Fiscal vs Monetary Policy

   Which is the better choice to encourage economic growth and forestall calamity? Is it fiscal or monetary policy?
   That's not a question for a course in Economics 101, but one that citizens should consider as they wonder about their jobs and their futures, because what government does can seriously affect a nation's economic health.
   A related question is whether it's better for government to do nothing while the economy reaches a balance on its own, or to intervene with spending projects to kick-start a stalled economy.
   In just a few brief sentences, that's the key difference between totally free market capitalism at one extreme and an economy fully controlled by government at the other.
   The reality is that neither works well. America and other leading Western nations operate somewhere in the middle, in a mixed economy.
   Before the rise of government intervention to inject spending and create jobs in government-sponsored projects, as well as the rise of central banks to control the money supply, which in turn moderates extremes in inflation (rising prices) and unemployment, businesses and banks were free to take whatever risks management wanted to. The result was a series of wild fluctuations, resulting in a boom and bust cycle that left millions of workers and their families hungry and homeless.
   The Federal Reserve was founded in December 1913 to help end that cycle of runaway inflation and high unemployment by controlling the supply of money available. That's called monetary policy.
   Fiscal policy, on the other hand, is what government does in its spending activities. This reached a critical high point in the 1930s, as the federal government sponsored many thousands of projects so workers would have jobs, earning money for food, clothing and shelter. In turn, this rippled through the rest of society as the cash flow increased and others benefited from more economic activity.
   Before the Great Depression, standard economic theory stipulated that left alone, every aspect of an economic system would eventually, over time, in the long run, find a balance of all the elements of the system and everything would be hunky-dory.
   Government, the traditionalists believed, should focus on a balanced budget and not intervene. In the long  run, everything will work out. But in the words of economist John Maynard Keynes, "In the long run run we are all dead."
   In the worldwide economic disaster of the 1920s and 1930s, it was a burst of government spending that helped America recover from the Great Depression. Assisted, of course, by the Second World War, when government spending on armaments and military uniforms boosted the manufacturing sector and provided employment for millions of workers who otherwise would be hungry and homeless. In addition, there were the many millions in military service -- another form of employment. Unfortunately, that particular type of employment carried the risk of being shot. Conclusion: War is a terrible waste of resources, both material and human.
   Even so, there are still many conservatives who hold to the belief that government regulation of any kind is harmful, and the private sector should be left alone to work out any problems that might arise, based on the conviction that free and open competition is the best way to ensure the survival of the fittest in every aspect of society.
  A return to that kind of economic system, however, would require canceling Social Security pensions, unemployment benefits for those out of work, Medicare, Medicaid, the Affordable Care Act and other social benefit programs, as well as government regulation of air pollution standards, preservation of national parks that prohibit mining, government inspection and approval of potentially harmful drugs, and finally, the elimination of the 
Federal Reserve, the nation's central bank, which is charged with moderating the money supply to prevent inflation and unemployment.
   To those who read newspaper headlines and listen to television news programs, much of this will sound familiar, as free-market conservatives move toward minimizing government involvement in the economy.
   But reality has an unsettling way of stepping in to block some of the best laid plans. In this case, the fiscal spending plans of a central government are often at odds with the monetary policy goals of a central bank.
   America now has a mixed economy, somewhere between an uncontrolled capitalist system and an economy fully controlled by government. The danger of an unfettered economy is wild inflation, soaring joblessness, hunger, starvation and violence. The danger of full government control is an autocratic despotism.
   Meanwhile, any attempt by government to take control of an otherwise independent central bank can only increase the likelihood of a dictatorship.
   This has already happened in other countries, and the casualty has been the death of freedom for both business and workers.