The Politics of Myopia and Its Ideology

The last twenty years offer remarkable evidence about the irrelevance of some political labels. The drift into permanent inflation, initiated by a "liberal" Administration under President Johnson, was continued under three "conservative" Administrations. The drift in our budget "policies" even gained momentum under the current conservative Administration. President Reagan was elected on his promise to cope with inflation and the increasing burden of government. We may reasonably believe that Presidential-Candidate Reagan understood the basic economic nature of both problems. We may also reasonably believe that his understanding was matched by a sincere conviction about the required course of our monetary and budget policies. Still, two and a half years after the President's inauguration his program vanished in a limbo of political oblivion. It actually died, after some successes, already last year. There occurred one outstanding success. The reduction of inflation from a rate above 10% p.a. to about 4% p.a. in the first half of 1983 was a noteworthy achievement. The Federal Reserve Authorities deserve full recognition on this count. They managed to lower monetary growth from 1979 to 1982 by more than half. By July 1982 monetary growth measured year over year sank to 4.5% p.a. Few observers expected in the early months of 1981 such a rapid response of inflation to monetary retardation