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That's the episode, but I disagree with Thoma & McCallum's assessment of it. Volcker etal were rather explicit about their intentions in later years: They used a shift to monetarist pegging as a cover for wringing inflation out of the economy, which they knew would cause a severe recession (and they were right!)No.
I picked up Milton Freidmans Monitary History of the United States years ago while in college. I couldn't even understand it. So I took Macro and Micro economics and tried again. Nope, still couldn't understand Freidman. I am ilequiped to debate monetarism via Freidmans method. I was just playing around with you. Have you read his work? Not his political but scientific?
I haven't read all of his economic work. I've read a couple of his seminal journal articles from the 1950's and 1960's and I keep a copy of his and Schwartz Monetary History close by at all times - while I don't agree with the entire book, it's quite likely the greatest economic history thome ever written.
I am assured that you are just another liberal nobody that Freidman could rhetorically smash as he has so many liberal academics, students, and politicians.
Fuck you too. How'd his attempt to smash Volcker work out?
Economist's View: The U.S. Monetary Experience of 1979-1982 is this what you're talking about ?
That's the episode, but I disagree with Thoma & McCallum's assessment of it. Volcker etal were rather explicit about their intentions in later years: They used a shift to monetarist pegging as a cover for wringing inflation out of the economy, which they knew would cause a severe recession (and they were right!)I haven't read all of his economic work. I've read a couple of his seminal journal articles from the 1950's and 1960's and I keep a copy of his and Schwartz Monetary History close by at all times - while I don't agree with the entire book, it's quite likely the greatest economic history thome ever written.
Fuck you too. How'd his attempt to smash Volcker work out?
Economist's View: The U.S. Monetary Experience of 1979-1982 is this what you're talking about ?
Commanding Heights : Reaganomics | on PBS
Reagan Understood What He Was Doing, and It Worked
On Ronald Reagan
INTERVIEWER: Tell us briefly how Paul Volcker set out to squeeze inflation out of the economy.
MILTON FRIEDMAN: Well, by the time Paul Volcker came along -- this was in 1968-69 [Volcker was undersecretary in the Treasury Department from 1969-74, president of the New York Federal Reseve Bank from 1975-79, and appointed chairman of the Board of Governors of the Federal Reserve Board from 1979-87] -- inflation had gotten very high and had gone up close to 20 percent. He was at a meeting of the International Monetary Fund in Yugoslavia in 1979, when the U.S. came under great criticism from the other people there for our inflationary policies. And he came back to the United States and had got the open market committee to announce that they would change their policy and shift from controlling interest rates to controlling the quantity of money. Now, this was mostly verbal rhetoric. What he really wanted to do was to have the interest rate go up very high, to reflect the amount of inflation. But he could do it better by professing that he wasn't controlling it and that he was controlling the quantity of money, and the right policy at that time was to limit what was happening to the quantity of money, and that meant the interest rate shot way up. This is a complex story. It isn't all one way, because in early 1980 President Carter introduced controls on installment spending, and that caused a very sharp collapse in the credit market and caused a very sharp downward spiral in the economy. To counter that, the Federal Reserve increased the money supply very rapidly. In the five months before the 1980 election, the money supply went up more rapidly than in any other five-month period in the postwar era. Immediately after him, Reagan was elected, and the money supply started going down. So that was a very political reaction during that period.
INTERVIEWER: How important was President Reagan's support for Volcker's policies?
MILTON FRIEDMAN: Enormously important. There is no other president in the postwar period who would have stood by without trying to interfere, to intervene with the Federal Reserve. The situation was this: The only way you could get the inflation down was by having monetary contraction. There was no way you could do that without having a temporary recession. The great error in the earlier period had been that whenever there was a little contraction there was a tendency to expand the money supply rapidly in order to avoid unemployment. That stop-and-go policy was really what bedeviled the Fed during the '60s and '70s. That was the situation in 1980, in '81 in particular. After Reagan came into office, the Fed did step on the money supply, did hold down its growth, and that did lead to a recession. At that point every other president would have immediately come in and tried to get the Federal Reserve to expand. Reagan knew what was happening. He understood very well that the only way he could get inflation down was by accepting a temporary recession, and he supported Volcker and did not try to intervene. Now, you know, there is a myth that Reagan was somehow simpleminded and didn't understand these things. That's a bunch of nonsense. He understood this issue very well. And I know -- I can speak with, I think, authority on this -- that he realized what he was doing, and he knew very well that he was risking his political standing in order to achieve a basic economic objective. And, as you know, his poll ratings went way down in 1982, and then, when the inflation seemed to be broken enough, the Fed reversed policy, started to expand the money supply, the economy recovered, and along with it, Reagan's poll ratings went back up.
INTERVIEWER: And the economy has been pretty solid ever since. [As of the year 2000.]
MILTON FRIEDMAN: Yes, absolutely. There is no doubt in my mind that that action of Reagan, plus his emphasis on lowering tax rates, plus his emphasis on deregulating ... I mentioned that the regulations had doubled, the number of pages in the Federal Register had doubled, during the Nixon regime; they almost halved during the Reagan regime. So those actions of Reagan unleashed the basic constructive forces of the free market and from 1983 on, it's been almost entirely up.
INTERVIEWER: What Reagan was doing is almost exactly mirrored in Britain by what Mrs. Thatcher was doing at about the same time. Are the two influencing to each other, or is it just a case of ideas coming into their own?
MILTON FRIEDMAN: Both of them faced similar situations. And both of them, fortunately, had exposure to similar ideas. And they reinforced one another. Each saw the success of the other. I think that the coincidence of Thatcher and Reagan having been in office at the same time was enormously important for the public acceptance, worldwide, of a different approach to economic and monetary policy.
I don't think we can look to Friedman - He obviously had an egg in that basket.That's the episode, but I disagree with Thoma & McCallum's assessment of it. Volcker etal were rather explicit about their intentions in later years: They used a shift to monetarist pegging as a cover for wringing inflation out of the economy, which they knew would cause a severe recession (and they were right!)Economist's View: The U.S. Monetary Experience of 1979-1982 is this what you're talking about ?
They did know that it would cause a recession. Here is Freidmands account.
Commanding Heights : Reaganomics | on PBS
Reagan Understood What He Was Doing, and It Worked
On Ronald Reagan
INTERVIEWER: Tell us briefly how Paul Volcker set out to squeeze inflation out of the economy.
MILTON FRIEDMAN: Well, by the time Paul Volcker came along -- this was in 1968-69 [Volcker was undersecretary in the Treasury Department from 1969-74, president of the New York Federal Reseve Bank from 1975-79, and appointed chairman of the Board of Governors of the Federal Reserve Board from 1979-87] -- inflation had gotten very high and had gone up close to 20 percent. He was at a meeting of the International Monetary Fund in Yugoslavia in 1979, when the U.S. came under great criticism from the other people there for our inflationary policies. And he came back to the United States and had got the open market committee to announce that they would change their policy and shift from controlling interest rates to controlling the quantity of money. Now, this was mostly verbal rhetoric. What he really wanted to do was to have the interest rate go up very high, to reflect the amount of inflation. But he could do it better by professing that he wasn't controlling it and that he was controlling the quantity of money, and the right policy at that time was to limit what was happening to the quantity of money, and that meant the interest rate shot way up. This is a complex story. It isn't all one way, because in early 1980 President Carter introduced controls on installment spending, and that caused a very sharp collapse in the credit market and caused a very sharp downward spiral in the economy. To counter that, the Federal Reserve increased the money supply very rapidly. In the five months before the 1980 election, the money supply went up more rapidly than in any other five-month period in the postwar era. Immediately after him, Reagan was elected, and the money supply started going down. So that was a very political reaction during that period.
INTERVIEWER: How important was President Reagan's support for Volcker's policies?
MILTON FRIEDMAN: Enormously important. There is no other president in the postwar period who would have stood by without trying to interfere, to intervene with the Federal Reserve. The situation was this: The only way you could get the inflation down was by having monetary contraction. There was no way you could do that without having a temporary recession. The great error in the earlier period had been that whenever there was a little contraction there was a tendency to expand the money supply rapidly in order to avoid unemployment. That stop-and-go policy was really what bedeviled the Fed during the '60s and '70s. That was the situation in 1980, in '81 in particular. After Reagan came into office, the Fed did step on the money supply, did hold down its growth, and that did lead to a recession. At that point every other president would have immediately come in and tried to get the Federal Reserve to expand. Reagan knew what was happening. He understood very well that the only way he could get inflation down was by accepting a temporary recession, and he supported Volcker and did not try to intervene. Now, you know, there is a myth that Reagan was somehow simpleminded and didn't understand these things. That's a bunch of nonsense. He understood this issue very well. And I know -- I can speak with, I think, authority on this -- that he realized what he was doing, and he knew very well that he was risking his political standing in order to achieve a basic economic objective. And, as you know, his poll ratings went way down in 1982, and then, when the inflation seemed to be broken enough, the Fed reversed policy, started to expand the money supply, the economy recovered, and along with it, Reagan's poll ratings went back up.
INTERVIEWER: And the economy has been pretty solid ever since. [As of the year 2000.]
MILTON FRIEDMAN: Yes, absolutely. There is no doubt in my mind that that action of Reagan, plus his emphasis on lowering tax rates, plus his emphasis on deregulating ... I mentioned that the regulations had doubled, the number of pages in the Federal Register had doubled, during the Nixon regime; they almost halved during the Reagan regime. So those actions of Reagan unleashed the basic constructive forces of the free market and from 1983 on, it's been almost entirely up.
INTERVIEWER: What Reagan was doing is almost exactly mirrored in Britain by what Mrs. Thatcher was doing at about the same time. Are the two influencing to each other, or is it just a case of ideas coming into their own?
MILTON FRIEDMAN: Both of them faced similar situations. And both of them, fortunately, had exposure to similar ideas. And they reinforced one another. Each saw the success of the other. I think that the coincidence of Thatcher and Reagan having been in office at the same time was enormously important for the public acceptance, worldwide, of a different approach to economic and monetary policy.
I don't think we can look to Friedman - He obviously had an egg in that basket.That's the episode, but I disagree with Thoma & McCallum's assessment of it. Volcker etal were rather explicit about their intentions in later years: They used a shift to monetarist pegging as a cover for wringing inflation out of the economy, which they knew would cause a severe recession (and they were right!)
They did know that it would cause a recession. Here is Freidmands account.
Commanding Heights : Reaganomics | on PBS
Reagan Understood What He Was Doing, and It Worked
On Ronald Reagan
INTERVIEWER: Tell us briefly how Paul Volcker set out to squeeze inflation out of the economy.
MILTON FRIEDMAN: Well, by the time Paul Volcker came along -- this was in 1968-69 [Volcker was undersecretary in the Treasury Department from 1969-74, president of the New York Federal Reseve Bank from 1975-79, and appointed chairman of the Board of Governors of the Federal Reserve Board from 1979-87] -- inflation had gotten very high and had gone up close to 20 percent. He was at a meeting of the International Monetary Fund in Yugoslavia in 1979, when the U.S. came under great criticism from the other people there for our inflationary policies. And he came back to the United States and had got the open market committee to announce that they would change their policy and shift from controlling interest rates to controlling the quantity of money. Now, this was mostly verbal rhetoric. What he really wanted to do was to have the interest rate go up very high, to reflect the amount of inflation. But he could do it better by professing that he wasn't controlling it and that he was controlling the quantity of money, and the right policy at that time was to limit what was happening to the quantity of money, and that meant the interest rate shot way up. This is a complex story. It isn't all one way, because in early 1980 President Carter introduced controls on installment spending, and that caused a very sharp collapse in the credit market and caused a very sharp downward spiral in the economy. To counter that, the Federal Reserve increased the money supply very rapidly. In the five months before the 1980 election, the money supply went up more rapidly than in any other five-month period in the postwar era. Immediately after him, Reagan was elected, and the money supply started going down. So that was a very political reaction during that period.
INTERVIEWER: How important was President Reagan's support for Volcker's policies?
MILTON FRIEDMAN: Enormously important. There is no other president in the postwar period who would have stood by without trying to interfere, to intervene with the Federal Reserve. The situation was this: The only way you could get the inflation down was by having monetary contraction. There was no way you could do that without having a temporary recession. The great error in the earlier period had been that whenever there was a little contraction there was a tendency to expand the money supply rapidly in order to avoid unemployment. That stop-and-go policy was really what bedeviled the Fed during the '60s and '70s. That was the situation in 1980, in '81 in particular. After Reagan came into office, the Fed did step on the money supply, did hold down its growth, and that did lead to a recession. At that point every other president would have immediately come in and tried to get the Federal Reserve to expand. Reagan knew what was happening. He understood very well that the only way he could get inflation down was by accepting a temporary recession, and he supported Volcker and did not try to intervene. Now, you know, there is a myth that Reagan was somehow simpleminded and didn't understand these things. That's a bunch of nonsense. He understood this issue very well. And I know -- I can speak with, I think, authority on this -- that he realized what he was doing, and he knew very well that he was risking his political standing in order to achieve a basic economic objective. And, as you know, his poll ratings went way down in 1982, and then, when the inflation seemed to be broken enough, the Fed reversed policy, started to expand the money supply, the economy recovered, and along with it, Reagan's poll ratings went back up.
INTERVIEWER: And the economy has been pretty solid ever since. [As of the year 2000.]
MILTON FRIEDMAN: Yes, absolutely. There is no doubt in my mind that that action of Reagan, plus his emphasis on lowering tax rates, plus his emphasis on deregulating ... I mentioned that the regulations had doubled, the number of pages in the Federal Register had doubled, during the Nixon regime; they almost halved during the Reagan regime. So those actions of Reagan unleashed the basic constructive forces of the free market and from 1983 on, it's been almost entirely up.
INTERVIEWER: What Reagan was doing is almost exactly mirrored in Britain by what Mrs. Thatcher was doing at about the same time. Are the two influencing to each other, or is it just a case of ideas coming into their own?
MILTON FRIEDMAN: Both of them faced similar situations. And both of them, fortunately, had exposure to similar ideas. And they reinforced one another. Each saw the success of the other. I think that the coincidence of Thatcher and Reagan having been in office at the same time was enormously important for the public acceptance, worldwide, of a different approach to economic and monetary policy.
Of course they knew it would cause a recession. Volcker was no fan of monetarism at the time but it provided him cover to wring out inflation, which any modern analysis tells you would cause a recession.
Volcker took the ball from the monetarists and said "OK, let's do that". It gave him good cover. And the monetarist policies were so effective at causing a recession that it turned into a very deep double dip recession. At the time, members of the FOMC thought Volcker was over-reaching and in retrospect, it seems pretty clear he was.
Freidman espoused the seasoning, not the steak... Though he may have disagreed.
I've read that a couple times and I must be missing something. What exactly do you mean by that?
You can eat an unseasoned steak, but it is better with seasoning. Who in their right mind would eat the seasoning alone?
I think what made Keynes more influential (more widely adopted) is that his proposals would stand alone more effectively, while Freidman-land would be a mess.
I don't think we can look to Friedman - He obviously had an egg in that basket.They did know that it would cause a recession. Here is Freidmands account.
Of course they knew it would cause a recession. Volcker was no fan of monetarism at the time but it provided him cover to wring out inflation, which any modern analysis tells you would cause a recession.
Volcker took the ball from the monetarists and said "OK, let's do that". It gave him good cover. And the monetarist policies were so effective at causing a recession that it turned into a very deep double dip recession. At the time, members of the FOMC thought Volcker was over-reaching and in retrospect, it seems pretty clear he was.
And was the recession not necessary to fix the inflationary problem?
Please explain what you mean by "JMK thought that FDR 'used his theories way to liberally'." The General Theory wasn't even published until 1936.John Maynard Keynes thought that FDR used his theories way to liberaly.
I've read that a couple times and I must be missing something. What exactly do you mean by that?
You can eat an unseasoned steak, but it is better with seasoning. Who in their right mind would eat the seasoning alone?
I think what made Keynes more influential (more widely adopted) is that his proposals would stand alone more effectively, while Freidman-land would be a mess.
I don't know, Keynes died out for a long long time after the post war boom where the Keynsian economist expected a depression after the lowering in government spending.
I don't think we can look to Friedman - He obviously had an egg in that basket.
Of course they knew it would cause a recession. Volcker was no fan of monetarism at the time but it provided him cover to wring out inflation, which any modern analysis tells you would cause a recession.
Volcker took the ball from the monetarists and said "OK, let's do that". It gave him good cover. And the monetarist policies were so effective at causing a recession that it turned into a very deep double dip recession. At the time, members of the FOMC thought Volcker was over-reaching and in retrospect, it seems pretty clear he was.
And was the recession not necessary to fix the inflationary problem?
A double dip recession that cost millions of jobs and shrunk incomes at an annualized rate of 8% and 6% in various quarters? No, that deep of a recession wasn't necessary.
Please explain what you mean by "JMK thought that FDR 'used his theories way to liberally'." The General Theory wasn't even published until 1936.John Maynard Keynes thought that FDR used his theories way to liberaly.
For the best, that.I've read that a couple times and I must be missing something. What exactly do you mean by that?
You can eat an unseasoned steak, but it is better with seasoning. Who in their right mind would eat the seasoning alone?
I think what made Keynes more influential (more widely adopted) is that his proposals would stand alone more effectively, while Freidman-land would be a mess.
I don't know, Keynes died out for a long long time after the post war boom where the Keynsian economist expected a depression after the lowering in government spending.
So what alternative was there to reducing inflation?
So what alternative was there to reducing inflation?
Increase interest rates - in a consistent manner, not by pegging M1 and allowing oscillations in the interest rate with a general path toward higher rates.
Increase reserve ratios slowly over time.
Raise the discount window penalty.
So what alternative was there to reducing inflation?
Increase interest rates - in a consistent manner, not by pegging M1 and allowing oscillations in the interest rate with a general path toward higher rates.
Increase reserve ratios slowly over time.
Raise the discount window penalty.
That could take years. Well over two years to be exact.
Increase interest rates - in a consistent manner, not by pegging M1 and allowing oscillations in the interest rate with a general path toward higher rates.
Increase reserve ratios slowly over time.
Raise the discount window penalty.
That could take years. Well over two years to be exact.
Or it could be done by tomorrow morning. The forecast of steadily increasing interest rates has an immediate impact, just as current Fed forecasts of no change in the FF rate for the next 18 months has an impact - it allows firms to plan accordingly.
Pegging the MS means you give up that control. The Fed wasn't great at targeting the FF rate in the late 1970's but they provided more rate stability than under the peg plan they adopted.
Increase interest rates - in a consistent manner, not by pegging M1 and allowing oscillations in the interest rate with a general path toward higher rates.
Increase reserve ratios slowly over time.
Raise the discount window penalty.
That could take years. Well over two years to be exact.
Or it could be done by tomorrow morning. The forecast of steadily increasing interest rates has an immediate impact, just as current Fed forecasts of no change in the FF rate for the next 18 months has an impact - it allows firms to plan accordingly.
Pegging the MS means you give up that control. The Fed wasn't great at targeting the FF rate in the late 1970's but they provided more rate stability than under the peg plan they adopted.
That could take years. Well over two years to be exact.
Or it could be done by tomorrow morning. The forecast of steadily increasing interest rates has an immediate impact, just as current Fed forecasts of no change in the FF rate for the next 18 months has an impact - it allows firms to plan accordingly.
Pegging the MS means you give up that control. The Fed wasn't great at targeting the FF rate in the late 1970's but they provided more rate stability than under the peg plan they adopted.
Oh, I am very well awar of the fed forcast, I can even tell you step by step how it works. And there is no way to sure up that much inflation in 18 months.
To be a bit more precise: I don't think the Fed should be calling for higher rates in the next year or so. In 1981 it was important in order to control inflation. In an economy with very low inflation and high unemployment, projecting higher future rates would only serve to cause further damage. imho.That could take years. Well over two years to be exact.
Or it could be done by tomorrow morning. The forecast of steadily increasing interest rates has an immediate impact, just as current Fed forecasts of no change in the FF rate for the next 18 months has an impact - it allows firms to plan accordingly.
Pegging the MS means you give up that control. The Fed wasn't great at targeting the FF rate in the late 1970's but they provided more rate stability than under the peg plan they adopted.
Hmm, now you guys are making me think. Ouch, it's early.
I could see where signaling that interest rates are not going to stay compressed could provide immediate stimulation. Risky, but so is QE3.
Hmm.
.
Or it could be done by tomorrow morning. The forecast of steadily increasing interest rates has an immediate impact, just as current Fed forecasts of no change in the FF rate for the next 18 months has an impact - it allows firms to plan accordingly.
Pegging the MS means you give up that control. The Fed wasn't great at targeting the FF rate in the late 1970's but they provided more rate stability than under the peg plan they adopted.
Oh, I am very well awar of the fed forcast, I can even tell you step by step how it works. And there is no way to sure up that much inflation in 18 months.
Oh, you seem to be confused. You don't have to sure (do you mean shore?) up inflation in 18 months. In the Volcker's case he wring inflation in about 2 years but the oscillating target rates caused a host of negative macroeconomic effects. It would have been more effective with less pain if they had targeted rates and allowed the money supply to fluctuate.
Oh, I am very well awar of the fed forcast, I can even tell you step by step how it works. And there is no way to sure up that much inflation in 18 months.
Oh, you seem to be confused. You don't have to sure (do you mean shore?) up inflation in 18 months. In the Volcker's case he wring inflation in about 2 years but the oscillating target rates caused a host of negative macroeconomic effects. It would have been more effective with less pain if they had targeted rates and allowed the money supply to fluctuate.
Major, emphases on the word "major," macroeconomic changes always have a negative event on the microeconomic situation. I guess the question is, was it worth it? And from what I can see, (not relevant), Reagan got out of a big mess much quicker than Obama, and with higher unemployment than Obama to boot.
Remember the guy who went around the Message Board Political Forum posting random wacky comments in order to hyjack the topic of the thread on subjects he wanted to discuss instead of making his own thread? And face it, your no Milton Freidman. But you think you know better. It's been the downfall of many many many liberals in the past.
YouTube - Milton Friedman explains role of gold in Great Depression.
Lol...That wasn't the two year period of monetarism.
Are you of the impression that Milton supported commodity money?
No.
I picked up Milton Freidmans Monitary History of the United States years ago while in college. I couldn't even understand it. So I took Macro and Micro economics and tried again. Nope, still couldn't understand Freidman. I am ilequiped to debate monetarism via Freidmans method. I was just playing around with you. Have you read his work? Not his political but scientific? I am assured that you are just another liberal nobody that Freidman could rhetorically smash as he has so many liberal academics, students, and politicians. After kicking so much ass liberals stoped bringing him on to their shows and people debated him in his absence which continues after his death. Then liberals whined when they tried to name a school after him. The Volokh Conspiracy - The Milton Friedman Institute and Ideological Intolerance in Academia:
Milton Friedman Institute for Research in Economics - Wikipedia, the free encyclopedia
