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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: bart13 who wrote (68570)8/21/2006 8:32:32 AM
From: Tommaso  Read Replies (2) of 110194
 
You are correct. I should have said that the rate of inflation declined from 1980 onwards. Inflation was very high in 1980, and prices for comparable items have increased almost 150% since then. As someone who had to pay private college tuition for a child 1996-2000, and who had to pay for exterior home renovations after that (which cost twice what I had paid for the entire house and two lots in 1977), I am acutely aware of inflation.

I used to be a totally convinced Friedmanite. I read his and Anna Schwartz's "Monetary History of the United States" twice back in the 1970s, and some parts of it more than that. I still admire and respect him as an economist. But in practice, world production overtook monetary increases from about 1985 to 2000, and the increased productivity held down inflation.

At the beginning of that period, I was convinced, by studying monetary figures (and for years I received the weekly and monthly publucations of the Federal Reserve Ban of St. Louis) that inflation rates of 10% per year were going to continue. I invested accordingly. The results were extremely poor.

I therefore realized that there was something wrong with Friedman's reduction of everything economic to money supply figures.

I suspect that his simplistic formula was aimed squarely at Keynes's memorable assertion, "Money does not matter." I will still line up any time on Friedman's side, but I learned the hard way that he was waging a campaign as much as he was pursuing a dispassionate study of economics. I think Paul Volcker knew exactly how seriously to take Friedman, and sometimes Volcker did not take him all that seriously.
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