Monetary Policy, Robert Mundell, and the True Endgame

      Mike Sanowski had a short quote of Mundell who explains the real virtue of a currency zone, a la the euro zone:

       "It puts monetary policy out of the reach of politicians," he said. "And without fiscal policy, the only way Americans can keep jobs is by the competitive deduction of rules on business."

       http://monetaryrealism.com/its-all-ideology-all-the-way-down/

       "The idea that the euro has "failed" is dangerously naive. The euro is doing exactly what its progenitor – and the wealthy 1%-ers who adopted it – predicted and planned for it to do"

        "That progenitor is former University of Chicago economist Robert Mundell. The architect of "supply-side economics" is now a professor at Columbia University, but I knew him through his connection to my Chicago professor, Milton Friedman, back before Mundell's research on currencies and exchange rates had produced the blueprint for European monetary union and a common European currency."

          http://apps.facebook.com/theguardian/commentisfree/2012/jun/26/robert-mundell-evil-genius-euro?fb_action_types=news.reads&fb_source=other_multiline&post_gdp=true

         "The euro would really do its work when crises hit, Mundell explained. Removing a government's control over currency would prevent nasty little elected officials from using Keynesian monetary and fiscal juice to pull a nation out of recession."

         "It puts monetary policy out of the reach of politicians," he said. "[And] without fiscal policy, the only way nations can keep jobs is by the competitive reduction of rules on business."

          "He cited labor laws, environmental regulations and, of course, taxes. All would be flushed away by the euro. Democracy would not be allowed to interfere with the marketplace – or the plumbing."

            "For him, the euro wasn't about turning Europe into a powerful, unified economic unit. It was about Reagan and Thatcher."

           "Ronald Reagan would not have been elected president without Mundell's influence," once wrote Jude Wanniski in the Wall Street Journal. The supply-side economics pioneered by Mundell became the theoretical template for Reaganomics – or as George Bush the Elder called it, "voodoo economics": the magical belief in free-market nostrums that also inspired the policies of Mrs Thatcher.
Mundell explained to me that, in fact, the euro is of a piece with Reaganomics:

           "Monetary discipline forces fiscal discipline on the politicians as well."

            "And when crises arise, economically disarmed nations have little to do but wipe away government regulations wholesale, privatize state industries en masse, slash taxes and send the
European welfare state down the drain"

             "Thus, we see that (unelected) Prime Minister Mario Monti is demanding labor law "reform" in Italy to make it easier for employers like Mundell to fire those Tuscan plumbers. Mario Draghi, the (unelected) head of the European Central Bank, is calling for "structural reforms" – a euphemism for worker-crushing schemes. They cite the nebulous theory that this "internal devaluation" of each nation will make them all more competitive."

               So while Sumner often says "the fiscal multiplier is roughly zero" the fact is that this depends on what type of monetary regime you have in place. The fiscal multiplier is more than zero unless arrangements are set to not allow it to be.