Pulling it Together – Mondustrial Policy

by Investing School on April 4, 2012

Unless you are a follower of the financial markets, the term “Mondustrial” may have passed you by entirely. However, since Stanford professor John Taylor coined the term just a few years ago, you may not have had the opportunity to hear it in action. Intended to describe a combination of monetary and industrial policy employed by the Fed to address the financial crises of 2008-2009, Mondustrial Policy is often conducted at the expense of others in order to save big firms from their own incompetence.

Taylor, and those who agree with him, feels that the government interference in financial matters is excessive and interventionist. Grave concerns of how this policy will be maintained and what it will look like in the future persist to this day. Rather than demanding that firms, particularly large ones, conduct their finances responsibly, the government had adopted a policy of “bail outs” and the printing of additional money to shore up failing institutions.

With no guidelines to direct Fed action and no history with which to judge the new Monodustrial Policy, it is extremely difficult for the government or economic pundits to assess whether the program has any merit. As banks and other large firms have failed to live up to their responsibilities regarding the funds provided, Professor Taylor has become more outspoken on the questionable policy, especially in light of its failure to create any upward trend in the economic situation. It has been suggested that a dramatically different response must be the next step in order to avoid an even more serious economic downturn.

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