Re: turn to monetarism query-reply to clifford

[STEPHEN BLOCK <blocks@xxxxxxxxxxxxxxxxxxx>]

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
>
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>
> 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
>
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