Allan Meltzer responds to the article by Thomas Mayer and Patrick Minford, ‘Monetarism: A Retrospective’ that appeared in World Economics, Vol. 5, No. 2 (April–June), 2004, pp. 147–185.

When World War II ended, the United States took the lead in providing political stability, rules for freer trade, and international financial stability. The ‘Pax Americana’ worked extremely well. During the postwar years, more people in more countries increased their living standards by larger amounts than in any period in recorded history. In order to continue the global growth, increased liberty and human progress of the last 60 years, Allan Meltzer argues that new arrangements are called for to provide the public goods that progress requires. Developing these new arrangements is the major challenge to US leadership as the engine of world progress in the new century.

Japan has gone from very successful policies that promoted growth without inflation to a long period of slow growth, recessions and deflation. The Bank of Japan’s policies are a major reason for deflation. Although the Bank has purchased foreign exchange, it counteracts the inflationary effects of its purchases via sterilization. This forces deflation to continue. Currently, there is a ‘dialogue of the deaf’. The government wants faster growth but does not reform the banking system; the Bank makes bank reform a condition for ending deflationary policies.

Allan Meltzer responds to Graham Bird’s article "Sins Of The Commission: The Meltzer Report On International Financial Institutions" [World Economics, Vol.1, No.3, July-September 2000]. In that article, Bird argued that the International Financial Institutions Advisory Commission’s conclusions and recommendations for reform focused on the wrong issues, were unfairly critical of the IFI’s and their policies over the last 25 years and if implemented as policy would seriously detract from the development of the institutions and damage efforts to develop the world’s poorest countries. In his reply to Bird’s criticisms, Allan Meltzer, Chairman of the Commission, says the belief of Commission members was that a different framework with new approaches is necessary for the institutions to be more effective and that the need for change is evident, including greater weight on crisis prevention. Meltzer charges that Bird in his article has not addressed the facts that since 1982 the institutions have not prevented one financial crisis following another, recent crises have threatened the stability of the global financial system and poor countries have got poorer, and that he has offered no evidence to refute the Commission’s criticisms of the institutions’ policies and poor performances.