Tape 6 - untitled
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- | Instructional Dynamics Incorporated | 0:02 |
welcomes you to this weekly series of commentaries | 0:04 | |
on the current economic scene. | 0:06 | |
Reporting to you will be | 0:08 | |
one of the nation's leading economists, | 0:09 | |
Professor Milton Friedman of the University of Chicago. | 0:11 | |
Dr. Friedman, why don't we begin this discussion | 0:16 | |
by having you give us, perhaps, | 0:18 | |
an idea of what the appointment of Professor Paul McCracken | 0:21 | |
as Mr. Nixon's Chairman of the Council of Economic Advisers | 0:26 | |
might mean as far as a clue to the Nixon economic policies? | 0:31 | |
- | Paul McCracken, as you probably know, | 0:35 |
was a member of the Council of Economic Advisers | 0:37 | |
during the Eisenhower Administration. | 0:40 | |
He's a professor at the School of Business | 0:42 | |
at University of Michigan. | 0:44 | |
His major fields of interest have been | 0:47 | |
monetary economics, broadly interpreted, | 0:49 | |
and also consumer economics. | 0:52 | |
He has been writing a column, a report, | 0:53 | |
for a group for some time now | 0:56 | |
on the prospects for consumer expenditures | 0:58 | |
based on survey data of the kind | 1:00 | |
that the Michigan Survey Research Center turns out, | 1:02 | |
and other organizations. | 1:04 | |
McCracken is an extremely able man, | 1:07 | |
I think it's an excellent appointment | 1:10 | |
so far as my judgment is concerned. | 1:12 | |
I think he shares very much in general policy views, | 1:14 | |
the policy view that has been expressed by Mr. Nixon | 1:17 | |
during his campaign, that is to say, | 1:20 | |
a view that the urgent priorities | 1:23 | |
are to contain inflation, | 1:24 | |
to improve the balance of payments, | 1:28 | |
and, so far as broad domestic policy is concerned, | 1:31 | |
to reduce the role of the Federal Government in the economy, | 1:35 | |
and as I think Paul can be counted on very much | 1:37 | |
to back up the Nixon approach | 1:40 | |
to trying to control government spending | 1:43 | |
and to pave the way for tax increases. | 1:46 | |
He's a very thoughtful fella | 1:49 | |
who is not likely to move sharply one way or the other | 1:51 | |
in response to momentary difficulties. | 1:54 | |
I think if one looks at the Council of Economic Advisers, | 1:57 | |
its character and role has been very different | 2:02 | |
in different administrations. | 2:05 | |
In general, in the Eisenhower Administration, | 2:07 | |
as a result largely of the role which Arthur Burns played, | 2:10 | |
in, when he came into the Council in 1963 | 2:18 | |
for President Eisenhower, | 2:21 | |
prior to that, I may say, there had been | 2:23 | |
a sharp decline in the prestige of the Council | 2:25 | |
because it had become very much involved | 2:27 | |
in the day-to-day political turmoil. | 2:29 | |
Arthur Burns undertook to make out of the Council | 2:32 | |
a largely non-political, academic, expert group | 2:36 | |
giving advice to the President, | 2:41 | |
but not getting itself involved | 2:43 | |
in day-to-day political battles. | 2:44 | |
He succeeded to an extraordinary extent. | 2:47 | |
One little example, | 2:49 | |
prior to his coming into the Council, | 2:50 | |
the Annual Report to the President, | 2:53 | |
the Annual Economic Report, had been a report | 2:55 | |
of the Council of Economic Advisers. | 2:58 | |
Arthur Burns led to a shift in that | 3:01 | |
so that the Council itself no longer made the report, | 3:02 | |
it wrote the report, but the report was issued | 3:05 | |
as a policy statement by the President of the United States, | 3:07 | |
and therefore its political aspects were the President's | 3:10 | |
and not the technicians' who were involved in working on it. | 3:12 | |
This role of the Council was maintained | 3:16 | |
throughout the Eisenhower years. | 3:20 | |
When, after Kennedy came in, | 3:23 | |
Walter Heller took over the Council, | 3:25 | |
you had a very sharp change in the character of the Council. | 3:27 | |
It became, once again, a political body. | 3:32 | |
For example, under Burns, he would not testify | 3:35 | |
in favor or against bills on Congress, | 3:39 | |
because he wanted to keep himself in the position | 3:41 | |
of being an adviser to the President | 3:43 | |
who was not himself a policymaker in the political scene. | 3:47 | |
Walter Heller did not follow this policy. | 3:52 | |
He very clearly did testify on various issues, | 3:54 | |
and he took a very much more political public role. | 3:57 | |
The Council never, never got back to the level | 4:01 | |
of being a merely political agency that it had, | 4:04 | |
under Leon Keyserling, prior to 1952, | 4:07 | |
when President Truman was in charge. | 4:13 | |
I may have said '62 before when I meant '52. | 4:18 | |
It never got to that, I'm inclined to say depths, | 4:21 | |
because, from my point of view, | 4:24 | |
it seems to me that the thing you really need | 4:25 | |
in the government is as body of people | 4:28 | |
who are speaking as experts and as technicians | 4:30 | |
who are giving the President | 4:32 | |
the best advice they possibly can, | 4:33 | |
who are not themselves involved | 4:35 | |
in day-to-day political struggling. | 4:36 | |
It never descended to the level | 4:38 | |
that it had been at under Keyserling, | 4:40 | |
but nonetheless it did become far more political. | 4:43 | |
It has had very able people connected with it, | 4:45 | |
some very good economists, | 4:48 | |
James Tobin, Art Okun, and others | 4:50 | |
have been connected with it, | 4:51 | |
and it's done some good economic work, | 4:52 | |
but nonetheless, it has been | 4:55 | |
an extremely activist political organization. | 4:57 | |
Also, it has greatly emphasized the notion | 5:00 | |
of very fine tuning, of keeping things | 5:02 | |
on an absolutely perfect precise state. | 5:04 | |
Under Paul McCracken, I think you will see the Council | 5:07 | |
resume the role of an expert, technical, non-political body. | 5:08 | |
He will stress that scientific and academic work, | 5:15 | |
its advice to the President. | 5:17 | |
His own temperament, is not likely to be one | 5:18 | |
that will engage in, that will try to overdo fine tuning. | 5:21 | |
In speeches and talks that he has given, | 5:25 | |
he has indicated that. | 5:27 | |
On another front, the Councils, | 5:29 | |
the most recent Council, the Heller Council, | 5:32 | |
and the Ackley Council, and the Okun Council, | 5:34 | |
all three of the chairmen in the past eight years, | 5:36 | |
have been people who have put enormous stress | 5:40 | |
on fiscal policy and have tended to put | 5:42 | |
very, very little stress on monetary policy. | 5:44 | |
Now in recent years, as there's been a change | 5:46 | |
in general economic and professional opinion, | 5:48 | |
they've been talking more about monetary policy. | 5:51 | |
But nonetheless, their first line of defense | 5:52 | |
has been throughout fiscal policy. | 5:55 | |
In many speeches and talks which Paul McCracken has made, | 5:57 | |
he has presented a very much more balanced point of view. | 6:00 | |
He has not gone so far as, for example, I have, | 6:03 | |
in denigrating the importance of fiscal policy | 6:06 | |
from the point of view of the fluctuations in the economy, | 6:09 | |
but he has certainly assigned a far greater importance | 6:12 | |
to monetary policy and changes in the quantity of money | 6:14 | |
than have the members of the Kennedy-Johnson Council. | 6:18 | |
So, to summarize that, I think you will see under Paul | 6:23 | |
a resumption of a more academic, non-political approach. | 6:26 | |
You will see less emphasis on fine-tuning. | 6:32 | |
You will see more emphasis on monetary policy. | 6:35 | |
You will see much more emphasis | 6:39 | |
on the role of free markets, private enterprise, | 6:41 | |
in an efficient allocation of resources in the country. | 6:44 | |
- | You mentioned, Dr. Friedman, that Professor McCracken | 6:48 |
will help Mr. Nixon pave the way toward higher taxes. | 6:50 | |
Do you expect higher taxes? | 6:54 | |
- | I'm sorry. | 6:55 |
Did I say higher taxes? | 6:56 | |
Well, then, I'm glad you caught me, | 6:57 | |
'cause I meant lower taxes! | 6:58 | |
Of course! | 7:00 | |
We are, unfortunately, we've been having | 7:01 | |
nothing but higher taxes, | 7:03 | |
but, no, Mr. McCracken, like Mr. Nixon, | 7:04 | |
is strongly in favor of holding down | 7:08 | |
the rate of growth of government spending | 7:10 | |
as a way to getting lower taxes. | 7:13 | |
Thank you very much for catching me on that slip. | 7:15 | |
- | I'm sure our listeners are probably happy, too. | 7:18 |
- | I suppose so. | 7:21 |
- | Dr. Friedman, the question of inflation is one | 7:23 |
which is on everyone's mind and I'm sure, | 7:26 | |
we'd like to find out from you, | 7:30 | |
what the prospects are of the Nixon Administration | 7:32 | |
controlling inflation in the years ahead. | 7:35 | |
- | Well, I promised a number of weeks back that I was gonna | 7:37 |
talk about the problem of inflation as it faced | 7:39 | |
the Nixon Administration and I think that is | 7:42 | |
a good topic to get onto. | 7:44 | |
It never loses its topicality, certainly not when | 7:47 | |
you have just had another report from the BLS, at the rate | 7:51 | |
of increase of consumer prices in the past month, | 7:55 | |
was at an annual rate of over 7% a year. | 8:00 | |
Now, of course, one mustn't put too much | 8:02 | |
emphasis on one month's figures. | 8:05 | |
Just before the election there was, with great fanfare, | 8:06 | |
a release that inflation was being tapered off | 8:09 | |
and everything was under control because for one month, | 8:12 | |
the rate of price inflation was 3.8%. | 8:15 | |
I think that was the number, maybe it was 3.5, | 8:18 | |
it was somewhere around three to 4%. | 8:20 | |
And now in one month it goes up to 7%, you have to average. | 8:22 | |
But if you take the past three or four months as a whole, | 8:25 | |
the rate of inflation of consumer prices has been | 8:28 | |
somewhere above 5% per year, which is a pretty sizeable | 8:30 | |
and shocking rate of price inflation. | 8:34 | |
Now, the problem, I think, of inflation, | 8:38 | |
is not how to stop it, that's easy, there's nothing hard | 8:42 | |
about stopping an inflation, you can always stop it any time | 8:46 | |
you want to simply by not printing any more money. | 8:49 | |
That seems like an oversimplified statement but, | 8:52 | |
it really isn't. | 8:54 | |
If you were to keep the quantity of money absolutely stable, | 8:56 | |
just take an extreme example, | 8:59 | |
within six months I have no doubt that you would | 9:01 | |
have had a major impact on slowing down the rate | 9:04 | |
of price inflation. | 9:06 | |
We have numerous examples from history that are kind of | 9:07 | |
amusing and interesting in this way, which shows how | 9:10 | |
clear the connection is between substantial increases | 9:14 | |
in prices, on the one hand, and substantial increases in | 9:18 | |
the quantity of money. | 9:22 | |
One of the examples from history | 9:23 | |
that always amuses me occurred during the Civil War | 9:24 | |
between the North and the South over a century ago. | 9:27 | |
At one point during the Civil War, | 9:30 | |
the place where the Confederates in the South | 9:33 | |
had been printing their paper money, | 9:37 | |
was overrun by the northern troops. | 9:39 | |
And it took 'em about two weeks to move the printing presses | 9:41 | |
from that place to another place and so for that | 9:44 | |
two week period, they stopped printing money. | 9:46 | |
And lo and behold, prices, which has been rising | 9:48 | |
at the rate of something like, if I remember rightly, | 9:51 | |
5% a month, not a year, but a month, | 9:53 | |
tapered off and for a few weeks they stopped rising | 9:59 | |
and you had stable prices. | 10:01 | |
Another dramatic example that has always amused me, | 10:03 | |
occurred during the Russian hyperinflation after World War I | 10:06 | |
when you had the Bolsheviks come in and they started | 10:10 | |
to print the Russian currency called the Chervonets, | 10:13 | |
I think it was, something like that, | 10:16 | |
I've forgotten the exact name. | 10:17 | |
And of course, and has happens in many such cases, | 10:21 | |
they had a really runaway inflation, | 10:23 | |
one of the kinds of things you had | 10:25 | |
in Germany after World War I. | 10:26 | |
But at the same time, they were circulating | 10:28 | |
some Tsarist money, paper money. | 10:30 | |
There was no Tsarist government, there was no prospect | 10:33 | |
that you were gonna have Tsars come back into power. | 10:35 | |
But as a result also, there was nobody around | 10:38 | |
to print anymore money. | 10:40 | |
And so it turned out that people started using the | 10:41 | |
Tsarist currency as money instead of the Bolshevik money. | 10:43 | |
And it retained its value, prices in terms of | 10:47 | |
the Tsarist money did not rise, while prices | 10:49 | |
in terms of the Bolshevik money kept going up like mad. | 10:52 | |
So I think there is no doubt that, | 10:55 | |
if you simply stopped printing money, | 10:58 | |
you would bring the inflation to a halt. | 11:01 | |
The problem is, what else you would do. | 11:04 | |
The problem is not how to stop inflation. | 11:07 | |
The problem is how to stop inflation in a way | 11:09 | |
which minimizes the other costs associated with it. | 11:12 | |
Because if you tried to adopt the brutal tactic | 11:15 | |
of simply stepping hard on the monetary break | 11:19 | |
and refraining from increasing any money anymore, | 11:22 | |
quantity of money, which you could do, | 11:25 | |
technically speaking it's perfectly possible. | 11:27 | |
Let me point that in 1966, for one definition of money, | 11:29 | |
currency plus demand deposits, a narrow definition of money, | 11:35 | |
the Federal Reserve System did bring the growth | 11:38 | |
and the quantity of money completely to a halt. | 11:41 | |
In fact produced a slight decrease in the quantity of money, | 11:43 | |
from April 1966 to about November or December 1966, | 11:46 | |
six or seven month period. | 11:53 | |
And of course that was followed by a tapering off | 11:54 | |
of the inflation. | 11:57 | |
It was followed, in the first six months of '67, | 11:58 | |
by an economic slowdown and by a distinct | 12:01 | |
reduction of the rate of price rise. | 12:03 | |
Or again, from 1959 to '60, the Federal Reserve | 12:07 | |
produced a slight decline, a more substantial decline | 12:11 | |
as a matter of fact, in the rate of growth | 12:15 | |
of currency plus demand deposits, | 12:17 | |
the narrow definition of money. | 12:19 | |
Indeed that, in my opinion, is one of the major reasons | 12:20 | |
why Mr. Kennedy was elected in that election | 12:23 | |
rather than Mr. Nixon. | 12:25 | |
So it's perfectly possible, technically, | 12:28 | |
to produce such as sharp reduction. | 12:30 | |
But if you produce such a sharp reduction, | 12:33 | |
if you kept it there, then you would also | 12:35 | |
produce a very significant slow down in the rate | 12:40 | |
of economic activity. | 12:42 | |
You would also, if you held it long enough to stop | 12:43 | |
prices from rising, you'd produce a very severe recession | 12:45 | |
and a substantial rise in unemployment. | 12:48 | |
It would not be a permanent recession. | 12:51 | |
It would not be a permanent rise in unemployment. | 12:53 | |
What would happen is, that unemployment would rise, | 12:55 | |
you would have a recession until people stopped | 12:58 | |
expecting continued inflation. | 13:02 | |
The problem, the reason you would have the recession, | 13:04 | |
is because price rises and inflation | 13:06 | |
have a momentum of their own, inertia, force. | 13:10 | |
Right now, people are making arrangements | 13:14 | |
for prices that will be paid four, five, six, seven, | 13:16 | |
eight, nine, 10 months from now, | 13:20 | |
when for example, employers and employees | 13:21 | |
are negotiating union contracts. | 13:24 | |
When Sears Roebuck is printing its catalog, | 13:26 | |
when businessmen in general all over are printing up | 13:28 | |
price lists to distribute, | 13:32 | |
everybody is setting prices which will actually | 13:33 | |
cover transactions to be made | 13:37 | |
six, seven, eight, nine months from now. | 13:39 | |
In setting those prices, people have to know | 13:41 | |
not only what's going on now, | 13:43 | |
they have to make some forecast of what will happen | 13:45 | |
over the next year. | 13:47 | |
As of today, everybody, without exception, | 13:48 | |
takes it for granted that prices in general | 13:51 | |
are going to rise. | 13:54 | |
As a result, when trade union contracts are negotiated, | 13:55 | |
both the employer and the employee | 13:58 | |
expecting prices to rise are willing, | 14:01 | |
will settle on a, that is the employer will be willing | 14:03 | |
to grant, and the employee will demand, | 14:06 | |
a higher pay rise than he otherwise would. | 14:09 | |
So those increases in pay are built into the picture. | 14:12 | |
Similarly, when Sears Roebuck is making out its catalog, | 14:17 | |
or other prices sellers, they are allowing | 14:20 | |
for the fact that they anticipate that prices | 14:22 | |
in general will rise. | 14:24 | |
Let me, just as a footnote here, | 14:26 | |
note that this phenomenon is often interpreted | 14:29 | |
as a cause of inflation and the cost push notion. | 14:32 | |
But it really isn't, it's just a reflection of it. | 14:35 | |
It's just an after effect of inflation. | 14:37 | |
It's because you've been having inflation | 14:39 | |
fueled by increasing quantities in money, | 14:40 | |
the prices have been going up, | 14:42 | |
this leads people to anticipate that they will continue | 14:44 | |
to go up, this leads them to make contracts in those terms. | 14:46 | |
This means that even though you stop pouring in fuel, | 14:50 | |
even though you stop printing more money, | 14:53 | |
the price rise would continue for some time. | 14:56 | |
And because it would continue for some time, | 14:58 | |
it means, yet if you stop pouring in the fuel, | 15:01 | |
the price rise would continue. | 15:03 | |
But the fuel wouldn't be there for total income payments, | 15:05 | |
total expenditures to go up. | 15:08 | |
But those total expenditures aren't gonna go up rapidly, | 15:10 | |
but prices are going to continue going up. | 15:13 | |
The only way that can find its outlet | 15:16 | |
is by unemployment going up or by output going down, | 15:17 | |
on the other side of that. | 15:21 | |
So, the problem is, given that if you stop and if you | 15:23 | |
step on the monetary brake very rapidly, | 15:29 | |
you will slow down inflation, but you will also | 15:32 | |
have a great tendency to produce unemployment in recession. | 15:35 | |
Which, as I say, would not be permanent | 15:39 | |
because after people adjust themselves | 15:40 | |
to the new state of affairs, they would start negotiating | 15:42 | |
prices and wages on the new basis, | 15:44 | |
and then you would resume employment. | 15:46 | |
Given that that's the case, the question that arises, | 15:49 | |
how do you turn that around? | 15:51 | |
How can you minimize that cost? | 15:53 | |
I don't think there's any way you can avoid the cost. | 15:55 | |
The policies of the last five or six years, | 15:58 | |
which have instilled this inflationary expectation | 16:00 | |
in the public at large, means, it seems to me, | 16:04 | |
that there is no way in which you can | 16:07 | |
really taper off inflation without incurring | 16:09 | |
some of these transitional costs of unemployment | 16:12 | |
and lower output. | 16:18 | |
But the question is, how can you minimize it? | 16:18 | |
Now, the answer to that is | 16:21 | |
it has to be approached, I think, | 16:24 | |
from several different directions. | 16:25 | |
The first and most obvious thing | 16:27 | |
is that it would well to do it in a gradual way | 16:29 | |
and not sharply. | 16:37 | |
And better than to try to go from a 5% current rate | 16:38 | |
of inflation to a 0% rate of inflation | 16:43 | |
is like trying to bring a car to a screeching halt | 16:46 | |
when you've got lots of room in front of you | 16:49 | |
and you might as well slow it down gradually. | 16:51 | |
Although people widely anticipate inflation, | 16:53 | |
in general, their anticipations do not match | 16:56 | |
what is actually going on. | 16:59 | |
Currently, prices are rising 5% per year. | 17:01 | |
The general expectation is probably | 17:05 | |
something more nearly 2 1/2% per year. | 17:07 | |
How can I say that, what gives me reason to believe that? | 17:10 | |
Well, one of the ways in which you can measure | 17:12 | |
the anticipation, where you can see it, | 17:15 | |
where you can get it out of numbers, is in the bond market. | 17:17 | |
If the interest rates on longterm, high grade | 17:21 | |
corporate bonds are now about 6 1/4 to 6 1/2% per year. | 17:24 | |
That's a nominal interest rate, | 17:29 | |
that's an interest rate in dollars. | 17:30 | |
In terms of the current rate of price inflation of 5%, | 17:32 | |
that would mean a real interest rate | 17:35 | |
of about 1 1/4 to 1 1/2%. | 17:38 | |
Now a real interest rate of 1 1/4 to 1 1/2% | 17:41 | |
is very much lower than real interest rates typically are | 17:44 | |
or have been over a long period. | 17:47 | |
And the only way you can reconcile those figures | 17:49 | |
is to say, well people are not anticipating 5%. | 17:51 | |
How much are they anticipating? | 17:54 | |
Well, the way to get that is to ask, | 17:56 | |
what is a reasonable real interest rate? | 17:57 | |
What if you take the average of the last | 18:00 | |
hundred or two hundred years, | 18:01 | |
have real interest rates averaged? | 18:02 | |
I don't have a precise number, but I've looked | 18:05 | |
at those figures and I would say | 18:07 | |
somewhere between three and 4%, perhaps closer to 4% | 18:09 | |
for this kind of a security is a reasonable real rate. | 18:12 | |
Well, if the actual nominal rate | 18:16 | |
is 6 1/4, 6 1/2, | 18:18 | |
if 3 1/2, 4% is a reasonable real rate, | 18:20 | |
this implicitly means, this implies if you subtract | 18:24 | |
the one from the other, that the market as a whole | 18:26 | |
is anticipating a rate of inflation | 18:29 | |
is acting as if an expected rate of inflation | 18:31 | |
of about 2 1/2 to 3% per year. | 18:33 | |
Well if that's true, if that applies to wage | 18:37 | |
contracts, and so on, it means that slowing down | 18:39 | |
the rate of monetary growth so as to bring | 18:43 | |
the inflation rate from 5% down to something like | 18:44 | |
2 1/2, 3%, will not involve | 18:48 | |
overdoing it very much, or at all. | 18:50 | |
There will still be some people who will be affected, | 18:53 | |
but on the whole, that oughta be consistent | 18:55 | |
with present expectations. | 18:57 | |
And so I would say that the right approach | 18:59 | |
is to aim to bring that rate of inflation | 19:00 | |
from something like the present 5% | 19:04 | |
to something like about 3% next year. | 19:09 | |
And then gradually over a period of time | 19:11 | |
move it that way, and then that way | 19:14 | |
you'll have at least a chance of altering people's | 19:15 | |
anticipations in a gradual way without a sharp shock. | 19:18 | |
That's one part of the picture. | 19:21 | |
Even so, if that's all you did, | 19:22 | |
it is inconceivable to me that you could do that | 19:27 | |
without temporarily having some increase in unemployment. | 19:29 | |
So you turn to the other side of the picture. | 19:33 | |
The other side of the picture is that | 19:36 | |
the unemployment figure everybody looks at | 19:39 | |
that's published in the newspapers every day, | 19:42 | |
that makes the headlines every month when it's released, | 19:45 | |
3.7%, 3.8%, 3.6%, a change of 1/10 of one percentage point | 19:48 | |
in that number is greeted with bated breath | 19:54 | |
like the results of the Rose Bowl game at least, | 19:57 | |
or maybe even more important than that though. | 19:59 | |
For some people, that's a hard one to believe. | 20:01 | |
But in fact, that number, which is trumpeted | 20:05 | |
so widely is a meaningless number. | 20:07 | |
And it's in the image that somebody once used | 20:10 | |
in talking about index numbers, | 20:12 | |
it's adding up horses and apples. | 20:15 | |
Here you have, if you look at the figures | 20:18 | |
and break it down, you find that it includes | 20:20 | |
on the one hand such a group as white, married | 20:23 | |
heads of households, males, who are heads of households, | 20:27 | |
married men, among whom the unemployment rate | 20:30 | |
is something under 1 1/2%. | 20:33 | |
On the other side of the picture, it includes | 20:36 | |
Negro male teenagers, that is Negro boys aged 16 to 19, | 20:38 | |
or maybe it's 15 to 19, I'm not sure what | 20:46 | |
the exact cutoff point is. | 20:48 | |
Among this group, the unemployment rate | 20:49 | |
is something over 25%. | 20:51 | |
So that 3.7%, 3.8% is an average | 20:54 | |
of this 25% among this group on the one hand, | 20:58 | |
and the 1.45% on the other. | 21:01 | |
If you look at regular employees in the labor force | 21:04 | |
who have been unemployed for 27 weeks or more, | 21:07 | |
sort of the hardcore unemployed, | 21:10 | |
you find that they amount to a fraction of 1%. | 21:12 | |
If you look at women, you'll get another answer. | 21:15 | |
If you look at unskilled, you'll get another answer. | 21:17 | |
And I think the other approach, | 21:20 | |
the approach that must be combined | 21:22 | |
with a gradual tapering off, is to get behind | 21:24 | |
the overall global unemployment figure | 21:28 | |
and look at the details of it. | 21:31 | |
And when you look at the details of it, | 21:33 | |
you see that a strategy that would make sense | 21:34 | |
would be to try to combine a tapering off | 21:39 | |
of inflationary pressure with a range of measures | 21:42 | |
designed to reduce the unemployment | 21:45 | |
among the fringe groups, among the high unemployment | 21:48 | |
structural disadvantage groups in such a way | 21:51 | |
that, put it figuratively, you might see | 21:54 | |
the 1 1/2% or the 1.4%, whatever it is | 21:57 | |
for the married heads of households, | 22:00 | |
go up perhaps to 2%, while the 25% for the Negro | 22:02 | |
male teenagers came down maybe to 15%, | 22:06 | |
and the average as a whole might show almost no change. | 22:09 | |
But yet, that absence of change would conceal | 22:13 | |
a great easing of the labor market. | 22:16 | |
It would be an easing of the labor market | 22:18 | |
because you would have the pressure taken off | 22:20 | |
of the main body, and you would also have | 22:21 | |
the new employees coming in from the fringe groups | 22:24 | |
who would be available. | 22:26 | |
Well, the question, is how do you achieve that? | 22:28 | |
- | I was just about to ask that. | 22:31 |
- | I can well imagine you would | 22:33 |
because there's no magic formula. | 22:34 | |
And I think the way you achieve it is by | 22:36 | |
going back and asking yourself, | 22:38 | |
why are there these high unemployment rates | 22:40 | |
among these disadvantaged special groups? | 22:42 | |
Now I think the answer there is clear. | 22:45 | |
The main reason you have such high unemployment groups | 22:48 | |
is because of governmental measures which have impeded | 22:50 | |
the working of the labor market in that area. | 22:54 | |
What would be, if it's been produced by government measures, | 22:56 | |
you oughta be able to back off. | 23:00 | |
Now, what are the governmental measures | 23:01 | |
that have been producing that result? | 23:03 | |
Most obvious is, of course, the minimum wage rate. | 23:07 | |
When the minimum wage rate, | 23:11 | |
the final step of the minimum wage rate | 23:12 | |
to $1.60 an hour went in last year, | 23:13 | |
in the month thereafter, the unemployment rate | 23:18 | |
among Negro male teenagers jumped up to something over 30%. | 23:20 | |
It was a drastic increase. | 23:24 | |
And there is no doubt, if you look at the evidence, | 23:26 | |
which is massive, over the past 30 or 40 years | 23:28 | |
ever since we started minimum wage rates in the '30s, | 23:32 | |
every time, almost without exception, | 23:35 | |
that there has been an appreciable increase | 23:38 | |
in the minimum wage rate, | 23:40 | |
there has accompanied or followed that | 23:42 | |
an appreciable increase in unemployment among | 23:44 | |
the low-skill, low-wage groups such as the Negros | 23:48 | |
in the cities, the women, the unskilled, and so on. | 23:51 | |
Now, that rate has come down already from 30 to 25. | 23:54 | |
Why? | 23:57 | |
Because $1.60 doesn't mean the same thing today | 23:58 | |
that it meant when it went into effect. | 24:03 | |
In the meantime, prices in general have risen 4%, | 24:05 | |
so $1.60 is really only $1.53 | 24:08 | |
in terms of the prices of a year ago. | 24:12 | |
In the second place, we have a general rise in productivity, | 24:15 | |
so that the real wage of other people have gone up, | 24:19 | |
hence, the minimum wage rate of $1.60 is lower | 24:22 | |
relative to the average wage rate than it was at that time. | 24:26 | |
I think it is almost impossible, politically. | 24:31 | |
I'm sorry to say, I wish it were otherwise | 24:35 | |
because I think the minimum wage rate is one of the most | 24:37 | |
anti-Negro laws that we have on the books of this country. | 24:39 | |
But I think it's almost impossible, politically, | 24:43 | |
to get rid of it. | 24:45 | |
However, what I think is feasible politically | 24:46 | |
and what could be part of a combined strategy | 24:49 | |
of the kind I'm outlining, what is feasible politically | 24:51 | |
is to keep it from going up, to hold it, | 24:54 | |
and not enact any increases. | 24:57 | |
Now if you did this, the continued rise in prices, | 24:59 | |
'cause I've said you're not gonna go from five to zero, | 25:02 | |
you may go from five to three if you do well. | 25:05 | |
But that continued rise in prices, | 25:07 | |
plus the continued rise in productivity, | 25:14 | |
would in effect, erode away the influence | 25:17 | |
of the minimum wage rate, and reduce | 25:20 | |
that particular obstacle to unemployment. | 25:23 | |
Now there are other obstacles, but I guess | 25:27 | |
our time is up and we'll have to go on to the rest | 25:29 | |
of these obstacles and what measures government | 25:31 | |
might take on this selective attack | 25:35 | |
on unemployment and inflation, | 25:37 | |
we'll have to go on to that on our next week's tape. | 25:39 | |
- | Thank you very much, Dr. Milton Friedman. | 25:43 |
If you have questions or comments or suggestions | 25:45 | |
for topics you'd like to have discussed in this series, | 25:48 | |
please send them to: | 25:50 | |
Instructional Dynamics Incorporated, | 25:51 | |
166 East Superior Street, | 25:53 | |
Chicago, Illinois, 60611. | 25:56 |
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