George's recent debate with Skidelsky over the legacy of Keynes and Hayek once again raised a question that I think confuses a lot of people: what exactly are your thoughts on monetary policy? We know you're all free bankers and that that, for you, is the best solution. This is clear. But let's set that aside for now and assume that free banking is not an option. What exactly do you think central bankers are best advised to do in response to a demand-driven crisis? Often when this question get posed it's wrapped up in specific policies as in "do Steve, Larry, or George support QEII or not?" The answer, I gather, is "no", but there's a good reason why people post the question. When the reply is "no", I don't think that always clarifies for people exactly what you do think. Does that mean you support monetary contraction? Does that mean you support another form of monetary expansion? Or is this just an expression of the fact that you would support aggressive monetary expansion in a free banking framework?
Anyway - the three of you have no reason to respond to me, but we know you're all free bankers and we know you're all monetary disequilibrium theorists, so putting the free banking aside and given your theoretical position exactly what do you think central banks ought to do at a time like this? George has said QEII is a bad idea but in the debate he said a non-zero IOR is a bad idea too. To a lot of advocates (and critics) of monetary expansion it's hard to figure out how to square these two assertions. Is it the policy mechanism that's the problem? The magnitude of the policy? Or is it the direction of the policy itself?