Mondustrial Policy

What do we get when we take federal monetary policy and apply it (along with a little ketchup) to industry? That’s right: we get “mondustrial policy,” a combo of the words “monetary” and “industrial” that was coined by Stanford economics professor John Taylor back in 2007 when the Great Recession was just getting its economically depressed party started.

Let’s be clear: Dr. Taylor did not intend the word “mondustrial” to be flattering. He’s a big critic of what the Federal Reserve did with interest rates prior to the 2007-08 housing crash (he says they didn’t raise them far or fast enough). He argues that the Fed’s efforts to support the mortgage industry actually helped contribute to the subprime mortgage crisis. And then, when the crisis actually started happening, the Fed’s knee-jerk reaction was to slash interest rates—which only made everything worse.

His argument is that the Fed should stick to monetary policy and not try to get involved in industrial policy or implement “mondustrial policy,” as he calls it, because that’s not its job. The Federal Reserve should worry about the Federal Reserve, and the nation’s industries should take care of themselves.