Word: okun
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Dates: during 1970-1979
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Clearly, the Fed's efforts to get a grip on the money supply have come not a moment too soon. Liberal Economist Arthur Okun, who was chief economic adviser to Lyndon Johnson, is a consistent critic of fighting inflation with tight money, which inevitably slows economic growth and raises unemployment. Yet Okun says. "The Fed had to do something. It simply could not let those huge credit flows continue...
...ARTHUR OKUN: "Sometimes I understand this economy and sometimes I don't," laments Okun, senior fellow of the Brookings Institution in Washington, D.C. "I was dead wrong," he admits, in expecting unemployment to go up in September. Instead it dropped, indicating that the economy was far more resistant to a downturn that might check price boosts than had been supposed. Consequently, though Okun is usually vehemently opposed to a policy of relying primarily on money-supply policy to combat inflation, he proclaims himself "not horrified" by Volcker's actions. Okun fears that "interest rates could become so unstable...
...quick and dirty" solution that would include draconian measures. Says Grove: "The ideal program would be very sharp fiscal and monetary policies buttressed at the outset by wage and price controls. The controls would be cosmetic, to convince people that the program is really going to work." Okun scorns this as the "trillion-dollar cure," meaning that it would cost the nation that much in lost production. He believes that such a solution would be "disastrous" because "it would have broad ramifications on the confidence in our whole institutional structure that would resurrect the darkest days of the 1930s...
Democrat Arthur Okun complains that the Fed has lost much of its control over credit policy as a result of innovations, such as money market certificates and mortgage-backed securities, that are designed to keep banks and thrift institutions flush with funds for home loans. Says Okun: "Money is easy but expensive, and nobody is saying no to any borrower. They're saying, 'The price is high. Won't you take...
...been reached, but the road down will be slow. David Grove, a private consultant and former chief economist for IBM, foresees a 1980 inflation rate of 9.5%, or double the level of only three years ago. Says he: "Inflation will continue as long ahead as we can see." Okun maintains that the latest surge of inflation has placed the economy on a higher price plateau, where it will stay for years to come. Even after the recession is over, he predicts, prices will be increasing by 8% annually...