C'mon guys. If you are going to put forward a lefty conspiracy theory to explain why monetary policy is tighter than you (and I) think it should be, you at least need to get your story straight.
How many times have I heard the lefty argument that it was "Keynesian policies" (understood very loosely, the way the PoliSci (mis)understand that term) that saved capitalism from itself? And it's not a totally stupid argument either, because when unemployment is very high, like it was in the 1930's, people don't like it. And if they think the government can do something about it, and isn't doing something about it, that government won't be very popular, and people will be more likely to want some sort of change.
How many times have I heard the argument, both from lefties and non-lefties, that it was primarily high unemployment that brought Hitler to power? And that seems like a sensible argument to me. And Hitler was many things, but he was not a neoliberal.
Or just look at those Eurozone countries which have very high unemployment today. Which political parties have gained votes? The communists and near-communists; and the fascists and near-fascists. Not the neoliberals, or near-neoliberals.
The most damaging and dangerous time for the "neoliberal consensus" (or what we would anachronistically call the "neoliberal consensus") was the 1930's. Because unemployment was very high, and the "neoliberal consensus" didn't seem to have a cure (because they were stuck on the Gold Standard, which was the problem). The intellectuals veered towards communism, and the middle classes veered towards fascism.
Simon Wren-Lewis says:
"So if you wanted to critique my (and Kalecki’s) characterisation of the views of the wealthy, you might say that keeping unemployment above its natural rate is not a sustainable strategy (and therefore not rational). To which I would respond maybe, but there could be a reason why now, like the 1980s, is a particularly important time to keep unemployment high for a while.
The reason for this is that the aftermath of financial crisis is extremely threatening to the neoliberal political consensus and the position of the 1%. I remember saying shortly after the crisis that the neoliberal position that government regulation was always bad and unregulated markets always good had been blown out of the water by the crisis. This was politically naive, in part because a crisis caused by unregulated markets was morphed by the right into a crisis caused by too much government debt, or too many immigrants. But that fiction will not be sustainable once a strong recovery has reduced both government debt and unemployment. For the 1%, these are very dangerous times, and they want to be on favourable territory for the battles ahead."(bold added)
I say: < sarc > Right. So the aftermath of the financial crisis is an especially dangerous time for the "neoliberal consensus". OK. So to save the neoliberal consensus, let's make unemployment temporarily even higher to make it even more dangerous for the neoliberal consensus??? < /sarc >
This makes no sense whatsoever. If you are trying to avoid having an accident, while keeping your average speed the same, you don't increase your speed on the dangerous bits of the road, and slow down on the safer bits.
C'mon guys. These daft conspiracy theories are getting dafter and dafter. They aren't even internally coherent.
Look. We think that monetary policy is too tight. And some other people disagree with us. You don't need to cook up some daft conspiracy theory to explain why people disagree with us. They just do. They have their reasons for thinking they are right, just like we have our reasons for thinking we are right. They are wrong and we are right (I think), but they don't know that. Those disagreements are what happen all the time in a free society. Get over it. Conspiracy theories are a cop-out.
H/T Kevin Donoghue
P.S. When I hear the word "neoliberal", I normally reach for my shovel. If you want to read something sensible about "neoliberalism" (about both the concept and the thing itself), read
Lorenzo from Oz.
Worthwhile Canadian Initiative 
Peter K,
“Perhaps you can list the social changes the occurred in the 30s?”
Surely according to your thesis it would be the 1920s in Britain that weren’t radical, not the 1930s, as unemployment was worse and had been more protracted by then? Anyway, your request is either absurd (an entire list of the social changes in any decade of the 20th century would be long, boring, and outwith my competance) or something I’ve already done (give a few examples of the radical elements in the period).
The view from the Antipodes–where “neoliberalism” was primarily implemented by centre-left governments–makes many of the generalisations being bandied around in the comments seem somewhat inadequate.
Globalisation (competition from low wage countries), migration (especially of low-skill folk) and rising female labour force participation were always going to make rising real wages a big ask. It would require significant productivity increases: difficult when labour substitution is easier.
Alternatively, one could engage in careful “social wage” policies (tax the winners and transfer benefits further down). That would be Antipodean “neoliberalism”.
Either way, it is not a coincidence that the policy turn to “neoliberalism” occurred after productivity growth dropped dramatically.
I also get impatient with the “financial deregulation meant X” as, in the Antipodes, it did nothing of the kind. We managed our bank bargain better than the US. As did Canada. But Canada have been managing their bank bargain better than the US for well over a century. Hard to blame that continuing pattern on “neoliberalism”. At best, “neoliberalism” provided the Yanks with a new way of screwing up their bank bargain, as per their long term historical pattern.
And no, the hyperinflation did not bring the Nazis to power. The NSDAP vote went down after the hyperinflation and the Weimar Republic stabilised, both politically and economically. It was gold standard central banks “kicking the world economy into unconsciousness” — the collapse of incomes and output, hence surge in unemployment — which brought Hitler to power. Just as the 1926 General Strike was a consequence of the UK going back on the gold standard in 1925 at the pre-war parity.
Lovely comment Lorenzo. Far far too many economics blogs, and comments on economics blogs, speak as if the US experience, and the US perspective, is the only one there is. Even though it’s a big and important country, it’s still only a sample of one. And Australia is so much more like Canada, in many ways, even though it’s such a long way away.
Oh good God. The disagreement among mainstream economists about monetary policy proves exactly nothing. Players of Dungeons and Dragons often disagree about how the game should play out. And yet it remains the case that they are living in a fantasy world. I have no idea what conspiracy you are referring to and don’t believe in one. I just know you’re all doing it wrong.
Tempest in a teapot. I’m university educated and I still have no idea what a neoliberal is or isn’t. I know Marxism is a failed belief. All I know is high unemployment means lots of idle people sitting around angry and jealous that others are getting ahead and living life. In this scenario the ruling class is the “other”.