Judy Shelton, a senior fellow at the Independent Institute, highlighted her disagreement with the Keynesian idea, citing that productivity growth is a key to raising output without lifting prices.

Shelton's Arguments

Speaking on CNBC’s ‘Squawk Box' on Tuesday, Shelton said "We need to abandon the Keynesian idea that economic growth is inflationary." She thinks that strong economic growth and increasing productivity actually raise economic output.

In an interview, Shelton talked about the challenges facing incoming Fed chairman Kevin Warsh and how Warsh can solve inflation without raising rates.

She said, "The Fed has restricted the free-market dynamics of supply and demand." Higher wages attract more people into employment, but many are unwilling to participate due to the welfare programs. Many savvy Americans find it easier to receive government benefits instead of getting honest jobs.

"It will be really good if people do work, if other people see that they have a chance to be productive and earn money by actually producing real goods and services, which are in demand."  

As the job market looks pretty stable, Shelton argued that Kevin Warsh, who has historically favored lower rates, is now following the footsteps of Keynesian trade with his interest rate hike idea.  

Keynesian economics justifies government regulation and interference to address economic issues, and Janet Yellen, the former Treasury Secretary, is known to be a follower of this idea.

Key To Economic Growth

Lower taxation and aligning monetary policy to facilitate access to capital could improve economic growth, according to Shelton.

She said, "An increase in productivity is key to boosting output with existing resources." She added that favorable tax treatment for capital expenditures could help spur innovative technologies that improve productivity and drive economic growth.

Photo courtesy: Shutterstock