Despite the prolonged existence of idle plant and heavy unemployment among a literate, trained labour force, the United States seems unable to mobilize these resources to rebuild our decaying cities, to revitalize mass transit, to regenerate clear air and waterways, and so on. Why are we so impotent? Conventional wisdom suggests that any mobilization of idle resources for a war on such things as decay, pollution, poverty will require either additional government expenditures or private sector tax cuts. This means huge deficits financed by increasing the quantity of money which, monetarists claim, can only fuel the fires of inflation. Until we tame the dragon of inflation, we are told, these projects - no matter how desirable - must wait. Conventional wisdom says we must stoically accept tight money and stringent constraint on governmental spending for many years (the long run?) if inflation is to be stopped.
KeywordsMonetary Policy Federal Reserve Money Supply Rational Expectation Restrictive Policy
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