Tape 3 - untitled
Loading the media player...
Transcript
Transcripts may contain inaccuracies.
Interviewer | Instructional Dynamics Incorporated, | 0:02 |
welcomes you to this weekly series | 0:04 | |
of commentaries on the current economic scene. | 0:05 | |
Reporting to you will be one of the | 0:08 | |
nation's leading economists, professor | 0:10 | |
Milton Friedman of the University of Chicago. | 0:12 | |
Dr. Friedman before we begin the formal part | 0:15 | |
of the discussion, I'd like to refer you | 0:18 | |
to a item in the New York Times this morning | 0:21 | |
which describes your debate with | 0:23 | |
professor Walter Heller, in New York University yesterday. | 0:25 | |
I was wondering if we could begin | 0:29 | |
by having you explain what was that all about. | 0:31 | |
Milton | Well, I'd be glad to | 0:33 |
that was quite a nice debate, we had a good audience, | 0:34 | |
an overflow, a group accommodated in closed circuit TV. | 0:37 | |
It's an annual event, NYU has a, so called Salomon lectures. | 0:41 | |
and as I was saying, and Mr Salomon who, | 0:46 | |
although he spells his name S-A-L, | 0:48 | |
I was making a, kind of a joke about the fact | 0:50 | |
that NYU decided this year to follow King Solomon's advice | 0:52 | |
and divide the baby into two parts. | 0:55 | |
And have two talks instead of one, | 0:57 | |
namely Walter Heller talking on the question | 1:00 | |
of whether his monetary policy being oversold, | 1:02 | |
and myself, talking on the question | 1:05 | |
is fiscal policy being oversold. | 1:07 | |
Needless to say, Walter Heller's position was | 1:10 | |
that on the one hand, monetary policy | 1:13 | |
is being oversold in the sense that the, | 1:17 | |
I and people who follow the general view I do, | 1:20 | |
have stressed the enormous importance | 1:23 | |
of changes in the quantity of | 1:25 | |
money as oppose to fiscal changes. | 1:26 | |
And in Walter Heller's view we've carried that to far. | 1:30 | |
In his view my position, and the position of others like me, | 1:33 | |
that we should have a steady rated | 1:36 | |
growth in the money supply, | 1:37 | |
seems to him like locking the steering wheel | 1:39 | |
of a car driving along a road. | 1:42 | |
You know, whenever people resort to metaphors it always | 1:44 | |
seems to me there's something wrong with their arguments. | 1:47 | |
But at any rate, that was his position and he defended it, | 1:50 | |
and presented it very well, and stressed of course, | 1:53 | |
from his point of view what he regarded as the enormous roll | 1:56 | |
which the tax cut of 1964 had played in promoting | 1:59 | |
the rapid expansion in the economy subsequently. | 2:04 | |
From my turn, I expressed the view, | 2:07 | |
that both monetary policy and fiscal policy were in fact | 2:11 | |
being oversold, and that I answered yes to both questions. | 2:14 | |
What I argued was that what's being oversold is fine tuning, | 2:17 | |
is the idea that it is possible for the few people | 2:21 | |
in Washington to turn a button here, | 2:24 | |
and turn a button there a little, | 2:27 | |
and through delicate adjustments in taxes | 2:28 | |
and in monetary policy effect the course of the economy | 2:30 | |
in such a way as to keep a perfectly even keel. | 2:33 | |
It has always seem to me that there's an old saying | 2:36 | |
that the best is sometimes the enemy of the good. | 2:39 | |
That you try to achieve perfection and then in the end | 2:41 | |
you don't do as well as if you hadn't tried so hard. | 2:46 | |
And it seems to me that's the case here. | 2:49 | |
If you try to achieve an absolutely perfect course | 2:50 | |
what you're going to do is to introduce | 2:52 | |
large uncertainties into the economy | 2:54 | |
which will cause it to divert from that course. | 2:56 | |
I've expressed these views over a long period | 2:58 | |
and it seems to me the evidence of the | 3:01 | |
fine tuning of the last 10 years | 3:04 | |
brings it rather close to home and supports that view. | 3:06 | |
But going down to more specific points, | 3:09 | |
in my opinion, while both are being oversold, | 3:15 | |
fiscal policy has been oversold in a different sense | 3:18 | |
into a far greater degree then monetary policy. | 3:21 | |
The problem is that, what Walter Heller, | 3:24 | |
and other people like him say is that, | 3:27 | |
oh of course money matters but money isn't all that matters. | 3:29 | |
And they accuse us, that is people like myself, | 3:32 | |
and our group, the so called Chicago school, | 3:35 | |
are monetarist, as he was referring to us. | 3:38 | |
They accuse us of saying that money is all that matters. | 3:40 | |
Now, I argued that, that was a strong man that, | 3:43 | |
that isn't the position we've said, | 3:45 | |
that it makes no sense to talk about, | 3:46 | |
is money all that matters unless you ask for what. | 3:48 | |
If you're going talk about the happiness in marriage, | 3:52 | |
well, money in the sense of income may matter | 3:54 | |
but it isn't all that matters. | 3:57 | |
And turning more directly to the economy, | 3:59 | |
if you're going to talk about the long run growth | 4:01 | |
of the economy, of why it is that the US has a tremendously | 4:03 | |
productive society, why we all, | 4:06 | |
why we are relatively affluent. | 4:08 | |
I think that has very little | 4:10 | |
to do with the quantity of money. | 4:11 | |
That is determined by our resources, | 4:12 | |
the kind of economic system we have, | 4:15 | |
that we have a free enterprise system | 4:16 | |
it's determined by the fact that we have an abled | 4:17 | |
effective energetic people, lots of capital and so on. | 4:19 | |
Those are the factors that are really important. | 4:23 | |
On the other hand, from the point of view on inflation, | 4:25 | |
of price rise and price flow, | 4:27 | |
from the point of view of what happens in the short period | 4:29 | |
to the nominal quantity, nominal income, | 4:31 | |
income expressed in dollars, not real income. | 4:34 | |
Well their money, while it isn't all that matters, | 4:37 | |
is in my opinion unquestionably the dominant factor, | 4:40 | |
the quantity of money is the dominant factor | 4:43 | |
in determining those changes. | 4:45 | |
In my opinion, fiscal policy on the other hand | 4:47 | |
while it's important for somethings, again matters for what? | 4:49 | |
It matters greatly in terms of what fraction | 4:52 | |
of the nations resources are going to be devoted | 4:56 | |
to governmental rather then to private uses. | 4:58 | |
It matters greatly in determining what fractions of your | 5:00 | |
income you're gonna have to turn over to the government. | 5:02 | |
But in my opinion, it has no significant influence, | 5:05 | |
on whether we have inflation or deflation, | 5:09 | |
whether nominal income raises or falls, | 5:11 | |
except as it influences monetary policy. | 5:14 | |
And indeed, the great difficulty in this whole argument | 5:18 | |
is to try to keep separate, the influence of fiscal policy | 5:21 | |
from the influence of monetary policy. | 5:25 | |
You can do it, both intellectually and statistically, | 5:28 | |
by separating out what happens to government deficits | 5:32 | |
and surpluses on the one side. | 5:36 | |
And what happens on the other, to the quantity of money. | 5:38 | |
It's perfectly possible for the government | 5:40 | |
to have a big deficit, but to finance it | 5:42 | |
by borrowing it from the public at large | 5:44 | |
rather than by printing more money, | 5:46 | |
in that case the quantity of money will not be affected. | 5:49 | |
Now the difficulty with the 1964 tax cut for example, | 5:51 | |
is that while the cut was cut, | 5:55 | |
and the fiscalist would argue that, | 5:57 | |
that was the source of the expansion, | 5:59 | |
it so happens that the quantity | 6:01 | |
of money was increased very rapidly, | 6:03 | |
particularly rapidly during the hold of that period, | 6:05 | |
and therefore, the monetarist can claim | 6:07 | |
that what produced the expansion | 6:09 | |
was the raising quantity of money. | 6:11 | |
The hard question is how do you separate these out, | 6:12 | |
how do you hold the one constant | 6:15 | |
and get the separate influence. | 6:17 | |
Now, it so happen, that there's been a lot of empirical work | 6:18 | |
which has been directed towards separating them out. | 6:21 | |
And most of my own talk was devoted to summarizing | 6:23 | |
some of the empirical evidence | 6:26 | |
that has been produced on this question. | 6:27 | |
I made a study about 15 or 16 years ago, | 6:30 | |
comparing the Civil War, the first World of War, | 6:33 | |
and the second World of War, from the point of view, | 6:35 | |
of whether the price behavior in those wars, | 6:37 | |
could be explained more nearly by the monetary forces, | 6:39 | |
monetary changes between them, or by fiscal changes. | 6:42 | |
And it turned out that the monetary changes | 6:45 | |
gave you a very simply picture the fiscal changes didn't. | 6:47 | |
I published, and other people have published | 6:50 | |
a considerably number of studies in the interim, | 6:53 | |
giving the same results for other periods. | 6:56 | |
Most recently and I once special to mention this | 6:58 | |
because some of you may want to try to get a hold of it, | 7:01 | |
the Federal Reserve Bank of St. Louis | 7:04 | |
has just done a fascinating statistical | 7:06 | |
study of the period 1952, to 1968. | 7:08 | |
That's about the longest recent period | 7:12 | |
for which you could do a study, | 7:14 | |
if you're going to get out of the troubles | 7:15 | |
of the bonds support program before 1951. | 7:17 | |
That will appear, or has appeared in the November | 7:21 | |
bulletin in the Federal Reserve Bank of St. Louis. | 7:25 | |
In this study, they have tried to separate out | 7:27 | |
the separate influence of the monetary changes | 7:30 | |
on the one hand, that is the changes in the quantity | 7:34 | |
of money, and the fiscal changes, | 7:36 | |
that is the changes in the high employment budget | 7:38 | |
on the other in expenditures and deficits. | 7:41 | |
And results are fascinating and striking. | 7:43 | |
They find essentially to put it in its simplest terms, | 7:46 | |
that the ups and downs of taxes | 7:51 | |
have had no significant influence, | 7:54 | |
on the ups and downs of GNP, of the national income, | 7:57 | |
or, measures of this kind, ups and downs in taxes | 8:01 | |
have had essentially no influence, | 8:04 | |
once you allow for and hold constant | 8:07 | |
what happen to the quantity of money. | 8:10 | |
On the other hand, they find that the ups and downs | 8:13 | |
of expenditures, of government expenditures, | 8:15 | |
have had an influence, but a very interesting influence. | 8:18 | |
In the first two quarters, after an increase | 8:21 | |
in government expenditures, this tends to | 8:23 | |
have an expansive influence on the economy. | 8:26 | |
But in the next two quarters, it tends to have | 8:29 | |
a contractionary influence, and for a year | 8:31 | |
the hold, it all washes out. | 8:33 | |
Now, that's very, very sensible from the point of view | 8:35 | |
of the theory I and others have promoted. | 8:37 | |
Because to begin with, the expenditures have an initial | 8:39 | |
impact effect, it takes time for people to adjust to them. | 8:43 | |
But then after the, if the government spends more | 8:46 | |
while the doesn't tax anymore it has to borrow some more. | 8:48 | |
This tends to raise interest rates, | 8:51 | |
and that tends to produce a negative effect | 8:53 | |
that wipes out the initial positive effect. | 8:54 | |
On the other hand, they found | 8:57 | |
that throughout the whole event period, | 8:58 | |
changes in the quantity of money, | 9:00 | |
it had a very regular, consistent, | 9:02 | |
and significant influence on changes in GNP. | 9:04 | |
That the changes in the quantity of money, | 9:07 | |
had an influence that took about three | 9:11 | |
or four quarters to make itself felt, | 9:13 | |
and they traced out the influence in the first quarter, | 9:14 | |
the second, third quarter, | 9:16 | |
the third quarter and the fourth quarter, | 9:18 | |
and they came to the conclusion that over a year as a whole, | 9:20 | |
the change in the quantity of money had a very definite | 9:24 | |
and significant and detectable influence on nominal income. | 9:27 | |
Of course I don't want to overstate their results, | 9:31 | |
there was still a lot of noise, a lot of error. | 9:34 | |
Taken together the changes in the quantity of money, | 9:37 | |
and the changes in expenditures accounted for somewhere | 9:40 | |
between 50 and 75% of the variation in GNP. | 9:44 | |
But that still leaves quite a lot left. | 9:48 | |
And I urge you, if you're not on the mailing list | 9:50 | |
of Federal Reserve Bank of St. Louis, | 9:54 | |
ask them to put you on their mailing list for their bulletin | 9:55 | |
because it so happens that, that particular | 9:58 | |
Federal Reserve Bank does some of the very best | 10:01 | |
economic reporting of both statistics and analysis. | 10:04 | |
Interviewer | Our it could be | 10:08 |
that everyone likes to live in St. Louis. | 10:09 | |
Milton | I doubt that very much. | 10:10 |
It's a very, that really is a very surprising thing. | 10:12 | |
You've got 12 Federal Reserve Banks, | 10:14 | |
everyone of them publishes a monthly bulletin, | 10:16 | |
of all of those monthly bulletins, | 10:19 | |
they're required by law as you may know | 10:21 | |
to publish a monthly bulletin. | 10:23 | |
Generally over the history, 50 year history | 10:25 | |
of the Federal Reserve, the New York | 10:27 | |
Federal Reserve Bank has been the dominate one. | 10:28 | |
And it does publish a good monthly bulletin, | 10:30 | |
but in the last five or 10 years, | 10:32 | |
thanks to the influence of one man who went to the | 10:34 | |
Federal Reserve Bank in St. Louis, | 10:37 | |
Homer Jones, is a Vice President, | 10:38 | |
they have turned out to be the most important | 10:40 | |
single bank in the system, it's a pure accident. | 10:43 | |
Although it might be, interesting | 10:45 | |
to know the historical president, | 10:47 | |
William McChesney Martin's father | 10:49 | |
was at one time the president of the | 10:51 | |
Federal Reserve Bank of St. Louis. | 10:53 | |
Interviewer | So it has a quite a, you know | 10:55 |
nice history about it I guess. | 10:58 | |
Milton | Yes it does. | 10:59 |
Interviewer | But Dr. Friedman, we just had an election | 11:00 |
and Mr. Nixon is now the President elect | 11:03 | |
and he'll be taking over in January. | 11:06 | |
And I'm sure that many people are wondering | 11:08 | |
what the nations economic state | 11:12 | |
will be under President Nixon. | 11:14 | |
And there is some talk that Mr. Nixon won't have | 11:17 | |
as much leeway in economic policy | 11:23 | |
because of the Democratic Congress. | 11:25 | |
How do you react to that? | 11:27 | |
Milton | Well there has been a lot of talk about that, | 11:28 |
and I think it's a very relevant point to consider. | 11:30 | |
The talk has been that because of the narrowness | 11:33 | |
of his election and the fact that the Congress came | 11:35 | |
in Democratic he's gonna be stymied. | 11:37 | |
And I personally don't believe that's the case. | 11:39 | |
And the reason I don't believe that's the case | 11:41 | |
is because I believe the word | 11:43 | |
democratic is a very misleading word. | 11:45 | |
The fact is that a Democrat in New York, | 11:48 | |
and a democrat in Arizona, is a very different creature. | 11:52 | |
Or take any other state. | 11:58 | |
Indeed, the most striking thing, if you look at a map | 11:59 | |
of the electoral votes in the presidential election, | 12:03 | |
the most striking thing is that what you had at the | 12:05 | |
crucial division was not Democratic versus Republican, | 12:08 | |
it was New York and its saf-light states | 12:11 | |
versus the rest of the country. | 12:13 | |
If you take New York, Pennsylvania, Connecticut, | 12:15 | |
Rhode Island and Massachuset, they provided Humphrey, | 12:19 | |
if I remember the figures rightly, | 12:21 | |
with more then half his electoral votes. | 12:22 | |
Now, this is very interesting phenomenon to speculate on | 12:25 | |
and I don't understand why it is that New York should be, | 12:27 | |
so, A, so influential, but B, so | 12:31 | |
different from the rest of the country. | 12:34 | |
But therefore, if you want to know | 12:36 | |
what Congresses sentiments are about economic matters, | 12:38 | |
it isn't a very good thing to look at it | 12:41 | |
in terms of Democratic or Republican. | 12:42 | |
You want to ask yourself a different question. | 12:44 | |
What is the division in Congress between those people, | 12:48 | |
whether Democratic or Republican, | 12:51 | |
who believe that the Federal Government should play a | 12:53 | |
stronger, more active, more direct role in the economy, | 12:56 | |
who are in favor of the whole spade of welfare, | 12:59 | |
and new deal measures that we've had? | 13:02 | |
What is the division between people such as that, | 13:05 | |
and people whether labeled Democratic or Republican, | 13:07 | |
who feel that you should reduce the power of the | 13:10 | |
central government, that you should decentralize power, | 13:14 | |
that you then should give more role to the state and so on? | 13:16 | |
This is a division which is popularity refer to, | 13:19 | |
I think those are misleading labels too, | 13:21 | |
as conservative versus liberal. | 13:23 | |
Now, the fascinating thing is, | 13:25 | |
that for the past ten years the House of Representatives, | 13:27 | |
has typically had a conservative majority | 13:31 | |
for the Democratic or Republican. | 13:34 | |
The only real exception to that | 13:35 | |
was in the two years prior, after Johnson's landslide. | 13:38 | |
That landslide, caused an unrepresentative | 13:42 | |
house session for him to be elected. | 13:45 | |
The coattails pulled in the eastern wing as it were | 13:46 | |
of the Republican and the Democratic Party. | 13:51 | |
With the result that 62, I'm sorry 64 to 66. | 13:53 | |
So an enormous spate of legislation, | 13:58 | |
Medicare, education and so on. | 14:01 | |
From my point of view very unfortunate legislation. | 14:03 | |
But nonetheless, you will note that after | 14:06 | |
the 1966 mid-term elections restored Congress | 14:09 | |
to it's normal relationship, then Johnson started having | 14:13 | |
enormous difficulty with Congress | 14:15 | |
and getting these measures through, | 14:17 | |
and he couldn't get them through. | 14:18 | |
So, the point I'm trying to make is, | 14:19 | |
that if you look at Congress in terms of its division | 14:21 | |
by beliefs and not by party labels, | 14:23 | |
then this is a Nixon Congress. | 14:26 | |
This is a Congress which believes the same kind | 14:28 | |
of things that Nixon believes, that's why it is, | 14:31 | |
that there's no inconsistency at all in my opinion, | 14:34 | |
between the electoral results, which showed a great, | 14:36 | |
a great revolt against the existing President. | 14:42 | |
That is to say if add up the Nixon and the Wallace votes, | 14:48 | |
which is what you really have to do from this point of view. | 14:50 | |
You'll have a substantial vote of no confidence | 14:53 | |
in the present administration. | 14:55 | |
On the one hand, you had that, on the other you had a return | 14:56 | |
of essentially the same Congress. | 14:59 | |
I don't think there's any inconsistency in that. | 15:00 | |
What that reflects was a difference before the election, | 15:02 | |
between the makeup of the Congress on one hand, | 15:05 | |
and the character of the presidency on the other. | 15:08 | |
So I personally do not believe that the Democratic nature | 15:10 | |
of the House of Representatives, | 15:14 | |
or the narrowness of the election either one, | 15:15 | |
involves a significant restraint upon the economic policy | 15:17 | |
that Mr. Nixon will be able to pursue. | 15:22 | |
Interviewer | You think he'll have a | 15:24 |
pretty easy time of it then for | 15:25 | |
the next, at least two years? | 15:26 | |
- | Oh no. | |
Oh no, no I don't say that. | 15:28 | |
I think that he will not be handicap | 15:30 | |
by political problems of this kind. | 15:31 | |
But unfortunately, economic problems which he faces | 15:33 | |
will provide all the difficulty that any one man might want. | 15:38 | |
I think that Mr. Nixon comes into The White House | 15:40 | |
with the heritage from the economic policy | 15:43 | |
of the Johnson administration, which makes his position | 15:46 | |
from that point of view a very unenviable one. | 15:49 | |
Interviewer | Are you saying his hands | 15:53 |
are somewhat tied as he assumes office. | 15:54 | |
Milton | Yes, his hands are tied, | 15:57 |
in one part, but it's a different thing. | 15:59 | |
After all he inherits the state | 16:01 | |
of the various problems which were left | 16:04 | |
by the policy of the preceding administration. | 16:07 | |
As I mentioned last week, I think the three major problems | 16:09 | |
that are going to be facing the Nixon administration | 16:13 | |
in the economic-sphere, the three major broad problems, | 16:15 | |
and neglecting for the moments such problems | 16:20 | |
as the problems of the city and so on, | 16:22 | |
which are in some ways more important. | 16:23 | |
But, if you look at the broad economic problems, | 16:25 | |
the three major ones are inflation, on the one hand, | 16:27 | |
balance of payments, the second, | 16:29 | |
and getting control of the budget. | 16:30 | |
And in each of these, the crucial thing is, | 16:33 | |
and Mr. Nixon comes in after an administration | 16:36 | |
which has left these economy in a critical position | 16:39 | |
the Kennedy administration came | 16:45 | |
into office under favorable circumstances. | 16:47 | |
At the time Mr. Kennedy came into office | 16:50 | |
in the first place, you had, had stable prices, | 16:52 | |
you had broken the inflationary expectations of the public. | 16:56 | |
There was some leeway in the economy so you could have | 17:00 | |
rapid economic expansion by absorbing unemployed | 17:03 | |
without having to, without problem of inflation. | 17:05 | |
And so, Kennedy inherited a favorable bequest | 17:09 | |
as it were, from his predecessor. | 17:15 | |
Now, Mr. Kennedy, and Mr. Johnson between them, | 17:18 | |
have in the last eight years squandered this bequest, | 17:21 | |
by pushing too hard, by promoting very rapid expansion, | 17:25 | |
by encouraging the Federal Reserve Board | 17:29 | |
in a very expansionary policy on the average | 17:30 | |
over that period, there've been ups and downs. | 17:32 | |
They in fact was reinforced of course by the Vietnam war, | 17:35 | |
what has happened is that you have converted a stable | 17:39 | |
price expansion, a steady expansion into a very | 17:42 | |
rapid inflationary expansion. | 17:45 | |
You now have consumer prices raising | 17:47 | |
at something like 5% per year. | 17:50 | |
Where as at the end of the Eisenhower era, | 17:51 | |
they were going up at the rate of about 1% of the year, | 17:54 | |
and most of that was probably quality | 17:56 | |
change and not a real price change. | 17:58 | |
Now, it's a very different thing to come into an economy | 18:00 | |
which has a stable price history, | 18:04 | |
and keep it on a noninflationary course, | 18:06 | |
and to come into an economy which has | 18:08 | |
a very rapidly raising price history and to keep | 18:10 | |
that on a stable course that's with inflation. | 18:13 | |
Next, you go to the balance of payments, | 18:16 | |
now there, I must in all fairness admit, | 18:18 | |
that Mr. Kennedy did not come into a good situation either, | 18:23 | |
there was a great balance of payments deficit in 1960. | 18:26 | |
There was a kind of a miniature, | 18:31 | |
a mini gold crisis at the time and therefore | 18:34 | |
from that point of view, you did have a real problem. | 18:38 | |
But even in that area, the preceding eight years | 18:41 | |
have moved us farther away from where | 18:43 | |
we want to be then we were before. | 18:45 | |
When Mr. Kennedy came in, there were | 18:47 | |
essentially no exchange controls. | 18:49 | |
Our gold stock, I now do not remember the exact figure | 18:52 | |
but it was probably somewhere not far from double | 18:56 | |
where it is now, if I remember rightly it was somewhere in | 19:00 | |
the $15 to $20 billion range, so it was much higher. | 19:03 | |
Now, after eight years of the Kennedy-Johnson administration | 19:07 | |
our gold stock has been cut in half, | 19:10 | |
it's now down to less than $10 billion. | 19:12 | |
We have introduced a whole series of foreign exchange | 19:16 | |
controls including an interest equalization tax, | 19:19 | |
which is a concealed devaluation of the dollar. | 19:21 | |
Including, control over the lending | 19:24 | |
of US commercial banks abroad, | 19:28 | |
including a control over the investment | 19:32 | |
activities of private enterprises. | 19:36 | |
This was the latest measure, which Mr. Johnson took | 19:37 | |
early in January imposing formal, | 19:43 | |
explicit exchange control on private investment. | 19:46 | |
We have seen an addition to this, | 19:49 | |
the erection of a great many gadgets | 19:52 | |
and gimmicks designed to conceal | 19:55 | |
the true difficulties in the balance of payments. | 19:57 | |
These include special kinds of bonds, | 19:59 | |
you will remember that Bob Rosa, was under secretary | 20:03 | |
of the treasury of the beginning of this period, | 20:07 | |
and he invented something which were called Rosa Bonds. | 20:09 | |
Which I always said at the time were really Sub Rosa bills, | 20:13 | |
because they were suppose to look | 20:16 | |
as if they were long term securities, | 20:19 | |
and thus not be a deficit these were things | 20:20 | |
which he got the central banks to acquire. | 20:22 | |
So, that on paper it looked as if | 20:24 | |
they were lending this money on a long term. | 20:26 | |
But in fact they had an agreement attached to them | 20:28 | |
that at any time they could be turned into | 20:33 | |
a short term assets into essentially bills | 20:35 | |
which could be drawn down upon. | 20:39 | |
So, we had an enormous proliferation of these devices | 20:42 | |
as a result of which are fundamental balance of payments | 20:45 | |
is really worse then it looks on the surface. | 20:47 | |
So, that as I say in this respect too, | 20:50 | |
in the balance of payments respect too, | 20:52 | |
Mr. Nixon comes into an extremely difficult situation | 20:54 | |
where you not only have to follow a good policy now | 20:57 | |
but you have to unwind, all of the bad things that have | 21:00 | |
been done particularly along the lines of controls. | 21:04 | |
You will recall that during the campaign | 21:06 | |
Mr. Nixon stressed his dissatisfaction particularly | 21:08 | |
with the investment controls, but also | 21:13 | |
with other exchange controls and I know he is determined | 21:15 | |
to move in a direction to free the nation from controls. | 21:18 | |
But that itself is a very difficult problem and therefore | 21:21 | |
you have a problem of undoing that. | 21:25 | |
And finally, with respect to third | 21:26 | |
of these problems with a budget, again | 21:28 | |
Mr. Nixon inherits a very difficult situation. | 21:30 | |
You will recall that Congress, when it made the tax increase | 21:33 | |
to impose the surcharge also, | 21:39 | |
imposed on President Johnson the duty | 21:41 | |
of cutting governmental expenditures | 21:43 | |
by $6 billion with some exceptions at an annual rate. | 21:45 | |
Now, a month after I have no privy information | 21:49 | |
and I am speaking entirely from what I read in the newspaper | 21:52 | |
and what I say now may be wholly wrong, | 21:54 | |
but I must confess I'm kind of cynical, | 21:57 | |
and I have a evil mind so I maybe conjuring things up, | 21:59 | |
but as I read in the newspaper, month after month | 22:04 | |
I read a report from the budget bureau which says, | 22:06 | |
the current figures do not in fact show as deep a cut | 22:09 | |
as Mr. Johnson had promised to make and is required to make. | 22:14 | |
But this says each months report, is due | 22:16 | |
to special circumstances of this month | 22:19 | |
and everything is going fine and the next month | 22:21 | |
is gonna turn it around and show it looking better. | 22:23 | |
Well I hope that's right, but I very much fear, | 22:25 | |
that it will turn out, that when Mr. Nixon comes into | 22:29 | |
office on January 20th he will be handed the fe-ti-cum-pli, | 22:31 | |
that very little of that cut has been accomplished | 22:36 | |
and that if the $6 billion is to be achieved it will have | 22:39 | |
to be achieved mostly in the next four or five months | 22:42 | |
of his administration, which will | 22:44 | |
be an almost impossible task. | 22:46 | |
So, in all three of these areas of inflation, | 22:48 | |
balance of payments and getting control | 22:50 | |
of the government budget, Mr. Nixon comes into a situation | 22:53 | |
which is froth with great economic difficulties | 22:56 | |
where he's behind the eight ball to start with. | 22:59 | |
And those are in my opinion his basic underlying problems | 23:01 | |
not so much the problem of whether he will be able to deal | 23:05 | |
with the recalcitrant Congress very effectively. | 23:08 | |
Interviewer | Well from what you say he's not gonna have | 23:11 |
too much time for anything else besides economic problems. | 23:13 | |
Milton | Oh well unfortunately, | 23:17 |
he has many other problems to face, he has a problems, | 23:19 | |
of course the foreign policy problems. | 23:23 | |
And indeed one of the great difficulties with our, | 23:26 | |
one of the reasons why we ought to dismantle some | 23:28 | |
of these controls, why in my opinion we ought to have more | 23:31 | |
rules and less discretionary policy is a simple | 23:34 | |
elementary fact, that the President of the United States, | 23:36 | |
who is at the top of the heap, | 23:39 | |
simply does not have enough time, to handle | 23:41 | |
the enormous variety of problems that comes his way. | 23:44 | |
Now, what I, so that the he unfortunately will not have | 23:47 | |
enough time to give to this and that means that some | 23:52 | |
of these things may of course not be, | 23:54 | |
not be given the degree of attention they should. | 23:56 | |
First thing a President has to do is to assign priorities | 24:00 | |
and decide what are the important issues. | 24:03 | |
Now, the reason I picked out these three problems | 24:05 | |
from among the many problems which the President faces | 24:07 | |
is because it seems to me these are the three that will | 24:11 | |
have to be at the top of his priority list. | 24:13 | |
The other problems, problems with what | 24:15 | |
to do about the cities of tax credits, | 24:17 | |
about what to do about the housing problem, | 24:20 | |
what to do about jobs and so on, the minor part. | 24:24 | |
These are part of this, the broad problems I have mentioned, | 24:27 | |
but they will unfortunately have to take a back seat | 24:30 | |
to handling some of these problems. | 24:32 | |
Interviewer | Well Dr. Friedman, perhaps we can take | 24:35 |
a closer look at some of the problems, | 24:36 | |
economically speaking, that will be facing | 24:39 | |
Mr. Nixon when he assumes office, | 24:41 | |
during our next discussion next week. | 24:43 | |
Milton | That will be our plan. | 24:48 |
I had hope today to get farther then I did | 24:50 | |
into the more detailed problems of inflation. | 24:52 | |
Maybe next week we can start right off | 24:55 | |
on what his problems will be in the inflation area. | 24:57 | |
Thank you Mr. Shephard. | 25:00 | |
Interviewer | Thank you very much Dr. Milton Friedman. | 25:03 |
If you have questions or comments or suggestions | 25:05 | |
for topics you'd like to have discuss in this series, | 25:08 | |
please send them to Instructional Dynamics Incorporated, | 25:12 | |
166 East Superior Street, Chicago, Illinois, 60611. | 25:15 |
Item Info
The preservation of the Duke University Libraries Digital Collections and the Duke Digital Repository programs are supported in part by the Lowell and Eileen Aptman Digital Preservation Fund