The 1970s were hard on Keynesianism and the current situation is hard on monetarists (although some argue that we are not in a liquidity trap). A modified Austrian view looks like it is coming to the fore.

Friedman wrote a number of very smart things about monetary policy, but he was wrong here. Keynes was and remains the seminal authority on depression economics.

I did miss the part of General Theory where Keynes recommends 1970s-style wage-price spirals as economic policy. Cite?

See Krugman's excellent piece "Who Was Milton Friedman?" for an earlier, more fully developed take on his monetarists-v.-Keynesians argument:
http://www.nybooks.com/articles/19857

With Keynesian interventions, it's completely obvious how the policy affects the distribution of wealth. Income is redistributed to whoever's name is on the check, and we have elections to determine who those people will be.

With monetarist interventions, it's less obvious and usually overlooked, but the redistribution of wealth is always controlled by the bank.

So are we getting at a redistribution of wealth is needed to correct this crisis?

So are we getting at a redistribution of wealth is needed to correct this crisis?

Why not? The rich have consistently redistributed wealth toward themselves for the past 8 years.

No, we are saying that "redistrubution of wealth" arguments from conservatives are idealogical luxuries we can not afford right now. Or, to paraphrase Donald Trump- "I am not a socialist, but I am one right now." The left and the right debate here is irrelevant. The question is what the evidence show. If it were showing that monetary policies were working, then we should continue with monetary policy. If it is showing that monetary policy is not enough, and that actually what is needed is spending, then that's the solution. The rest - the idealogical sniping back and forth- is time that we don't have. Let the circumstances be our guide would be a truly radical approach rather than orthodoxy arguing against orthodoxy.

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Gosh, Milton Freidman is a massively overrated ideologue who is only prominent because of the work that Republican hacks have done manufacturing a economic school of thought to support their own ideology? Who would have thunk it?

Yes, I'm bitter.

There are three ways to affect an economy: monetary policy, macroeconomic policy and microeconomic policy.
Conservatives prefer monetary policy because they abhor the other two.
Monetary policy involves adjusting the money supply (duh!).
Macroeconomic policy means adjusting demand or supply via government spending or taxation.
Microeconomic policy means adjusting wages and/or prices directly
Keynes' great revelation was that an economy can be in equilibrium at much less than full employment - and thus depression. Monetary policy can't fix the problem because of the "pushing on a string" phenomenam. The solution is to increase demand and thus employment by having the government spend.
In a case of wage-price spiral inflation, the direct way to stop the inflation is to impose controls (microecononomic). That would have been an alternative to Volcker's extreme monetary tightening in the 70s/80s, but it was politically unacceptable.
So conservatives will always argue for solutions involving monetary policy - not because they work but because they refuse to accept government intervention.

Redistribution of wealth is important, because as Keynes pointed out, the propensity to consume decreases as income increases. Hence, giving cash to poor people is better than giving cash to rich people for stimulatory purposes, since the poor people will spend all of it on a broad array of basic goods (food, clothing, rent, transportation, utilities, etc.) and the rich people will likely save it.

Actually Keynes did have a solution to wage/price spirals; he just didn't write about it in the General Theory, rather he did it as policy during WWII. His solution to inflation (in a situation of full employment) was deferred spending through channeling income into government bonds that would cash out after the war. Hence, you avoided standard-of-living-slashing side-effects of deflationary monetary policy, while still reducing wage pressures. A rather progressive idea that more people need to learn.

Friedman's monetary policy works pretty well within a narrow range of economic conditions. It requires a sound economy and sound fiscal and regulatory policy in order to work well. For much of Friedman's life, those were characteristics of the American economy. The times when the economy got out of whack, (1979-1982 oil shock) and the during the recessions, monetary policy was insufficient and got little traction.

Under the conditions of the Great Depression as well as today, monetary policy is impotent. Friedman understood that monetarism had limits, but his followers today make claims that Friedman would have been reluctant to make.

After 8 years of derelict fiscal and regulatory policy, it is not surprising that we have conditions where monetary policy is ineffective. Monetary policy will remain impotent until the economy returns to a period of more rapid growth with low inflation.

The United States employed wage & price controls (plus rationing) during WWII. It worked rather well.
J.K. Galbraith (who was the administrator) writes about it in "A Journey Through Economic Time", which I commend to you.
Also, taxes were raised to as high as 91% and bonds were sold. Monetary policy was basically set aside, as interest rates were frozen at (I think) 1% for the duration.

Sorry, but why are we taking Monetarism seriously? It was tried under Thatcher, and it failed.

The state could NOT control the money supply. It tried to restrict demand for money by raising interest rates, but that helped make the recession of the early 1980s deeper.

Yes, inflation dropped but that was because of the deep recession Monetarism caused. With high unemployment, workers could not resist price increases and so they paid the price of the crisis.

A crisis which Friedman did not see coming (like the crash in Pinochet's Chile after he proclaimed it an "economic miracle").

All of which was predicted by such critics of Friedman as Nicholas Kaldor. He was one of the earliest Keynesianism, who incidentally refuted (along with Sraffa) the Austrian business cycle theory of von Hayek .

The list of assertions by Friedman which were refuted when his ideology was applied is lengthy. That he is still taken seriously suggests that as long as you say what the elite wants to hear, mere facts can be ignored...

I think your post is a bit off the mark. Monetarism isn't primarily about the importance of monetary policy relative to fiscal policy. It's about how monetary policy should be conducted. The monetarist view, IIRC, is that monetary policy should be oriented around slow but stable growth of the money supply.

What's the money supply? It certainly doesn't mean the monetary base (M0), the type of money which is directly controlled by the Fed. Monetarists sometimes pointed to M1, or M2, or M3. If monetarism built around stabilization of M1 (a more expansive definition of money including demand deposits) doesn't work, then monetarists might say "darn! We ought to have been stabilizing M3 instead!"

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