Re: turn to monetarism query-reply to Stephen

["Niggle, Christopher" <Christopher_Niggle@xxxxxxxxxxxx>]

Stephen: Well now you have moved from a discussion of monetarism to a larger
question: what are the causes of inflation?  One way heterodox economists
have approached the question begins by understanding that many things can
"cause" inflation (the quotation marks because causality is itself complex:
statistical causation and causation in the ordinary sense, for example).  If
an economy is at "full employment" in the engineering/capacity sense, with
few unemployed resources (which rarely happens), than anything that
increases aggregate demand more rapidly than supply can increase will lead
to some form of "demand pull" inflation; this could be caused by increases
in government spending financed by money creation or borrowing, increases in
export demand with fixed exchange rates, or the private sector increasing
its expenditure financed by borrowing.  If credit expansion accompanied the
increased expenditure we would see a correlation between money growth and
price inflation.

More often, modern inflations seem to have been caused by increases in the
price of a world-traded basic commodity (oil) or distributional struggles
between capital and labor, in which wage gains outpacing productivity gains
led to increases in unit labor costs.  Or profit margins were increased as
firms attempted to set higher markups over production costs.  The
postkeynesians explained the 1970s-80s stagflation episodes as combinations
of oil price increases and distributional struggles which show up as "cost
push" inflation, and which are aggravated by tight money policies as the
latter increase costs of production.

But you probably know all this as it is (or used to be) laid out in
principles of macro texts.

Chris

-----Original Message-----
From: STEPHEN BLOCK
To: Niggle, Christopher
Sent: 6/17/03 7:21 AM
Subject: Re: turn to monetarism query-reply to clifford

The irony, as James Cumes points out, being that the stagflation of the
70's
was itself caused by the attempts to control inflation by raising
interest
rate hikes. So as you say, "monetarism is a fuzzy term". But what other
tools were or are there now to fight inflation? In early 1987, in
response
to the suggestion that a whole host of supply side, junk bond,
monetarist
and deregulation policies be employed, JK Galbraith suggested, among
other
things, that taxes be raised.  Has anyone done a coherent study on the
effects of raising taxes on inflation? Given that monetary policy
targets
monetary aggregate growth rates, which taxes do not specifically do,
would a
tax policy have been a more appropriate means (along with price
controls,
perhaps) for targeting inflation?

One thing that has always confounded me was that while supply-siders
complained that high taxes slowed the economy, they had no objections to
raising interest rates. Now obviously raising taxes and raising interest
rates, in their view, have different objectives, but I am wondering if
anyone has done a study which examines whether raising taxes,
strategically,
would be/ would have been a better way of gradually throttling back and
cooling off the economy without doing the damage which raising interest
rates did and always do.

S Block


>
> Cliff, others interested:  Well monetarism is a fuzzy term for
> sure, interpreted in many ways.  But to the extent that it means (1)
> targeting monetary aggregate growth rates, and especially narrow
aggregates
> like M1, while (2) ignoring what happens to interest rates as a policy
> stance, with (3) the understanding that controlling M1's growth is the
best
> way to reduce inflation, Greider's account is pretty spot on.  The Fed
had
> earlier flirted with monetarism in the sense of trying to control
monetary
> aggregates by controlling reserves in the early 1970s, but they were
still
> paying attention to short term interest rates as well, as I recall.
The late
> '79-'81 monetarist experiment can be interpreted as a decisive move
toward
> monetarism in that sense.
>
> The context for the Fed move under Volcker was the growing influence
of
> monetarists w/n academia and central bankers beginning in the early
1970s;
> which in turn was greatly strengthened by the stagflation of the 70s.
>
> Chris
>
> -----Original Message-----
> From: Clifford Poirot
> To: STEPHEN BLOCK; Clifford Poirot; pkt@xxxxxxxxxxxxxxxx
> Sent: 6/13/03 7:49 PM
> Subject: Re: turn to monetarism query
> Importance: Low
>
> I'd be interested to see what some others have to say. Greider
portrays
> the
> situation as a decisive shift to monetary tightening with the
> appointment of
> Volcker. Is this an accurate picture?
>
>
> -----Original Message-----
> From:    STEPHEN BLOCK [mailto:blocks@xxxxxxxxxxxxxxxxxxx]
> Sent:    Fri 6/13/2003 5:54 PM
> To:    Clifford Poirot; pkt@xxxxxxxxxxxxxxxx
> Cc:
> Subject:    Re: turn to monetarism query
> Thanks Clifford. I've read that book. But I cannot entirely agree.
> Volcker,
> from what I recall, for example, was Kissinger's idea. Aside from
that,
> the
> elimination of wage and price controls policy in favour of monetary
> tightening it seems to me was the real beginning of it all, albeit the
> precursor to what you have mentioned. But thanks again and perhaps
> others
> would see it your way.
>
> Stephen
>
>
>
>
>
>
>
>
> I do not think Nixon turned to monetarism. Read Bill Greider's
"Secrets
> of
> the Temple" for an account of the turn to monetarism in the US. He
says
> it
> came later in 1978 under Carter with the appointment of Volcker.
>
>
> -----Original Message-----
> From: STEPHEN BLOCK [mailto:blocks@xxxxxxxxxxxxxxxxxxx]
> Sent: Wednesday, June 11, 2003 8:08 AM
> To: pkt@xxxxxxxxxxxxxxxx
> Subject: Re: turn to monetarism query
>
>
>
>
>
> In the early 70's, Nixon turned away from wage and price control in
> favour
> of monetary solutions (to combat inflation). Can anyone cite any good
> accounts of this? It can be within the broader context of the turn to
> monetarism in the US and the UK, but my interest is on Nixon's doing
> this,
> the possible motivations behind it and the effects these changes had
on
> the
> direction of economic policy. Obviously this is a large subject, but
my
> interest is really on the kinds of debates around this turn around
that
> time. But any other suggestions would be appreciated.
>
> Thanks
>
> Stephen
>
>
>
>
>
>
>
>
>