In the past few years there has grown up a large group of young economists who have accepted the theoretical doctrines of the Keynesian Revolution and who have come into national prominence through their support of an economic policy of full employment.
From Keynes' point of view the economic system, before the war failed in its solution of the unemployment problem
People say monetary policy is easy and quick to implement. It can even be done overnight on the telephone, they say fiscal policy drags out in political and congressional debate in our country. It might take months to implement. But the point is that once fiscal policy is implemented, it might go to work much faster than monetary policy.
I think the Kennedy-Johnson tax cut was a marvelous success in 1964. It was too bad it was not implemented a little sooner, and Kennedy died, of course. After that, Johnson dallied for a while about raising taxes to pay for the war in Vietnam. The stimulus did not get reversed until the tax increase and expenditure cap of 1969, and that had a quick effect once it was enacted. As you know, we had a recession in 1969–1970.
There are many reasons there was higher inflation in the 1970s. But that is a complicated story that deals with much more than tax policies.
Balancing fiscal and monetary policies is a problem. If you do just one thing, it is not necessarily enough—neither monetary policy alone nor fiscal policy alone, and neither tax cuts nor expenditure increases alone. You need to mix policy. By having the right balance, you can get high employment and stable prices.
I believe that monetary policy has a chronic defect. It is asymmetric—it works better in restraining an economy than in stimulating an economy.
You can lead a horse to water, but you cannot make him drink. Or monetary policy is pulling on a string when the economy is strong. That works. But when the economy is weak and you are cutting interest rates, it can be like pushing on a string. It does not work as well.
At the beginning of a decade it is tempting to look ahead for the next ten years.
The centrally planned economics used to consider themselves well insulated against the economic ills of the rest of the world. This is no longer the case.
Although I was not aware of it at the time, the experience of growing up during the Great Depression was to have a profound impact on my intellectual and professional career.
I have always believed that people have misjudged the accuracy of economic forecasting... During the 1980s and 1990s, I researched and applied methods of high frequency economic forecasting, to be used by themselves, and for objective establishment of initial conditions for longer range forecasts from structural dynamic models that carry forward the pioneering contributions of Jan Tinbergen.