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"Unexpected Lessons From Greenspan's Fed"The free market whipped inflation and
reduced unemployment once government got out of the way
Steve Chapman writes on the economic myths that produced
inflation and how the free market can solve it's own
problems.
Before they arrived, inflation was seen as the fault of undisciplined private markets. The idea was simple: Left to their own devices, workers demanded higher wages, and companies responded by raising prices, causing workers to demand still more, leading to even higher prices -- in an endless upward spiral that forced consumers to pay more and more all the time. Only the restraining hand of a benevolent government could break this cycle, as it tried to do under President Nixon's wage and price controls. Those turned out to be about as successful as the Hindenburg, but the failure didn't stop President Gerald Ford from urging Americans to join in a campaign to "Whip Inflation Now" by doing things like carpooling -- while vowing that the federal government would closely scrutinize all wage and price increases. Nor did it dissuade President Carter from maintaining price controls on oil and natural gas, which succeeded brilliantly, assuming the goal was to create shortages and chaos. It was Ronald Reagan, in his first inaugural address, who said, "In this present crisis, government is not the solution to our problem; government is the problem." But by then the Fed, under Volcker, had already recognized the crucial truth about inflation: It wasn't created by a greedy, short-sighted private sector, but inflicted on the private sector by the government's easy-money policies. What Nobel Laureate economist Milton Friedman had claimed for years was finally sinking in: "Inflation is always and everywhere a monetary phenomenon." And monetary phenomena, unlike union contracts, retail pricing decisions and world oil markets, are directly under the control of the Federal Reserve. I don't agree with all of his conclusions, but it is nice to see the free market finally get credit. Pun intended. 
Posted: Thu - October 27, 2005 at 05:10 AM
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 Pagan Vigil
Pagan philosopher, libertarian, and part-time trouble maker, NeoWayland watches for threats to individual freedom or personal responsiblity. There's more to life than just black and white, using only extremes just increases the problems.  My Thinking Blogger Nominees
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