- For now, stimulus will drive the stock market higher
- Ultimately, 4 – 6% inflation will stall the bull market
- Prodigal money printing is stoking inflationary pressures
- Several historical precedents parallel today’s world – with big caveats
- What would Milton do?
“The job of the Federal Reserve is to take away the punchbowl just when the party is really warming up.” William McChesney Martin, Chairman of the Federal Reserve, 1951-1970
After an exhausting year in the stock market, I thought I’d take a deep breath and try to tease out on paper how the next few months and years might unfold.
In this piece, I will examine the outlook for the economy and implications for the stock market. I will argue that serious inflation is an imminent threat. I will look at the many indicators that augur inflation today, and examine some of mechanisms that could conspire to produce an environment of inflationary expectations. I will then investigate several historical episodes to see if they may serve as precedents for today’s investing environment. These episodes include:
- The decade of World War II 1938-1948
- The “Greenback” era 1861-1879
- The “Nifty Fifty” era of the early 1970’s
Using some admittedly blunt tools, I will try to set some parameters around future inflation rates. This “forecast” is necessarily vague, but you have to start somewhere. Bottom line: 30 – 40% money growth in 2020 and 2021 is likely to produce inflation reaching at least 4-6% over the next three or four years.
Investment Conclusion: A Binary Outlook
Anything could happen in 2021-22, but it seems to me that we confront a strictly binary investment outlook:
EITHER: IF I am right, the recent injection of $1.9 trillion in new stimulus (and maybe more) will power the market higher for the near term. Perhaps much higher.
Then, at some point in the next 12-18 months, inflation fears will bring any rally to an abrupt halt. The Fed will be seen to be way behind the curve, raising the specter of monetary tightening and recession.
OR: IF I am wrong . . . IF Janet Yellen and Jerome Powell are right and inflation proves “manageable”, long rates rise to no higher than 2.5%, the Fed keeps short rates near zero and real GDP grows 5-8%, THEN investors will enjoy a bull market the likes of which we have never before witnessed. In this scenario my portfolio will underperform. I will not keep up with the market, but I suspect I’ll still do fine by any past standard. I think this scenario is highly unlikely, even though it now seems to be the consensus (if less and less so.)
Credit Where it’s Due Department
I was maybe two thirds through writing this piece when I received the quarterly letter from Lyn Alden Alden Money Printing . I’ll admit that her letter took some of the wind out of my sails. In it, she says much of what I wanted to say. Only she mostly says it better, and with terrific empirical support. I strongly recommend all of her recent posts concerning monetary matters.
I considered just shelving this analysis, but then it occurred to me that it might be worthwhile to make my comments a supplement to Alden’s work. Our views mostly agree, but there is a bit of a difference in emphasis.
The 2020 Economy Was Saved By Money Printing
2020 was a disastrous and confusing year for our economy. But what happened was really quite simple:
COVID blew a crater in our economy and our government filled it up with dollar bills.
The question is: Did the government (including the Fed) patch this pothole with too many or too few dollars? Even before the new $1.9 billion COVID relief bill, it was pretty clear that we had provided more monetary and fiscal stimulus than was consistent with stable future prices. I say this for several reasons:
According to the BEA, real GDP declined 3.5% in 2020, a full year drop of about $700 billion. (1) Remember that second quarter GDP plunged at an annual rate of 30%: nearly $7 trillion. By the fourth quarter, US GDP had essentially recovered to where it had been in 2019.
Paradoxically, real personal disposable income in 2020 increased 4% ($600 billion.) (2) It is unusual, to say the least, for personal income to rise 4% in the same year that GDP drops 3.5%. What could possibly explain this paradox?
Answer: the Treasury wrote checks and the Fed printed money. Stepping on the gas last March, our government goosed M2 money supply by $4 trillion, or more than 25%, in 10 months. And now, there is another $1.9 trillion of stimulus on the way, which will bring M2 growth to $6 trillion or 40% give or take. Six trillion dollars is roughly 30% of GDP.
$6 Trillion From Thin Air
What does this excessive money growth portend for the future rate of inflation? To try to forecast inflation, we are necessarily grasping at straws. I recognize that the the rate of money supply growth by itself is not sufficient to forecast future inflation with great specificity. Yet for lack of a more precise metric, that’s pretty much what I’m doing. At least it’s a better methodology than any the economics profession is sharing with us.
While we’re on the subject, It’s hard for me to accept that most economists, in their heart of hearts (let’s assume a heart), are really as blase about inflation as they appear to be. Some may be in denial. Some may lack the courage to take a contrarian stand. But mostly, I think this reflects the triumph of the “Neo Keynesian” consensus and the groupthink it has engendered.
There are certainly Cassandras out there. The most visible is, of all people, Larry Summers. He cautions that “Whatever was the case a few months ago, it should now be clear that overheating — not excess slack — is the dominant economic risk facing the US over the next year or two.”
As tame as that prediction may sound, Joseph Stiglitz immediately jumped in with the party line: “there’s an awful lot of scope to increase demand, both in terms of the American Reinvestment Act and the new infrastructure [bill] to bring us back into a more normal world where we don’t face that deficiency of aggregate demand.”
Let me go on record as saying that I hope Stiglitz is right. I hope our government can continue indefinitely to hand out trillions of dollars without suffering any inflationary consequences. That would be extraordinarily good for everyone. But I’m pretty sure . . . . . no, I’m dead certain that he’s wrong
A major problem with the “Neo-Keynesian” consensus is its belief that the only ideas worth examining are those that can be expressed mathematically. That’s why economists tend to dodge wide open questions like “how much government spending and money creation is too much, and when might they tip us into inflation.”
In the inimitably convoluted prose of Friedrich Hayek:
“Unlike the position that exists in the physical sciences, in economics and other disciplines that deal with essentially complex phenomena, the aspects of the events to be accounted for about which we can get quantitative data are necessarily limited and may not include the important ones. . . . . And while in the physical sciences the investigator will be able to measure what, on the basis of a prima facie theory, he thinks important, in the social sciences often that is treated as important which happens to be accessible to measurement. This is sometimes carried to the point where it is demanded that our theories must be formulated in such terms that they refer only to measurable magnitudes.”
I’m pretty sure that Hayek’s friend Keynes would have concurred.
Already, portents of higher inflation are everywhere. Commodity prices – metals, agricultural prices, lumber, etc. – are soaring. TIP break evens are widening. Serious shortages have cropped up in products as varied as houses, semiconductors, and shipping containers. Many of these shortages stem from COVID supply chain interruptions. They will only amplify the inflationary force of monetary stimulus, much as the Arab oil embargo amplified the inflationary impact of easy monetary policy in the 1970’s (more below.) The critical shortage will come when we run out of skilled labor. (That will be in weeks or months, not years.)
Asset inflation often foreshadows core price inflation. I do not believe that the overall stock market is just now in bubble territory and is about to crash (that will depend on future inflation and interest rate trends). But there are pockets of rampant speculation that suggest way too much liquidity in the system. Much of this speculation seems to be driven by, or at least initiated by, small investors. From SPACs to NFT’s (WTF?) to Bitcoin to option volume to the GameStop insanity, traders are merrily rolling the dice on whatever’s happening now. With $1.9 trillion more in cash helicoptering down on us in the next few months, I wouldn’t expect this mania to end. Not quite yet.
I should note one important indicator that is not signaling inflation. Gold prices keep moving lower. I have no good explanation for this. I suspect that many former gold bugs are now buying Bitcoin as an alternative inflation hedge. But whatever the reason, this countertrend bears watching.
The rate of future inflation will hinge on several key variables. To name a few:
1. MMT’ers (like Joseph Stiglitz) will argue that there is still slack in the economy that will absorb much, if not all, of the stimulus. Indeed, employment remains well below last year’s peak, so it seems likely that some of the $6 trillion in new money could morph into real production. However, our current economic slack is not nearly as dire as it was in 1939 (see below) when World War II spending began. Then, unemployment was still lingering around 19% (turns out the New Deal was a bit of a dud). Despite this initial slack, the immense war stimulus still sparked annual inflation rates approaching 10%.
Donald Trump last year jumped into MMT with both feet and now Biden is doubling down. The next few years will be an interesting test of this theory (see my post MMT Promise or MMT Threat?.)
2. The Fed Chairman and the Treasury Secretary take pains to emphasize that we needn’t worry about inflation because “the Fed has the tools” to manage it. Maybe so. Unfortunately, all of those tools involve raising interest rates (or cutting the deficit), which in turn means slowing the economy and risking recession. Anyone who expects the Fed to move proactively to extinguish any incipient inflation problem is likely to be disappointed.
3. Inflation expectations are the critical variable. Once inflation expectations gain traction, they are very difficult to suppress.
4. If inflation expectations rise, so too, presumably, will Monetary Velocity (nominal GDP divided by the money supply.) To paraphrase the Dread Pirate Roberts, anyone who claims that she fully understands what drives money velocity “is either lying or selling something.” Technology certainly plays a role that is only dimly understood. But without question two key inputs are inflation expectations and the level of interest rates. If prices are not expected to rise in the future and if there is minimal opportunity cost to holding free balances, then there is little urgency to spend. In the 50 years between 1969 and 2019, M2 velocity has ranged between 1.4 and 2.2. With the recent tsunami of dollars (and more to come), velocity is now below 1.2. Seems more likely to go higher than lower
5. Banks are an essential piece of the inflation and money velocity puzzle. Bank reserves are now double what they were last year at the start of the COVID crisis and EIGHT TIMES what they were going into the 2008 Financial Crisis. As we all know, in the 2010’s our massive attempts at “quantitative easing” did not produce the hoped-for results. Hamstrung by onerous regulation, banks simply kept those reserves in the Fed, issuing loans at a compound rate of just under 4% annually over the past decade. (See my post Law and Order: FDIC for insight into how the Obama administration bungled bank regulation. See Basel: Faulty for proof that the Financial Crisis was really caused by stupid regulation, not free markets run amok.)
In other words, banks are now sitting on a gargantuan hoard of excess reserves. In an inflationary world, collateral values will rise, loan demand will accelerate, and more of these reserves will be lent out, creating even more new money. No one can say how big this credit growth will be, but the potential is mind-blowing.
Here’s something to watch out for: one way to put a lid on money growth would be to restrict the ability of banks to lend money (even more than they are already restricted.) This would put credit creation almost entirely in the hands of the government. (I suspect that this is the unspoken motive of some MMT acolytes.) Regulators have a bunch of levers they can pull to affect such an outcome. For instance, they could play with the rate the Fed pays banks for free reserves. The point is that it is even more important to monitor bank regulation today than it has ever been.
6. The rest of the world doesn’t seem to be in much better shape than we are. Asian countries suffered less from COVID and exercised more financial discipline. But, If anything, Europe may be in worse shape than we are due to their slower secular economic growth rate and comparable debt burdens. Any inflation will quickly spill over into other nations, especially those that are not commodity producers
7. The US dollar’s status as the world’s reserve currency might be tested. I think this is unlikely due to lack of a viable alternative (the Euro?, the Yuan?, Bitcoin?, the pound or yen?). But still this needs monitoring this since it is a bulwark supporting our currency and domestic prices.
Future Inflation will Reach 4 – 6% (Conservatively)
That’s the background. Here is the reasoning behind my “back of the envelope” forecast of at least 4-6% peak inflation:
- I assume that M2 grows $3T in 2021 (15%) and $2T (9%) in 2022, after which money growth returns to more normal rates (a somewhat heroic assumption.) Added to last year’s $4T in new M2, that is 3 year M2 growth of $9T.
2. “Economic slack” absorbs $1T of this excess money pool.
3. Real GDP increases $1.5T (8%) in 2021 and $1T (5%) in 2022, then returning to a more normal rate of 2-3%. (I think these assumptions are optimistic. When the dust settles, we may well have achieved 8% nominal GDP growth, but real GDP growth will have been lower.) This will further drain the excess money pool by $2.5 trillion, bringing it to $5.5 trillion.
That leaves a $5.5 trillion money pig to work its way through the economic python over the next, say, 4 years. This represents about 30% of current GDP, or 7.5% a year.
Historically, prices have consistently risen at a slower rate than money growth. That is why I use an estimate of 4-6%. However, bear in mind that with money velocity at all-time lows and huge excess bank reserves, it is not out of the question that my estimate could prove conservative.
Several periods in US economic history bear a resemblance to today’s economy and may serve as precedents for, or, at least, distant mirrors on, our own time. However, it is probably even more important to focus on the differences among these episodes than on their similarities.
Empirical data underlying the more recent episodes come mainly from FRED, an almost miraculous resource generated by the St. Louis Fed. For historical data, two sources include The US Statistical Abstract of 1948 and Historical Statistics of the United States: Colonial Times to 1970.
But my primary guide to the past was Milton (and Rose) Friedman’s majestic Monetary History of the United States 1867 – 1960. I have tried to corroborate Friedman’s data where possible, but Friedman himself goes to great lengths to point out the limitations of available numbers. For instance, there was no quantification of GDP until Simon Kuznets’ work in 1937. Prior to 1929, all estimates of national product are reconstructions from numerous sources.
1. The War decade from 1939 – 1949 is probably the most compelling precedent for today’s economic environment. The nation addressed the calamity of WWII with a strategy similar to, but more drawn out than, the strategy we are pursuing today to combat the more sudden onslaught of COVID.
In 1939 we began gearing up industrial production to provide war material to the allies. As the war gathered steam, the government ran huge deficits to finance the war effort. The Fed was accommodative throughout, keeping short rates below 1% and buying government bonds to suppress long yields (i.e. printing money.) Also, private credit was very limited, as banks mostly financed war spending by buying government bonds.
Between 1938 and 1945, the money stock nearly tripled, growing at an annual rate of roughly 16%. This was driven by war spending with Fed accommodation. The money supply grew only modestly in the postwar years. (3)
Inflation in this decade behaved rather strangely. It picked up in the years 1938 – 1942 leading up to the war. But inflation slowed during the war itself. Friedman argues that several policies worked to repress wartime inflation, notably wage and price controls. These led to all kinds of imaginative hidden price increases (the health insurance benefit was invented as a ruse to circumvent wage restrictions.) Plus, many products, such as automobiles and new housing, were simply not available.
Inflation picked up after the war. The nation demilitarized, price ceilings were lifted and consumer goods – and consumer credit – became more widely available. Veterans and civilians alike formed new families and began spending all the money they had saved during the war. Of course, this money bought a good bit less than it would have bought when they earned it. As mentioned above, the GDP deflator peaked at 10% in 1947.
The implicit price index rose at a compound rate of about 6% in the decade from 1938 to 1948, compared to the 12% rate of increase for the money stock.
One interesting parallel between today and 1939 is that in both cases stimulative policies were inaugurated in periods of economic slack, with powerful deflationary pressures at work. As noted above, the unemployment rate in 1939 was 19%. In 2020, the economy had just fallen off the COVID cliff. So in both cases there was considerable unused capacity. In such conditions, money creation does not seem to produce anything near a commensurate rate of inflation.
An interesting difference between the two periods centers on the fiscal budget. During the war, the budget deficit soared to as high as 25% of GDP, compared to 15% today. But once the war ended, the budget quickly returned to balance and the money supply grew at a rate of around 1% for the next decade. In 2020, we already had a sizeable fiscal deficit before COVID hit.
2, The Greenback period. To pay for the Civil War, the Lincoln administration suspended convertibility of the currency into gold and began issuing “Greenbacks” as legal tender. Total money stock growth from 1861-1865 was roughly 24% annually. (4)
Anyone familiar with Greenbacks knows that their value dropped a lot. From 1862 to 1864, the price of Greenbacks plunged to 1/2 of their original face value relative to gold. (5) In other words, serious inflation. Overall, Friedman judges that wholesale prices rose 24.5% annually (!) between 1861 and 1865. (6)
But few are aware that Greenbacks eventually recovered all of their original value. With the end of the Civil War, Greenbacks recovered to 70% of face value. Washington committed to returning to gold convertibility at the prewar rate, and did so in 1879, at which point Greenbacks were again worth par. This was accomplished with a highly restrictive monetary policy from 1865 to 1879. From 1869 to 1879, money stock grew at an annual rate of just 2.7% at a time when real GDP was surging at between 4% and 7% per annum (depending on how you measure it.) Prices declined at a rate of 3-4% a year. (7)
After a brief interregnum of rapid money growth following 1879’s reinstatement of the gold standard, tight monetary policy continued through 1900. Farmers bore the brunt of this deflation as ag prices dropped more than the prices of farm inputs. This led to the original populist and progressive movements and William Jennings Bryan’s “cross of gold” oration. Bear in mind that in 1890, more than half of US citizens still lived on farms.
Parenthetically, the post-Civil War decades call into question the conventional wisdom regarding deflation. Despite deflation and 6-8% long term yields on railroad bonds (implied 9-12% real rates!) the country enjoyed the strongest economic growth in its history. 8-
The bottom line is this: both the Greenback and World War II episodes had happy outcomes. The inflation spawned by money printing for war finance was readily tamped down and truly impressive economic growth ensued. After the Civil war, fiscal and monetary policy turned very conservative in anticipation of a return to the gold standard. Following WWII, it was a simple matter for the Fed to allow interest rates to rise and to return manufacturing to the private sector. In both cases, we had started out with small federal budgets and minimal debt.
For several reasons, I think that today’s money printing for the COVID war is unlikely to produce a similarly happy result. Even before COVID, our fiscal budget deficit approached a trillion dollars. Today, government spending is so big and varied and ingrained that it is preposterous to think that the budget could be balanced in the next few years.
Perhaps the prodigal COVID stimulus will dissipate, but there are a welter of other grand progressive projects in the works (infrastructure, green new deal, student loan forgiveness and — who knows?—maybe even reparations .) Moreover, our debt load, both public and private, is already near historically lofty levels. If interest rates rise, the debt burden may grow even if we successfully cut spending. , as in the 1970’s, we have a Federal Reserve Chairman who appears intent on accommodating fiscal excess.
3. The oil embargo, 1970’s stagflation, and the “Nifty Fifty.”. Fueled by Vietnam War spending and new social programs, inflation was already gaining traction when Richard Nixon took office in 1969. Shortly thereafter, Arthur Burns was was appointed Fed Chairman. In advance of Nixon’s reelection campaign, Burns turned on the money spigot full force. From 1970 through 1976, M2 grew at a compound rate of 11%. In 1971, the Nixon administration suspended gold convertibility. The “gold standard”, such as it was, had previously been at least a small constraint on monetary policy. Now discipline was thrown to the winds. The first oil embargo in 1973-4 catalyzed further inflation even though on its own the embargo was a deflationary event. Inflation helped spread the pain more evenly across American constituencies.
The GDP deflator increased at an annual rate of 6% between 1969 and 1980, peaking at 8.5% in 1980 after the second oil embargo. In 1979, Jimmy Carter appointed Paul Volcker to the Fed Chairmanship with a mandate to whip inflation. And he whipped it good, reining in the money supply and precipitating one of the worst recessions of the 20th century.
Stock market behavior in the early 70’s, in the formative years of a decade of inflation, would have looked very familiar to today’s investors. These were the days of the now forgotten “Nifty Fifty.” (A neglected classic, “The Money Game” by “Adam Smith” is a highly entertaining romp through this era of overpriced IPO’s, tech speculation, a bull market fueled by consolidation, low real interest rates and easy money.)
The “Nifty Fifty” was a collection of blue chip growth stocks of mostly solid companies – Coca Cola, IBM, McDonald’s. The only problem was that their shares got bid up to nose bleed valuations. In 1972, Coca Cola’s P/E was 46, McDonald’s was 71, IBM’s was 36.
Over the next two years – 1972 to 1974 – nearly all of the “Nifty Fifty” stocks dropped between 50% and 90%. I don’t think that today’s stock market leaders (i.e. the “FAANGS”) are nearly as overvalued as were the “Nifty Fifty” in their day, but I do believe that more speculative tech stocks are way overpriced and over owned, and that the investment environment is very similar.
Instructively, there is an important lesson here for all investors. As Jeremy Siegel pointed out in revisiting the nifty fifty if one had bought these stocks at their peaks in 1972 and held on through the bear market until 1998, most of them produced very acceptable returns indeed. Patient Coke investors were rewarded with an annual return of 16%, McDonald’s 12%, and Citicorp 11% (despite the LDC and oil crises of the 1980’s.) The Old Normal is a link to an excellent discussion of the era in which I found the Siegel reference.
4. The internet bubble of the 1990’s is often invoked as a cautionary tale for today’s investors. I think this is mostly unjustified, with one caveat: too much cash went into one market sector. Back in the 1990’s, much of this cash went into shares of companies with no prospect of success, some of which were outright frauds. Today, some tech companies may be overvalued, but most have solid business plans and most are highly profitable. But like the internet stock collapse in 2000, I think that after a decade of outperformance, growth stocks are now likely to take a back seat to value stocks
5. The 2010’s offer an interesting contrast to the previously mentioned periods. In this decade, M2 increased 82% (6% annually) while the GDP deflator rose just 19% (1.6% annually.) I’m not sure why prices did not increase more in line with money growth. I conjecture it has much to do with globalization and US banks’ willingness to keep reserves at the Fed and not lend them out. But this is not particularly reassuring. It suggests that M2 growth of 40% should spawn inflation at least in the neighborhood of 10%, and in a couple of years, not a decade.
The 2010’s were a bit similar to two other periods in US economic history: 1879 – 1897 and 1897 – 1914. In the former period, the money stock grew 6% per year and prices declined 1% per year. In the latter, the rates were 6% and 2% respectively. In both periods, national income rose at an annual rate of about 3%. The lesson from all three periods, I suppose, is that economic pressures other than the money supply can have a determinative influence on prices. In the 2010’s it was globalization. In the 1880’s and ‘90’s it was the amazing productivity advances in all industries, but especially in the farm economy in which most Americans earned their livings.
6. Japan from 2000 to the present underscores the complexity of the money / inflation nexus. After increasing 30% from 2000 to 2002 with no impact on consumer prices, Japanese M1 grew at a compound rate of 4.5% from 2002 to today. (It looks to me like Japanese M1 is very similar to US M1, but I wouldn’t swear to it.) It surprised me that Japanese M1 hadn’t grown faster in these decades given that Japanese central bank assets have grown from 15% of GDP to 120% of GDP in the past 10 years. Lyn Alden theorizes that this was mostly due to the deleveraging of Japan’s corporate sector, which makes sense to me. The aging of Japan’s population also played a role. Over this period, consumer price inflation was essentially zero and annual real GDP growth was half a percent.
7. The Mississippi Bubble. Whatever John Law’s intentions may have been, the end result of free and limitless money was to drive holders of cash and government debt (fixed-income assets) into equity. Is this really much different from what’s happening here, today? When the Mississippi bubble burst it produced depression, not inflation, mainly because Law had to take it on the lam and cease operations. Presumably, the Fed Chairman will never be run out of Washington on a rail.
8. I have found no episodes in US history in which the aggregate money supply grew more than 30% in three years and did not result in inflation of at least 5%. I did not discuss World War 1 inflation in any detail, but this was no exception. Prior to the Civil War, of course, data are spotty. Until then, currency was the obligation of individual banks, not the federal government. Inflation seems to have been rare, but there were several instances of an overheated economy and asset bubbles (e.g. 1830 – 1837.)
What Would Milton Do?
After examining these historical precedents, my conclusion should not be controversial; 30-40% plus M2 growth in 2020-2021 is likely over the next three or four years to produce higher inflation than the consensus now expects. How much higher is anyone’s guess, but I am going with a peak of at least 4-6% in the next few years, as expressed above. I wish my methodology could have been more, well, elegant, but at least it can serve as a base case: a Bayesian prior. The important thing will be to diligently watch the evidence as it incrementally rolls in to see if it helps to confirm or reject the base case.
Anyway, what happens this year is not the overriding consideration. As the World War II and Civil War episodes demonstrate, our economy can endure even extreme inflation and return to more stable price trends with only minor negative longer term consequences. The overriding consideration is how the Fed responds in 2022 and out years. Both Janet Yellen and Jay Powell insist that any near term inflation will be “transitory.” I hope they are right.
Unfortunately, our economic policymakers are stuck in a fiscal straight jacket that did not constrain policymakers in 1945 and 1865. They confront a structural fiscal deficit that was spinning out of control even before COVID hit. Even if much of the COVID spending goes away, the Treasury will need to issue huge amounts of debt and the Fed cannot buy all of it (at least, I don’t think they can.) To dampen inflation, interest rates will need to rise, which will exacerbate the deficit problem even if spending declines. If rates do rise and a recession results, that might be even worse. The current Democratic leadership in Washington evidences no capacity for fiscal restraint. It is difficult to be optimistic about the long term outlook for inflation.
What would Milton Friedman do? First, I think he’d remind us of the most fundamental principal in economics: “There is no free lunch.” I think he would say that we should act like grown ups and accept that we will need to give back at least $4 trillion of last year’s nearly $5 trillion difference between GDP growth and money growth. One way or the other; either through inflation or deficit reduction or heightened productivity. Given the record of the past decade and the growing intrusion of government into the economy, a jump in productivity seems a pipe dream. Thus, Friedman would say we are left with three choices. We can slow money growth and drive up interest rates. Or we can cut federal spending and raise taxes. Or we can allow inflation to do its worst. As to which, we are free to choose.
3. Friedman 547
4. Friedman 546
5. Friedman 65
6. Friedman 546
7. Friedman 39
8. Friedman 68
Hayek from his 1974 Nobel Prize address
Summers and Stiglitz from yahoo