“I believe what we did, what economists in general have done, was to overestimate how hard it is to maintain a stable price level. We've all worked on getting rules, my money rule and others, supposedly it's such a hard job to keep prices stable. Then along comes the 1980s, and central banks all over the world target price stability; and lo and behold, all of them basically succeed, there are no failures that I know of. So it must be that that is easier to do than we thought it was. The basic problem of central banks was not to maintain full employment—that was the wrong objective. That was their major objective from 1945 to 1980. Once they really understood that avoiding inflation, keeping prices stable, was their real objective, their first order objective, and put that above everything else, they all turned out to be able to do it.”
"Agreeing to Disagree: Robert Kuttner speaks with Milton Friedman", The American Prospect (5 January 2006).
http://www.prospect.org/web/printfriendly-view.ww?id=10764
Milton Friedman (1912–2006) was an American Nobel Laureate economist and professor of economics at the University of Chicago. He is best known among scholars for his theoretical and empirical research, especially consumption analysis, monetary history and theory, and for his demonstration of the complexity of stabilization policy. Robert Kuttner is co-founder and editor-in-chief of The American Prospect, which was created in 1990 as "an authoritative magazine of liberal ideas."
For the moment, the concern of American economic policy is recession and the possibility that continuing financial turmoil will weigh on the economy over the course of the next year or two. There is also unease about the effects of the large internal and external imbalances that describe the economy on its longer-term potential for growth. The prospects for over the short- and the long-term are not all that good.
Even more troublesome are what appear to be rising inflationary pressures in today’s economy. The Fed has been focused on what it fears is a weakening economy and a collapsing financial system. It seems to have lost its fear of inflation. I, for one, keeping in mind what Milton Friedman said above, do not regard this as wise and wish they would pay more attention to the disturbing tendency for inflation to creep up on us.
On debate between Kuttner and Friedman, Larry Willmore comments, “There is much more in this wide-ranging debate, which is not much of a debate since RK is no match for MF. Despite his advanced age [at the time], Milton Friedman [was] in superb form.”
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