If companies could raise prices, then inflation would follow. But it is being widely reported that there is a great deal of resistance to price hikes. Companies will be forced to increase productivity in some way to meet demand, or they just won't be able to meet it. Other companies will meet it or growth will slow. That, surely, is what the business cycle in its purest sense is all about.
What the Fed want to do, it seems to me, is to engineer a business cycle through higher rates. That is classic Fed behavior. But it is this behavior that makes the cycles worse than they should be. Or, at least, that is why I am throwing out as a hypothesis for discussion.
It isn't original--it is Uncle Miltie's (Friedman, that is), who proposed doing away with the Fed and having a computer increase the money supply 2% per year come hell or high water so that it would be completely predictable, and business could count on it. This, he said, would make planning and forecasting much easier and more accurate, and would really take the politics out of the money supply (which, he suggested, was why it would never be done). |
