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Speaker 1: The Michael Berry Show. I don't care what you learned

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Speaker 1: in school. I don't care what you were taught, what

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Speaker 1: you've carried with you. There is nothing more important you

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Speaker 1: could have learned in school than the teachings of Milton Friedman,

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Speaker 1: my hero, my idol. These are truths, economic truths that

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Speaker 1: ninety nine percent of Americans will never even be exposed to.

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Speaker 1: Inflation and illegal immigration are the issues in this election.

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Speaker 1: Two economists understood inflation better than anyone, Thomas sol and

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Speaker 1: his mentor, Milton Friedman. Milton Friedman's greatest contributions came in

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Speaker 1: I would say monetary theory, consumption analysis, and and more

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Speaker 1: generally kind of the role of government in economic policy?

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Speaker 1: Do you say economic or economic? You say economic?

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Speaker 2: I like to go back and forth.

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Speaker 1: Milton Friedman is best known for his support of minimal

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Speaker 1: government intervention in the economy, his position being policies should

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Speaker 1: promote individual freedom and market efficiency. Very easy to think

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Speaker 1: government ought to come in and solve these problems, but

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Speaker 1: the government trying to solve the problem makes it worse.

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Speaker 1: Milton Friedman believed that with free markets minimal governmental intervention,

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Speaker 1: you would foster economic growth and personal liberty. And I'll

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Speaker 1: give you an example. When the automobile was being manufactured.

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Speaker 1: That scared the buggy whip business because if you were

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Speaker 1: in the buggy whip business, you're making good money manufacturing

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Speaker 1: buggy whips. All of a sudden cars come along. You're thinking, well,

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Speaker 1: that's gonna put us out of business. We're gonna lose

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Speaker 1: our job. Government needs to keep them from doing this,

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Speaker 1: because it's going to lose our job. But the greater

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Speaker 1: good was this new form of transportation that made life

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Speaker 1: more efficient, that reduced the amount of time it took

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Speaker 1: to travel, That reduced the amount of time it took

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Speaker 1: to get goods to people, which means reduce the cost.

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Speaker 1: It was an overall good, But sure somebody had to

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Speaker 1: suffer so that many others could prosper. But what does

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Speaker 1: government do? More often than not, the buggy whip folks

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Speaker 1: go hire them a lobbyist and they start protesting. The

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Speaker 1: politicians go, oh, the buggy whip people are gonna be

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Speaker 1: mad at us. Let's shut down automobiles. We've played clips

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Speaker 1: of his speeches before, and we've actually posted this one before,

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Speaker 1: and I'm going to post it again and again and

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Speaker 1: again and again. Try to put some time in between

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Speaker 1: it because I believe in it so much. But with

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Speaker 1: inflation being as bad as it is now, and with

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Speaker 1: people really feeling when you feel that pinch, you want

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Speaker 1: to learn more about what happened, and he does a

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Speaker 1: great job explaining it. No he's not charismatic. No he

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Speaker 1: doesn't have a great voice, but please push through that

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Speaker 1: and share this podcast with others. It is the sort

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Speaker 1: of thing that I wish more people understood. As always,

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Speaker 1: I love to hear from you, Michael Berryshow dot com.

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Speaker 1: Send me an email. I read them all, can't reply

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Speaker 1: to them all. You can buy our merch there, and

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Speaker 1: you can sign up for our daily Blast, where we

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Speaker 1: include links to things like this and much more. We

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Speaker 1: appreciate your support so much.

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Speaker 3: The topic I'm going to talk about tonight, I had

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Speaker 3: thought it was announced. If not, it'll come as a

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Speaker 3: surprise to you, but I hope not as an unpleasant

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Speaker 3: surprise is a topic of money and inflation. It's not

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Speaker 3: a topic I think there's anybody in this room who

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Speaker 3: was uninterested in at least the inflation half of it.

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Speaker 3: Most of you are also very interested in the money half,

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Speaker 3: but from a different point of view. Whenever I talk

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Speaker 3: about inflation, I am reminded of a wonderful.

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Speaker 2: Story about the man who decided.

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Speaker 3: To take advantage of the growing science of cryogenics, that's

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Speaker 3: the science of freezing people up so that they can

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Speaker 3: be in deep freeze for a time and then restored

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Speaker 3: to life.

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Speaker 2: And he got.

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Speaker 3: Himself put into the deep freeze for a twenty year period.

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Speaker 3: And of course, before he went into the deep freeze,

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Speaker 3: he left all his securities and his worldly belongings at

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Speaker 3: his brokers, with instructions to do the best he could

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Speaker 3: for him. And twenty years later, after the deep freeze

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Speaker 3: had worked, he was unthawed and came out of the

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Speaker 3: deep freeze. And of course the first thing he did

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Speaker 3: was to run to the telephone to call his broker.

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Speaker 2: And his broker said to him, will you know you're

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Speaker 2: a millionaire many times over? Oh?

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Speaker 3: Really, said the man, what happened to this stock? And

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Speaker 3: the brokers said, had went from here to hear, you know,

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Speaker 3: multiplied many and ten times, twenty times?

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Speaker 2: What happened to this stock?

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Speaker 3: He kept on going, but suddenly the telephone operator interrupted.

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Speaker 2: The man was just ecstatic.

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Speaker 3: Telephone operator interrupted and said, sorry, your three minutes are up,

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Speaker 3: That'll be two hundred and fifty thousand dollars for.

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Speaker 2: The next three minutes. Place.

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Speaker 3: That's real inflation. That's a that's at the moment of story,

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Speaker 3: but it's not a story which does not have some

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Speaker 3: examples in history. Inflation is a disease. It's a dangerous

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Speaker 3: disease for a society. It is sometimes a fatal disease

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Speaker 3: for a society.

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Speaker 2: It's a disease that.

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Speaker 3: If allowed to rage unchecked, can destroy a society.

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Speaker 2: And we have many such examples.

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Speaker 3: The classic examples, of course, are the extreme examples of Germany,

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Speaker 3: of Austria, of Russia after the First World War, when

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Speaker 3: inflation really did reach levels at which the kind of

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Speaker 3: apocryphal story I told you was a literal description of

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Speaker 3: the reality. When inflation reached levels at which employers would

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Speaker 3: pay their workers three times a day after breakfast, lunch,

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Speaker 3: and dinner so they could go out and spend the

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Speaker 3: money before it lost all its value. That's the real

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Speaker 3: extreme cases. But you don't have to go to such

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Speaker 3: extreme cases to see the enormous harm which inflation left

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Speaker 3: unchecked can do. You have the exam in many examples

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Speaker 3: in South America, Brazil before nineteen sixty four was brought

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Speaker 3: down by an inflation that led to a revolution that

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Speaker 3: toppled the existing government in order to stem the inflation.

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Speaker 3: In the famous case of Chile, with mister Ayendi in power,

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Speaker 3: he produced an inflation which was one of the major

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Speaker 3: factors that caused the economic catastrophe that led to the

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Speaker 3: replacement of his government by a military dictatorship. We are

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Speaker 3: nowhere near that stage in the United States, but it

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Speaker 3: behooves us as a nation to pay attention to this disease,

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Speaker 3: to ask ourselves, what is the cause of the disease,

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Speaker 3: how do you cure the disease, what are the effects

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Speaker 3: of the cure, what are the side effects of it?

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Speaker 2: And what will happen if we don't cure it?

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Speaker 3: And I propose to discuss the topic tonight under those headings,

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Speaker 3: and then go on to consider in somewhat more specific

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Speaker 3: detail the experience of the United States over the past

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Speaker 3: decade or two and the present situation that we face.

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Speaker 2: Now.

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Speaker 3: The first step toward understanding the cause of inflation is

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Speaker 3: to recognize that it is always in everywhere a monetary phenomenon.

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Speaker 3: It's always an everywhere a result of too much money

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Speaker 3: of a more rapid increase in the quantity of money

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Speaker 3: than an output. Moreover, in the modern era, the important

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Speaker 3: next step is to recognize that today governments control the

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Speaker 3: quantity of money, so that as a result, inflation in

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Speaker 3: the United States is made in Washington and nowhere else.

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Speaker 3: Of Course, no government, any more than any one of us,

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Speaker 3: likes to take responsibility for bad things. Where all of

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Speaker 3: us human. If something bad happens, it wasn't our fault,

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Speaker 3: and the government is the same way, so it doesn't

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Speaker 3: accept responsibility for inflation. If you listen to people in

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Speaker 3: Washington talk, they will tell you that inflation is produced

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Speaker 3: by greedy businessmen, or it's produced by grasping unions, or

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Speaker 3: it's produced by spendthrift consumers, or maybe it's those terrible

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Speaker 3: Arab sheeks who are producing. Now, of course, businessmen are greedy,

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Speaker 3: who of us isn't. Trade unions are grasping who of

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Speaker 3: us isn't. And there's no doubt that the consumer is

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Speaker 3: a spendthrift. At least every man knows that about his wife.

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Speaker 3: But none of them produce inflation for the very simple

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Speaker 3: reason that neither the businessman, nor the trade union, nor

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Speaker 3: the housewife has a printing press in their basement on

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Speaker 3: which they can turn out those green pieces of paper

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Speaker 3: we call money. Only Washington has that printing press, and

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Speaker 3: therefore only Washington can produce inflation.

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Speaker 2: If you listen to the people from the.

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Speaker 3: Communist world, they'll tell you inflation is a capitalist phenomenon.

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Speaker 2: That's not true. If you look at Europe today.

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Speaker 3: One of the most rapid rates of inflation in Europe

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Speaker 3: has been in Yugoslavia, which is a communist country. One

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Speaker 3: of the slowest rates of inflation has been in Switzerland,

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Speaker 3: which is a capitalist country. So inflation is not a

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Speaker 3: capitalist phenomenon, but neither is it a communist phenomenon. If

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Speaker 3: Switzerland has low en inflation, the United Kingdom in recent

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Speaker 3: years has had inflation rates running up to twenty twenty

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Speaker 3: five percent a year. Italy has inflation rates today of

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Speaker 3: that order of magnitude. Inflation is not a capitalist phenomenon,

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Speaker 3: it's not a communist phenomenon. It's a printing press phenomenon. Now,

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Speaker 3: in saying that inflation is a printing press phenomenon, in

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Speaker 3: saying that inflation is always caused by a more rapid

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Speaker 3: increase in the quantity of money than an output. You're

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Speaker 3: only at the beginning of the problem because you must

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Speaker 3: distinguish the immediate cause from the more element cause. You

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Speaker 3: must ask why is it that the quantity of money

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Speaker 3: increases too rapidly? But before I go on to that question,

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Speaker 3: I just want to settle for once and for all,

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Speaker 3: the point that inflation is a monetary phenomenon. That proposition

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Speaker 3: has been documented over and over again. We have evidence,

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Speaker 3: for the United States for over one hundred years, for

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Speaker 3: Great Britain for two hundred years, for Sweden for two

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Speaker 3: hundred years. There is never in history been an inflation

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Speaker 3: that was not accompanied by an extremely rapid increase in

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Speaker 3: the quantity of money. There is never in history been

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Speaker 3: an extremely rapid increase in the quantity of money without

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Speaker 3: an inflation.

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Speaker 2: But in order to persuade.

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Speaker 3: You of this quickly and with a minimum waste of time,

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Speaker 3: I have brought a few pictures along to show you

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Speaker 3: that will graphically illustrate the proposition about the relation between

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Speaker 3: money and inflation. And I'd like to if we can

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Speaker 3: start with the first of those slides. Now, maybe you

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Speaker 3: can make out that there are two lines on that chart.

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Speaker 3: That chart is for the United States, and it covers

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Speaker 3: the thirteen years from nineteen sixty four through nineteen seventy six,

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Speaker 3: and one of those charts, the solid line is a

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Speaker 3: quantity of money per unit of output, and the other line,

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Speaker 3: which is a dashed line, is a consumer price index.

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Speaker 3: Those two lines cross at nineteen seventy because that's the

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Speaker 3: way they're constructed. Both of those series were expressed on

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Speaker 3: nineteen seventy as a base of one hundred in order

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Speaker 3: to try to get the two series in the same scale.

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Speaker 3: But there is nothing whatsoever in the arithmetic of it

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Speaker 3: to make those two curves the same elsewhere that and

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Speaker 3: I may say that the quantity of money that's plotted

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Speaker 3: there is a quantity of money for a year ending

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Speaker 3: six months before the price index, so that you are not.

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Speaker 2: There's nothing funny about that.

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Speaker 3: And you can see that the two lines are almost indistinguishable. Now,

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Speaker 3: I've got a segment of thirteen years up there, but

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Speaker 3: if I had a segment of one hundred years, the

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Speaker 3: relationship would be the same way throughout the whole of

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Speaker 3: that period.

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Speaker 2: But you may say.

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Speaker 3: That's maybe that's only for the United States, but what

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Speaker 3: about other countries? And so let's have the next slide

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Speaker 3: The next slide is for Germany for the same period,

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Speaker 3: and again you will see the same story.

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Speaker 2: Now, the interesting thing here is that you can see

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Speaker 2: that the.

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Speaker 3: Quantity of money for a while in the later sick

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Speaker 3: later in the seventies, was running ahead of the price index.

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Speaker 3: But now they're coming back together again. And that's a

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Speaker 3: behavior you very often observe. The quantity of money per

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Speaker 3: unit of output is the major factor that from the

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Speaker 3: immediate sense, determines a price index, but it doesn't operate instantaneously.

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Speaker 3: Sometimes there are delays of a year or two, but

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Speaker 3: sooner or l.

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Speaker 2: They all come back together.

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Speaker 3: Well, the United States in Germany are very similar countries.

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Speaker 2: What about another country.

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Speaker 3: Let's have the third chart, and the third chart there

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Speaker 3: it's supposed to be for Japan.

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Speaker 2: I can't read it. Is that what it says up there,

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Speaker 2: that's for Japan.

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Speaker 3: And you will notice that the Japan experienced a much

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Speaker 3: greater price rise than either the United States or Germany did.

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Speaker 3: But Japan has now been coming back. It's done a

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Speaker 3: remarkable job of controlling the quantity of money, and as

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Speaker 3: a result, the rate of price inflation in Japan has

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Speaker 3: come down from close to thirty percent a year to word. Today,

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Speaker 3: in the period after this chart, it's back down to

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Speaker 3: about seven percent. But again you have the same synchronism

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Speaker 3: between the two charts. Now the next chart, let's have

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Speaker 3: the next chart, which is for Great Britain.

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Speaker 2: You can see each.

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Speaker 3: One of these has a little bit more fflation than

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Speaker 3: the preceding one, but each one of them you again

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Speaker 3: have the same relationship in every case between the quantity

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Speaker 3: of money and prices. Now, one of the interesting things

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Speaker 3: about that comparison between Japan and the United Kingdom is

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Speaker 3: you will hear many people telling you that the real

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Speaker 3: reason you have inflation is because of trade unions. If

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Speaker 3: you listen to anybody telling you about Great Britain's plight,

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Speaker 3: they will tell you that the real problem in Great

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Speaker 3: Britain is that you have such strong trade unions that

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Speaker 3: they push up wages and that causes inflation. Well, if

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Speaker 3: that explains this relationship for Britain, what explains the previous

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Speaker 3: chart for Japan, where trade unions are not very important

255
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Speaker 3: are much weaker than they are in Great Britain. Or

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Speaker 3: what explains the next chart, which is a honey for Brazil.

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Speaker 3: That's can we have the last chart now, that's a

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Speaker 3: little that's an inflation, that's really an inflation, and that's

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Speaker 3: none of these baby inflations we've been playing with. Of course,

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Speaker 3: there are still better ones in Argentina and Chile, but

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Speaker 3: we don't have a big enough.

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Speaker 2: Room now here.

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Speaker 3: Again, if trade unions cause inflation, as you know, Brazil

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Speaker 3: has a military government and trade unions have absolutely nothing

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Speaker 3: to say about anything except as they are branches of

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Speaker 3: the government apparatus. So that it's clear you cannot explain

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Speaker 3: in the case of Brazil, the inflation trade unions, but

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Speaker 3: you can see very clearly that you can explain it

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Speaker 3: by changes in the quantity of money. Thank you, We

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Speaker 3: can have the lights back on now. As I say,

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Speaker 3: that's a very small sample of the evidence that is

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Speaker 3: available on the linkage between the quantity of money on

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Speaker 3: the one hand.

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Speaker 2: And prices on the other.

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Speaker 3: That evidence is available for hundreds of years in many countries,

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Speaker 3: and there are no exceptions.

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Speaker 2: But that only gets you to first base. The question

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Speaker 2: is why is it.

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Speaker 3: That the quantity of money increases relative to output? If

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Speaker 3: you go back one hundred years ago, and here in

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Speaker 3: California this is very appropriate to go back a little

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Speaker 3: more than one hundred years ago. Sometimes the quantity of

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Speaker 3: money increased more rapidly than output because of discoveries of

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Speaker 3: gold or precious metals.

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Speaker 2: As you know, you had.

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Speaker 3: The gold rush in California in late eighteen forties early

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Speaker 3: eighteen fifties. You had the Australian gold discoveries in the

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Speaker 3: same period in eighteen fifties, and you had a worldwide

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Speaker 3: inflation as a result. In the eighteen nineties to nineteen thirteen,

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Speaker 3: you had a worldwide inflation because of the disc of

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Speaker 3: the perfection of the Cyanide process for extracting gold from

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Speaker 3: low grade ore, which produced an outpouring of gold from

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Speaker 3: Australia from South Africa to supplement the gold strikes up

294
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Speaker 3: in Alaska.

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Speaker 2: But those were the good old days, before the.

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Speaker 3: Days when governments discovered that it could escape from that

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Speaker 3: relic of an earlier time, the discipline of gold, and

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Speaker 3: that it had a much more scientific method of controlling

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Speaker 3: the quantity of money by ending the link to gold

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Speaker 3: and instead turning to government dominated money. And today you

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Speaker 3: do not have inflations for those reasons. Today you have

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Speaker 3: inflations because governments create a very large.

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Speaker 2: Quantity of money. The question is why do governments do

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Speaker 2: that in today.

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00:19:56,400 --> 00:20:02,320
Speaker 3: In the main, there are fundamentally three reasons, in my opinion,

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00:20:03,200 --> 00:20:06,760
Speaker 3: why we have experienced inflation and why it is a threat.

307
00:20:07,840 --> 00:20:12,639
Speaker 3: The first, and by far the most important, is in

308
00:20:12,760 --> 00:20:19,800
Speaker 3: order to pay for government spending. Now, of course I

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00:20:19,880 --> 00:20:23,960
Speaker 3: say the government does this, that's wrong. The government doesn't

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Speaker 3: do it.

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Speaker 2: You do it. I do it, We the citizen do it.

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Speaker 3: We tell the people in Washington, we tell our congressmen

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Speaker 3: and our senators and our representatives.

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Speaker 2: We want you to spend more money on.

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Speaker 3: Us, but we don't want you to put any taxes

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Speaker 3: on us. Oh no, we don't want you to levy taxes.

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00:20:42,280 --> 00:20:42,920
Speaker 2: We want you to.

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Speaker 3: Spend more, but we don't want you to tax more.

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Speaker 3: There's no way you can do the one without the other.

320
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Speaker 3: The real tax on the American people is what government spends.

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Speaker 3: If government spends four hundredth's, the federal government spends four

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Speaker 3: hundred and fifty billion dollars and only raises four hundred

323
00:21:03,880 --> 00:21:07,240
Speaker 3: billion dollars in taxes. Who do you spose who pays

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00:21:07,240 --> 00:21:11,399
Speaker 3: that other fifty billion dollars? Do you suppose the tooth fairy?

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Speaker 2: Does you pay it? And I pay it?

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Speaker 3: And one of the ways we pay it is by

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Speaker 3: the tax which we call inflation. Inflation is, from this

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Speaker 3: point of view, a form of taxation. If government spends

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Speaker 3: more than it takes in in the form of things

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Speaker 3: that are called taxes, it has to meet the difference,

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Speaker 3: either by printing money or by borrowing from the public

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Speaker 3: at large. Printing money is a very attractive device, because inflation,

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00:21:53,640 --> 00:21:56,280
Speaker 3: from the point of view of a person sitting in

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Speaker 3: Congress or in the Senate, is a wonderful tax.

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Speaker 2: He does not have to vote for it.

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00:22:02,080 --> 00:22:04,359
Speaker 3: Have you ever known of a congressman who got up

337
00:22:04,359 --> 00:22:07,280
Speaker 3: and said, I vote to impose a tax in the

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00:22:07,320 --> 00:22:11,639
Speaker 3: form of inflation of ten percent next year, No, sirree.

339
00:22:13,480 --> 00:22:19,479
Speaker 3: Inflation is a tax which is imposed without representation, in

340
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Speaker 3: which nobody has to vote for. And of course it's

341
00:22:22,680 --> 00:22:25,000
Speaker 3: a marvelous tax from the point of view of a

342
00:22:25,040 --> 00:22:29,000
Speaker 3: congressman trying to meet the demands of his constituents for

343
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Speaker 3: more spending. Inflation is its taxation yields tax.

344
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Speaker 2: Revenue in three different ways. It yields it directly.

345
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Speaker 3: We think of these pieces of paper we carry in

346
00:22:45,800 --> 00:22:49,320
Speaker 3: our pockets money, but it would be just as accurate

347
00:22:50,520 --> 00:22:54,840
Speaker 3: to think of those as receipts for the taxes you've paid.

348
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Speaker 3: If you pay the government one hundred dollars directly in taxes,

349
00:22:58,760 --> 00:23:01,000
Speaker 3: the government sends you back receipt you paid as one

350
00:23:01,040 --> 00:23:04,840
Speaker 3: hundred dollars in taxes. Well, now, the beauty of printing

351
00:23:04,840 --> 00:23:07,399
Speaker 3: money is that the receipt is right straight with the

352
00:23:07,440 --> 00:23:11,959
Speaker 3: payment of taxes. What you're getting there is not money

353
00:23:12,520 --> 00:23:16,639
Speaker 3: but tax receipts. And from the point of view of

354
00:23:16,680 --> 00:23:20,280
Speaker 3: the government, those pieces of paper, and I'm exaggerating, of course,

355
00:23:20,280 --> 00:23:22,399
Speaker 3: they are not really pieces of paper. That's only the

356
00:23:22,440 --> 00:23:25,199
Speaker 3: primitive way of doing it. In our modern age we

357
00:23:25,280 --> 00:23:29,000
Speaker 3: do it in a more sophisticated way through using a

358
00:23:29,040 --> 00:23:31,920
Speaker 3: bookkeeper's pen or a computer instead of having to turn

359
00:23:31,960 --> 00:23:36,480
Speaker 3: the printing press. It's in the form called deposits, one

360
00:23:36,480 --> 00:23:40,080
Speaker 3: of the most misleading terms in the human language. When

361
00:23:40,119 --> 00:23:42,440
Speaker 3: I think of a deposit, I think I put something there,

362
00:23:42,440 --> 00:23:44,879
Speaker 3: and there it is. But you know, when you go

363
00:23:44,920 --> 00:23:48,600
Speaker 3: into a bank and deposit money, the people behind the

364
00:23:48,640 --> 00:23:50,680
Speaker 3: counter run as fast as they can to another part

365
00:23:50,680 --> 00:23:52,480
Speaker 3: of the bank to pay it out over another counter

366
00:23:52,520 --> 00:23:53,120
Speaker 3: in the form.

367
00:23:52,960 --> 00:23:55,760
Speaker 2: Of loans, it's not deposited there.

368
00:23:57,680 --> 00:24:02,880
Speaker 3: And similarly, when the government sends a check, it may

369
00:24:03,000 --> 00:24:07,240
Speaker 3: in effect be doing the equivalent of printing paper money.

370
00:24:07,920 --> 00:24:11,159
Speaker 3: I won't go into the details of that process. You

371
00:24:11,240 --> 00:24:13,679
Speaker 3: will get the right answer if you think of it

372
00:24:13,760 --> 00:24:20,840
Speaker 3: strictly as printing paper money.

373
00:24:20,920 --> 00:24:22,119
Speaker 2: So when the.

374
00:24:23,680 --> 00:24:27,320
Speaker 3: Government gets revenue from inflation directly in the form of

375
00:24:27,359 --> 00:24:29,960
Speaker 3: these pieces of paper, it can go out and spend

376
00:24:30,160 --> 00:24:32,200
Speaker 3: without having gotten taxes from anybody.

377
00:24:32,920 --> 00:24:35,119
Speaker 2: But it also gets revenue in two other ways.

378
00:24:36,480 --> 00:24:39,679
Speaker 3: In the first place, with the kind of tax system

379
00:24:39,720 --> 00:24:44,720
Speaker 3: we have, inflation raises other kinds of taxes without anybody

380
00:24:44,800 --> 00:24:50,600
Speaker 3: having to vote for it. You might think that if

381
00:24:50,640 --> 00:24:54,040
Speaker 3: prices go up by ten percent and your income goes

382
00:24:54,119 --> 00:24:56,359
Speaker 3: up by ten percent, you're in the same position as

383
00:24:56,359 --> 00:25:00,960
Speaker 3: you were before, but you're not pushed up into higher

384
00:25:01,000 --> 00:25:05,040
Speaker 3: brackets of the income tax. And on the average if

385
00:25:05,080 --> 00:25:07,560
Speaker 3: your income, if prices go up ten percent and your

386
00:25:07,600 --> 00:25:11,080
Speaker 3: income goes up ten percent, your taxes will go up

387
00:25:11,080 --> 00:25:16,600
Speaker 3: fifteen percent, So that the Congress again is in a

388
00:25:16,640 --> 00:25:21,160
Speaker 3: marvelous position it can vote to lower tax rates when

389
00:25:21,160 --> 00:25:24,200
Speaker 3: in fact taxes are going up. There's a lot of

390
00:25:24,240 --> 00:25:27,240
Speaker 3: talk in the papers these days and the news these

391
00:25:27,320 --> 00:25:30,760
Speaker 3: days about the President proposing a tax cut next year.

392
00:25:33,280 --> 00:25:36,399
Speaker 2: That's pure fiction. Nobody is proposing a tax cut.

393
00:25:37,480 --> 00:25:40,720
Speaker 3: These much publicized tax cuts of the past few years

394
00:25:40,720 --> 00:25:45,880
Speaker 3: have not been tax cuts at all. Inflation has raised taxes,

395
00:25:46,320 --> 00:25:48,679
Speaker 3: and the so called tax cuts is given back a

396
00:25:48,720 --> 00:25:53,640
Speaker 3: small part of that to the taxpayer, but the actual

397
00:25:53,800 --> 00:25:58,320
Speaker 3: taxes the taxpayers have paid have gone up as a

398
00:25:58,359 --> 00:26:02,520
Speaker 3: result of the automatic effect of inflation. In the third place,

399
00:26:04,480 --> 00:26:10,240
Speaker 3: the government gets revenue from inflation by repudiating its debt.

400
00:26:11,880 --> 00:26:12,960
Speaker 2: Many people keep.

401
00:26:12,840 --> 00:26:16,440
Speaker 3: Worrying about the government debt. That's not something you should

402
00:26:16,480 --> 00:26:22,560
Speaker 3: worry about because the government debt today is smaller the

403
00:26:22,680 --> 00:26:26,280
Speaker 3: official that is, the announced government debt, the open and

404
00:26:26,320 --> 00:26:29,760
Speaker 3: above board government debt, bonds outstanding and the like is

405
00:26:29,800 --> 00:26:34,600
Speaker 3: smaller as a percentage of the national income than it

406
00:26:34,840 --> 00:26:40,920
Speaker 3: was twenty thirty years ago. How can that happen? Every

407
00:26:40,960 --> 00:26:43,440
Speaker 3: year we have deficits, How can the debt be going down?

408
00:26:44,800 --> 00:26:48,719
Speaker 3: Because those are not real deficits. They are deficits that

409
00:26:48,760 --> 00:26:54,960
Speaker 3: have been financed by inflation. Anybody who has bought government

410
00:26:55,000 --> 00:26:57,880
Speaker 3: securities in the past ten years has paid the government

411
00:26:57,920 --> 00:27:06,520
Speaker 3: for the privilege of lending to it. Anybody who has

412
00:27:06,760 --> 00:27:10,439
Speaker 3: bought a long term government bond and then redeemed it

413
00:27:10,480 --> 00:27:12,920
Speaker 3: has gotten back an amount of money which has less

414
00:27:12,920 --> 00:27:17,240
Speaker 3: purchasing power, less power, less ability to buy goods and

415
00:27:17,280 --> 00:27:20,320
Speaker 3: services than the sum he initially paid for the bond.

416
00:27:21,080 --> 00:27:24,040
Speaker 3: And to add insult to injury, he's had to pay

417
00:27:24,119 --> 00:27:30,440
Speaker 3: taxes on what they call interest, and as a result,

418
00:27:31,480 --> 00:27:36,720
Speaker 3: the debt has gone down in meaningful terms, So that

419
00:27:37,200 --> 00:27:40,920
Speaker 3: inflation is a marvelous resource for a government in all

420
00:27:40,960 --> 00:27:47,040
Speaker 3: three of these ways. That, as I think, has been

421
00:27:47,080 --> 00:27:51,480
Speaker 3: the main reason throughout history, not only now, but going

422
00:27:51,560 --> 00:27:54,600
Speaker 3: back for thousands of years. You know, you had a

423
00:27:54,680 --> 00:27:58,400
Speaker 3: great inflation during the time of the Roman Empire when

424
00:27:58,440 --> 00:27:59,679
Speaker 3: Diocletian was emperor.

425
00:28:00,840 --> 00:28:02,359
Speaker 2: He did it in a different way.

426
00:28:03,080 --> 00:28:06,840
Speaker 3: He did it by taking nice, good, full bodied silver

427
00:28:06,960 --> 00:28:12,800
Speaker 3: coins and replacing the silver by an ally that was

428
00:28:12,800 --> 00:28:16,640
Speaker 3: worthless until there was less and less silver until one

429
00:28:16,640 --> 00:28:20,800
Speaker 3: of the history books talks about the ancient denarius, which

430
00:28:20,880 --> 00:28:23,560
Speaker 3: used to be a full bodied silver coin, finally having

431
00:28:23,600 --> 00:28:28,240
Speaker 3: become in Diocletian's era little more than a copper coin.

432
00:28:28,080 --> 00:28:29,240
Speaker 2: With a wash of silver.

433
00:28:30,760 --> 00:28:33,720
Speaker 3: Now, I happened to come across that quotation the same

434
00:28:33,800 --> 00:28:37,640
Speaker 3: year in which the American Treasury was replacing our full

435
00:28:37,680 --> 00:28:41,880
Speaker 3: bodied silver coin by a copper coin with not even

436
00:28:41,920 --> 00:28:47,040
Speaker 3: a wash of silver only of nickel. History does repeat itself,

437
00:28:51,640 --> 00:28:55,160
Speaker 3: so that's been always throughout history a major reason why

438
00:28:55,200 --> 00:28:59,240
Speaker 3: you have had creation of money to finance government expenditures.

439
00:28:59,480 --> 00:29:00,920
Speaker 2: But we've had another.

440
00:29:00,960 --> 00:29:05,800
Speaker 3: Reason in these days, and that's allegedly to promote full employment.

441
00:29:06,720 --> 00:29:10,840
Speaker 3: In the post war world. After World War Two, every

442
00:29:10,880 --> 00:29:13,320
Speaker 3: country in the West has had a full employment policy,

443
00:29:14,320 --> 00:29:19,240
Speaker 3: which means not that we've had full employment. On the contrary,

444
00:29:19,440 --> 00:29:22,480
Speaker 3: as you know, we've been having increasing unemployment in recent years,

445
00:29:23,160 --> 00:29:27,400
Speaker 3: but that every time for quite a period there was

446
00:29:27,440 --> 00:29:31,560
Speaker 3: a threat of unemployment or unemployment started to rise, there

447
00:29:31,640 --> 00:29:34,040
Speaker 3: was a strong tendency by government to say, we've.

448
00:29:33,920 --> 00:29:35,240
Speaker 2: Got to do something about this.

449
00:29:35,760 --> 00:29:38,400
Speaker 3: We have to print more money, we have to spend

450
00:29:38,440 --> 00:29:42,840
Speaker 3: more money, we have to stimulate the economy, the result

451
00:29:42,920 --> 00:29:47,760
Speaker 3: of which has been to create an increased quantity of

452
00:29:47,800 --> 00:29:51,040
Speaker 3: money that in the first instance has had some favorable

453
00:29:51,080 --> 00:29:54,600
Speaker 3: effects on employment, but only temporarily, only so long as

454
00:29:54,640 --> 00:29:58,760
Speaker 3: you could fool the people, and then when people got

455
00:29:58,760 --> 00:30:01,920
Speaker 3: onto what was going on, it came out in the

456
00:30:01,920 --> 00:30:06,240
Speaker 3: form of inflation. In the United States, we've also had,

457
00:30:07,400 --> 00:30:11,760
Speaker 3: and in most countries, a third, less important factor that

458
00:30:11,840 --> 00:30:14,920
Speaker 3: has contributed to excess of increases in the quantity of money,

459
00:30:15,800 --> 00:30:18,640
Speaker 3: and that has been mistaken policies by the central bank.

460
00:30:19,920 --> 00:30:24,760
Speaker 3: Professor Seekin referred to the mistake of the Federal Reserve

461
00:30:24,840 --> 00:30:30,280
Speaker 3: Bank in the nineteen late twenties early thirties. From nineteen

462
00:30:30,320 --> 00:30:32,840
Speaker 3: twenty nine to nineteen thirty three, the quantity of money

463
00:30:32,880 --> 00:30:36,200
Speaker 3: in the United States went down by a third, and

464
00:30:36,240 --> 00:30:40,920
Speaker 3: that was a major factor that produced the catastrophe. That

465
00:30:41,040 --> 00:30:44,160
Speaker 3: was a great mistake of the Federal Reserve. It learned

466
00:30:44,200 --> 00:30:49,320
Speaker 3: from that mistake. Government agencies, like people, don't always.

467
00:30:49,000 --> 00:30:49,920
Speaker 2: Make the same mistake.

468
00:30:50,000 --> 00:30:54,240
Speaker 3: The next time, they make a different one, and since

469
00:30:54,280 --> 00:30:57,040
Speaker 3: that period, the central banks have tended to make the

470
00:30:57,080 --> 00:31:01,960
Speaker 3: mistake in the opposite direction. Has almost always been caused

471
00:31:02,760 --> 00:31:07,160
Speaker 3: by confusing their function by thinking that they had something

472
00:31:07,200 --> 00:31:10,520
Speaker 3: to do with interest rates, instead of recognizing that their

473
00:31:10,560 --> 00:31:15,480
Speaker 3: real function was to control the quantity of money. Now,

474
00:31:15,760 --> 00:31:20,000
Speaker 3: most of you will be inclined to say, well, that's

475
00:31:20,040 --> 00:31:21,880
Speaker 3: all very well, but.

476
00:31:21,880 --> 00:31:24,040
Speaker 2: Aren't there some important things you've left out?

477
00:31:25,160 --> 00:31:27,240
Speaker 3: Of course, the most obvious thing you would have told

478
00:31:27,280 --> 00:31:31,840
Speaker 3: me I left out was trade union behavior. But I

479
00:31:31,880 --> 00:31:37,160
Speaker 3: hope I've already persuaded you that that's not a fundamental

480
00:31:37,200 --> 00:31:40,320
Speaker 3: source of inflation. Trade unions may do a great deal

481
00:31:40,320 --> 00:31:43,480
Speaker 3: of harm in a great many ways. Trade unions have

482
00:31:43,560 --> 00:31:47,760
Speaker 3: done Britain enormous harm, but they are not responsible for

483
00:31:47,800 --> 00:31:52,120
Speaker 3: Britain's inflation. Higher wages are in the main a consequence

484
00:31:52,120 --> 00:31:53,760
Speaker 3: of inflation and not a cause of it.

485
00:31:54,160 --> 00:31:55,200
Speaker 2: And as I say, the.

486
00:31:55,200 --> 00:31:58,400
Speaker 3: Examples of these charts I gave you before, I hope

487
00:31:58,720 --> 00:32:01,960
Speaker 3: will show that anybody who thinks that's the fundamental cause

488
00:32:01,960 --> 00:32:06,000
Speaker 3: of inflation had better pause for a bit. But there

489
00:32:06,000 --> 00:32:10,040
Speaker 3: are two other factors that people are inclined to site.

490
00:32:10,280 --> 00:32:16,480
Speaker 3: One is to say, what about international influences. The government

491
00:32:16,560 --> 00:32:19,680
Speaker 3: is particularly fond of citing this, to say, oh, well,

492
00:32:19,720 --> 00:32:23,520
Speaker 3: you mustn't blame us for inflation. We've imported it from abroad.

493
00:32:24,280 --> 00:32:27,120
Speaker 3: There's a worldwide inflation, and how can you expect the

494
00:32:27,200 --> 00:32:30,960
Speaker 3: United States to stay clear of inflation of all the

495
00:32:31,000 --> 00:32:34,880
Speaker 3: rest of the countries of the world are inflating. Now,

496
00:32:34,920 --> 00:32:41,480
Speaker 3: that was a valid explanation before nineteen seventy one, when

497
00:32:41,520 --> 00:32:46,040
Speaker 3: we had a worldwide system of fixed exchange rates. In

498
00:32:46,080 --> 00:32:50,880
Speaker 3: that case, it is true that inflation in one country

499
00:32:50,920 --> 00:32:54,160
Speaker 3: would tend to spill over into another, because it would

500
00:32:54,160 --> 00:32:58,280
Speaker 3: influence a quantity of money. In that case, it was

501
00:32:58,720 --> 00:33:01,840
Speaker 3: inflation in America that produced in the United States have

502
00:33:01,960 --> 00:33:06,600
Speaker 3: produced inflation in many countries around the world because they're

503
00:33:06,600 --> 00:33:08,480
Speaker 3: currencies were.

504
00:33:08,280 --> 00:33:10,440
Speaker 2: Linked through a fixed exchange rate with ours.

505
00:33:11,680 --> 00:33:16,760
Speaker 3: But today that explanation is not valid as long as

506
00:33:16,920 --> 00:33:22,840
Speaker 3: countries have variable, floating, flexible exchange rates between their currencies.

507
00:33:23,240 --> 00:33:27,120
Speaker 3: Inflation is a national phenomenon and not an international phenomenon.

508
00:33:27,360 --> 00:33:29,040
Speaker 2: And the proof of that is very simple.

509
00:33:30,880 --> 00:33:35,760
Speaker 3: If inflation is a worldwide phenomenon, if it's a I'm sorry,

510
00:33:35,760 --> 00:33:40,440
Speaker 3: inflation is a worldwide phenomenon, but it's not an international phenomenon.

511
00:33:41,600 --> 00:33:43,400
Speaker 3: You know, in every country of the world you have

512
00:33:43,440 --> 00:33:48,160
Speaker 3: too high taxes, But high taxation is not an international phenomenon.

513
00:33:48,520 --> 00:33:50,320
Speaker 3: It's just that all the nations of the world do

514
00:33:50,400 --> 00:33:53,440
Speaker 3: it at the same time in the same way. You

515
00:33:53,520 --> 00:33:56,400
Speaker 3: have inflation in many countries. But if it were an

516
00:33:56,440 --> 00:33:59,520
Speaker 3: international phenomenon, how come it's roughly zero to one percent,

517
00:34:01,000 --> 00:34:04,440
Speaker 3: four to five or six percent in Germany, ten percent

518
00:34:04,520 --> 00:34:08,760
Speaker 3: in France, eighteen percent in Great Britain, may be higher

519
00:34:08,800 --> 00:34:13,360
Speaker 3: than that in Italy, and so on down the line. No,

520
00:34:13,680 --> 00:34:19,600
Speaker 3: inflation is a national phenomenon produced by monetary policy. And

521
00:34:19,680 --> 00:34:23,520
Speaker 3: other policies within the countries. Now, the second argument that

522
00:34:23,600 --> 00:34:27,439
Speaker 3: will be made, you've left out of this picture productivity

523
00:34:28,239 --> 00:34:33,360
Speaker 3: in those charts. What was it that I connected with prices?

524
00:34:34,040 --> 00:34:36,920
Speaker 3: It was not simply the quantity of money. It was

525
00:34:36,960 --> 00:34:40,120
Speaker 3: a quantity of money per unit of output. And it's

526
00:34:40,160 --> 00:34:45,200
Speaker 3: true anything that increases output will tend to hold down prices.

527
00:34:46,760 --> 00:34:49,239
Speaker 3: And so it's very common for people to say, well,

528
00:34:49,239 --> 00:34:55,319
Speaker 3: the real source of inflation is that our productivity has

529
00:34:55,360 --> 00:34:58,200
Speaker 3: not been increasing as much as it should, or to

530
00:34:58,239 --> 00:35:03,279
Speaker 3: say that the real cure for inflam is to increase productivity. Now,

531
00:35:03,320 --> 00:35:07,759
Speaker 3: productivity is an enormously important phenomenon from the point of

532
00:35:07,800 --> 00:35:10,640
Speaker 3: view of our standard of life, of how well we live,

533
00:35:11,200 --> 00:35:15,200
Speaker 3: there's nothing that's more important. If we can get a

534
00:35:15,320 --> 00:35:19,200
Speaker 3: rate of real growth of three percent instead of two percent,

535
00:35:19,719 --> 00:35:22,000
Speaker 3: that will make a great difference over a period of time.

536
00:35:22,920 --> 00:35:26,160
Speaker 3: And I don't doubt that one of our national problems

537
00:35:26,480 --> 00:35:29,920
Speaker 3: is a fall off in the growth in productivity. But

538
00:35:30,040 --> 00:35:33,000
Speaker 3: from the point of view of inflation, it's the wrong

539
00:35:33,080 --> 00:35:38,080
Speaker 3: order of magnitude. It would be a tremendous achievement to

540
00:35:38,280 --> 00:35:41,200
Speaker 3: raise the average rate of growth of real output in

541
00:35:41,239 --> 00:35:43,400
Speaker 3: this country from three percent a year to four percent

542
00:35:43,400 --> 00:35:45,719
Speaker 3: a year. That would be a thirty three and a

543
00:35:45,760 --> 00:35:50,239
Speaker 3: third percent increase. It would be a dramatic change, but

544
00:35:50,360 --> 00:35:53,120
Speaker 3: it would reduce the rate of inflation by one percentage

545
00:35:53,120 --> 00:35:58,440
Speaker 3: point a year. And from that point of view, the

546
00:35:58,600 --> 00:36:01,480
Speaker 3: possible variations in the quantity of money are much greater

547
00:36:02,760 --> 00:36:06,440
Speaker 3: than the variations in output and productivity. So from the

548
00:36:06,480 --> 00:36:11,840
Speaker 3: point of view of inflation, productivity is very much of

549
00:36:11,880 --> 00:36:16,680
Speaker 3: a bit actor on the stage, the lead, the hero

550
00:36:16,880 --> 00:36:17,799
Speaker 3: or the villain.

551
00:36:17,520 --> 00:36:18,120
Speaker 2: As you wish.

552
00:36:18,160 --> 00:36:22,320
Speaker 3: It is not productivity, but what happens to the quantity

553
00:36:22,320 --> 00:36:28,000
Speaker 3: of money? Now so much for the cause of inflation.

554
00:36:29,040 --> 00:36:32,799
Speaker 3: It's very easy to say what the cure is. There's

555
00:36:32,840 --> 00:36:36,080
Speaker 3: no problem how to stop inflation. That's the easiest thing

556
00:36:36,120 --> 00:36:39,440
Speaker 3: in the world to say. In order to stop inflation,

557
00:36:39,560 --> 00:36:43,000
Speaker 3: you have to have the government spend less and print less.

558
00:36:44,200 --> 00:36:48,280
Speaker 3: That's the only way you're going to stop inflation. That's

559
00:36:48,400 --> 00:36:53,000
Speaker 3: the one and only cure. But you know, the real

560
00:36:53,080 --> 00:36:56,399
Speaker 3: problem isn't to know how to cure inflation. The real

561
00:36:56,440 --> 00:36:58,600
Speaker 3: problem is to have the political will to do so.

562
00:36:59,800 --> 00:37:03,400
Speaker 3: If I may go back to my medical analogy. Some

563
00:37:03,600 --> 00:37:06,839
Speaker 3: years ago, my physician told me about a young man

564
00:37:06,880 --> 00:37:09,719
Speaker 3: who was a patient of his who had a debilitating

565
00:37:09,719 --> 00:37:13,560
Speaker 3: disease as a result of which is fingers were threatening

566
00:37:13,560 --> 00:37:16,080
Speaker 3: to fall off, his toes were threatening to fall off.

567
00:37:16,719 --> 00:37:18,919
Speaker 3: And my physician said, you know, that young man could

568
00:37:18,920 --> 00:37:21,839
Speaker 3: be cured in no time. The only thing he has

569
00:37:21,880 --> 00:37:25,440
Speaker 3: to do to be cured is to stop smoking. But

570
00:37:25,560 --> 00:37:28,640
Speaker 3: I cannot in any way bring him to stop smoking.

571
00:37:28,680 --> 00:37:29,839
Speaker 2: He refuses to do it.

572
00:37:31,640 --> 00:37:35,000
Speaker 3: Now, the disease was curable in one sense, but it

573
00:37:35,040 --> 00:37:38,080
Speaker 3: was not easy to do it. An analogy that in

574
00:37:38,160 --> 00:37:41,080
Speaker 3: some ways is much closer to the problem of inflation.

575
00:37:41,480 --> 00:37:45,480
Speaker 3: It's a very literal analogy, but also something of a

576
00:37:45,520 --> 00:37:51,480
Speaker 3: medical analogy is alcoholism. The thing about alcoholism is that

577
00:37:51,520 --> 00:37:54,360
Speaker 3: when you go out on a toot, the good effects

578
00:37:54,360 --> 00:37:57,839
Speaker 3: come first, and the bad effects only come the next

579
00:37:57,880 --> 00:38:01,400
Speaker 3: morning when you have the hangover. Now, that's exactly the

580
00:38:01,400 --> 00:38:06,719
Speaker 3: way it is with inflation. When you start inflating, the

581
00:38:06,760 --> 00:38:10,480
Speaker 3: good effects come first. After all, the government sprinting money,

582
00:38:10,520 --> 00:38:13,480
Speaker 3: everybody thinks he's richer, he's got all these pieces of paper.

583
00:38:15,560 --> 00:38:19,399
Speaker 3: And initially it does have that effect. It makes business good,

584
00:38:19,440 --> 00:38:23,120
Speaker 3: it expands output. It's only after a while, when it

585
00:38:23,280 --> 00:38:27,040
Speaker 3: works its way through to inflation that the bad effects

586
00:38:27,040 --> 00:38:34,960
Speaker 3: come later, and you then have inflation. Similarly, on the

587
00:38:35,000 --> 00:38:40,520
Speaker 3: other side, the great problem in curing an alcoholic is

588
00:38:40,520 --> 00:38:44,040
Speaker 3: that the bad effects come first and the good effects

589
00:38:44,080 --> 00:38:45,600
Speaker 3: come later when you try to cure it.

590
00:38:46,920 --> 00:38:49,160
Speaker 2: If a man who has been subject to.

591
00:38:50,680 --> 00:38:53,640
Speaker 3: Craving for alcohol goes off the wig, and it's terrible,

592
00:38:54,480 --> 00:38:58,680
Speaker 3: he's got a terrible time getting rid of his craving.

593
00:38:59,320 --> 00:39:01,640
Speaker 3: But if he wants can succeed in doing so, everything

594
00:39:01,640 --> 00:39:05,880
Speaker 3: will be fine. It's exactly the same thing with inflation.

595
00:39:07,520 --> 00:39:07,879
Speaker 2: If you.

596
00:39:10,800 --> 00:39:15,640
Speaker 3: First, if you succeed in slowing down inflation, you will initially.

597
00:39:15,440 --> 00:39:17,200
Speaker 2: Have some very difficult times.

598
00:39:18,440 --> 00:39:25,799
Speaker 3: Just as inflating stimulates the economy temporarily, so slowing down

599
00:39:25,840 --> 00:39:33,240
Speaker 3: inflation slows down the economy temporarily. A more direct reason

600
00:39:33,760 --> 00:39:37,520
Speaker 3: why it's difficult to apply the cure is because it's

601
00:39:37,640 --> 00:39:42,279
Speaker 3: not so clear that people want to stop inflation. If

602
00:39:42,280 --> 00:39:44,759
Speaker 3: I ask people, are you in favor of inflation or not?

603
00:39:45,640 --> 00:39:49,920
Speaker 3: Everybody's against inflation. But when I explore a little bit further,

604
00:39:50,000 --> 00:39:52,760
Speaker 3: if I say to people, tell me, have you gained

605
00:39:52,760 --> 00:39:53,480
Speaker 3: from inflation?

606
00:39:54,360 --> 00:39:56,760
Speaker 2: Oh? No, you say, I haven't gained.

607
00:39:57,200 --> 00:39:59,320
Speaker 3: And yet the fact is that a great many people

608
00:39:59,360 --> 00:40:00,520
Speaker 3: have gained from inflation.

609
00:40:01,040 --> 00:40:03,239
Speaker 2: There are many, many people who have benefited.

610
00:40:04,120 --> 00:40:07,440
Speaker 3: Of course, the major gainer from inflation is a federal treasury,

611
00:40:07,440 --> 00:40:11,160
Speaker 3: as I've already said, but almost everybody who has bought

612
00:40:11,160 --> 00:40:14,600
Speaker 3: a home in the past thirty years has gained from inflation.

613
00:40:15,719 --> 00:40:17,120
Speaker 2: He was able to borrow on a.

614
00:40:17,080 --> 00:40:21,200
Speaker 3: Mortgage, which inflation is paid off along with paying off

615
00:40:21,200 --> 00:40:24,920
Speaker 3: the government debt, so that almost all homeowners in this

616
00:40:25,040 --> 00:40:29,680
Speaker 3: country are beneficiaries from inflation. Indeed, one of the things

617
00:40:30,280 --> 00:40:37,040
Speaker 3: that makes inflation such a bad social disease is precisely

618
00:40:38,040 --> 00:40:42,279
Speaker 3: that it tends to be divisive, because some people do

619
00:40:42,520 --> 00:40:45,600
Speaker 3: very well during an inflation period and some people do

620
00:40:46,000 --> 00:40:49,440
Speaker 3: very badly, and as a result, the population gets split

621
00:40:50,160 --> 00:40:54,080
Speaker 3: into people who are seeming in great prosperity and people

622
00:40:54,360 --> 00:40:59,319
Speaker 3: who are in great distress. When most people say they

623
00:40:59,800 --> 00:41:03,920
Speaker 3: want want to stop inflation, what they mean is that

624
00:41:04,000 --> 00:41:07,400
Speaker 3: they want the prices of the things they buy to

625
00:41:07,480 --> 00:41:11,160
Speaker 3: go down and the prices of the things they sell

626
00:41:11,920 --> 00:41:16,880
Speaker 3: to go up. But since what one man sells is

627
00:41:16,920 --> 00:41:19,920
Speaker 3: what another man buys, that's a neat trick if you

628
00:41:19,960 --> 00:41:24,480
Speaker 3: can do it, And as a result, people aren't really

629
00:41:24,520 --> 00:41:27,360
Speaker 3: serious when they say they want to stop inflation. Certainly,

630
00:41:27,400 --> 00:41:30,400
Speaker 3: not in the early stages, not before they fully understand,

631
00:41:30,920 --> 00:41:33,600
Speaker 3: not before it's gotten to the point where it is

632
00:41:33,640 --> 00:41:38,840
Speaker 3: really creating serious social problems. Everybody wants to stop inflation

633
00:41:40,160 --> 00:41:46,960
Speaker 3: at somebody else's expense. Now, I've already said that if

634
00:41:47,000 --> 00:41:51,720
Speaker 3: you start to cure inflation, you will get some bad effects. First,

635
00:41:54,120 --> 00:41:57,440
Speaker 3: let me emphasize that those bad effects are not themselves

636
00:41:57,440 --> 00:42:03,440
Speaker 3: a cure. There are side effects of a cure. If

637
00:42:03,480 --> 00:42:05,719
Speaker 3: you have your appendix out, if you go to a

638
00:42:05,760 --> 00:42:08,799
Speaker 3: doctor and say, and he says you have appendicitis, you've

639
00:42:08,800 --> 00:42:12,200
Speaker 3: got to take your appendix out. But after your appendix

640
00:42:12,239 --> 00:42:13,880
Speaker 3: is out, you'll have to stay in bed. It used

641
00:42:13,920 --> 00:42:18,319
Speaker 3: to be two weeks, now it's ten minutes. But you'll

642
00:42:18,320 --> 00:42:21,040
Speaker 3: have to stay in bed for a little bit. And

643
00:42:21,120 --> 00:42:23,279
Speaker 3: you say to him, well, you know, I think I'll

644
00:42:23,320 --> 00:42:25,360
Speaker 3: just stay in bed and not have the operation.

645
00:42:26,320 --> 00:42:27,360
Speaker 2: That isn't going to cure you.

646
00:42:29,400 --> 00:42:33,480
Speaker 3: And in the same way, unemployment is not a cure

647
00:42:33,560 --> 00:42:36,880
Speaker 3: for inflation. I can tell you one hundred ways to

648
00:42:36,960 --> 00:42:40,000
Speaker 3: create unemployment that will produce more.

649
00:42:39,840 --> 00:42:41,520
Speaker 2: Inflation, not less.

650
00:42:42,440 --> 00:42:44,880
Speaker 3: I may say that used to be a proposition that

651
00:42:44,920 --> 00:42:49,200
Speaker 3: people found it difficult to understand, but the experience of

652
00:42:49,239 --> 00:42:52,240
Speaker 3: the past ten years or so has done a great

653
00:42:52,280 --> 00:42:56,759
Speaker 3: deal to make people understand that it's perfectly possible to

654
00:42:56,880 --> 00:43:01,560
Speaker 3: have unemployment and inflation go along simultaneous. In fact, we've

655
00:43:01,600 --> 00:43:06,840
Speaker 3: coined some ugly new words like stagflation and slumpflation to

656
00:43:06,960 --> 00:43:10,120
Speaker 3: try to explain this phenomenon, or I shouldn't say.

657
00:43:09,920 --> 00:43:11,120
Speaker 2: To explain it, to name it.

658
00:43:13,400 --> 00:43:18,400
Speaker 3: So, unemployment is not a cure for inflation, but it

659
00:43:18,560 --> 00:43:21,640
Speaker 3: is an almost inevitable side.

660
00:43:21,320 --> 00:43:26,239
Speaker 2: Effect of an effective cure. Now why should that be.

661
00:43:27,239 --> 00:43:30,280
Speaker 3: Why is it that there seems to be no way

662
00:43:30,719 --> 00:43:34,680
Speaker 3: to cure inflation without going through at least a temporary

663
00:43:34,760 --> 00:43:40,440
Speaker 3: period of relatively slow growth and relatively high unemployment.

664
00:43:41,840 --> 00:43:42,640
Speaker 2: The answer is.

665
00:43:44,800 --> 00:43:50,960
Speaker 3: Fundamentally because of the time delays between the turning of

666
00:43:50,960 --> 00:43:56,600
Speaker 3: the printing press and the element effects on output and

667
00:43:56,640 --> 00:44:02,000
Speaker 3: on prices. Both ways you produce the same result. Look

668
00:44:02,040 --> 00:44:05,359
Speaker 3: on the upgrade. Suppose the government first prints money and

669
00:44:05,680 --> 00:44:09,319
Speaker 3: spends it to pay for its expenses. To begin with,

670
00:44:11,600 --> 00:44:15,440
Speaker 3: the people who find themselves doing better business.

671
00:44:15,040 --> 00:44:16,480
Speaker 2: Don't know what, don't know what.

672
00:44:16,560 --> 00:44:21,359
Speaker 3: The explanation is, government is paying more money, its employees

673
00:44:21,400 --> 00:44:24,120
Speaker 3: have better salaries. They're coming to the store and buying

674
00:44:24,160 --> 00:44:27,200
Speaker 3: more goods. The storekeeper is delighted to sell them at

675
00:44:27,239 --> 00:44:30,719
Speaker 3: the same prices as before. Each man thinks this is

676
00:44:30,760 --> 00:44:36,319
Speaker 3: something special happening to him. The shoe manufacturer says, uh, look, I.

677
00:44:36,239 --> 00:44:38,799
Speaker 2: Can sell more shoes. The demand for shoes is going up.

678
00:44:39,840 --> 00:44:43,280
Speaker 3: He doesn't recognize that what's really happening is the demand

679
00:44:43,320 --> 00:44:46,319
Speaker 3: is going up everywhere. And then not only is the

680
00:44:46,320 --> 00:44:48,400
Speaker 3: demand for shoes going up, but he's gonna have to

681
00:44:48,440 --> 00:44:50,319
Speaker 3: pay more to get labor. He's gonna have to get

682
00:44:50,320 --> 00:44:52,759
Speaker 3: paid more to get leather, he's gonna have to pay

683
00:44:52,800 --> 00:44:56,680
Speaker 3: more to produce his products. But when that shows up,

684
00:44:57,760 --> 00:45:01,440
Speaker 3: when after a while he finds out that his costs

685
00:45:01,440 --> 00:45:04,320
Speaker 3: are up, then he suddenly discovers that he has to

686
00:45:04,440 --> 00:45:08,000
Speaker 3: raise his prices to make both ends meet. And that's why,

687
00:45:08,840 --> 00:45:11,319
Speaker 3: on the average in the United States over the past

688
00:45:11,480 --> 00:45:15,000
Speaker 3: hundred years, an increase in the quantity of money has

689
00:45:15,040 --> 00:45:18,800
Speaker 3: taken about five or six months to affect people spending.

690
00:45:19,440 --> 00:45:21,520
Speaker 3: The first thing that happened is people just have bigger

691
00:45:21,520 --> 00:45:24,000
Speaker 3: bank accounts. Then it takes them a little while to

692
00:45:24,040 --> 00:45:28,319
Speaker 3: realize that and they start spending it, and then it's

693
00:45:28,360 --> 00:45:32,240
Speaker 3: another twelve to eighteen months before that works.

694
00:45:32,280 --> 00:45:33,520
Speaker 2: Through into prices.

695
00:45:34,080 --> 00:45:39,319
Speaker 3: So on the average over the past hundred years, and

696
00:45:39,400 --> 00:45:39,680
Speaker 3: in the.

697
00:45:39,840 --> 00:45:41,399
Speaker 2: Britain it's been for two hundred years.

698
00:45:41,440 --> 00:45:43,520
Speaker 3: I say one hundred years, because that's as far back

699
00:45:43,560 --> 00:45:47,000
Speaker 3: as our data go. In the United States, there's been

700
00:45:47,040 --> 00:45:51,400
Speaker 3: about a two year interval between a more rapid increase

701
00:45:51,440 --> 00:45:54,759
Speaker 3: in the quantity of money on the one hand and

702
00:45:55,080 --> 00:45:58,160
Speaker 3: the inflationary effects of it on the other. But the

703
00:45:58,160 --> 00:46:01,560
Speaker 3: same thing happens the other way. If the government slows

704
00:46:01,600 --> 00:46:07,480
Speaker 3: down it's spending in the first instance. People simply experience

705
00:46:07,600 --> 00:46:11,520
Speaker 3: that as slower demand for their products, and they tend

706
00:46:11,520 --> 00:46:15,080
Speaker 3: to retrench. They tend to say, well, my inventories are

707
00:46:15,120 --> 00:46:18,600
Speaker 3: going up, I better cut back production. It's only after

708
00:46:18,640 --> 00:46:23,480
Speaker 3: a considerable interval that that's reflected in lower prices or

709
00:46:23,480 --> 00:46:25,800
Speaker 3: in a slower rate of increase in prices, and works

710
00:46:25,800 --> 00:46:32,600
Speaker 3: its way through. So there is no way that I

711
00:46:32,719 --> 00:46:37,600
Speaker 3: know to avoid the interim effect of slowing down inflation.

712
00:46:39,960 --> 00:46:44,920
Speaker 3: In the long run, there is no relation between inflation and.

713
00:46:44,880 --> 00:46:47,400
Speaker 2: Unemployment on the average.

714
00:46:48,560 --> 00:46:53,600
Speaker 3: Suppose a country gets accustomed to ten percent inflation, that's

715
00:46:53,640 --> 00:46:56,920
Speaker 3: perfectly livable. That's something people can get along with. What

716
00:46:57,000 --> 00:47:00,359
Speaker 3: will happen, everybody will know that it's going going on.

717
00:47:00,480 --> 00:47:02,879
Speaker 3: All wages will automatically tend to go up by ten

718
00:47:02,880 --> 00:47:04,040
Speaker 3: percent more a year than.

719
00:47:03,960 --> 00:47:04,840
Speaker 2: They otherwise would.

720
00:47:05,400 --> 00:47:07,960
Speaker 3: All prices will tend to go up by ten percent more.

721
00:47:08,520 --> 00:47:11,560
Speaker 3: Instead of interest rates being five percent, they will be

722
00:47:11,600 --> 00:47:16,120
Speaker 3: fifteen percent. Everything will get adjusted to it, and then

723
00:47:16,560 --> 00:47:19,800
Speaker 3: we have a great deal of evidence that the average

724
00:47:20,080 --> 00:47:23,560
Speaker 3: rate of inflation over a period of time has no

725
00:47:23,640 --> 00:47:27,239
Speaker 3: relationship at all with the average rate of growth or

726
00:47:27,360 --> 00:47:31,040
Speaker 3: the average level of unemployment. The thing is that only

727
00:47:31,120 --> 00:47:40,359
Speaker 3: surprises matter. It isn't inflation that produces a stimulus. It's

728
00:47:40,400 --> 00:47:42,640
Speaker 3: only higher inflation than you expected.

729
00:47:43,000 --> 00:47:44,160
Speaker 2: It's only the surprise.

730
00:47:45,320 --> 00:47:48,239
Speaker 3: If you get adjusted to it, it doesn't do any good.

731
00:47:48,280 --> 00:47:51,240
Speaker 2: It's just like again alcoholism and drug addiction.

732
00:47:52,880 --> 00:47:58,160
Speaker 3: When a fella first gets started on drinking, all it

733
00:47:58,239 --> 00:48:02,120
Speaker 3: takes is one drink make him happy. But after his

734
00:48:02,160 --> 00:48:04,440
Speaker 3: body gets adjusted to that, it takes a little more,

735
00:48:04,480 --> 00:48:06,760
Speaker 3: and pretty soon he's taking a half a bottle.

736
00:48:08,400 --> 00:48:11,400
Speaker 2: Similarly, with drugs, it takes bigger.

737
00:48:11,080 --> 00:48:14,200
Speaker 3: And bigger doses to have the same effect, and similarly

738
00:48:14,239 --> 00:48:17,960
Speaker 3: with inflation, As a country gets accustomed to higher and

739
00:48:18,040 --> 00:48:22,840
Speaker 3: higher rates of inflation, it needs a bigger dose to

740
00:48:22,920 --> 00:48:28,040
Speaker 3: have any stimulating effect. So in the long run there

741
00:48:28,080 --> 00:48:31,200
Speaker 3: is no relation, but in the short run there certainly is.

742
00:48:31,760 --> 00:48:36,239
Speaker 3: There's no way to avoid these side effects, but those

743
00:48:36,320 --> 00:48:41,160
Speaker 3: side effects can be minimized by trying to take the

744
00:48:41,239 --> 00:48:47,840
Speaker 3: cure gradually instead of overnight. Here we are in this

745
00:48:48,040 --> 00:48:50,840
Speaker 3: nation with a base rate of inflation at the moment

746
00:48:50,880 --> 00:48:53,960
Speaker 3: somewhere around seven percent. It would be a mistake to

747
00:48:54,000 --> 00:48:56,719
Speaker 3: try to bring that down to zero next year. We

748
00:48:56,760 --> 00:48:58,520
Speaker 3: ought to do it over a three or four year

749
00:48:58,560 --> 00:49:02,359
Speaker 3: period to give people a chance to with just We

750
00:49:02,400 --> 00:49:07,160
Speaker 3: can also minimize the side effects of inflation, in my opinion,

751
00:49:07,239 --> 00:49:12,120
Speaker 3: by adopting a widespread program of escalator clauses, particularly with

752
00:49:12,200 --> 00:49:18,960
Speaker 3: respect to government obligations, particularly with respect to taxes. I

753
00:49:19,000 --> 00:49:21,040
Speaker 3: think it is a disgrace, in a scandal, that we

754
00:49:21,080 --> 00:49:28,400
Speaker 3: have not had a legislation which has adjusted the income

755
00:49:28,480 --> 00:49:33,240
Speaker 3: tax system so that inflation does not automatically raise rates.

756
00:49:34,200 --> 00:49:37,759
Speaker 3: Congress has been very quick to index its own salaries.

757
00:49:39,880 --> 00:49:42,680
Speaker 3: Congress has been very quick to index the salaries of

758
00:49:42,719 --> 00:49:48,720
Speaker 3: government employees, but it has been very reluctant to apply

759
00:49:48,840 --> 00:49:52,719
Speaker 3: the same principle to the taxes that it imposes on

760
00:49:52,800 --> 00:49:58,080
Speaker 3: the citizen. I must say myself have a I would

761
00:49:58,080 --> 00:50:00,960
Speaker 3: go the other way. I would like to see the

762
00:50:01,000 --> 00:50:04,000
Speaker 3: taxes indexed, and with respect of the salaries of Congress

763
00:50:04,040 --> 00:50:08,920
Speaker 3: and of government officials, I would index them perversely. Every

764
00:50:09,000 --> 00:50:12,320
Speaker 3: five percent inflation is a five percent reduction in their salary.

765
00:50:12,800 --> 00:50:15,000
Speaker 3: And I assure you if you did that, you'd cure

766
00:50:15,040 --> 00:50:23,400
Speaker 3: inflation real fast. One more general point, what if we

767
00:50:23,440 --> 00:50:24,440
Speaker 3: don't cure inflation.

768
00:50:25,920 --> 00:50:27,360
Speaker 2: We have no good choices.

769
00:50:30,320 --> 00:50:33,080
Speaker 3: If we don't cure inflation, if we continue at high

770
00:50:33,160 --> 00:50:37,799
Speaker 3: rates of inflation, will also have high unemployment. One of

771
00:50:37,800 --> 00:50:41,440
Speaker 3: the main reasons is because of the false cures that

772
00:50:41,560 --> 00:50:45,360
Speaker 3: will be attempted. In every country that has had great inflation,

773
00:50:45,920 --> 00:50:48,600
Speaker 3: the governments have resorted sooner or later to wage and

774
00:50:48,680 --> 00:50:54,960
Speaker 3: price controls, supposedly as an attempt to cure inflation. We

775
00:50:55,040 --> 00:50:57,879
Speaker 3: did that in this country in nineteen seventy one, with

776
00:50:57,960 --> 00:51:02,560
Speaker 3: disastrous results. Wage and price controls are not a cure

777
00:51:02,600 --> 00:51:07,200
Speaker 3: for inflation. In fact, wage and price controls, you will find,

778
00:51:07,239 --> 00:51:10,960
Speaker 3: are imposed by governments that want to inflate but want

779
00:51:10,960 --> 00:51:15,160
Speaker 3: to conceal it from the populace. Governments want to get

780
00:51:15,160 --> 00:51:19,520
Speaker 3: a short term benefit by pumping up the economy, but

781
00:51:19,640 --> 00:51:22,600
Speaker 3: they want the populace to think they're doing something about inflation.

782
00:51:23,719 --> 00:51:28,200
Speaker 3: So they announced with great fanfare that they're fixing prices

783
00:51:28,239 --> 00:51:32,719
Speaker 3: and wages. But the result is only to hold down,

784
00:51:32,760 --> 00:51:35,080
Speaker 3: to conceal the inflation for a year or two, and

785
00:51:35,120 --> 00:51:37,840
Speaker 3: then have it blow up, which is of course exactly

786
00:51:37,880 --> 00:51:42,399
Speaker 3: what happened in nineteen After nineteen seventy one. In light

787
00:51:42,440 --> 00:51:45,200
Speaker 3: of this background, I come to the final point I

788
00:51:45,239 --> 00:51:48,040
Speaker 3: want to make. I think it's very instructive to look

789
00:51:48,080 --> 00:51:52,400
Speaker 3: at recent US history. Our inflation really started in the

790
00:51:52,400 --> 00:51:56,480
Speaker 3: post war period in the nineteen fifties. In the nineteen

791
00:51:56,520 --> 00:51:59,440
Speaker 3: fifties we started to have We first had a very

792
00:51:59,440 --> 00:52:03,520
Speaker 3: substantial inflation during the Korean War, and then after that

793
00:52:04,400 --> 00:52:11,759
Speaker 3: was over, we had a creeping inflation. It was an

794
00:52:11,800 --> 00:52:17,640
Speaker 3: accident that that nineteen fifties inflation didn't continue and grow

795
00:52:17,680 --> 00:52:18,480
Speaker 3: from that point on.

796
00:52:19,719 --> 00:52:21,240
Speaker 2: But we had a political accident.

797
00:52:21,880 --> 00:52:25,239
Speaker 3: We had a non political president who was willing to

798
00:52:25,360 --> 00:52:29,800
Speaker 3: risk the re election the election of his vice president

799
00:52:30,840 --> 00:52:36,360
Speaker 3: in order to stop the inflation. Mister Eisenhower was willing

800
00:52:36,640 --> 00:52:43,919
Speaker 3: to take the unpopular measures that stopped inflation, that put

801
00:52:43,960 --> 00:52:48,920
Speaker 3: us back on a non inflationary source. By approving measures,

802
00:52:48,920 --> 00:52:52,880
Speaker 3: it led to a series of recessions in nineteen fifty

803
00:52:52,920 --> 00:52:57,640
Speaker 3: eight and then in nineteen sixty by holding down government spending,

804
00:52:58,040 --> 00:53:04,040
Speaker 3: holding down government money creation, so that from an inflation rate.

805
00:53:04,239 --> 00:53:06,160
Speaker 2: Which at that time was regarded as.

806
00:53:06,080 --> 00:53:09,200
Speaker 3: Terrible of three three and a half percent, it was

807
00:53:09,239 --> 00:53:15,840
Speaker 3: brought back to essentially zero. Our real inflation started in

808
00:53:15,920 --> 00:53:22,359
Speaker 3: the early nineteen sixties when John F. Kennedy inherited this

809
00:53:22,480 --> 00:53:26,160
Speaker 3: windfall of a non inflationary environment as a result of

810
00:53:26,239 --> 00:53:31,719
Speaker 3: President Eisenhower's policies, and from nineteen sixty on we have

811
00:53:31,760 --> 00:53:34,480
Speaker 3: been on a roller coaster. We have been going up

812
00:53:34,520 --> 00:53:37,600
Speaker 3: in inflation, we have been coming down. We've been going up,

813
00:53:37,880 --> 00:53:40,960
Speaker 3: and we've been coming down. Every time we go up,

814
00:53:41,000 --> 00:53:43,239
Speaker 3: there's a great outcry we have to do something about

815
00:53:43,280 --> 00:53:46,480
Speaker 3: stopping inflation, and so we tend to step on the brakes.

816
00:53:47,160 --> 00:53:48,760
Speaker 2: That tends to produce a downturn.

817
00:53:48,840 --> 00:53:51,640
Speaker 3: But the moment on employment starts going up, there's an

818
00:53:51,640 --> 00:53:55,600
Speaker 3: even bigger outcry. We have to do something about the unemployment.

819
00:53:56,120 --> 00:53:58,840
Speaker 3: So we reverse and step on the accelerator instead of

820
00:53:58,880 --> 00:54:00,440
Speaker 3: the break, and we're off again.

821
00:54:01,280 --> 00:54:05,359
Speaker 2: But this roller coaster is around and upward level. It's

822
00:54:05,440 --> 00:54:06,520
Speaker 2: not been on the level.

823
00:54:07,000 --> 00:54:10,919
Speaker 3: Each peak has been higher than the preceding peak. Each

824
00:54:11,040 --> 00:54:15,320
Speaker 3: trough has been higher than the preceding trough. In nineteen

825
00:54:15,400 --> 00:54:18,799
Speaker 3: sixty one, the lowest rate of inflation at that time

826
00:54:18,920 --> 00:54:23,440
Speaker 3: was one percent. In nineteen sixty seven, the next trough,

827
00:54:24,080 --> 00:54:25,960
Speaker 3: the lowest rate of inflation was two and a half

828
00:54:26,040 --> 00:54:32,399
Speaker 3: percent in nineteen seventy one, before mister Nixon introduced price

829
00:54:32,480 --> 00:54:36,480
Speaker 3: controls in order to control what was then supposed to

830
00:54:36,520 --> 00:54:39,040
Speaker 3: be the horrendous rate of inflation of four and a

831
00:54:39,080 --> 00:54:43,760
Speaker 3: half percent in that period. The lowest rate was about

832
00:54:43,800 --> 00:54:49,800
Speaker 3: four percent in nineteen seventy six. Last year, when again

833
00:54:49,840 --> 00:54:52,279
Speaker 3: we went through a recession to stop the inflation, the

834
00:54:52,320 --> 00:54:55,280
Speaker 3: lowest rate was six percent, was five percent.

835
00:54:55,320 --> 00:54:56,759
Speaker 2: I'm sorry.

836
00:54:56,960 --> 00:55:00,719
Speaker 3: So each bottom rate has been highed in the preceding one. Similarly,

837
00:55:00,800 --> 00:55:03,640
Speaker 3: each top rate has been higher than the preceding. In

838
00:55:03,719 --> 00:55:08,960
Speaker 3: nineteen sixty six, we reached four percent. In nineteen sixty nine,

839
00:55:09,320 --> 00:55:13,640
Speaker 3: we reach six percent, in nineteen seventy four, we reached

840
00:55:13,840 --> 00:55:18,400
Speaker 3: twelve percent in nineteen seventy nine. We will reach you

841
00:55:18,480 --> 00:55:24,680
Speaker 3: fill in the numbers. It's not a pleasant prospect. So

842
00:55:24,719 --> 00:55:28,960
Speaker 3: we've been on a roller coaster going up and up

843
00:55:29,040 --> 00:55:32,000
Speaker 3: and up, and we've been on that roller coaster because

844
00:55:32,040 --> 00:55:34,799
Speaker 3: of the problem that I've mentioned that we get accustomed

845
00:55:34,840 --> 00:55:38,400
Speaker 3: to our to our addiction, and we need bigger doses

846
00:55:38,680 --> 00:55:41,560
Speaker 3: to get another high. If we look at the period

847
00:55:41,600 --> 00:55:45,080
Speaker 3: most if we look at the most recent period, we've

848
00:55:45,080 --> 00:55:52,040
Speaker 3: had the same situation again. From January nineteen seventy four

849
00:55:53,640 --> 00:55:59,720
Speaker 3: to January nineteen seventy five. The quantity of money defined

850
00:55:59,760 --> 00:56:04,360
Speaker 3: to include the currency in your pockets and all deposits

851
00:56:04,400 --> 00:56:08,799
Speaker 3: at commercial bank demanded time. What has come, in the

852
00:56:08,920 --> 00:56:13,239
Speaker 3: jargon of the literature to be known as M two.

853
00:56:14,160 --> 00:56:18,360
Speaker 3: I apologize for having given it that unlovely name, But

854
00:56:18,760 --> 00:56:21,239
Speaker 3: M two has been grew in that year at six

855
00:56:21,280 --> 00:56:24,520
Speaker 3: point eight percent a year. That was a relatively low rate,

856
00:56:25,440 --> 00:56:28,160
Speaker 3: and it was that that was responsible for the tapering

857
00:56:28,200 --> 00:56:32,400
Speaker 3: off of inflation, so that by the end of seventy

858
00:56:32,400 --> 00:56:34,719
Speaker 3: six it was down to about a five percent.

859
00:56:34,440 --> 00:56:35,640
Speaker 2: On a year to year basis.

860
00:56:36,960 --> 00:56:40,160
Speaker 3: But in the period from January seventy five to now,

861
00:56:41,560 --> 00:56:43,759
Speaker 3: the money supply has been running at the annual rate

862
00:56:43,800 --> 00:56:47,200
Speaker 3: of ten percent a year. M two this quantity of money,

863
00:56:48,200 --> 00:56:52,520
Speaker 3: and that portends an increase in the inflation rate. We

864
00:56:52,560 --> 00:56:55,080
Speaker 3: are now we've hit the bottom and we're now on

865
00:56:55,120 --> 00:56:59,320
Speaker 3: the way up. We had a temporary bulge in January

866
00:56:59,400 --> 00:57:02,239
Speaker 3: February as a result of a very hard winner. But

867
00:57:02,320 --> 00:57:05,880
Speaker 3: the more fundamental phenomenon is that we're now on an upgrade.

868
00:57:06,440 --> 00:57:07,520
Speaker 2: We'll probably hit.

869
00:57:07,400 --> 00:57:10,840
Speaker 3: Seven to nine percent next year, something like that, and

870
00:57:10,920 --> 00:57:14,160
Speaker 3: the base rate of inflation today is somewhere in that level.

871
00:57:15,040 --> 00:57:21,280
Speaker 3: The tragedy of this whole history is that we have

872
00:57:21,480 --> 00:57:26,600
Speaker 3: time and again four times now paid the price of

873
00:57:26,680 --> 00:57:31,920
Speaker 3: stopping an inflation and not gotten the benefit. We've stepped

874
00:57:31,960 --> 00:57:35,760
Speaker 3: on the brakes. We've slowed down the monetary expension, we've

875
00:57:35,800 --> 00:57:39,720
Speaker 3: taken a recession, we've had unemployment, and then, just as

876
00:57:39,760 --> 00:57:42,880
Speaker 3: inflation is starting to taper off, we throw the whole

877
00:57:42,920 --> 00:57:48,040
Speaker 3: ball game away by going to the races again with

878
00:57:48,160 --> 00:57:57,360
Speaker 3: the printing press. Unfortunately, given these mistakes, at the present time,

879
00:57:58,040 --> 00:58:00,920
Speaker 3: the options open to this country are only bad options.

880
00:58:00,920 --> 00:58:04,840
Speaker 3: We don't have good options. If you were sitting in

881
00:58:04,840 --> 00:58:07,680
Speaker 3: at the Federal Reserve Board and deciding on monetary policy,

882
00:58:07,760 --> 00:58:09,920
Speaker 3: you mustn't suppose you'd have anything good you could do.

883
00:58:10,640 --> 00:58:13,000
Speaker 2: Whatever you do is bad.

884
00:58:13,080 --> 00:58:17,080
Speaker 3: Given the amount that you have now of money that

885
00:58:17,160 --> 00:58:20,680
Speaker 3: has now been pumped into the economy.

886
00:58:20,120 --> 00:58:21,760
Speaker 2: You have only two bad choices.

887
00:58:22,280 --> 00:58:25,440
Speaker 3: If you slow down drastically in order to try to

888
00:58:25,520 --> 00:58:29,880
Speaker 3: hold back inflation, the economy will experience a recession in

889
00:58:30,040 --> 00:58:34,200
Speaker 3: late seventy eight early seventy nine, and it may be

890
00:58:34,320 --> 00:58:38,800
Speaker 3: a fairly severe recess. Alternatively, you can say, well, we

891
00:58:38,880 --> 00:58:41,240
Speaker 3: can't do that, We've got to step on the gas.

892
00:58:41,720 --> 00:58:43,280
Speaker 2: Keep doing what we're doing now.

893
00:58:44,120 --> 00:58:47,320
Speaker 3: Then you are condemning the economy to going into another

894
00:58:47,360 --> 00:58:48,840
Speaker 3: period of double digit inflation.

895
00:58:50,360 --> 00:58:52,200
Speaker 2: Two years ago, there was a choice.

896
00:58:53,000 --> 00:58:56,000
Speaker 3: Having paid the price for slowing down the inflation, we

897
00:58:56,120 --> 00:58:59,720
Speaker 3: should have continued on a relatively slow rate of monetary

898
00:58:59,760 --> 00:59:02,800
Speaker 3: growth and then we would by now be well on

899
00:59:02,880 --> 00:59:04,800
Speaker 3: the way to cure for our inflation.

900
00:59:06,240 --> 00:59:08,680
Speaker 2: But we have not done so.

901
00:59:09,080 --> 00:59:11,240
Speaker 3: And as I say, I don't really blame the people

902
00:59:11,280 --> 00:59:13,480
Speaker 3: who are doing it. The real blame has to be

903
00:59:13,520 --> 00:59:17,480
Speaker 3: put on us, the America, the citizens, the voters of

904
00:59:17,520 --> 00:59:21,120
Speaker 3: this country, for not telling our government what we want

905
00:59:21,120 --> 00:59:25,400
Speaker 3: them to do. And I am afraid that we shall

906
00:59:25,440 --> 00:59:29,440
Speaker 3: have to go through several more of these swings in

907
00:59:29,560 --> 00:59:34,600
Speaker 3: the roller coasters before the American people decide that they

908
00:59:34,600 --> 00:59:37,280
Speaker 3: have had enough of it and that it's time to

909
00:59:37,280 --> 00:59:40,720
Speaker 3: bring it to an end, that it's time to send

910
00:59:40,720 --> 00:59:44,160
Speaker 3: an unmistakable message to Washington. We want you to stop

911
00:59:44,520 --> 00:59:48,600
Speaker 3: the roller coaster. When we do, there is no technical

912
00:59:48,640 --> 00:59:55,520
Speaker 3: difficulty about stopping it. Let me emphasize, it will not

913
00:59:55,600 --> 00:59:59,480
Speaker 3: be costless to stop it, but it will not be costless.

914
00:59:59,000 --> 00:59:59,960
Speaker 2: To continue what we're doing.

915
01:00:01,440 --> 01:00:05,040
Speaker 3: If I may conclude with a medical with my medical analogy.

916
01:00:05,120 --> 01:00:08,400
Speaker 2: If you are sick, it's very, very seldom that.

917
01:00:08,360 --> 01:00:10,440
Speaker 3: A doctor can give you a cure which will enable

918
01:00:10,480 --> 01:00:13,360
Speaker 3: you to rise from your bed the next man, the

919
01:00:13,400 --> 01:00:17,080
Speaker 3: next day, a whole person, completely unaffected by your illness.

920
01:00:18,880 --> 01:00:25,040
Speaker 3: We have a disease called inflation. Fortunately, our basic constitution

921
01:00:25,200 --> 01:00:28,520
Speaker 3: is strong. This is a strong, healthy country, although we've

922
01:00:28,520 --> 01:00:32,000
Speaker 3: been doing our best to make it unhealthy. We've been

923
01:00:32,040 --> 01:00:36,200
Speaker 3: doing our best to take measures that will reduce our productivity.

924
01:00:36,800 --> 01:00:40,280
Speaker 3: But nonetheless we're still a pretty strong, healthy country. There's

925
01:00:40,320 --> 01:00:43,760
Speaker 3: nothing basically wrong with us. But we have been suffering

926
01:00:44,280 --> 01:00:48,280
Speaker 3: from a self imposed disease of inflation. Sooner or later,

927
01:00:48,640 --> 01:00:51,320
Speaker 3: I am sure we will get up the will to

928
01:00:51,400 --> 01:00:55,520
Speaker 3: cure it. But we shall not cure it or continue

929
01:00:55,600 --> 01:00:58,240
Speaker 3: it without paying a price either way.

930
01:00:58,520 --> 01:01:21,200
Speaker 2: Thank you, Thanks doctor Friedman.

931
01:01:21,240 --> 01:01:24,040
Speaker 4: If you were advising President Carter with you advise him

932
01:01:24,040 --> 01:01:26,560
Speaker 4: to work through the Federal Reserve or.

933
01:01:26,480 --> 01:01:29,240
Speaker 2: Through Congress to implement your recommendation.

934
01:01:30,840 --> 01:01:33,840
Speaker 3: Well, I'm not sure those are different, and I'm not

935
01:01:33,880 --> 01:01:36,640
Speaker 3: sure it's really President Carter to work through them. You know,

936
01:01:36,760 --> 01:01:41,160
Speaker 3: the president has a lot of influence but very little power.

937
01:01:42,040 --> 01:01:46,040
Speaker 3: The President does not pass the appropriation bills. The President

938
01:01:46,080 --> 01:01:48,920
Speaker 3: has no direct control over the Federal Reserve, printing press.

939
01:01:49,880 --> 01:01:53,800
Speaker 3: The real source of power in this respect are the

940
01:01:53,880 --> 01:01:58,240
Speaker 3: Congress and the Federal Reserve together and jointly. And I

941
01:01:58,360 --> 01:02:02,640
Speaker 3: believe that's where the public at large has to bring

942
01:02:02,720 --> 01:02:07,120
Speaker 3: political pressure to bear to produce the right kind of policy.

943
01:02:07,400 --> 01:02:09,760
Speaker 5: So we need to change Congress to get off the treadmill.

944
01:02:09,920 --> 01:02:12,080
Speaker 2: No, we don't need to change Congress. Excuse me.

945
01:02:13,160 --> 01:02:17,280
Speaker 3: You know, people have a great misunderstanding about this. People

946
01:02:17,320 --> 01:02:23,160
Speaker 3: in Congress are in a business. They're trying to buy votes.

947
01:02:24,040 --> 01:02:26,360
Speaker 3: They're in the business of competing with one another to

948
01:02:26,400 --> 01:02:29,760
Speaker 3: get elected. The same congressman will vote for a different

949
01:02:29,800 --> 01:02:33,640
Speaker 3: thing if he thinks that's politically profitable. You don't have

950
01:02:33,680 --> 01:02:37,360
Speaker 3: to change Congress. People have a great misconception in this way.

951
01:02:37,400 --> 01:02:39,400
Speaker 3: They think the way you solve things is by electing

952
01:02:39,440 --> 01:02:43,160
Speaker 3: the right people. It's nice to elect the right people.

953
01:02:43,200 --> 01:02:45,600
Speaker 3: But that isn't the way you solve things. The way

954
01:02:45,640 --> 01:02:49,680
Speaker 3: you solve things is by making it politically profitable for

955
01:02:49,800 --> 01:02:52,320
Speaker 3: the wrong people to do the right things.

956
01:03:00,920 --> 01:03:04,440
Speaker 6: He said, rather optimistically. I think that you have detected

957
01:03:04,520 --> 01:03:08,920
Speaker 6: a trend wherein the public will accept a slowing down

958
01:03:09,000 --> 01:03:12,080
Speaker 6: of the rolling of the printing presses. I confess that

959
01:03:12,080 --> 01:03:14,720
Speaker 6: that trend is invisible to me, and I wondered what

960
01:03:14,800 --> 01:03:16,120
Speaker 6: evidence of it you have seen.

961
01:03:16,640 --> 01:03:19,240
Speaker 3: I was really not referring directly to a trend to

962
01:03:19,240 --> 01:03:24,240
Speaker 3: slow the printing presses, but a more fundamental trend in

963
01:03:24,400 --> 01:03:30,400
Speaker 3: people's ideas and attitudes toward the role of government. Ten

964
01:03:30,480 --> 01:03:33,960
Speaker 3: years ago, twenty years ago, it was widely taken for

965
01:03:34,040 --> 01:03:37,560
Speaker 3: granted that there was hardly any problem the solution of

966
01:03:37,600 --> 01:03:41,520
Speaker 3: which did not reside in Washington, did not reside in

967
01:03:41,560 --> 01:03:45,160
Speaker 3: throwing more money at the problem. Very few people believe

968
01:03:45,160 --> 01:03:49,280
Speaker 3: that anymore. Today, people are greatly disillusioned about what government

969
01:03:49,320 --> 01:03:55,080
Speaker 3: can accomplish in the more particular area you're describing. Worldwide,

970
01:03:55,480 --> 01:03:58,840
Speaker 3: and not merely in this country, the public at large

971
01:03:58,840 --> 01:04:04,160
Speaker 3: has shifted its major emphasis from unemployment to inflation. It

972
01:04:04,200 --> 01:04:09,520
Speaker 3: is not any longer politically popular to reduce unemployment by

973
01:04:09,560 --> 01:04:12,960
Speaker 3: creating inflation. If you take a case like Great Britain,

974
01:04:12,960 --> 01:04:15,080
Speaker 3: which is in some ways been on the forefront of this.

975
01:04:16,840 --> 01:04:19,560
Speaker 3: Ten twenty years ago, it would have been said that

976
01:04:19,640 --> 01:04:22,560
Speaker 3: it was absolutely politically intolerable to have had rates of

977
01:04:22,680 --> 01:04:26,120
Speaker 3: unemployment of the kind that Britain is in. But today

978
01:04:26,440 --> 01:04:30,200
Speaker 3: the Labor government in Britain finds it popular, politically popular,

979
01:04:30,400 --> 01:04:34,920
Speaker 3: politically profitable to put its emphasis on reducing the rate

980
01:04:34,960 --> 01:04:35,520
Speaker 3: of inflation.

981
01:04:36,200 --> 01:04:36,800
Speaker 2: In Britain.

982
01:04:37,360 --> 01:04:40,760
Speaker 3: Last September at the Labor Party Conference, Prime Minister Callahan

983
01:04:41,920 --> 01:04:45,280
Speaker 3: found it politically profitable to say, we used to think

984
01:04:46,440 --> 01:04:48,600
Speaker 3: that if you had unemployment in a recession, the way

985
01:04:48,640 --> 01:04:51,000
Speaker 3: to get out of it was by spending more money

986
01:04:51,080 --> 01:04:54,640
Speaker 3: or cutting taxes. But if that was once a solution,

987
01:04:55,040 --> 01:04:57,080
Speaker 3: it is no longer an option open to us. I'm

988
01:04:57,120 --> 01:05:00,000
Speaker 3: not quoting precisely, but the sense of it, he said,

989
01:05:00,200 --> 01:05:03,760
Speaker 3: because we have learned that that only works temporarily, but

990
01:05:03,800 --> 01:05:08,040
Speaker 3: the ultimate result is more inflation. So you have, in

991
01:05:08,080 --> 01:05:12,400
Speaker 3: Britain and in other countries around the world, a willingness

992
01:05:12,400 --> 01:05:17,680
Speaker 3: on the part of the population at large two to

993
01:05:17,720 --> 01:05:21,840
Speaker 3: stand for measures directed at reducing inflation. The same thing

994
01:05:21,920 --> 01:05:24,960
Speaker 3: is true in this country every public opinion poll has

995
01:05:25,000 --> 01:05:28,480
Speaker 3: shown that inflation is a problem that the public at

996
01:05:28,560 --> 01:05:31,080
Speaker 3: large is more concerned about than the problem of unemployment.

997
01:05:32,000 --> 01:05:33,919
Speaker 2: It will not be you see.

998
01:05:33,960 --> 01:05:36,840
Speaker 3: I think President Carter faces a real dilemma at the

999
01:05:36,840 --> 01:05:43,640
Speaker 3: moment with respect to his own election prospects in nineteen eighty.

1000
01:05:43,720 --> 01:05:46,480
Speaker 3: He cannot control I said before, he has much influence

1001
01:05:46,520 --> 01:05:48,640
Speaker 3: but little power. He cannot really control it. But suppose

1002
01:05:48,680 --> 01:05:53,520
Speaker 3: he could, what should he do. He's facing a dilemma.

1003
01:05:53,640 --> 01:05:55,840
Speaker 3: Ten years ago, the eye answer would have been obvious.

1004
01:05:55,880 --> 01:06:00,520
Speaker 3: Step on the gas print money create a great period

1005
01:06:00,560 --> 01:06:04,000
Speaker 3: of prosperity by nineteen eighty. But with double digit inflation,

1006
01:06:04,720 --> 01:06:07,480
Speaker 3: the double digit inflation will do them more political harm.

1007
01:06:07,920 --> 01:06:10,160
Speaker 2: Then the boom will do them good. So I think

1008
01:06:10,240 --> 01:06:10,600
Speaker 2: there is.

1009
01:06:10,560 --> 01:06:14,280
Speaker 3: A very strongly detectable change in the attitude of the

1010
01:06:14,280 --> 01:06:18,920
Speaker 3: public at large. On the one hand, they are more

1011
01:06:18,960 --> 01:06:23,040
Speaker 3: inclined to attribute the inflation, the responsibility for inflation to government,

1012
01:06:23,160 --> 01:06:25,600
Speaker 3: to be more conscious of it. And then the other

1013
01:06:26,880 --> 01:06:31,240
Speaker 3: they have less rosy views about the power of government

1014
01:06:31,280 --> 01:06:40,320
Speaker 3: to cure all ills. Thank you very much, Let's have

1015
01:06:40,440 --> 01:06:43,680
Speaker 3: some more people come up here to increase our inventory

1016
01:06:44,880 --> 01:06:45,600
Speaker 3: in process.

1017
01:06:45,920 --> 01:06:49,640
Speaker 7: Professor Friedman for the federal government's ability and willingness to

1018
01:06:49,680 --> 01:06:53,600
Speaker 7: produce unlimited amounts of money. What are the implications for

1019
01:06:53,680 --> 01:06:57,280
Speaker 7: the concept of a vital local and state government and

1020
01:06:57,520 --> 01:07:01,400
Speaker 7: the broader question implication for the concept of federalism.

1021
01:07:02,120 --> 01:07:06,400
Speaker 3: Well, obviously, one of the trends that has been reducing

1022
01:07:06,440 --> 01:07:09,040
Speaker 3: the viability of local and state government has been a

1023
01:07:09,080 --> 01:07:13,080
Speaker 3: trend towards centralization, a trend toward enhancing the power in

1024
01:07:13,120 --> 01:07:15,880
Speaker 3: the strength of Washington at the expense of the state

1025
01:07:16,560 --> 01:07:20,200
Speaker 3: and a city hall. And no doubt the fact that

1026
01:07:20,360 --> 01:07:24,919
Speaker 3: Washington present possesses a printing press and the city Hall

1027
01:07:24,960 --> 01:07:27,400
Speaker 3: and the State House do not has been a factor

1028
01:07:27,440 --> 01:07:28,760
Speaker 3: that has been contributing to them.

1029
01:07:29,720 --> 01:07:30,880
Speaker 2: But again we.

1030
01:07:30,920 --> 01:07:33,200
Speaker 3: Come back to the same question that has come up before.

1031
01:07:34,480 --> 01:07:39,720
Speaker 3: Will that continue? Is that necessary? Is it inevitable that

1032
01:07:39,760 --> 01:07:41,720
Speaker 3: the federal government will grow in power?

1033
01:07:41,800 --> 01:07:44,800
Speaker 2: If it is. If it does, then I agree with you.

1034
01:07:45,080 --> 01:07:45,880
Speaker 2: Then we're headed.

1035
01:07:46,440 --> 01:07:50,240
Speaker 3: We would be headed toward a unified, centralized country. I

1036
01:07:50,280 --> 01:07:52,960
Speaker 3: think one of our great straints is a country is

1037
01:07:53,000 --> 01:07:56,680
Speaker 3: precisely the federal system. Precisely that we have a distribution

1038
01:07:56,760 --> 01:08:00,640
Speaker 3: of power. That we do have states which attract which

1039
01:08:00,640 --> 01:08:05,880
Speaker 3: attached loyalties to themselves, which have independent power. So I

1040
01:08:05,920 --> 01:08:08,760
Speaker 3: think there is a trend in your direction, but I

1041
01:08:08,800 --> 01:08:11,880
Speaker 3: don't think it necessarily needs to continue or necessarily will

1042
01:08:11,920 --> 01:08:14,440
Speaker 3: continue a number.

1043
01:08:14,280 --> 01:08:18,440
Speaker 7: Of a government agency. Do we do ourselves a disservice

1044
01:08:18,520 --> 01:08:24,080
Speaker 7: by quickly pursuing federal grants and funding to meet our

1045
01:08:24,120 --> 01:08:27,240
Speaker 7: needs when often those grants are not our priorities, but

1046
01:08:27,400 --> 01:08:28,839
Speaker 7: just where we can get matching money.

1047
01:08:29,360 --> 01:08:33,720
Speaker 2: Well, you have a dilemma there, given the program.

1048
01:08:34,280 --> 01:08:36,679
Speaker 3: Given that there is a federal program, I can't blame

1049
01:08:36,720 --> 01:08:39,200
Speaker 3: you for trying to go get it. And yet I

1050
01:08:39,200 --> 01:08:42,439
Speaker 3: think it sooner or later to the public will wake

1051
01:08:42,520 --> 01:08:45,400
Speaker 3: up to the idea that they really aren't doing themselves

1052
01:08:45,439 --> 01:08:49,560
Speaker 3: any favor by sending a dollar to Washington and getting

1053
01:08:49,600 --> 01:08:55,559
Speaker 3: eighty cents back. That's been the experience what we have had.

1054
01:08:55,680 --> 01:09:02,559
Speaker 3: It's a great defect of the centralation, and it's very

1055
01:09:02,560 --> 01:09:05,439
Speaker 3: hard to understand why people allow themselves to be fooled.

1056
01:09:06,200 --> 01:09:09,000
Speaker 3: But somehow they have the impression that if the money

1057
01:09:09,000 --> 01:09:11,120
Speaker 3: comes from Washington, somebody else is going to pay for it.

1058
01:09:12,040 --> 01:09:14,599
Speaker 3: But of course it's a two way trip, and there

1059
01:09:14,640 --> 01:09:17,880
Speaker 3: is a discount taken off in Washington as it turns around.

1060
01:09:19,760 --> 01:09:21,479
Speaker 7: I don't know if I can ask one more question.

1061
01:09:21,560 --> 01:09:24,639
Speaker 7: But since I deal with high school students and I'm

1062
01:09:24,680 --> 01:09:29,040
Speaker 7: concerned about economical education in our schools, what is your

1063
01:09:29,040 --> 01:09:32,720
Speaker 7: barometer as you talk to young people? What is their

1064
01:09:32,800 --> 01:09:36,479
Speaker 7: projection of the business economy? I deal with many people,

1065
01:09:36,600 --> 01:09:39,479
Speaker 7: young people who go into government thinking that that's where

1066
01:09:39,479 --> 01:09:41,479
Speaker 7: the jobs are, and that concerns me.

1067
01:09:42,080 --> 01:09:43,960
Speaker 2: What is your fortune?

1068
01:09:44,720 --> 01:09:49,839
Speaker 3: Again, that is not preordained. We're masters of our own destiny.

1069
01:09:50,439 --> 01:09:53,320
Speaker 3: That depends what we as a people decide. If we

1070
01:09:53,439 --> 01:09:55,559
Speaker 3: as a people decide we want to continue on the

1071
01:09:55,560 --> 01:09:58,120
Speaker 3: path we've been going on, which I hope we won't.

1072
01:09:58,960 --> 01:10:02,439
Speaker 2: But if we do, why then your youngsters are better

1073
01:10:02,439 --> 01:10:06,160
Speaker 2: off going into Washington. They will get better salaries. Do

1074
01:10:06,240 --> 01:10:06,519
Speaker 2: you know?

1075
01:10:06,600 --> 01:10:09,320
Speaker 3: Do you people know what the highest income average income

1076
01:10:09,360 --> 01:10:14,160
Speaker 3: county in the United States is. It's not It's not

1077
01:10:14,320 --> 01:10:19,840
Speaker 3: San Diego County. It's not even Marin County. It's not Westchester,

1078
01:10:20,560 --> 01:10:24,400
Speaker 3: it's not any of those fancy Connecticut counties. It's Fairfax

1079
01:10:24,439 --> 01:10:28,160
Speaker 3: County in Virginia, the bedroom of the Washington civil servants.

1080
01:10:28,680 --> 01:10:32,400
Speaker 3: That's the highest average income county in the country. So

1081
01:10:32,439 --> 01:10:34,880
Speaker 3: that you would be telling the students right if you

1082
01:10:34,920 --> 01:10:36,280
Speaker 3: said to them, if you want to make an.

1083
01:10:36,160 --> 01:10:37,719
Speaker 2: Income go to work for Washington.

1084
01:10:38,760 --> 01:10:42,200
Speaker 3: But it's up to us as citizens to make that

1085
01:10:42,280 --> 01:10:49,080
Speaker 3: no longer true. Thank you, yes, sir, yes ma'am.

1086
01:10:49,200 --> 01:10:53,680
Speaker 8: Recently we've heard that the inflation currently experienced in this

1087
01:10:53,760 --> 01:10:58,120
Speaker 8: country won't respond to monetary restraint because it's cost push

1088
01:10:58,160 --> 01:11:03,160
Speaker 8: inflation and not demand pull. What response would you have

1089
01:11:03,240 --> 01:11:04,439
Speaker 8: to that analysis, if.

1090
01:11:04,280 --> 01:11:08,280
Speaker 3: Anny, it's another example of the people who produce the

1091
01:11:08,320 --> 01:11:13,680
Speaker 3: inflation finding this trying to find scapegoats for their own deficiencies.

1092
01:11:14,439 --> 01:11:18,599
Speaker 3: Of course, the inflation will respond to monetary restraint. There

1093
01:11:18,640 --> 01:11:22,840
Speaker 3: is no such thing as cost push inflation, except in

1094
01:11:22,960 --> 01:11:27,320
Speaker 3: the form of the delayed effect of monetary inflation. If

1095
01:11:27,400 --> 01:11:30,320
Speaker 3: you have a monetary inflation that starts to push up prices,

1096
01:11:30,840 --> 01:11:33,840
Speaker 3: it tends to hit retail and wholesale prices first, the

1097
01:11:33,880 --> 01:11:37,160
Speaker 3: prices you and I pay. It's only later that it

1098
01:11:37,200 --> 01:11:41,320
Speaker 3: works its way through costs. But then costs fall behind

1099
01:11:41,360 --> 01:11:45,000
Speaker 3: prices and there's a makeup period, and during that period

1100
01:11:45,000 --> 01:11:48,599
Speaker 3: you have what looks like cost push inflation. But there

1101
01:11:48,600 --> 01:11:51,200
Speaker 3: has never been an inflation in history that didn't respond

1102
01:11:51,240 --> 01:11:54,799
Speaker 3: to monetary restraint. If you look at American experience and restraint,

1103
01:11:54,840 --> 01:11:57,679
Speaker 3: pond of the monetary restraint. If you take that roller

1104
01:11:57,680 --> 01:12:01,440
Speaker 3: coaster I was telling you, on each occasion the slowdown

1105
01:12:01,479 --> 01:12:04,360
Speaker 3: and the rate of inflation was preceded by a slower

1106
01:12:04,400 --> 01:12:08,240
Speaker 3: rate of monetary growth. And you have much more dramatic

1107
01:12:08,280 --> 01:12:14,120
Speaker 3: examples of that. Most dramatic example from American history of

1108
01:12:14,160 --> 01:12:17,880
Speaker 3: how inflation responds to monetary restraint was one that was

1109
01:12:17,880 --> 01:12:19,680
Speaker 3: once dug up by a student of mine when he

1110
01:12:19,760 --> 01:12:23,880
Speaker 3: was writing a dissertation on inflation in the Confederacy during

1111
01:12:23,920 --> 01:12:27,400
Speaker 3: the Civil War and in the later parts of that war.

1112
01:12:27,479 --> 01:12:30,840
Speaker 3: You know, the South financed the war almost entirely by

1113
01:12:30,840 --> 01:12:34,240
Speaker 3: printing press money, and the rate of inflation during the

1114
01:12:34,280 --> 01:12:36,640
Speaker 3: Civil War in the South, I don't know, got up

1115
01:12:36,680 --> 01:12:39,000
Speaker 3: to something like four or five percent.

1116
01:12:38,760 --> 01:12:39,559
Speaker 2: A month or more.

1117
01:12:41,120 --> 01:12:43,080
Speaker 3: But at one point in the later part of the war,

1118
01:12:43,200 --> 01:12:46,720
Speaker 3: the Northern Army overran the place in the South where

1119
01:12:46,720 --> 01:12:50,040
Speaker 3: they were printing money, and for two weeks the printing

1120
01:12:50,040 --> 01:12:52,759
Speaker 3: presses couldn't operate, and lo and behold, within two weeks

1121
01:12:52,800 --> 01:12:58,840
Speaker 3: the inflation stopped. And you've got many, many examples like that,

1122
01:12:59,040 --> 01:13:02,479
Speaker 3: so that what you can say to people is they're

1123
01:13:02,600 --> 01:13:03,480
Speaker 3: kidding themselves.

1124
01:13:03,600 --> 01:13:09,840
Speaker 9: Yes, sir, I've been I've been rereading James Buchana on

1125
01:13:09,920 --> 01:13:14,320
Speaker 9: the monetization of the debt and his conclusion that we

1126
01:13:14,439 --> 01:13:17,519
Speaker 9: can't possibly reduce the debt because of the depression effects

1127
01:13:17,560 --> 01:13:21,559
Speaker 9: that would result. In other words, we're stuck with it forever.

1128
01:13:21,840 --> 01:13:23,080
Speaker 9: What's your opinions on that?

1129
01:13:23,360 --> 01:13:25,479
Speaker 2: Well, which debt are you speaking of now? Are you

1130
01:13:25,560 --> 01:13:29,000
Speaker 2: speaking of the funded debt? The bonds, the funded debts,

1131
01:13:29,040 --> 01:13:29,639
Speaker 2: the fund of debt.

1132
01:13:29,720 --> 01:13:33,960
Speaker 3: We've been reducing it every year. It's much smaller now

1133
01:13:34,800 --> 01:13:38,759
Speaker 3: in real turn, divided by prices or divided by income,

1134
01:13:38,800 --> 01:13:41,320
Speaker 3: than it was right after World War Two? And how

1135
01:13:41,360 --> 01:13:45,040
Speaker 3: have we been reducing the debt by monetizing it, by

1136
01:13:45,080 --> 01:13:47,920
Speaker 3: paying it off through inflation. Now, when you come to

1137
01:13:47,960 --> 01:13:53,560
Speaker 3: the unfunded debt, this three trillion or more of obligations

1138
01:13:53,640 --> 01:13:56,280
Speaker 3: under Social Security and other programs, that's a much more

1139
01:13:56,280 --> 01:13:57,000
Speaker 3: difficult task.

1140
01:13:57,520 --> 01:13:58,960
Speaker 2: I think I may say, if.

1141
01:13:58,800 --> 01:14:01,240
Speaker 3: You'll pardon me for a digression here for a moment,

1142
01:14:01,880 --> 01:14:05,839
Speaker 3: that those fiscal conservatives who keep their eye on balancing

1143
01:14:05,880 --> 01:14:08,280
Speaker 3: the budget and on the dinner making a great mistake,

1144
01:14:09,360 --> 01:14:13,000
Speaker 3: and in fact that they have been the handmaidens of

1145
01:14:13,000 --> 01:14:17,080
Speaker 3: the big spenders. What has happened over and over again

1146
01:14:17,920 --> 01:14:21,120
Speaker 3: is that the big spenders get off and start spending money.

1147
01:14:21,320 --> 01:14:25,240
Speaker 3: This produces the deficits. The fiscal conservatives crotch their heads

1148
01:14:25,240 --> 01:14:27,799
Speaker 3: and say, my god, we gotta do something about that deficit.

1149
01:14:28,320 --> 01:14:30,439
Speaker 3: So they go to work and raise the taxes to

1150
01:14:30,479 --> 01:14:32,880
Speaker 3: pay for the deficit. And as soon as they get

1151
01:14:32,880 --> 01:14:34,960
Speaker 3: the budget balanced again, the big spenders are off for

1152
01:14:35,000 --> 01:14:38,960
Speaker 3: the next lap, and the so called fiscal conservatives that

1153
01:14:39,080 --> 01:14:41,680
Speaker 3: turned out to do the dirty work for.

1154
01:14:41,720 --> 01:14:42,600
Speaker 2: The big spenders.

1155
01:14:43,320 --> 01:14:46,639
Speaker 3: As I said before, keep your eye on one thing,

1156
01:14:46,720 --> 01:14:49,719
Speaker 3: and one thing only, how much government is spending, because

1157
01:14:49,720 --> 01:14:53,760
Speaker 3: that's the true tax. Every budget is balanced. There is

1158
01:14:53,840 --> 01:14:57,719
Speaker 3: no such thing as an unbalanced federal budget. You're paying

1159
01:14:57,760 --> 01:15:00,439
Speaker 3: for it if you're not paying for it through it

1160
01:15:00,439 --> 01:15:04,120
Speaker 3: in the form of explicit taxes. You're paying for it indirectly,

1161
01:15:04,160 --> 01:15:06,920
Speaker 3: in the form of inflation or in the form of borrowing.

1162
01:15:07,520 --> 01:15:09,960
Speaker 3: The thing you should keep your eye on is what

1163
01:15:10,080 --> 01:15:13,920
Speaker 3: government spends, and the real problem is to hold down

1164
01:15:14,040 --> 01:15:17,240
Speaker 3: government spending as a fraction of our end.

1165
01:15:17,520 --> 01:15:19,920
Speaker 2: And if you do that, you can stop worrying about

1166
01:15:19,960 --> 01:15:20,240
Speaker 2: the debt.

1167
01:15:20,640 --> 01:15:23,240
Speaker 10: I have but two very different questions. But first, I

1168
01:15:23,280 --> 01:15:26,160
Speaker 10: wonder if you'd comment on an assertion with regard to

1169
01:15:26,240 --> 01:15:29,320
Speaker 10: your theory on the political process. It seems to me

1170
01:15:29,360 --> 01:15:31,680
Speaker 10: that the incumbents who disagree with you and with me

1171
01:15:31,800 --> 01:15:34,640
Speaker 10: are one step ahead of us, and they're so carefully

1172
01:15:34,680 --> 01:15:38,200
Speaker 10: insulating themselves in the political process by giving themselves vast

1173
01:15:38,960 --> 01:15:42,559
Speaker 10: purposes and benefits of incumbency. So we have people voting

1174
01:15:42,560 --> 01:15:44,760
Speaker 10: for their re election not on the basis of their

1175
01:15:44,800 --> 01:15:47,639
Speaker 10: policies or their issue positions of their votes, but whether

1176
01:15:47,720 --> 01:15:49,760
Speaker 10: or not they're being serviced in their district, which is

1177
01:15:49,760 --> 01:15:52,000
Speaker 10: a vastly different situation than was years ago.

1178
01:15:53,400 --> 01:15:54,599
Speaker 2: Well, that may well be true.

1179
01:15:54,600 --> 01:15:58,560
Speaker 3: I do believe that I agree with you that incumbency

1180
01:15:58,640 --> 01:16:02,120
Speaker 3: is an enormous advantage of the days, that the drive,

1181
01:16:02,240 --> 01:16:07,160
Speaker 3: of course for governmental financing of elections is really a

1182
01:16:07,240 --> 01:16:10,120
Speaker 3: drive to strengthen the power of incumbents and make it

1183
01:16:10,160 --> 01:16:13,799
Speaker 3: more difficult for anybody to challenge them. That the election,

1184
01:16:14,840 --> 01:16:17,560
Speaker 3: what was the bill that was passed about campaign financing

1185
01:16:17,680 --> 01:16:22,919
Speaker 3: limiting private funds was also a major step toward increasing

1186
01:16:22,960 --> 01:16:29,400
Speaker 3: the advantages of incumbents. But I nonetheless believe that if

1187
01:16:29,439 --> 01:16:32,320
Speaker 3: the public at large feels strongly enough about a subject,

1188
01:16:32,640 --> 01:16:34,720
Speaker 3: Congress will listen and act in accordance with it.

1189
01:16:35,880 --> 01:16:38,720
Speaker 10: And aren't some of the same people feel strongly about this,

1190
01:16:38,840 --> 01:16:41,559
Speaker 10: the same people who are so skinnical, cynical and skeptical

1191
01:16:41,640 --> 01:16:45,439
Speaker 10: the political process, therefore taking themselves out of the voting process.

1192
01:16:46,240 --> 01:16:48,160
Speaker 2: I'm not sure whom you're referring to it this day,

1193
01:16:48,280 --> 01:16:49,800
Speaker 2: the people who don't vote.

1194
01:16:49,600 --> 01:16:51,920
Speaker 10: Well, I'm talking about we see more and more people

1195
01:16:52,000 --> 01:16:54,800
Speaker 10: becoming disenchanted, who believe strongly in the free market, who

1196
01:16:54,800 --> 01:16:56,800
Speaker 10: are just giving up no matter who I vote for,

1197
01:16:56,880 --> 01:16:59,479
Speaker 10: the policies continue, and as they take themselves out of

1198
01:16:59,520 --> 01:17:02,560
Speaker 10: the political profits, were left with a proportionally large.

1199
01:17:02,040 --> 01:17:05,040
Speaker 3: Well, but there's more than one way to make themselves effective.

1200
01:17:05,800 --> 01:17:09,439
Speaker 3: I understand your point, and I would say that the

1201
01:17:09,479 --> 01:17:14,360
Speaker 3: most encouraging move I've seen around is one which started

1202
01:17:14,360 --> 01:17:18,479
Speaker 3: in the state, and that is a move to take

1203
01:17:18,520 --> 01:17:20,719
Speaker 3: the total budget out of the hands of the elected

1204
01:17:20,760 --> 01:17:24,400
Speaker 3: representatives and determine it through a constitutional amendment. That was

1205
01:17:24,439 --> 01:17:27,880
Speaker 3: a proposition one fight that was started to hear five

1206
01:17:27,960 --> 01:17:28,479
Speaker 3: years ago.

1207
01:17:29,360 --> 01:17:30,879
Speaker 2: Unfortunately was defeated.

1208
01:17:32,920 --> 01:17:38,400
Speaker 3: Yeah, but I am very much encouraged by the strength

1209
01:17:38,840 --> 01:17:41,640
Speaker 3: which the movement for such amendments around the country and

1210
01:17:41,680 --> 01:17:46,960
Speaker 3: at the federal level is the strength which it is gaining.

1211
01:17:47,800 --> 01:17:51,840
Speaker 3: As you know, last year Michigan had a similar proposition

1212
01:17:51,880 --> 01:17:55,000
Speaker 3: in its belt and it was defeated too. It's very

1213
01:17:55,000 --> 01:17:57,599
Speaker 3: interesting to compare the propaganda that was put out in

1214
01:17:57,600 --> 01:18:01,280
Speaker 3: California and Michigan five years apart on the same proposition.

1215
01:18:01,360 --> 01:18:04,439
Speaker 3: It was the same propaganda, financed and fostered by the

1216
01:18:04,520 --> 01:18:11,240
Speaker 3: same groups, primarily the State Education Association, making the same

1217
01:18:11,360 --> 01:18:13,080
Speaker 3: kind of misstatements.

1218
01:18:13,280 --> 01:18:14,000
Speaker 2: About the.

1219
01:18:16,880 --> 01:18:21,759
Speaker 3: About the proposition, and in both cases with considerable success.

1220
01:18:22,560 --> 01:18:25,160
Speaker 3: But in both those states and in a considerable number

1221
01:18:25,240 --> 01:18:28,240
Speaker 3: of others, there is a grassroots movement that is growing

1222
01:18:28,880 --> 01:18:30,760
Speaker 3: and that I think we are going to see in

1223
01:18:30,760 --> 01:18:32,840
Speaker 3: the next four or five years at least a half

1224
01:18:32,840 --> 01:18:38,280
Speaker 3: a dozen states adopt tax limitation or spending limitation amendments

1225
01:18:38,280 --> 01:18:42,040
Speaker 3: of that kind. In addition, on the federal level, the

1226
01:18:42,080 --> 01:18:45,479
Speaker 3: Southern Governor's Conference a few years ago had a task

1227
01:18:45,560 --> 01:18:49,400
Speaker 3: force which drew up a federal amendment to limit federal spending.

1228
01:18:50,640 --> 01:18:54,000
Speaker 3: That task force was headed headed by Governor James Edwards

1229
01:18:54,000 --> 01:18:57,439
Speaker 3: of South Carolina. Unless I am mistaken that the Southern

1230
01:18:57,479 --> 01:19:02,720
Speaker 3: Governor's Conference has endorsed that propa, there are various Congressmen

1231
01:19:05,000 --> 01:19:08,479
Speaker 3: and senators who have introduced similar budget by similar budget

1232
01:19:08,520 --> 01:19:12,080
Speaker 3: limitation amendments in Congress. So I think that there is

1233
01:19:12,120 --> 01:19:16,639
Speaker 3: a strong chance that we have a movement underway will

1234
01:19:17,000 --> 01:19:19,920
Speaker 3: and which will give people something to vote for that

1235
01:19:19,960 --> 01:19:23,280
Speaker 3: they think will be effective over and beyond voting for

1236
01:19:23,320 --> 01:19:25,800
Speaker 3: particular individuals.

1237
01:19:25,320 --> 01:19:29,400
Speaker 11: Doctor Friedman, part of the twofold cure, you suggested tonight

1238
01:19:29,439 --> 01:19:32,600
Speaker 11: would be a reduction of government spending. What areas of

1239
01:19:32,880 --> 01:19:35,679
Speaker 11: government spending would you suggest are most amenable to reduction?

1240
01:19:35,880 --> 01:19:37,920
Speaker 2: Every area?

1241
01:19:38,080 --> 01:19:40,320
Speaker 3: I think that the only way to reduce government spending

1242
01:19:40,360 --> 01:19:46,040
Speaker 3: is across the board, cut every single appropriation first year

1243
01:19:46,080 --> 01:19:48,680
Speaker 3: by ten percent, the next year by twenty percent, and

1244
01:19:48,760 --> 01:19:49,439
Speaker 3: just keep going.

1245
01:19:50,280 --> 01:19:52,080
Speaker 2: You know, why do you want to choose?

1246
01:19:53,360 --> 01:19:55,080
Speaker 11: The reason I asked that is it seems to me

1247
01:19:55,160 --> 01:19:58,240
Speaker 11: that if higher unemployment is a short term side effect

1248
01:19:58,280 --> 01:20:01,120
Speaker 11: of your inflation cure, then welfare costs are going to

1249
01:20:01,120 --> 01:20:02,040
Speaker 11: go up as a result.

1250
01:20:02,520 --> 01:20:03,800
Speaker 2: Well, that depends on you.

1251
01:20:03,840 --> 01:20:08,120
Speaker 3: See, the problem you're raising is a following money. Every

1252
01:20:08,120 --> 01:20:11,840
Speaker 3: one of us would like to reform a program, But

1253
01:20:11,920 --> 01:20:15,920
Speaker 3: if you try to achieve a reduction in spending via reform,

1254
01:20:15,960 --> 01:20:18,920
Speaker 3: you won't get it. But if you first achieve a

1255
01:20:18,920 --> 01:20:22,679
Speaker 3: reduction in spending through across the board cuts, that will

1256
01:20:22,720 --> 01:20:24,720
Speaker 3: force you to engage in the kind of reform you're

1257
01:20:24,760 --> 01:20:26,880
Speaker 3: talking about, and I quite agree with you.

1258
01:20:28,160 --> 01:20:30,320
Speaker 2: I don't think we need to spend more money on welfare,

1259
01:20:30,800 --> 01:20:31,439
Speaker 2: not at all.

1260
01:20:31,800 --> 01:20:34,160
Speaker 3: But if we had a more sensible welfare system, we

1261
01:20:34,200 --> 01:20:37,320
Speaker 3: would spend less and yet give help where it's really needed.

1262
01:20:38,200 --> 01:20:40,519
Speaker 3: You know, the welfare system today does not help the

1263
01:20:40,520 --> 01:20:43,719
Speaker 3: people who really need it. If you take the total

1264
01:20:43,720 --> 01:20:46,920
Speaker 3: amount of money which the government is now spending on

1265
01:20:47,040 --> 01:20:50,600
Speaker 3: programs labeled as poverty programs to help the poort and

1266
01:20:50,760 --> 01:20:53,400
Speaker 3: calculate how much that amounts to each person who is

1267
01:20:53,439 --> 01:20:56,680
Speaker 3: designated as poor, it turns out that if they were getting.

1268
01:20:56,439 --> 01:20:58,559
Speaker 2: It, they would be among the rich people in this country.

1269
01:21:00,120 --> 01:21:03,120
Speaker 2: But of course they aren't getting it. It's going to

1270
01:21:03,240 --> 01:21:04,200
Speaker 2: lots of other people.

1271
01:21:05,000 --> 01:21:09,760
Speaker 3: So I agree with you that a temporary increase in unemployment,

1272
01:21:10,320 --> 01:21:15,040
Speaker 3: as in the process of curing inflation, might very well

1273
01:21:15,240 --> 01:21:18,640
Speaker 3: cause an increase in some kinds of expenditures on the

1274
01:21:18,640 --> 01:21:22,280
Speaker 3: welfare side, but I think that that is not inconsistent

1275
01:21:22,360 --> 01:21:24,160
Speaker 3: with cutting expenditures in general.

1276
01:21:25,320 --> 01:21:28,639
Speaker 11: Also, what is your opinion of consumer protection legislation as

1277
01:21:28,640 --> 01:21:30,040
Speaker 11: it affects economic freedom.

1278
01:21:30,840 --> 01:21:35,040
Speaker 3: Well, most consumer protection legislation is not consumer protection legislation.

1279
01:21:36,000 --> 01:21:40,000
Speaker 3: It's the enacting into the laws of the prejudices of

1280
01:21:40,040 --> 01:21:43,240
Speaker 3: a small group of people who have organized themselves into

1281
01:21:43,280 --> 01:21:47,720
Speaker 3: an effective lobbying group. Is the consumer really being protected

1282
01:21:48,400 --> 01:21:50,840
Speaker 3: by having somebody else decide for him whether he may

1283
01:21:50,920 --> 01:21:54,320
Speaker 3: use sacrine or not. He's not being protected, He's being hurt.

1284
01:21:55,520 --> 01:21:55,760
Speaker 2: You know.

1285
01:21:56,080 --> 01:22:03,040
Speaker 3: The most anti consumer measures on the books that have

1286
01:22:03,080 --> 01:22:08,240
Speaker 3: been taken in recent months have been the imposition of

1287
01:22:08,360 --> 01:22:12,240
Speaker 3: quotas or their equivalent voluntary restraints on the imports of

1288
01:22:12,560 --> 01:22:16,920
Speaker 3: TV from Japan and of shoes from I think it

1289
01:22:17,000 --> 01:22:21,320
Speaker 3: was Taiwan. Did you hear any of these consumer protection

1290
01:22:21,400 --> 01:22:24,800
Speaker 3: agencies get up and protest about that? Where were they

1291
01:22:24,800 --> 01:22:28,960
Speaker 3: when we really needed them? I think that there's the

1292
01:22:29,000 --> 01:22:33,680
Speaker 3: most effective protection the consumer can get his free competition.

1293
01:22:33,760 --> 01:22:36,559
Speaker 3: If you really want to have a pro consumer protection move,

1294
01:22:37,760 --> 01:22:41,400
Speaker 3: then you ought to join yourself with other people in

1295
01:22:41,479 --> 01:22:48,800
Speaker 3: promoting free trade.

1296
01:22:49,560 --> 01:22:52,760
Speaker 4: I have two questions. The first is how detrimental do

1297
01:22:52,800 --> 01:22:56,120
Speaker 4: you believe the significant increase in petroleum products has been

1298
01:22:56,200 --> 01:22:58,040
Speaker 4: to the rates of inflation throughout the world?

1299
01:22:58,280 --> 01:22:58,840
Speaker 2: Not at all?

1300
01:22:59,320 --> 01:23:02,200
Speaker 3: The increase when the petroleum products has been a negligible

1301
01:23:02,240 --> 01:23:05,240
Speaker 3: cause of higher rates of inflation. It's been an excuse

1302
01:23:06,360 --> 01:23:09,479
Speaker 3: for governments that have produced the inflation. After all, if

1303
01:23:09,479 --> 01:23:12,679
Speaker 3: petroleum prices are a cause of the basic cause of inflation,

1304
01:23:13,200 --> 01:23:17,360
Speaker 3: how can you explain the very different impacts on different countries.

1305
01:23:17,760 --> 01:23:21,160
Speaker 3: Here are Japan and Germany. They both import almost all

1306
01:23:21,200 --> 01:23:24,439
Speaker 3: their aisle. It should hit them alike. Germany went through

1307
01:23:24,439 --> 01:23:27,759
Speaker 3: with a maximum rate of inflation around six percent. Japan

1308
01:23:27,800 --> 01:23:32,080
Speaker 3: got up to thirty percent. What happened is that the

1309
01:23:32,200 --> 01:23:35,640
Speaker 3: not the increase in petroleum prices, but the OPEC cartel

1310
01:23:36,240 --> 01:23:40,000
Speaker 3: and the reduction and availability of petroleum has made has

1311
01:23:40,280 --> 01:23:42,600
Speaker 3: has produced a transfer of wealth from the rest of

1312
01:23:42,640 --> 01:23:44,880
Speaker 3: the world to the Arab countries. It's made us poor

1313
01:23:46,040 --> 01:23:48,920
Speaker 3: to a very small extent insofar as it's made us poor.

1314
01:23:49,439 --> 01:23:52,720
Speaker 3: It's had a slight effect on making prices higher, but

1315
01:23:52,760 --> 01:23:55,400
Speaker 3: it has had a very trivial effect on the rates

1316
01:23:55,439 --> 01:23:56,000
Speaker 3: of inflation.

1317
01:23:56,880 --> 01:23:59,800
Speaker 4: Second question is what do you believe the probability might

1318
01:23:59,840 --> 01:24:02,240
Speaker 4: be of the removal of the capital gains tax as

1319
01:24:02,280 --> 01:24:05,760
Speaker 4: well as the removal of the double taxation on dividends.

1320
01:24:06,439 --> 01:24:09,360
Speaker 3: Well, I think there is a possibility that you will

1321
01:24:09,400 --> 01:24:11,640
Speaker 3: move in both those directions, but I think it's very

1322
01:24:11,720 --> 01:24:14,160
Speaker 3: dubious that you will go all the way in either.

1323
01:24:14,000 --> 01:24:15,600
Speaker 2: Case, thank you.

1324
01:24:17,400 --> 01:24:21,400
Speaker 3: I may say, I think the more important point about

1325
01:24:21,439 --> 01:24:24,160
Speaker 3: capital gains is not so much about whether it's removed,

1326
01:24:24,760 --> 01:24:28,639
Speaker 3: but about whether the base for calculating capital gains is indexed.

1327
01:24:29,520 --> 01:24:31,080
Speaker 2: That's the really important question.

1328
01:24:31,560 --> 01:24:34,759
Speaker 3: It would be well worth paying the price of getting

1329
01:24:34,840 --> 01:24:37,000
Speaker 3: rid of the special treatment of capital gains if you

1330
01:24:37,040 --> 01:24:40,479
Speaker 3: could get the base of capital gains index because the

1331
01:24:40,560 --> 01:24:43,679
Speaker 3: problem with capital gains taxation now is you're not taxing

1332
01:24:43,680 --> 01:24:47,920
Speaker 3: real capital gains. You're taxing purely paper gains, which simply

1333
01:24:47,960 --> 01:24:55,439
Speaker 3: reflect inflation. That's part of the whole problem of tax indexation.

1334
01:24:56,479 --> 01:24:59,360
Speaker 5: Doctor Friedman, one more question about tax reform.

1335
01:24:59,120 --> 01:25:01,080
Speaker 3: And one more question is right, because they're coming to

1336
01:25:01,080 --> 01:25:03,040
Speaker 3: the end of our time, We've got one more gentleman there,

1337
01:25:03,040 --> 01:25:04,439
Speaker 3: and we'll try to handle both of these.

1338
01:25:05,200 --> 01:25:09,920
Speaker 5: Yes, Congressman Kemp of New York has a proposal for

1339
01:25:10,000 --> 01:25:12,960
Speaker 5: a permanent tax cut. I don't know how much, partially

1340
01:25:13,000 --> 01:25:16,759
Speaker 5: an emulation of President Kennedy in nineteen sixty three. I believe,

1341
01:25:17,240 --> 01:25:20,320
Speaker 5: the idea being that if you cut taxes in times

1342
01:25:20,320 --> 01:25:23,400
Speaker 5: of a slow down, you'll pick up the economy and

1343
01:25:23,720 --> 01:25:26,840
Speaker 5: perhaps even produce more revenue for the government. Now, given

1344
01:25:26,920 --> 01:25:30,559
Speaker 5: your skepticism about tax reform, is this perhaps one proposal

1345
01:25:30,600 --> 01:25:31,320
Speaker 5: you might endorse.

1346
01:25:32,000 --> 01:25:34,240
Speaker 3: Well, I have long ago concluded that I am in

1347
01:25:34,280 --> 01:25:38,280
Speaker 3: favor of reducing taxes at any time, under any circumstances,

1348
01:25:38,280 --> 01:25:43,680
Speaker 3: for any excuse, that that's the only effective way to

1349
01:25:44,160 --> 01:25:49,120
Speaker 3: exert pressure on government spending. Congress will spend whatever the

1350
01:25:49,160 --> 01:25:53,439
Speaker 3: tax system will yield, plus a good deal more. But

1351
01:25:53,479 --> 01:25:56,120
Speaker 3: that plus a good deal more is not infinitely elastic.

1352
01:25:56,160 --> 01:25:58,040
Speaker 3: There is some pressure on them when it gets lord,

1353
01:25:58,880 --> 01:26:02,280
Speaker 3: and therefore, the only effective way, in my opinion, other

1354
01:26:02,360 --> 01:26:05,360
Speaker 3: than these kinds of constitutional amendments I was talking about before,

1355
01:26:05,760 --> 01:26:09,160
Speaker 3: of bringing down spending is to reduce taxes. So as

1356
01:26:09,200 --> 01:26:12,240
Speaker 3: I say, I don't go along with mister Kemp's reasons,

1357
01:26:12,880 --> 01:26:15,960
Speaker 3: but I'm in favor of cutting taxes.

1358
01:26:16,439 --> 01:26:19,920
Speaker 9: Yes, sir, I am associated with the banking system, and

1359
01:26:19,960 --> 01:26:20,160
Speaker 9: I do.

1360
01:26:20,360 --> 01:26:21,400
Speaker 2: I won't hold that against you.

1361
01:26:21,600 --> 01:26:25,680
Speaker 9: I do have a line of credit, and I this

1362
01:26:25,760 --> 01:26:28,160
Speaker 9: relates to m too. I could go in tomorrow and

1363
01:26:28,200 --> 01:26:30,320
Speaker 9: sign a piece of paper. The bank will write out

1364
01:26:30,320 --> 01:26:34,120
Speaker 9: a deposit ticket. Thereby the money supply has increased. How

1365
01:26:34,120 --> 01:26:34,920
Speaker 9: do you stop that?

1366
01:26:35,600 --> 01:26:35,760
Speaker 2: Oh?

1367
01:26:35,840 --> 01:26:37,600
Speaker 3: No, the bank will only be able to do that

1368
01:26:37,680 --> 01:26:40,240
Speaker 3: if you can find the reserves, and for the banking

1369
01:26:40,280 --> 01:26:43,400
Speaker 3: system as a whole, one bank can always get reserves

1370
01:26:43,400 --> 01:26:46,920
Speaker 3: from another bank. But the great mistake that everybody makes

1371
01:26:47,360 --> 01:26:51,240
Speaker 3: about many different items, it's not only this, is to

1372
01:26:51,280 --> 01:26:53,720
Speaker 3: confuse what's true for the individual.

1373
01:26:53,200 --> 01:26:55,080
Speaker 2: With what's true for the society as a whole.

1374
01:26:55,560 --> 01:26:58,640
Speaker 3: The most fascinating thing about economics the reason you know,

1375
01:26:58,680 --> 01:27:01,760
Speaker 3: in a way, it's always an interesting thing about economics.

1376
01:27:01,800 --> 01:27:05,040
Speaker 3: It's the most trivial subject in the world, and yet

1377
01:27:05,720 --> 01:27:08,560
Speaker 3: so many people misunderstanding. It's so hard for people to

1378
01:27:08,600 --> 01:27:13,240
Speaker 3: understand it. Why I believe a major reason is because

1379
01:27:13,320 --> 01:27:18,160
Speaker 3: almost every interesting economic proposition has the following characteristic. What's

1380
01:27:18,200 --> 01:27:21,120
Speaker 3: true for the individual is the opposite of what's true

1381
01:27:21,120 --> 01:27:25,120
Speaker 3: for everybody together. It looks to you as if you

1382
01:27:25,200 --> 01:27:27,360
Speaker 3: can decide how many pieces of paper you carry in

1383
01:27:27,400 --> 01:27:30,000
Speaker 3: your pocket, how much cash you have. It looks to

1384
01:27:30,040 --> 01:27:32,240
Speaker 3: you as if you can decide how much deposits you have.

1385
01:27:32,640 --> 01:27:36,600
Speaker 3: It's true you can, but to everybody together, it's a

1386
01:27:36,680 --> 01:27:40,920
Speaker 3: game of musical chairs. The Federal Reserve determines a total

1387
01:27:40,960 --> 01:27:43,599
Speaker 3: quantity of money, and then it's shared out among the people.

1388
01:27:44,200 --> 01:27:48,880
Speaker 3: Your bank can increase its deposits by attracting reserves away

1389
01:27:48,880 --> 01:27:51,280
Speaker 3: from another bank, but that puts pressure on another bank

1390
01:27:51,320 --> 01:27:54,559
Speaker 3: to contract the total amount of reserves will set a

1391
01:27:54,600 --> 01:27:55,160
Speaker 3: limit to them.

1392
01:27:55,240 --> 01:27:57,200
Speaker 2: Let me give you some other examples.

1393
01:27:57,600 --> 01:28:01,679
Speaker 3: It looks to you, it looks to the It looks

1394
01:28:02,240 --> 01:28:05,120
Speaker 3: to you when you go to the store and you

1395
01:28:05,200 --> 01:28:08,880
Speaker 3: see an object offered for sale, as if the price

1396
01:28:09,000 --> 01:28:11,519
Speaker 3: is fixed and the amount available to you for you

1397
01:28:11,600 --> 01:28:13,960
Speaker 3: to buy is indefinite. If you want to buy two

1398
01:28:13,960 --> 01:28:16,160
Speaker 3: pairs of shoes at that price, you can buy two pairs,

1399
01:28:16,280 --> 01:28:18,840
Speaker 3: three pairs. You can buy three pairs to the whole

1400
01:28:18,880 --> 01:28:21,200
Speaker 3: country together. There are certain number of pairs of shoes

1401
01:28:21,200 --> 01:28:25,080
Speaker 3: available at the moment, and the price is what's free

1402
01:28:25,120 --> 01:28:27,800
Speaker 3: to move up or down to equate the number of

1403
01:28:27,800 --> 01:28:30,520
Speaker 3: pairs of shoes people want to buy to the pair available.

1404
01:28:30,680 --> 01:28:34,840
Speaker 3: You try this out, and almost every proposition what's true

1405
01:28:34,880 --> 01:28:36,760
Speaker 3: for the country as a whole is the opposite of

1406
01:28:36,760 --> 01:28:39,400
Speaker 3: what's true for the individual. And that's equally true with

1407
01:28:39,520 --> 01:28:41,000
Speaker 3: the proposition you're presenting.

1408
01:28:42,960 --> 01:28:44,160
Speaker 9: Depends on who gets there.

1409
01:28:44,280 --> 01:28:48,760
Speaker 3: Yes, it does, it does very much, So thank you.

1410
01:28:50,240 --> 01:28:53,280
Speaker 1: If you like the Michael Berry Show in podcast, please

1411
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1412
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Speaker 1: website Michael Berryshow dot com. The Michael Berry Show and

1417
01:29:20,160 --> 01:29:24,120
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1418
01:29:25,560 --> 01:29:35,040
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1419
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1420
01:29:42,280 --> 01:29:46,760
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1421
01:29:46,800 --> 01:29:54,240
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1422
01:29:54,439 --> 01:29:58,000
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1423
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01:30:07,479 --> 01:30:13,280
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01:30:14,040 --> 01:30:17,800
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