Tape 39 - 1970 Forecast
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- | Hello. | 0:02 |
This is Instructional Dynamics, | 0:02 | |
inviting you to another of our biweekly interviews | 0:04 | |
with Dr. Milton Friedman, professor of economics | 0:07 | |
at the University of Chicago. | 0:10 | |
We are taping this interview on Wednesday, December 17. | 0:12 | |
Professor Friedman, what is happening | 0:17 | |
on the monetary front these days? | 0:19 | |
- | The main thing that's happening has been | 0:22 |
a bunch of false alarms and misleading signals. | 0:24 | |
A week or so ago I was on a | 0:27 | |
early morning Today TV show with George Mitchell, | 0:32 | |
one of the members of the Federal Reserve Board, | 0:37 | |
and George Mitchell, who as you may know | 0:40 | |
is one of two members of the board who have been | 0:42 | |
in the minority these past months, | 0:45 | |
as revealed by the published minutes of the | 0:47 | |
Open Market Investment Committee. | 0:50 | |
Let me go back. | 0:52 | |
They have been in the minority in the sense that | 0:53 | |
George Mitchell and Sherman Maisel have been | 0:55 | |
voting against a continuation of the | 0:59 | |
exceedingly tight monetary policy | 1:01 | |
that the Fed has been following. | 1:03 | |
They have been voting for some easing without of course | 1:06 | |
a return to the inflationary policy of 1967 and 1968. | 1:10 | |
Well to go back, George Mitchell on this Today program | 1:16 | |
said that he thought the quantity of money | 1:22 | |
had been going up in October and November | 1:26 | |
and was suggesting that it would continue to go up. | 1:31 | |
I was somewhat taken aback, I must say, | 1:34 | |
because the latest figures I had seen did not | 1:36 | |
fit in with that particular diagnosis. | 1:40 | |
Similar statements appeared in the paper | 1:43 | |
from other people that there were some signs of easing up. | 1:45 | |
I had earlier as you may recall been expressing a hope | 1:48 | |
that there would be some easing up, | 1:52 | |
and indeed saying that it was very likely there would be | 1:54 | |
because the logic of the situation called for an easing. | 1:59 | |
I am sorry however to report that after reexamining | 2:01 | |
all the figures on the basis of what Mitchell said, | 2:05 | |
I can see very, very little evidence indeed | 2:09 | |
for any appreciable ease. | 2:12 | |
If you look at the weekly figures on the money stock, | 2:15 | |
that's narrowly defined currency plus | 2:19 | |
adjusted demand deposits, | 2:22 | |
and the weekly figures are the average of daily figures. | 2:23 | |
These are the finest intervals for which | 2:28 | |
you have any kind of reliable result | 2:30 | |
and they enable you to trace the movements | 2:32 | |
of this particular magnitude about as closely | 2:35 | |
as you can trace any important economic magnitude. | 2:38 | |
I have the chart before me which shows this. | 2:42 | |
There's a distinct break in the chart in May | 2:45 | |
and since May it is very hard to describe | 2:47 | |
that movement as anything other than | 2:50 | |
erratic fluctuations around the horizontal line. | 2:52 | |
Over the period from May to the last week for which | 2:55 | |
there are figures which is the week ending December 3rd, | 2:58 | |
the total of currency in adjusted demand deposits | 3:02 | |
has varied between a low point of just over $198 billion and | 3:04 | |
a high point of a little over 200 billion, 200.3 billion. | 3:10 | |
That whole range is only $2 billion or 1% of the figure | 3:15 | |
in question and that's a period of over six months. | 3:21 | |
The initial period figure for let's say | 3:28 | |
the week ending May 28th is 199.5. | 3:32 | |
The last figure we have is 199.2. | 3:43 | |
A little bit lower. | 3:46 | |
Now the initial figure is a high figure for that period | 3:48 | |
and you may say that last last figure's a low figure, | 3:51 | |
so I would not wanna argue at all with anyone | 3:54 | |
who says, well, maybe the rate of growth, | 3:56 | |
that the rate of 1% or a half of 1% or 1.5%, | 3:59 | |
but that is certainly a high estimate, | 4:04 | |
and more important there is no sign of any break | 4:06 | |
occurring in the last few months. | 4:10 | |
What is true is in the last few months, | 4:12 | |
the numbers have varied erratically, | 4:14 | |
more erratically from one week to the next. | 4:16 | |
As a further indication of the same thing, | 4:24 | |
you can look not only at the money stock | 4:26 | |
narrowly defined as currency plus demand deposits | 4:29 | |
but it's interesting to look at a broader definition, | 4:32 | |
which includes commercial bank time deposits. | 4:34 | |
If you look at that definition you find that | 4:36 | |
from May to the end of August, it fell very sharply | 4:39 | |
by something like nearly $10 billion | 4:46 | |
from over 400 billion to a little over 390 billion. | 4:50 | |
The major reason for that decline of course | 4:56 | |
was a sharp run off in commercial bank CDs, | 4:58 | |
the large certificates of deposits of $100,000 and over. | 5:01 | |
Since the end of August that series too has fluctuated | 5:06 | |
around roughly a horizontal line | 5:09 | |
going within a very narrow bend, | 5:12 | |
and the most you can say is it has shown | 5:15 | |
a decline from May to August and zero movement since August. | 5:18 | |
If you try to examine what caused these movements, | 5:24 | |
it has been largely as I say, | 5:28 | |
or the discrepancy between the movements, | 5:30 | |
it has been largely the decline in | 5:32 | |
the large time deposit, certificates and deposits. | 5:34 | |
That decline has tapered off largely because | 5:37 | |
the most volatile time deposits have | 5:41 | |
already been pulled out or converted into | 5:45 | |
euro dollar deposits or into treasury bills | 5:48 | |
or into commercial paper. | 5:51 | |
Of the remaining commercial bank CDs, | 5:54 | |
large certificates of deposits, | 5:58 | |
a not inconsiderable fraction consists of items on which | 5:59 | |
the Regulation Q interest rate ceiling does not apply. | 6:04 | |
There is an exception in that regulation | 6:09 | |
which permits commercial banks to pay any interest rate | 6:12 | |
that they may wish to foreign bank holders of | 6:15 | |
commercial bank time deposits in this country, | 6:24 | |
and my impression is that this loophole now covers | 6:28 | |
a substantial fraction, perhaps almost as much as a half, | 6:30 | |
of the remaining outstanding CDs | 6:34 | |
so that with respect to those, | 6:36 | |
there is no special artificial pressure | 6:38 | |
which is forcing them down. | 6:40 | |
I hope that Mr. Mitchell's hopes for the future | 6:43 | |
will indeed be realized and that we shall | 6:46 | |
not continue with this policy of essential constancy | 6:48 | |
in the quantity of money | 6:52 | |
because that does seem to me to be a much too tight a policy | 6:54 | |
and one that is almost sure to intensify | 6:57 | |
the readjustment in which we have already entered | 7:00 | |
and which is likely to intensify. | 7:05 | |
There has been a further confirming | 7:08 | |
item to confirm that we are indeed in a decline. | 7:11 | |
The Index of Industrial Production again dropped, | 7:16 | |
this time the sharpest drop in many years. | 7:19 | |
That is a little unfair because half of that was due to | 7:25 | |
the General Electric strike but even if you leave that out, | 7:28 | |
you clearly have further continued evidence | 7:31 | |
of a decline in the physical output. | 7:34 | |
You also are beginning to have a little bit of evidence | 7:39 | |
of some decline in the rate of price rise. | 7:42 | |
Prices have been rising rapidly but a trifle less rapidly | 7:45 | |
than they were a couple of months ago. | 7:49 | |
What's happened has been that up until | 7:52 | |
a couple of months ago the rate of price rise | 7:55 | |
was getting bigger and bigger, | 7:57 | |
now it has stopped getting bigger | 7:59 | |
and it has gotten a little slower. | 8:00 | |
So there are all the signs that a recession is in the offing | 8:02 | |
or a slow down and it is most unfortunate | 8:08 | |
if the Fed were to continue in its present | 8:12 | |
unduly restrictive policy. | 8:16 | |
- | Don't these erratic short term ups and downs | 8:19 |
raise some questions about your own proposal | 8:23 | |
for a steady rate of increase in the quantity of money? | 8:25 | |
Is that kind of increase feasible? | 8:30 | |
- | They really don't raise any such questions | 8:34 |
because one of the main reasons why you have | 8:37 | |
such erratic movements is that the Fed | 8:40 | |
is not trying to control the money stock direction. | 8:42 | |
It is taking as its immediate objectives of policy | 8:45 | |
more than the money stock | 8:50 | |
or things other than the money stock, | 8:52 | |
such as short term interest rates, treasury bill rates, | 8:54 | |
the rate on federal funds and so on. | 9:02 | |
And also when it looks at demand need peri-aggregate, | 9:07 | |
it looks not at the money stock | 9:10 | |
but at the so-called bank credit proxy. | 9:12 | |
As a result given that it is devoting its efforts | 9:15 | |
to controlling other things, | 9:19 | |
it is not at all surprising that the money stock | 9:21 | |
which then becomes an incidental consequence of | 9:24 | |
the other things it's doing should vary around quite a bit. | 9:26 | |
For example in these money stock figures | 9:30 | |
there is a fairly clearly marked quarterly seasonal | 9:35 | |
that is a 13 week movement which seems to reflect | 9:39 | |
the ebb and flow of the financial demand for funds | 9:43 | |
on the market over a quarterly period. | 9:47 | |
As you know many things do occur quarterly, | 9:50 | |
dividend dates come quarterly, | 9:51 | |
bonds come due quarterly and things like that happen. | 9:54 | |
This quarterly movement is one of the reasons why | 9:58 | |
you have had a recent confusion about | 10:01 | |
the movement of the money stocks. | 10:03 | |
Because a fairly sharp rise in the money stock | 10:05 | |
in a couple of recent weeks was part of the up swing | 10:08 | |
of that 13 week quarterly movement, | 10:12 | |
last week's decline may be part of a down swing | 10:16 | |
of that quarterly movement | 10:18 | |
but these erratic quarterly movements only result | 10:20 | |
because they are the indirect reflection of the forces | 10:23 | |
altering the magnitudes which the Fed looks at | 10:30 | |
most closely in its control policy. | 10:34 | |
If the Fed changed its approach, | 10:36 | |
if it said, no, we are going to look not at interest rates, | 10:38 | |
we're going to look directly at the quantity of money, | 10:44 | |
we are going to try to set our sights | 10:46 | |
so as to make the quantity of money | 10:49 | |
grow at a steady rate month after month, | 10:51 | |
well they could not make it absolutely perfectly precise. | 10:54 | |
There is a little leeway. | 10:56 | |
You can't get it on the nose every day. | 10:57 | |
There is no doubt whatsoever that they would be able to | 11:01 | |
reduce the fluctuations to a far smaller magnitude | 11:05 | |
than have occurred in the past, or even are occurring now, | 11:08 | |
and that they could come very close | 11:12 | |
to a steady rate of growth of quantity of money. | 11:14 | |
So I do not believe that this evidence is in any way | 11:18 | |
a reflection on the feasibility | 11:20 | |
of the kind of policy that I have proposed. | 11:22 | |
- | Professor Friedman, the papers have recently been giving | 11:28 |
great prominence to Pierre Rinfret's predictions for 1970. | 11:31 | |
Do you want to comment on that? | 11:37 | |
- | Pierre made those predictions at a luncheon talk | 11:39 |
of a meeting in New York at which I gave a talk | 11:43 | |
at one of the earlier sessions. | 11:46 | |
Some of the newspapers presented it as if we had had | 11:48 | |
a face-to-face confrontation, which we did not. | 11:50 | |
Not that that really affects the substance of the comments. | 11:53 | |
Several things impress me about Pierre's predictions. | 11:59 | |
The first is that his verbal predictions | 12:03 | |
do not completely jive with the numerical values | 12:05 | |
he attached to them. | 12:09 | |
His verbal predictions are of a very exuberant character. | 12:11 | |
He speaks of there being an unprecedented burst | 12:15 | |
of economic activity in 1970 and at least | 12:20 | |
leaves the impression that he is anticipating | 12:22 | |
a speeding up rather than a slowing down | 12:25 | |
in the present rate of growth of GNP | 12:28 | |
and price inflation and so on. | 12:31 | |
Yet when you look at the actual numerical values | 12:35 | |
of the predictions he made, | 12:38 | |
while his predictions for 1970 are higher than those which | 12:40 | |
are being made by most people who are forecasting GNP, | 12:44 | |
they imply a smaller rate of increase in GNP from '69 to '70 | 12:48 | |
than occurred from '68 to '69. | 12:55 | |
They are as I say on the outer range of the predictions, | 12:58 | |
but they're not quite so extreme as his verbal predictions. | 13:01 | |
But now with respect to either of them, | 13:06 | |
they aren't very different from those I've been making | 13:09 | |
or from those most other analysts | 13:13 | |
at the moment have been making. | 13:14 | |
You cannot say that they're incapable of being realized. | 13:17 | |
The interesting thing about economic events of this kind | 13:21 | |
is that there is a considerable element of chance in them. | 13:24 | |
Let's suppose somebody offered to bet you a dollar | 13:29 | |
that if he tossed a coin seven times in a row, | 13:35 | |
there would be seven heads. | 13:39 | |
And he offered to bet you a dollar | 13:43 | |
against a dollar, even money. | 13:44 | |
You would be a fool not to take that bet | 13:47 | |
because there's only one chance in 128 that | 13:49 | |
assuming he's using a fair coin | 13:54 | |
and not one with heads on both sides, | 13:56 | |
you would get seven heads in a row. | 13:58 | |
But suppose you made the bet, suppose it is a fair coin. | 14:01 | |
It might still come up that there would be | 14:04 | |
seven heads in a row. | 14:06 | |
I always remember very well a comment made | 14:07 | |
at a lecture I once attended by the most famous | 14:11 | |
mathematical statistician of our time, | 14:14 | |
Mr. Ronald A. Fisher, who died a couple years ago. | 14:18 | |
R. A. Fisher in this lecture was talking about | 14:23 | |
these problems of probabilities | 14:25 | |
and he said, "You know, it's a funny thing | 14:27 | |
"about the one chance in a million. | 14:29 | |
"It happens just once in a million times. | 14:31 | |
"It only surprises you when it happens to you." | 14:34 | |
Well the same way to go back to our coin case | 14:37 | |
it might happen once in 128 times, | 14:40 | |
and this might just be that time | 14:43 | |
that he got seven heads in a row. | 14:45 | |
You would lose your dollar. | 14:46 | |
But would you feel you had made a wrong bet? | 14:48 | |
Not at all. | 14:50 | |
If he offered you that bet over again the next minute, | 14:51 | |
you'd probably take it. | 14:54 | |
This is sort of my reaction to Pierre Rinfret's statement. | 14:56 | |
I feel that the chance that 1970 will turn out | 15:00 | |
to show a rapid acceleration over 1969, | 15:08 | |
that you will have a much larger increase in GNP, | 15:13 | |
that inflation which in recent months | 15:16 | |
has started to decelerate a little | 15:18 | |
will turn around and accelerate, | 15:20 | |
I feel the chances of that are very small. | 15:22 | |
They're about one in 128, but they're not zero. | 15:24 | |
There is a good deal of slip in these relationships | 15:28 | |
we observe, there's a good deal of error in observation | 15:31 | |
and in the reaction of the economy to various variables, | 15:35 | |
so it could be, I can't say it's completely impossible | 15:38 | |
that his predictions will come out to be true. | 15:42 | |
Of course if they do, he will look very, very good, | 15:45 | |
but that will not make me feel that | 15:48 | |
this was other than the one chance in 128 coming true. | 15:53 | |
That's why I keep emphasizing in answer to people who say, | 15:58 | |
well isn't this a crucial experiment? | 16:01 | |
Will this really tell a difference? | 16:02 | |
Are you really trying to rest everything on this? | 16:04 | |
I keep saying no, the evidence for the relationships | 16:07 | |
we're talking about is evidence based on | 16:10 | |
many observations, many episodes over a long period of time. | 16:14 | |
No single episode is going either to disprove | 16:17 | |
or to confirm these relationships. | 16:22 | |
So then going back to Pierre, | 16:25 | |
there's a chance that he may be right, | 16:27 | |
but I think it's a bad bet. | 16:30 | |
It's very hard to believe that once you get a | 16:32 | |
development in force of the kind we've had, | 16:37 | |
and that we are having, that you can have it turn around. | 16:40 | |
One of Rinfret's forecasts has to do of course | 16:44 | |
with interest rates, he thinks interest rates | 16:49 | |
are going to go up still higher, | 16:51 | |
and I might add one point about that that I think | 16:53 | |
that I've discovered is confusing in various discussions. | 16:56 | |
Pierre sometimes refers to the prime interest rate | 16:59 | |
and it might well be, | 17:03 | |
the prime interest rate might do anything because | 17:04 | |
in my opinion as I've expressed on these tapes before, | 17:07 | |
the prime interest rate is a highly artificial rate. | 17:09 | |
It is not a real market rate. | 17:13 | |
It is artificial both because it is agreed to | 17:16 | |
by groups of banks implicitly and established, | 17:19 | |
but more important because it is part of a | 17:22 | |
joint bargain involving compensating balances. | 17:24 | |
The prime interest rate is now if I recall it correctly 8.5% | 17:28 | |
but the actual rate of interest which borrowers are paying | 17:33 | |
to get commercial loans from banks | 17:36 | |
is more nearly 10 or 11%, not 8.5%. | 17:38 | |
So the prime rate might do anything | 17:42 | |
but I do not think there's much of a chance | 17:44 | |
that the other rates of interest, | 17:47 | |
the rates of interest that are market rates, | 17:50 | |
the bill rate, bond rate, are likely to behave | 17:51 | |
the way in which Rinfret suggests. | 17:56 | |
Again there's one chance maybe in a hundred, | 17:57 | |
one chance in a thousand that they will behave that way, | 17:59 | |
but the odds seem to me all in the other direction. | 18:02 | |
One of the interesting questions about predictions | 18:07 | |
of the kind that Rinfret makes is how people get to this | 18:10 | |
kind of a position, what is their theoretical basis, | 18:13 | |
what is the reason that leads them this way? | 18:17 | |
And I have been increasingly impressed | 18:20 | |
as I have had more contact with people in business | 18:24 | |
and people in Washington with the sort of | 18:27 | |
a schizophrenia in their reactions. | 18:31 | |
With respect to operations in their own business, | 18:33 | |
businessmen are capable of taking | 18:38 | |
an extraordinarily long view. | 18:40 | |
They can today engage in decisions which involve | 18:43 | |
erecting a plant for output that they don't expect | 18:47 | |
to be demanded for four or five or six or seven years. | 18:51 | |
They can invest large sums for many years | 18:55 | |
in developing new processes which may or may not work out. | 18:57 | |
In these respects, they are very long-sighted. | 19:01 | |
Yet when it comes to current policy, | 19:04 | |
or when it comes to immediate governmental actions, | 19:06 | |
they tend to be extremely short-sighted | 19:09 | |
to have very little sense of perspective. | 19:12 | |
They expect something to happen tomorrow | 19:14 | |
and if it doesn't happen tomorrow | 19:16 | |
they go running and want instant cures for the problem. | 19:17 | |
This is particularly exaggerated in the case of | 19:23 | |
people in the financial markets. | 19:27 | |
People in the financial markets are engaged in a business | 19:28 | |
of watching the day-to-day movements in stocks | 19:31 | |
or maybe the hour-to-hour or maybe the minute-to-minute. | 19:33 | |
They in the process lose all sense of, | 19:37 | |
well all sense is a little strong, | 19:41 | |
lose a good deal of sense of a feeling of perspective, | 19:43 | |
of a feeling of the time that it takes to do things. | 19:48 | |
Each month seems like a long period. | 19:51 | |
The tendency for increasing comments to be heard | 19:56 | |
about Nixon's anti-inflation policy is not working, | 20:01 | |
monetary's changed, it's having no effect, | 20:04 | |
why is nothing happening, | 20:06 | |
reflect in my opinion predominantly this | 20:08 | |
lack of time perspective on the part | 20:12 | |
of the persons making the comments | 20:16 | |
which includes a very high proportion of those | 20:18 | |
in these highly volatile short time span markets. | 20:21 | |
In fact as I've stressed on these tapes, | 20:26 | |
if we stand back a little, look at things | 20:28 | |
from the perspective of the ivory tower, | 20:31 | |
taking into account the past time delays | 20:33 | |
between changes in economic policy | 20:37 | |
and particularly monetary policy | 20:40 | |
and changes in the economy, | 20:42 | |
the present course of events is not in any way | 20:45 | |
out of line with past experiences. | 20:49 | |
Things are happening just about on schedule. | 20:52 | |
The point is that it's as we look at this schedule, | 20:55 | |
we're passing through it, we're impatient for results, | 20:58 | |
and it seems to us to be taking much longer than it is. | 21:01 | |
I suspect that in part this is the reason | 21:04 | |
for the kinds of forecasts that Rinfret makes | 21:08 | |
and for the kind of welcome that these forecasts get. | 21:11 | |
Another interesting feature that I was impressed with | 21:16 | |
in Rinfret's comments was a set of prescriptions he had | 21:19 | |
for what to do something about it, | 21:23 | |
because obviously in the modern day and age | 21:25 | |
when there must be a pill for every ill, | 21:27 | |
as Senator Barry Goldwater used to say | 21:31 | |
in the course of his presidential campaign, | 21:36 | |
the tendency if you say something is ill | 21:39 | |
is to prescribe the pill and so Pierre comes along. | 21:43 | |
Needless to say, I should say I am not saying this | 21:47 | |
in any criticism because goodness knows | 21:50 | |
I've been one of the worst offenders in this respect. | 21:52 | |
I haven't hesitated to hawk my pill, | 21:55 | |
and Rinfret's pill I am now reading from a | 21:57 | |
New York Times story of his talk, | 22:01 | |
would include a ban on bank credit cards, | 22:04 | |
reimposition of wartime controls on consumer credit, | 22:06 | |
an increase in the surtax to 15% | 22:09 | |
and an increase in the investment tax credit to 10% from 7%. | 22:12 | |
Now this is a curious mixed bag. | 22:17 | |
A ban on bank credit cards is of negligible importance | 22:20 | |
for anything. | 22:23 | |
Bank credit cards may be good or mad but it is | 22:23 | |
inconceivable that they can play an important role | 22:27 | |
as a matter of quantitative magnitude in an inflationary | 22:30 | |
process of a short time magnitude over the next year. | 22:34 | |
Over a course of 10 or 15 years they may change | 22:38 | |
as the demand for money to such an extent | 22:41 | |
that you would get increased velocity, | 22:43 | |
that it would be desirable to have | 22:45 | |
a slower rate of growth the quantity of money. | 22:48 | |
I doubt it very much but it might happen. | 22:50 | |
In my opinion the great credit card craze | 22:52 | |
is simply the twentieth century substitute for | 22:55 | |
the account at the corner grocery store of our grandparents | 22:58 | |
and great grandparents 75 or 80 years ago. | 23:02 | |
It's not by any means clear that a larger fraction | 23:05 | |
of transactions today are done on credit | 23:08 | |
than were done on credit let us say 80 years ago. | 23:10 | |
But at any rate whatever may be its longer run | 23:15 | |
implications it is an absurdity to suppose in my opinion | 23:17 | |
that it could have any affect in the short run. | 23:21 | |
The second reimposition of wartime controls | 23:24 | |
on consumer credit is another gimmick | 23:26 | |
which is of wider importance. | 23:29 | |
It certainly is of more significance but | 23:32 | |
the examination of experience under those controls | 23:38 | |
suggests that they have very limited effectiveness | 23:42 | |
and that their only effect is not on inflation | 23:44 | |
but on interest rates for other than consumer credit. | 23:49 | |
Insofar as they reduce the amount of credit | 23:53 | |
that goes to consumer credit they increase | 23:56 | |
the amount that's available for other things | 23:57 | |
but it is far from clear that | 24:00 | |
they have any effect on inflation whatsoever. | 24:01 | |
I once wrote a lengthy article examining | 24:04 | |
this wartime episode and analyzing it | 24:07 | |
from the point of view of policy | 24:09 | |
and the conclusion I came to was that | 24:11 | |
it was a very undesirable method of credit control. | 24:12 | |
If you're going to control credit, | 24:18 | |
do so by general monetary means which enables | 24:20 | |
a pinch to be spread through market mechanisms, | 24:25 | |
not by having some set of bureaucrats decide | 24:29 | |
whether people should put a third of the purchase price | 24:32 | |
or a quarter of the purchase price down in advance. | 24:35 | |
His third proposal was for an increase in the surtax to 15%. | 24:38 | |
For those who believe that fiscal effects | 24:46 | |
aren't important for inflation, | 24:48 | |
this is a proposal of a very large magnitude. | 24:51 | |
It's a very important proposal. | 24:55 | |
It's big. | 24:56 | |
That's the only one in this set of four items | 24:57 | |
which conceivably could be of any significance | 25:00 | |
and I think the political probability of it | 25:03 | |
is about the same as of the proverbial snowball. | 25:05 | |
Finally so far as an increase in the investment tax credit, | 25:10 | |
if that had any effect it would be in the short run, | 25:13 | |
it would be to stimulate in attempted investment | 25:15 | |
expenditures and to offset the effect of the credit control. | 25:18 | |
So whatever may be his predictions, | 25:21 | |
I think his prescriptions have little to be said for them. | 25:23 | |
- | But Professor Friedman, suppose your policies don't work. | 25:27 |
What are the further policies that you would suggest? | 25:31 | |
- | There are no real alternatives except more of the same. | 25:36 |
The other proposals that people make like | 25:43 | |
price and wage controls, which is a favorite one, | 25:45 | |
would not in fact have any effect on inflation. | 25:48 | |
There are few things of which we have | 25:51 | |
more extensive experience over thousands of years | 25:53 | |
from the time of Diocletian to the present, | 25:55 | |
that the main effect of such wage and price controls | 25:58 | |
is to shift inflationary pressure, not to stem it. | 26:00 | |
So if indeed events change their behavior, | 26:05 | |
instead of continuing as they have been | 26:11 | |
on the course that you would expect from what's been done, | 26:13 | |
if there were to be a move along Rinfret's direction, | 26:17 | |
if that one chance in 128 did emerge, | 26:20 | |
there is no alternative other than to maintain | 26:23 | |
a still closer control on the expansion | 26:26 | |
of the quantity of money on the one hand | 26:30 | |
or if you were a fiscalist, | 26:32 | |
if you believe in fiscal effects on tax policy on the other. | 26:34 | |
I do not believe any of that will be necessary | 26:38 | |
because as I say I believe the danger is all the other way, | 26:40 | |
that we are now over killing | 26:43 | |
because of a lack of perspective and patience, | 26:45 | |
not under killing. | 26:47 | |
- | We have very little time left. | 26:49 |
Are there any other late items | 26:51 | |
that you'd like to comment on? | 26:52 | |
- | Yes, I would like to make a comment | 26:54 |
at this time of the year on the reindeer market. | 26:56 | |
This is that time of the year when I would like to | 27:00 | |
take the opportunity of expressing | 27:03 | |
the best of holiday wishes and the best wishes | 27:06 | |
for a happy and prosperous new year | 27:10 | |
to all of you who are doing me the honor of listening to me | 27:12 | |
as I make these comments on the economic situation. | 27:16 | |
- | Thank you very much, Professor Friedman. | 27:20 |
Remember subscribers, if you have any questions or comments | 27:23 | |
or topics you would like to hear discussed in this series, | 27:26 | |
please send them to Instructional Dynamics Incorporated, | 27:28 | |
166 East Superior Street, Chicago, Illinois, 60611. | 27:32 | |
Dr. Friedman will be visiting with you again in two weeks. | 27:37 |
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