Monetary Policy and the Outlook for 1983

Adopting a restrictive policy to reduce inflation and being willing to stick with it even in a long and deep recession is not evidence that it will be successful. The test of whether a long-run anti-inflation policy will be maintained does not occur until the subsequent expansion gets underway. If excessive prior stimulus is what tends to make recessions unavoidable, then we have to go along with Hayek's warning that the only time to fight recession is during the previous expansion. Also following Hayek, if we assert the "inherent resiliency" of an economy based on private property and relying on market forces, then we must reject both the desirability and necessity of "stimulus" to get the economy going again. In this context, the rationalizations from Washington of the recent monetary explosion are troubling. The argument that faster monetary growth is not potentially inflationary because of the "slack" that currently exists must be rejected