally (small-c) conservative position. I think it is no accident that it took a Conservative government to implement neofiscalist policies. If you don't want to change the 2% inflation target, and if you don't want to change the monetary-policy-as-setting-an-interest-rate operational framework, then when the ZLB hits you can only think of managing aggregate demand by using fiscal policy. But you are also conservative enough to drop the use of fiscal policy for managing aggregate demand, and go back towards balancing the budget, as soon as the Bank of Canada raises the overnight rate target above the ZLB.
Neomonetarism is a radical position. We want to get to the root of the problem of insufficient aggregate demand. We see aggregate demand as a monetary phenomenon, that only makes sense conceptually in a monetary exchange economy. And we see insufficient aggregate demand (just like an inflationary surfeit of aggregate demand) as due to an underlying failure of monetary institutions. We don't like fiscal patches that cover up that underlying problem. Because fiscal policy has other objectives and you can't always kill two birds with the same fiscal stone. Because we can't always rely on fiscal policymakers being able and willing to do the right thing. And because if your car has alternator trouble you fix the alternator; you don't just keep on doing bodge-jobs like replacing the battery every 100kms. And because if monetary policymakers do want to target too low a level of aggregate demand, then fiscal policy won't work, because the monetary policymakers will simply offset it.
Paul says: "I don’t buy this [neomonetarism] on the economics; to do what’s needed central banks either have to take on a lot of risk, which is in effect a form of fiscal policy, or change inflation expectations, which is far beyond conventional monetary policy."
That is a good example of the (small-c) conservative thinking that underlies the neofiscalist position.
Yes, "conventional" monetary policy right now means keeping expected inflation constant at 2%, by targeting 2% inflation. So what? A century ago, "conventional" monetary policy meant keeping the dollar price of gold constant. If we had been targeting NGDP for the last 20 years, inflation targeting would seem far beyond "conventional" monetary policy.
And which is riskier? Having the central bank hold "unconventional" assets? Having the central bank hold an "unconventionally" large balance sheet of both assets and liabilities? Changing the monetary policy target so central banks don't need to do either of those things? Or having a government needing to make large changes in its debt liabilities that are unrelated to the other objectives of fiscal policy?
This is not about whether monetary policy should be "activist" or not. Neomonetarists do not want to leave monetary policy to the central bankers' discretion. This is about fixing the right rule for monetary policy, and having the right monetary institutions to implement that rule. Targeting a fixed and pre-announced level-path for NGDP is no more "activist" than targeting inflation, or targeting the price of gold.
Paul ends: "So there’s really no constituency for neomonetarism. Milton Friedman would be an isolated outcast in today’s conservative movement, and his would-be successors have no home."
The neomonetarist home is with anyone who is prepared to think radically about monetary exchange and monetary institutions, who is not constrained by the monetary-policy-is-setting-an-interest-rate-and-so-the-ZLB-means-you-can't-loosen-monetary-policy way of conventional thinking.
Where is the constituency for neofiscalism? Small-c conservatives? People who can't escape from conventional ways of thinking?