Tape 152 - Monetary Policy, Economic Prospects, GM and Ford Price Hikes, Price and Wage Controls?
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- | This is Rose Friedman, inviting you on behalf of | 0:02 |
Instructional Dynamics to another of our | 0:04 | |
biweekly conversations with Milton Friedman, | 0:07 | |
Professor of Economics at The University of Chicago. | 0:10 | |
We are taping this conversation on | 0:13 | |
Wednesday, August 21, 1974. | 0:15 | |
The papers continue to talk about tight money. | 0:22 | |
What do the figures show? | 0:25 | |
- | I have in my hands, here, | 0:27 |
the latest report of the | 0:30 | |
Federal Reserve Bank of St. Louis | 0:31 | |
for the week ending August 14, 1974. | 0:34 | |
The introduction of that report starts as follows. | 0:38 | |
The money stock is increased at a 4.4 percent | 0:41 | |
annual rate in the past three months. | 0:44 | |
Considerably slower than the 8.6 percent | 0:47 | |
rate of increase in the previous six months. | 0:49 | |
Growth of the monetary base is also slowed | 0:52 | |
in the past three months to a five percent | 0:55 | |
rate of increase from a 10 percent rate | 0:57 | |
in the previous six months. | 0:59 | |
It goes on. | 1:00 | |
It is this kind of discussion of the figures | 1:02 | |
which underlies the widespread belief | 1:05 | |
the Federal Reserve has indeed significantly | 1:08 | |
tightened money in the sense of reducing the | 1:12 | |
rate of monetary growth. | 1:15 | |
Having been bitten so many times in the past, | 1:17 | |
by brief movements of this kind, | 1:20 | |
I have gone back and looked at the figures a little bit | 1:23 | |
more in detail. | 1:25 | |
You will recall that I have stressed | 1:27 | |
over and over again on the tapes | 1:29 | |
that if you examine the monetary aggregate for the past | 1:31 | |
three or four years, | 1:36 | |
what you find is that they have been growing | 1:38 | |
about roughly constant rate of growth trends | 1:41 | |
that is straight line, logarithmic or expediential trends. | 1:44 | |
At rates of growth of roughly about 6.7 percent | 1:48 | |
for M1 and 9.7 or eight percent for M2. | 1:51 | |
So what I did, was to calculate out | 1:58 | |
the values of M1 and M2 | 2:03 | |
that would lie precisely along that straight line | 2:07 | |
logarithmic trend. | 2:10 | |
That is, if you take the straight line fitted to the data, | 2:12 | |
from March 1971 to March 1974, | 2:16 | |
and extrapolate it, what numbers do you get | 2:22 | |
for the M1 and M2? | 2:26 | |
And how do the actual numbers compare? | 2:31 | |
With respect to M1, the situation on a monthly basis. | 2:35 | |
It's really a little bit hard to do this on a weekly basis | 2:41 | |
because the weeks fluctuates so much. | 2:44 | |
But I have calculated the monthly figures through July | 2:46 | |
so it's practically current. | 2:49 | |
Are very clear. | 2:52 | |
In the month of July 1974, | 2:54 | |
that straight line trend would have predicted for M1 | 3:00 | |
281.3 billion dollars. | 3:04 | |
The actual M1 was 281.0 billion dollars or | 3:08 | |
three tenths of a billion dollars below the predicted. | 3:12 | |
Now that's well within the range of statistical accuracy | 3:17 | |
let alone, in term of the fluctuations from time to time, | 3:21 | |
let me put it a little differently. | 3:25 | |
I calculated for the past year and a half, | 3:27 | |
that is from January 1973, | 3:32 | |
what were the month by month differences | 3:35 | |
between the actual value of M1 and the value of M1 | 3:38 | |
that would have been predicted by this straight line? | 3:42 | |
Those actual values exceeded the straight line | 3:46 | |
by a maximum of 3.4 billion dollars in June of 1973. | 3:49 | |
It fell short of the straight line by a little over | 3:56 | |
one billion, about 1.3 billion dollars in October 1973. | 4:01 | |
Hence, the present short fall of three tenths of one billion | 4:07 | |
dollars is well within the range of the fluctuations | 4:11 | |
of this number over the past year. | 4:14 | |
However, I've overstated the case a little. | 4:16 | |
For the months of March, April, May, June, and July, | 4:20 | |
the actual money supply was running about one billion | 4:27 | |
dollars above the trend line. | 4:29 | |
It fell to three tenths of a billion | 4:31 | |
in July below the trend line. | 4:33 | |
This three month slow down the rate of growth | 4:36 | |
that the Federal Reserve Bank of St. Louis points to | 4:39 | |
is produced entirely by this shift from about | 4:43 | |
a billion above the line to three tenths below the line. | 4:47 | |
I hope it isn't a harbinger of a real slow down | 4:51 | |
in the rate of growth. | 4:56 | |
But surely on the basis of this evidence, | 4:57 | |
with respect to M1, I'll come back to M2 in a moment. | 4:59 | |
With respect to M1, surely it is little more than the | 5:03 | |
dimmest indication of any real shift from one | 5:09 | |
trend line to another. | 5:15 | |
We will have to wait for more evidence. | 5:19 | |
Now, when you come to M2, | 5:21 | |
the situation is a little bit different. | 5:23 | |
For the last month, July, the actual observed M2, | 5:26 | |
is 599.9 billion dollars | 5:31 | |
or just a shade off six hundred billion. | 5:34 | |
The value that would have been calculated | 5:38 | |
from the trend line is 603.9 or four billion dollars higher. | 5:40 | |
So there is a difference of four billion dollars. | 5:45 | |
Moreover, that is the largest difference | 5:49 | |
in the past year and a half. | 5:52 | |
The actual value was 3.6 billion dollars above the trend | 5:54 | |
in January 1973, two and a half billion dollars below it | 5:59 | |
in September 1973. | 6:03 | |
So this four billion dollars is a little bit below. | 6:06 | |
However, again, it's not very much outside the range. | 6:09 | |
It's a one month, well a little more than one month shot. | 6:13 | |
The actual was exactly on the trend in April. | 6:18 | |
It was two billion dollars below in May and June | 6:21 | |
and it dropped to four billion dollars in July. | 6:24 | |
But again, if you look back over these numbers | 6:26 | |
over the past few years, | 6:29 | |
there is absolutely nothing unusual in that | 6:30 | |
kind of a deviation. | 6:32 | |
Of course, the reason why M2 has been below the trend | 6:34 | |
to a greater extent than M1, | 6:39 | |
is because of the so called disintermediation effect. | 6:42 | |
The fact that you have had high interest rates on | 6:47 | |
money market instruments and much more important, | 6:50 | |
the fact that the market has been responding | 6:52 | |
to the demand for ways in which savers could | 6:57 | |
put up funds and get something like the market interest rate | 7:02 | |
on small amounts | 7:06 | |
and therefore has been producing | 7:07 | |
all of the money market funds. | 7:09 | |
Plus, the recent treasury issue which cut the amount, | 7:11 | |
the minimum amount that could be subscribed down to | 7:16 | |
a thousand instead of ten thousand | 7:20 | |
and offered a relatively attractive rate of interest. | 7:22 | |
These factors have of course, encouraged savers | 7:25 | |
to withdrawal funds from commercial buying time deposits | 7:30 | |
because remember, the M2 only includes commercial buying | 7:33 | |
time deposit. | 7:36 | |
It excludes the large CDs which have been relatively high. | 7:39 | |
Having been encouraging people to withdrawal | 7:46 | |
from time deposits | 7:48 | |
and to buy directly, purchase, money market instruments | 7:50 | |
at higher rates. | 7:55 | |
And the effect of this, of course, | 7:56 | |
has been a lower M2 relative to M1 | 7:58 | |
but it is very hard to know whether one should put much | 8:00 | |
stress in the economic importance to that. | 8:02 | |
To summarize, such minor straws in the wind as they are | 8:05 | |
are consistent with the view that the Fed is moving | 8:10 | |
toward a somewhat lower rate of growth | 8:14 | |
with the money supply. | 8:16 | |
But the straws are as yet extremely minor | 8:17 | |
and it would be very very unwise to depend on them | 8:20 | |
as giving any real indication of what's going to happen | 8:25 | |
in the monetary sphere. | 8:28 | |
- | There is much speculation about what Ford's | 8:30 |
succession to the presidency will mean | 8:32 | |
and in particular, his tough talk about inflation. | 8:35 | |
Some people think this will mean a recession in 1975. | 8:39 | |
What is your opinion on it? | 8:43 | |
- | In a way I would like to say, I would like to hope | 8:47 |
that those people are right. | 8:51 | |
Recessions are bad things of course | 8:52 | |
but inflation is a bad thing. | 8:55 | |
On a minor digression from this, | 9:00 | |
I am always getting the question, | 9:03 | |
"How much will it cost us to stop inflation?" | 9:05 | |
And I've increasingly come to believe that | 9:08 | |
that's like a when did you last beat your wife question. | 9:11 | |
Because I am inclined to reply, | 9:15 | |
"How much will it cost us not to stop the inflation?" | 9:16 | |
The economy is in a situation | 9:19 | |
where we have a serious disease. | 9:21 | |
If you have a really serious appendicitis, | 9:23 | |
you can ask how much will it cost you | 9:26 | |
to stop the appendicitis to have an operation. | 9:28 | |
But you also must ask | 9:31 | |
how much will it cost you not to do it? | 9:32 | |
And that's, I believe, our situation. | 9:35 | |
So that I believe that from a long run point of view, | 9:37 | |
given that we have a serious disease, | 9:41 | |
we are better off getting the cure right now, | 9:43 | |
than we are postponing it and letting the illness get worse. | 9:46 | |
So that all things considered, | 9:49 | |
if the public were willing to stand for it, | 9:52 | |
it would be desirable if Mr. Ford, President Ford | 9:56 | |
would and could, I'll come back to the could in a moment, | 9:59 | |
because I think it is a could that is really crucial. | 10:02 | |
If he would and could follow a policy that | 10:05 | |
would tighten the situation sufficiently | 10:08 | |
to produce a recession in '75, | 10:12 | |
which would in effectively bring inflation back | 10:15 | |
to a level of two or three or one percent | 10:20 | |
a year that we could live with indefinitely. | 10:22 | |
But, that's talk. | 10:26 | |
Let's look at the realities. | 10:29 | |
Number one, President Ford has no control over the | 10:32 | |
monetary authorities. | 10:36 | |
The monetary authorities will behave independently. | 10:38 | |
There have been a spade of newspaper stories recently, | 10:40 | |
criticizing the Fed on the grounds | 10:43 | |
that it acted politically in 1972 | 10:47 | |
in order to win the election for Mr. Nixon | 10:51 | |
and adopt an excessively policy for that. | 10:53 | |
As I have states on these tapes before, | 10:55 | |
I cannot accept any such interpretation. | 10:57 | |
I believe the Federal Reserve Board is | 11:02 | |
much influenced by political atmosphere | 11:05 | |
and politics, but not in that kind of a crude | 11:07 | |
and direct way. | 11:09 | |
It's a last thing in the world that they would do. | 11:11 | |
Especially, one of the curious things about | 11:14 | |
all these charges is that nobody seems to take | 11:18 | |
into account the fact that the overwhelming proportion | 11:20 | |
of the members of the board and of the governors | 11:23 | |
and the presidents of the banks are Democrats. | 11:27 | |
But in any event, | 11:30 | |
you've got to have a much more subtle | 11:34 | |
analysis of political influences to see how politics | 11:36 | |
interact with monetary policy. | 11:39 | |
But in any event, President Ford | 11:40 | |
will have no direct effect, | 11:43 | |
and I believe, very little indirect effect, | 11:45 | |
on the course of monetary policy. | 11:47 | |
So in judging whether there's going to be a recession | 11:49 | |
next year, we have to ask, | 11:51 | |
"How will a Fed behave?" | 11:53 | |
And has President Ford's succession, | 11:56 | |
in any significant way changed the pressures on the Fed? | 11:59 | |
My answer to that is no. | 12:05 | |
I do not see that it has changed the pressures on the Fed. | 12:07 | |
The Fed has been restrained in the past | 12:10 | |
and has tended to be inflationary | 12:14 | |
because of the pressures on it | 12:16 | |
from Congress on the one hand | 12:18 | |
and from its constituents on the other, | 12:19 | |
that is the bankers, | 12:22 | |
who all say they're against inflation except | 12:23 | |
that they want the Fed to give them easier credit. | 12:26 | |
And from their own concern about the temporary | 12:29 | |
unemployment that would be produced by tightening. | 12:34 | |
Plus, from their continuous | 12:39 | |
mis-assessment of the situation. | 12:41 | |
They have continuously, over years now, | 12:44 | |
mis-analyzed the situation in terms of | 12:48 | |
underrating the significance of their own | 12:51 | |
monetary expansion for subsequent inflation. | 12:55 | |
I believe they have learned something. | 13:00 | |
I believe that accounts for their tougher talk | 13:03 | |
and it may lead them to hold the rate of monetary | 13:06 | |
growth down to the neighborhood of the | 13:08 | |
6.7 percent rather than speeding it up to another notch. | 13:10 | |
Perhaps, they will show the courage and independence | 13:16 | |
and understanding to bring it down to a five percent | 13:20 | |
rate of growth. | 13:23 | |
If so, then that would be very likely to mean | 13:25 | |
a continued slow rate of growth of the economy | 13:31 | |
and what will be called a recession. | 13:34 | |
I cannot see any possibility of it converting into | 13:38 | |
a serious recession. | 13:41 | |
In order to do that, I think they would have to | 13:43 | |
bring monetary growth down very much more sharply | 13:45 | |
than I've indicated. | 13:48 | |
Now let's look at the next component: Fiscal policy. | 13:50 | |
It's relevance is mostly, in my opinion, | 13:56 | |
what effect it has on Fed monetary policy. | 14:02 | |
When they treasury runs a large deficit, | 14:06 | |
it absorbs a large fraction of the capitol market. | 14:09 | |
It tends to drive up interest rates | 14:14 | |
and given the Feds preoccupation with interest rates, | 14:16 | |
it tends to lead the Fed to engage in a | 14:18 | |
more expensive monetary policy than they otherwise would. | 14:21 | |
There are many people, of course, who also think | 14:25 | |
that the fiscal policy has a more direct influence. | 14:27 | |
This issue really isn't relevant | 14:32 | |
to what I'm going to say now | 14:34 | |
and so what I'm going to say seems to be equally relevant | 14:35 | |
to those who believe it does have a direct influence | 14:38 | |
and those who believe it does not. | 14:41 | |
And here my point is President Ford may talk tough | 14:43 | |
but he does not really, is not really likely to have any | 14:48 | |
effective power to make Congress cut the government budget | 14:51 | |
very sharply. | 14:56 | |
After all, I cannon believe President Ford | 14:57 | |
will really talk tougher than President Nixon | 15:00 | |
talked in 1969 and 70. | 15:02 | |
He had very limited or no success. | 15:05 | |
President Ford can veto some bills. | 15:08 | |
That will be all to the good. | 15:10 | |
The most I can see his doing, | 15:13 | |
is slowing down the rate at which government spending | 15:16 | |
are accelerating. | 15:21 | |
Perhaps, he can keep the increase in the budget next year | 15:23 | |
to 25 billion dollars instead of 30 billion dollars. | 15:29 | |
That's more comfort when what we ought to be doing | 15:32 | |
is cutting the budget down by a definite amount | 15:34 | |
making next year's budget smaller than this one. | 15:36 | |
And moreover, there are some roadblocks along the way. | 15:39 | |
The budget, the optimistic budget watchers ought | 15:43 | |
not to omit. | 15:47 | |
There is enormous pressure for a public employment measure. | 15:50 | |
I think on an earlier tape I discussed why that's | 15:56 | |
an absolutely false and useless measure | 15:58 | |
which would not do a thing to reduce unemployment. | 16:01 | |
But that doesn't reduce its political appeal. | 16:05 | |
Chairman Burns has come out for a four billion dollars | 16:08 | |
public employment measure. | 16:11 | |
Many republicans are coming out | 16:13 | |
for a public employment measure. | 16:15 | |
I think we shall be very very fortunate indeed. | 16:17 | |
If we do not get enacted something like a four | 16:20 | |
or five or six billion dollar public employment | 16:22 | |
measure in the near future. | 16:25 | |
In the second place, | 16:27 | |
the thrift institutions are another major roadblock. | 16:29 | |
There is no question about their problems, | 16:35 | |
which we've talked about many times. | 16:37 | |
The question is how is it going to be handled | 16:38 | |
and how soon will it come to the surface? | 16:41 | |
I have no doubt that if serious, major problems arise | 16:43 | |
about the thrift institutions, | 16:47 | |
Congress will legislate money and with the support | 16:49 | |
of President Ford to bail them out. | 16:52 | |
What's involved are not trivial sums. | 16:56 | |
Various estimate get up to 10 billion dollars a year | 16:59 | |
as the amount that is needed to bail the | 17:02 | |
thrift institutions out. | 17:05 | |
After all, they have something like 350 billion | 17:07 | |
dollars in liabilities and the market rate | 17:09 | |
of interest differs from the rate of interest | 17:12 | |
they have been paying on their liabilities | 17:14 | |
by something like three percentage points. | 17:16 | |
That's 10 billion a year. | 17:18 | |
I doubt very much that you will have any bail out | 17:20 | |
on that scale. | 17:23 | |
But a four or five billion dollar a year bail out | 17:24 | |
I find it hard to see how it's going to be avoided. | 17:27 | |
In the third place, where much talk about compromise | 17:30 | |
on a national health insurance bill. | 17:34 | |
There is no compromise that isn't going to | 17:37 | |
make a major increase in the budget. | 17:39 | |
The only compromise is whether the increase | 17:42 | |
in the budget will be open or hidden. | 17:44 | |
After all, if Congress requires employers | 17:47 | |
to pay for additional health insurance employees, | 17:53 | |
where is that fundamentally different from | 17:57 | |
Congress enacting a tax on employers | 18:00 | |
which they then use to pay for the cost of health? | 18:02 | |
So that however this compromise is developed | 18:07 | |
it's going to be another thing expanding government budget. | 18:08 | |
Is it easy to see any sharp cuts otherwise? | 18:12 | |
President Ford has already expressed himself | 18:18 | |
strongly as being against cuts in defense. | 18:20 | |
And it is true that the defense budget in real terms | 18:23 | |
has been declining and is lower now than it has | 18:26 | |
been for many years. | 18:28 | |
Where else is there any looming major cuts? | 18:31 | |
It's very hard to see them. | 18:35 | |
Thus my conclusion on fiscal policy is that | 18:37 | |
while President Ford will talk tough | 18:40 | |
and while I hope he will have some success in slowing | 18:43 | |
down the rate at which government expenditure | 18:48 | |
programs expand, | 18:50 | |
I think it will be a miracle if we see any | 18:52 | |
substantial slow down in the rate of government spending. | 18:55 | |
Well then, what else is there left? | 19:00 | |
There is no other effective policy available | 19:03 | |
to President Ford with which he can effectively | 19:07 | |
slow down the inflation. | 19:11 | |
I think there are other initiatives open to him | 19:13 | |
that might strengthen his hand. | 19:16 | |
Maybe not immediately but in the long pull. | 19:18 | |
I am strongly in favor, as I have said many times here, | 19:21 | |
on inflation proofing the tax system. | 19:26 | |
On having the government issue securities with | 19:29 | |
purchasing power clause. | 19:33 | |
Those are options open to the President. | 19:35 | |
He can perhaps encourage and support the development | 19:38 | |
of variable rate mortgages and variable rate | 19:41 | |
payments by thrift institutions. | 19:46 | |
These will ease the cost of the inflation. | 19:48 | |
They may lay the ground work for some future time, | 19:52 | |
cutting the inflation, | 19:55 | |
but the inflation will not, in fact, | 19:57 | |
be put under control. | 19:59 | |
We will not, in fact, have a severe recession | 20:02 | |
as part of the price of getting the inflation under control | 20:05 | |
until it has become clear that | 20:08 | |
that is politically advantageous. | 20:11 | |
I happen to believe that there is a cultural lag | 20:13 | |
in the apperception by legislators | 20:16 | |
and people in Washington of public attitude. | 20:21 | |
I happen to believe that public attitudes | 20:24 | |
have moved very far in the direction | 20:26 | |
of putting inflation ahead of temporary unemployment | 20:29 | |
as a major problem. | 20:33 | |
I do not think the politicians in Washington | 20:34 | |
have yet recognized that apperception. | 20:37 | |
Unless that apperception is correct | 20:39 | |
and unless they recognize it, | 20:43 | |
we should not have any effective move in the near future. | 20:45 | |
Although we may have and probably will have | 20:48 | |
a minor recession as a result of a continued | 20:50 | |
waffling back and forth of the kind we've had | 20:53 | |
for some years. | 20:56 | |
- | You talk about a mild recession and a severe recession | 20:57 |
and this may be misunderstood, I think, | 21:00 | |
by your subscribers. | 21:03 | |
People are always talking about 1929. | 21:05 | |
Are we going to have a 1929? | 21:08 | |
You don't mean that kind of a recession - | 21:09 | |
- | No, no I think - | 21:12 |
- | a severe recession. | |
- | I don't. You're quite right. | 21:13 |
I think a deep depression of the '29-33 variety | 21:15 | |
is impossible without a monetary collapse. | 21:17 | |
I do not see any chance of a monetary collapse. | 21:20 | |
What I am talking about is whether we are going to have | 21:22 | |
a recession of a kind in which the unemployment rates | 21:25 | |
gets up to six, six and a half percent. | 21:28 | |
Or whether we're going to have a recession of a kind | 21:30 | |
in which the unemployment rate hits eight, | 21:32 | |
eight and a half percent for a brief period of time. | 21:34 | |
Those are things of an altogether different magnitude | 21:37 | |
than the situation in the 1930s | 21:40 | |
when the unemployment rate got up to something like | 21:44 | |
20 or 25 percent. | 21:47 | |
More importantly, the unemployment rate | 21:48 | |
is not what's important. | 21:51 | |
What's important is long term unemployment. | 21:52 | |
At the moment, long term unemployment | 21:54 | |
in the sense of the number of people | 21:57 | |
who are unemployed over six months. | 21:58 | |
I don't know what the exact figure is, I forget it. | 22:00 | |
But it's something like a half or one percent. | 22:02 | |
It's not a very large sum. | 22:05 | |
In the 1929-33 episode, | 22:07 | |
it's that rate which got up into a very large sum | 22:10 | |
and which became a serious problem. | 22:13 | |
In the same way a deep recession would be one | 22:15 | |
in which that rate got up to two or three percent. | 22:18 | |
- | President Ford has been jawboning General Motors | 22:21 |
about its announced price increase. | 22:27 | |
General Motors is sticking to it's guns. | 22:29 | |
Also, Ford Motor has announced a large price hike. | 22:32 | |
What do you see in this? | 22:36 | |
- | Well I think these price hikes by Ford and General Motors | 22:39 |
have been widely misinterpreted. | 22:42 | |
They have been taken to mean a signal that | 22:45 | |
price inflation is going to continue because it is said | 22:50 | |
the actual price paid for cars will go up by 10 percent | 22:53 | |
if that's what roughly GM and Ford have done. | 22:58 | |
I think that's only misconceiving | 23:02 | |
the nature of the price increase. | 23:04 | |
In the first place, it's worth emphasizing | 23:06 | |
that the actual price at which cars are sold | 23:08 | |
is one of the most flexible prices in their system. | 23:12 | |
Because it doesn't depend on list prices. | 23:15 | |
It depends on discounts. | 23:17 | |
It depends on the trade in value which is assigned | 23:19 | |
to cars that are traded in. | 23:22 | |
The price that a buyer pays for a car is a market | 23:24 | |
determined price of high flexibility. | 23:29 | |
So that it is perfectly conceivable | 23:32 | |
that you can have these high list price increases | 23:34 | |
and yet the actual price paid for a car | 23:37 | |
would show nothing like a similar increase. | 23:39 | |
If it became impossible to handle that through | 23:41 | |
a trade in and the dealer's discount, | 23:45 | |
there is not doubt that in the course of | 23:47 | |
the model year, GM or Ford would make special | 23:49 | |
deals with their dealers or give them special | 23:52 | |
discounts and you would have talk about sales campaigns | 23:54 | |
and the like. | 23:58 | |
The question to ask is why then did Ford and GM | 23:59 | |
announce such hikes? | 24:03 | |
And the answer is simplicity itself. | 24:04 | |
They are not fools. | 24:07 | |
They know what happened to them when we had | 24:09 | |
price and wage control imposed. | 24:11 | |
They can see that price and wage control is | 24:13 | |
one of the possibilities that cannot be ruled out. | 24:16 | |
I interpret these very large price hikes as simply | 24:19 | |
measures which they are taking to ensure themselves | 24:22 | |
against the possibility of price control | 24:25 | |
being reimposed. | 24:28 | |
They want to be sure they have a high base | 24:29 | |
when and if price control is imposed. | 24:32 | |
The fact that they make these large increases | 24:34 | |
does not mean for a moment that they necessarily expect | 24:36 | |
that those price increases will stick or will be effective. | 24:42 | |
They may expect it, but whether they expect it or not | 24:47 | |
it would be sensible for them to do what they are | 24:50 | |
now doing. | 24:52 | |
- | What are the prospects for price and wage controls? | 24:53 |
- | Well President Ford has been saying he does not | 24:57 |
want price and wage controls. | 25:00 | |
This morning's newspaper again carried announcement | 25:02 | |
of another statement by Mr. Ford, President Ford. | 25:05 | |
He was not going to ask Congress for wage and price | 25:09 | |
controls and so on. | 25:12 | |
That again has to be looked at in the context of experience. | 25:13 | |
Don't misunderstand me. | 25:19 | |
I have no doubt whatsoever that President Ford | 25:21 | |
is completely sincere and serious in saying | 25:24 | |
what he is saying. | 25:27 | |
Yet, if we look not at what he's said but what he has done, | 25:28 | |
the one action he has already asked Congress to undertake | 25:32 | |
is to establish a monitoring program. | 25:35 | |
A monetary agency, a cost of living counsel, | 25:38 | |
to monitor price and wage increases. | 25:40 | |
Now what conceivable function does that counsel have? | 25:43 | |
All past history suggest that it's only possible | 25:47 | |
role is as a Trojan horse for the subsequent | 25:51 | |
introduction of price and wage control. | 25:54 | |
If it's really only going to monitor wage and price | 25:57 | |
movement, we already have the bureau of labor statistics, | 25:59 | |
the department of agriculture and perhaps | 26:03 | |
three or four different agencies within the government | 26:05 | |
that are collecting price and wage statistics | 26:08 | |
that can be published. | 26:10 | |
There's no need for such monitoring agency. | 26:11 | |
If it's purpose is supposed to be to | 26:14 | |
collect the statistics from other agencies | 26:16 | |
and get front page headlines about Lambo's best | 26:18 | |
basting General Motors or somebody else, | 26:21 | |
that's utterly ineffective unless those headlines | 26:24 | |
carry with them the implicit threat that | 26:27 | |
failure of actions by the private parties | 26:31 | |
to reduce the prices, or to reduce the wage increases | 26:36 | |
will bring subsequent government action. | 26:40 | |
Thus the cost of living counsel is a very bad sign | 26:42 | |
of future prospects. | 26:47 | |
Moreover, experience in other countries is a very | 26:49 | |
bad sign. | 26:51 | |
If there is any country which you would think | 26:53 | |
would had it's fill of price and wage control | 26:55 | |
is you would think it was Great Britain. | 26:57 | |
It's now in its third or fourth, I don't know, | 27:01 | |
I've lost count, episode. | 27:04 | |
Mr. Heath, when he came in, whenever it was | 27:06 | |
at the earlier point, came in on a platform | 27:09 | |
of abolishing them and he abolished them. | 27:13 | |
When unemployment reached a million, | 27:16 | |
he lost his nerve and he reimposed. | 27:17 | |
He got kicked out because he insisted on trying | 27:20 | |
to impose them and make them stick on trade unions. | 27:26 | |
I understand that the conservative party | 27:32 | |
preparing for a very likely electoral campaign | 27:34 | |
this September or October has announced | 27:37 | |
that if elected, it will re-introduce the system | 27:40 | |
of price and wage controls. | 27:44 | |
Well, the same situation exists in the United States. | 27:47 | |
The memory of the recent failure is very fresh. | 27:53 | |
Right now, nobody is said to be in favor of wage and price | 27:58 | |
controls except that NBC reported on a | 28:01 | |
telephone poll of the American, 1500 people | 28:05 | |
in which 54 percent said that they were now | 28:10 | |
in favor or wage and price control. | 28:13 | |
As Ford's Presidency goes on, | 28:17 | |
as inflation rolls on, unless we have a major | 28:21 | |
success in inflation, I think we will have some | 28:24 | |
success as I said before, I continue to expect | 28:27 | |
the recorded indexes of the rate of inflation to come | 28:30 | |
down sharply from their present level | 28:33 | |
to somewhere in the neighborhood of | 28:34 | |
six, seven, eight percent. | 28:36 | |
But even then, we will have continued talk | 28:38 | |
about how we have to do something effective | 28:41 | |
about inflation. | 28:42 | |
If the cost of living counsel is set up, | 28:44 | |
it will be the first step. | 28:46 | |
We will have further talk about the importance | 28:48 | |
of voluntary restraint. | 28:51 | |
Voluntary restraint will again not work. | 28:52 | |
I think it would be a bold man | 28:55 | |
who would rule out the possibility | 28:58 | |
that within the next two or three years | 28:59 | |
we will have another episode of price and wage control. | 29:02 | |
It will very likely come, as it came before in 1971, | 29:05 | |
as it came in Britain under Mr. Heath, | 29:10 | |
when the government wishes to embark on | 29:12 | |
an inflationary policy. | 29:15 | |
It must, I cannot repeat too many times, | 29:17 | |
the real function of price and wage control. | 29:20 | |
There is nobody who has any knowledge about | 29:22 | |
history or any analysis of economic matters | 29:26 | |
with a possible sole solitary exception of | 29:29 | |
John Kenneth Galbraith. | 29:32 | |
There is nobody who really believes | 29:33 | |
that price and wage controls can be effective | 29:36 | |
in stopping inflation. | 29:38 | |
They are introduced for a very different reason. | 29:39 | |
They are introduced because the government | 29:42 | |
which wishes to produce inflation also wishes | 29:45 | |
to give the public the impression that it is doing | 29:49 | |
something effective to stop inflation. | 29:52 | |
That is their role and their purpose. | 29:55 | |
It is very hard to believe that within two years | 29:57 | |
we may not be in a position where that will | 29:59 | |
seem to be an attractive tactic to the | 30:01 | |
whoever is in a position of power. | 30:05 | |
- | I think we have come to the end of our time. | 30:07 |
Thank you very much. | 30:10 | |
Remember subscribers, if you have any questions | 30:11 | |
or comments, please send them to | 30:14 | |
Instructional Dynamics Incorporated. | 30:15 | |
Chicago, Illinois 60611. | 30:20 | |
We shall be visiting with you again in two weeks. | 30:23 |
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