# NAIRU

NAIRU is an acronym for non-accelerating inflation rate of unemployment,[1] and refers to a level of unemployment below which inflation rises. It was first introduced as NIRU (non-inflationary rate of unemployment) by Franco Modigliani and Lucas Papademos in 1975, as an improvement over the “natural rate of unemployment” concept,[2][3][4] which was proposed earlier by Milton Friedman.[5]

Monetary policy conducted under the assumption of a NAIRU involves allowing just enough unemployment in the economy to prevent inflation rising above a given target figure. Prices are allowed to increase gradually and some unemployment is tolerated.

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## Origins

An early form of NAIRU is found in the work of Abba P. Lerner (Lerner 1951, Chapter 14), who referred to it as “low full employment” attained via the expansion of aggregate demand, in contrast with the “high full employment” which adds incomes policies (wage and price controls) to demand stimulation.

The concept arose in the wake of the popularity of the Phillips curve which summarized the observed negative correlation between the rate of unemployment and the rate of inflation (measured as annual nominal wage growth of employees) for number of industrialised countries with more or less mixed economies. This correlation (previously seen for the U.S. by Irving Fisher) persuaded some analysts that it was impossible for governments simultaneously to target both arbitrarily low unemployment and price stability, and that, therefore, it was government’s role to seek a point on the trade-off between unemployment and inflation which matched a domestic social consensus.

During the 1970s in the United States and several other industrialized countries, Phillips curve analysis became less popular, because inflation rose at the same time that unemployment rose (see stagflation).

Worse, as far as many economists were concerned, was that the Phillips curve had little or no theoretical basis. Critics of this analysis (such as Milton Friedman and Edmund Phelps) argued that the Phillips curve could not be a fundamental characteristic of economic general equilibrium because it showed a correlation between a real economic variable (the unemployment rate) and a nominal economic variable (the inflation rate). Their counter-analysis was that government macroeconomic policy (primarily monetary policy) was being driven by a low unemployment target and that this caused expectations of inflation to change, so that steadily accelerating inflation rather than reduced unemployment was the result. The resulting prescription was that government economic policy (or at least monetary policy) should not be influenced by any level of unemployment below a critical level – the “natural rate” or NAIRU.[6]

## The natural rate hypothesis

The idea behind the natural rate hypothesis put forward by Friedman was that any given labor market structure must involve a certain amount of unemployment, including frictional unemployment associated with individuals changing jobs and possibly classical unemployment arising from real wages being held above the market-clearing level by minimum wage laws, trade unions or other labour market institutions. Unexpected inflation might allow unemployment to fall below the natural rate by temporarily depressing real wages, but this effect would dissipate once expectations about inflation were corrected. Only with continuously accelerating inflation could rates of unemployment below the natural rate be maintained.

The analysis supporting the natural rate hypothesis was controversial, and empirical evidence suggested that the natural rate varied over time in ways that could not easily be explained by changes in labor market structures. As a result, the “natural rate” terminology was largely supplanted by that of the NAIRU, which referred to a rate of unemployment below which inflation would accelerate, but did not imply a commitment to any particular theoretical explanation, or a prediction that the rate would be stable over time.

## Properties

If {\displaystyle U*} is the NAIRU and {\displaystyle U} is the actual unemployment rate, the theory says that:

if {\displaystyle U<U*} for a few years, inflationary expectations rise, so that the inflation rate tends to increase;
if {\displaystyle U>U*} for a few years, inflationary expectations fall, so that the inflation rate tends to slow (there is disinflation); and
if {\displaystyle U=U*}, the inflation rate tends to stay the same, unless there is an exogenous shock.

Okun’s law can be stated as saying that for every one percentage point by which the actual unemployment rate exceeds the so-called “natural” rate of unemployment, real gross domestic product is reduced by 2% to 3%.

## Criticism

The NAIRU analysis assumes that if inflation increases, workers and employers can create contracts that take into account expectations of higher inflation and agree on a level of wage inflation that matches the expected level of price inflation to maintain constant real wages. Therefore, the analysis requires inflation to accelerate to maintain low unemployment. However, this argument implicitly assumes that workers and employers cannot contract to incorporate accelerating inflation into wage expectations, but there is no clear justification for assuming that expectations or contract structures are limited in this way aside from the fact that such wage arrangements are not commonly observed.

The NAIRU analysis is especially problematic if the Phillips curve displays hysteresis, that is, if episodes of high unemployment raise the NAIRU.[7] This could happen, for example, if unemployed workers lose skills so that employers prefer to bid up of the wages of existing workers when demand increases, rather than hiring the unemployed.

Others, such as Abba Lerner (1951, 1967) and Hyman Minsky (1965) have argued that a similar effect can be achieved without the human costs of unemployment via a job guarantee, where rather than being unemployed, those who cannot find work in the private sector should be employed by the government. This theory, and the policy of the job guarantee replaces the NAIRU with the NAIBER (non-accelerating-inflation-buffer employment ratio).[8]

## Relationship to other economic theories

Most economists do not see the NAIRU theory as explaining all inflation. Instead, it is possible to move along a short run Phillips Curve (even though the NAIRU theory says that this curve shifts in the longer run) so that unemployment can rise or fall due to changes in inflation. Exogenous supply-shock inflation is also possible, as with the “energy crises” of the 1970s or the credit crunch of the early 21st century.

The NAIRU theory was mainly intended as an argument against active Keynesian demand management and in favor of free markets (at least on the macroeconomic level). There is, for instance, no theoretical basis for predicting the NAIRU. Monetarists instead support the generalized assertion that the correct approach to unemployment is through microeconomic measures (to lower the NAIRU whatever its exact level), rather than macroeconomic activity based on an estimate of the NAIRU in relation to the actual level of unemployment. Monetary policy, they maintain, should aim instead at stabilizing the inflation rate.

## Naming

The NAIRU, non-accelerating inflation rate of unemployment, is actually misnamed. It is the price level that is accelerating (or decelerating), not the inflation rate. The inflation rate is just changing, not accelerating.[9]

## References

1. Jump up^ Coe, David T, Nominal Wages. The NAIRU and Wage Flexibility. (PDF), Organisation for Economic Co-operation and Development
2. Jump up^ Modigliani, Franco; Papademos, Lucas (1975). “Targets for Monetary Policy in the Coming Year”. Brookings Papers on Economic Activity. The Brookings Institution. 1975 (1): 141–165. doi:10.2307/2534063. JSTOR 2534063.
3. Jump up^
4. Jump up^ Snowdon, Brian; Vane, Howard R. (2005). Modern Macroeconomics: Its Origins, Development and Current State. Cheltenham: E. Elgar. p. 187. ISBN 1-84376-394-X.
5. Jump up^ Friedman, Milton (1968). “The Role of Monetary Policy”. American Economic Review. 58 (1): 1–17. JSTOR 1831652.
6. Jump up^ Hoover, Kevin D, “Phillips Curve”, The Concise Encyclopedia of Economics, The Library of Economics and Liberty, retrieved 16 July 2007
7. Jump up^ Ball, Laurence (2009), Hysteresis in Unemployment: Old and New Evidence (PDF)
8. Jump up^ William Mitchell, J. Muysken (2008), Full employment abandoned: shifting sands and policy failures, Edward Elgar Publishing, ISBN 1-85898-507-2
9. Jump up^ Case, K.E. and Fair, R.C. and Oster, S.M. (2016). Principles of Macroeconomics. Pearson. ISBN 9780133023671.

# Phillips curve

For the Phillips curve in supernova astrophysics, see Phillips relationship.

The Phillips curve is a single-equation empirical model, named after A. W. Phillips, describing a historical inverse relationship between rates of unemployment and corresponding rates of inflation that result within an economy. Stated simply, decreased unemployment, (i.e., increased levels of employment) in an economy will correlate with higher rates of inflation.

While there is a short run tradeoff between unemployment and inflation, it has not been observed in the long run.[1] In 1968, Milton Friedman asserted that the Phillips curve was only applicable in the short-run and that in the long-run, inflationary policies will not decrease unemployment.[2][3] Friedman then correctly predicted that, in the 1973–75 recession, both inflation and unemployment would increase.[3] The long-run Phillips curve is now seen as a vertical line at the natural rate of unemployment, where the rate of inflation has no effect on unemployment.[4] Accordingly, the Phillips curve is now seen as too simplistic, with the unemployment rate supplanted by more accurate predictors of inflation based on velocity of moneysupply measures such as the MZM (“money zero maturity”) velocity,[5] which is affected by unemployment in the short but not the long term.[6]

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## History

Rate of Change of Wages against Unemployment, United Kingdom 1913–1948 from Phillips (1958)

William Phillips, a New Zealand born economist, wrote a paper in 1958 titled The Relation between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861-1957, which was published in the quarterly journal Economica.[7] In the paper Phillips describes how he observed an inverse relationship between money wage changes and unemployment in the British economy over the period examined. Similar patterns were found in other countries and in 1960 Paul Samuelson and Robert Solow took Phillips’ work and made explicit the link between inflation and unemployment: when inflation was high, unemployment was low, and vice versa.[8]

In the 1920s, an American economist Irving Fisher noted this kind of Phillips curve relationship. However, Phillips’ original curve described the behavior of money wages.[9]

In the years following Phillips’ 1958 paper, many economists in the advanced industrial countries believed that his results showed that there was a permanently stable relationship between inflation and unemployment.[citation needed] One implication of this for government policy was that governments could control unemployment and inflation with a Keynesian policy. They could tolerate a reasonably high rate of inflation as this would lead to lower unemployment – there would be a trade-off between inflation and unemployment. For example, monetary policy and/or fiscal policy could be used to stimulate the economy, raising gross domestic product and lowering the unemployment rate. Moving along the Phillips curve, this would lead to a higher inflation rate, the cost of enjoying lower unemployment rates.[citation needed] Economist James Forder argues that this view is historically false and that neither economists nor governments took that view and that the ‘Phillips curve myth’ was an invention of the 1970s.[10]

Since 1974, seven Nobel Prizes have been given to economists for, among other things, work critical of some variations of the Phillips curve. Some of this criticism is based on the United States’ experience during the 1970s, which had periods of high unemployment and high inflation at the same time. The authors receiving those prizes include Thomas Sargent, Christopher Sims, Edmund Phelps, Edward Prescott, Robert A. Mundell, Robert E. Lucas, Milton Friedman, and F.A. Hayek.[11]

### Stagflation

In the 1970s, many countries experienced high levels of both inflation and unemployment also known as stagflation. Theories based on the Phillips curve suggested that this could not happen, and the curve came under a concerted attack from a group of economists headed by Milton Friedman.[citation needed] Friedman argued that the Phillips curve relationship was only a short-run phenomenon. In this he followed eight years after Samuelson and Solow [1960] who wrote ” All of our discussion has been phrased in short-run terms, dealing with what might happen in the next few years. It would be wrong, though, to think that our Figure 2 menu that related obtainable price and unemployment behavior will maintain its same shape in the longer run. What we do in a policy way during the next few years might cause it to shift in a definite way.”[8] As Samuelson and Solow had argued 8 years earlier, he argued that in the long run, workers and employers will take inflation into account, resulting in employment contracts that increase pay at rates near anticipated inflation. Unemployment would then begin to rise back to its previous level, but now with higher inflation rates. This result implies that over the longer-run there is no trade-off between inflation and unemployment. This implication is significant for practical reasons because it implies that central banks should not set employment targets above the natural rate.[1]

More recent research has shown that there is a moderate trade-off between low-levels of inflation and unemployment. Work by George Akerlof, William Dickens, and George Perry,[12]implies that if inflation is reduced from two to zero percent, unemployment will be permanently increased by 1.5 percent. This is because workers generally have a higher tolerance for real wage cuts than nominal ones. For example, a worker will more likely accept a wage increase of two percent when inflation is three percent, than a wage cut of one percent when the inflation rate is zero.

### Today

U.S. Inflation and Unemployment 1/2000 to 4/2013

Most economists no longer use the Phillips curve in its original form because it was shown to be too simplistic.[6] This can be seen in a cursory analysis of US inflation and unemployment data from 1953–92. There is no single curve that will fit the data, but there are three rough aggregations—1955–71, 1974–84, and 1985–92—each of which shows a general, downwards slope, but at three very different levels with the shifts occurring abruptly. The data for 1953–54 and 1972–73 do not group easily, and a more formal analysis posits up to five groups/curves over the period.[1]

But still today, modified forms of the Phillips Curve that take inflationary expectations into account remain influential. The theory goes under several names, with some variation in its details, but all modern versions distinguish between short-run and long-run effects on unemployment. Modern Phillips curve models include both a short-run Phillips Curve and a long-run Phillips Curve. This is because in the short run, there is generally an inverse relationship between inflation and the unemployment rate; as illustrated in the downward sloping short-run Phillips curve. In the long run, that relationship breaks down and the economy eventually returns to the natural rate of unemployment regardless of the inflation rate.[13]

The “short-run Phillips curve” is also called the “expectations-augmented Phillips curve”, since it shifts up when inflationary expectations rise, Edmund Phelps and Milton Friedman argued. In the long run, this implies that monetary policy cannot affect unemployment, which adjusts back to its “natural rate“, also called the “NAIRU” or “long-run Phillips curve”. However, this long-run “neutrality” of monetary policy does allow for short run fluctuations and the ability of the monetary authority to temporarily decrease unemployment by increasing permanent inflation, and vice versa. The popular textbook of Blanchard gives a textbook presentation of the expectations-augmented Phillips curve.[14]

An equation like the expectations-augmented Phillips curve also appears in many recent New Keynesiandynamic stochastic general equilibrium models. In these macroeconomic models with sticky prices, there is a positive relation between the rate of inflation and the level of demand, and therefore a negative relation between the rate of inflation and the rate of unemployment. This relationship is often called the “New Keynesian Phillips curve.” Like the expectations-augmented Phillips curve, the New Keynesian Phillips curve implies that increased inflation can lower unemployment temporarily, but cannot lower it permanently. Two influential papers that incorporate a New Keynesian Phillips curve are Clarida, Galí, and Gertler (1999),[15] and Blanchard and Galí (2007).[16]

## Mathematics

There are at least two different mathematical derivations of the Phillips curve. First, there is the traditional or Keynesian version. Then, there is the new Classical version associated with Robert E. Lucas, Jr.

The original Phillips curve literature was not based on the unaided application of economic theory. Instead, it was based on empirical generalizations. After that, economists tried to develop theories that fit the data.

#### Money wage determination

The traditional Phillips curve story starts with a wage Phillips Curve, of the sort described by A.W. Phillips himself. This describes the rate of growth of money wages (gW). Here and below, the operator g is the equivalent of “the percentage rate of growth of” the variable that follows.

{\displaystyle gW=gW^{T}-f(U)}

The “money wage rate” (W) is shorthand for total money wage costs per production employee, including benefits and payroll taxes. The focus is on only production workers’ money wages, because (as discussed below) these costs are crucial to pricing decisions by the firms.

This equation tells us that the growth of money wages rises with the trend rate of growth of money wages (indicated by the superscript “T”) and falls with the unemployment rate (U). The function f() is assumed to be monotonically increasing with U so that the dampening of money-wage increases by unemployment is shown by the negative sign in the equation above.

There are several possible stories behind this equation. A major one is that money wages are set by bilateral negotiations under partial bilateral monopoly: as the unemployment rate rises, all else constant worker bargaining power falls, so that workers are less able to increase their wages in the face of employer resistance.

During the 1970s, this story had to be modified, because (as the late Abba Lerner had suggested in the 1940s) workers try to keep up with inflation. Since the 1970s, the equation has been changed to introduce the role of inflationary expectations (or the expected inflation rate, gPex). This produces the expectations-augmented wage Phillips curve:

{\displaystyle gW=gW^{T}-f(U)+\lambda .gP^{ex}.}

The introduction of inflationary expectations into the equation implies that actual inflation can feed back into inflationary expectations and thus cause further inflation. The late economist James Tobin dubbed the last term “inflationary inertia,” because in the current period, inflation exists which represents an inflationary impulse left over from the past.

It also involved much more than expectations, including the price-wage spiral. In this spiral, employers try to protect profits by raising their prices and employees try to keep up with inflation to protect their real wages. This process can feed on itself, becoming a self-fulfilling prophecy.

The parameter λ (which is presumed constant during any time period) represents the degree to which employees can gain money wage increases to keep up with expected inflation, preventing a fall in expected real wages. It is usually assumed that this parameter equals unity in the long run.

In addition, the function f() was modified to introduce the idea of the Non-Accelerating Inflation Rate of Unemployment (NAIRU) or what’s sometimes called the “natural” rate of unemployment or the inflation-threshold unemployment rate:

[1] gW = gWTf(UU*) + λ·gPex.

Here, U* is the NAIRU. As discussed below, if U < U*, inflation tends to accelerate. Similarly, if U > U*, inflation tends to slow. It is assumed that f(0) = 0, so that when U = U*, the f term drops out of the equation.

In equation [1], the roles of gWT and gPex seem to be redundant, playing much the same role. However, assuming that λ is equal to unity, it can be seen that they are not. If the trend rate of growth of money wages equals zero, then the case where U equals U* implies that gW equals expected inflation. That is, expected real wages are constant.

In any reasonable economy, however, having constant expected real wages could only be consistent with actual real wages that are constant over the long haul. This does not fit with economic experience in the U.S. or any other major industrial country. Even though real wages have not risen much in recent years, there have been important increases over the decades.

An alternative is to assume that the trend rate of growth of money wages equals the trend rate of growth of average labor productivity (Z). That is:

[2] gWT = gZT.

Under assumption [2], when U equals U* and λ equals unity, expected real wages would increase with labor productivity. This would be consistent with an economy in which actual real wages increase with labor productivity. Deviations of real-wage trends from those of labor productivity might be explained by reference to other variables in the model.

#### Pricing decisions

Next, there is price behavior. The standard assumption is that markets are imperfectly competitive, where most businesses have some power to set prices. So the model assumes that the average business sets a unit price (P) as a mark-up (M) over the unit labor cost in production measured at a standard rate of capacity utilization (say, at 90 percent use of plant and equipment) and then adds in the unit materials cost.

The standardization involves later ignoring deviations from the trend in labor productivity. For example, assume that the growth of labor productivity is the same as that in the trend and that current productivity equals its trend value:

gZ = gZT and Z = ZT.

The markup reflects both the firm’s degree of market power and the extent to which overhead costs have to be paid. Put another way, all else equal, M rises with the firm’s power to set prices or with a rise of overhead costs relative to total costs.

So pricing follows this equation:

P = M × (unit labor cost) + (unit materials cost)
= M × (total production employment cost)/(quantity of output) + UMC.

UMC is unit raw materials cost (total raw materials costs divided by total output). So the equation can be restated as:

P = M × (production employment cost per worker)/(output per production employee) + UMC.

This equation can again be stated as:

P = M×(average money wage)/(production labor productivity) + UMC
= M×(W/Z) + UMC.

Now, assume that both the average price/cost mark-up (M) and UMC are constant. On the other hand, labor productivity grows, as before. Thus, an equation determining the price inflation rate (gP) is:

gP = gWgZT.

#### Price

Then, combined with the wage Phillips curve [equation 1] and the assumption made above about the trend behavior of money wages [equation 2], this price-inflation equation gives us a simple expectations-augmented price Phillips curve:

gP = −f(UU*) + λ·gPex.

Some assume that we can simply add in gUMC, the rate of growth of UMC, in order to represent the role of supply shocks (of the sort that plagued the U.S. during the 1970s). This produces a standard short-term Phillips curve:

gP = −f(UU*) + λ·gPex + gUMC.

Economist Robert J. Gordon has called this the “Triangle Model” because it explains short-run inflationary behavior by three factors: demand inflation (due to low unemployment), supply-shock inflation (gUMC), and inflationary expectations or inertial inflation.

In the long run, it is assumed, inflationary expectations catch up with and equal actual inflation so that gP = gPex. This represents the long-term equilibrium of expectations adjustment. Part of this adjustment may involve the adaptation of expectations to the experience with actual inflation. Another might involve guesses made by people in the economy based on other evidence. (The latter idea gave us the notion of so-called rational expectations.)

Expectational equilibrium gives us the long-term Phillips curve. First, with λ less than unity:

gP = [1/(1 − λ)]·(−f(UU*) + gUMC).

This is nothing but a steeper version of the short-run Phillips curve above. Inflation rises as unemployment falls, while this connection is stronger. That is, a low unemployment rate (less than U*) will be associated with a higher inflation rate in the long run than in the short run. This occurs because the actual higher-inflation situation seen in the short run feeds back to raise inflationary expectations, which in turn raises the inflation rate further. Similarly, at high unemployment rates (greater than U*) lead to low inflation rates. These in turn encourage lower inflationary expectations, so that inflation itself drops again.

This logic goes further if λ is equal to unity, i.e., if workers are able to protect their wages completely from expected inflation, even in the short run. Now, the Triangle Model equation becomes:

f(UU*) = gUMC.

If we further assume (as seems reasonable) that there are no long-term supply shocks, this can be simplified to become:

f(UU*) = 0 which implies that U = U*.

All of the assumptions imply that in the long run, there is only one possible unemployment rate, U* at any one time. This uniqueness explains why some call this unemployment rate “natural.”

To truly understand and criticize the uniqueness of U*, a more sophisticated and realistic model is needed. For example, we might introduce the idea that workers in different sectors push for money wage increases that are similar to those in other sectors. Or we might make the model even more realistic. One important place to look is at the determination of the mark-up, M.

### New classical version

The Phillips curve equation can be derived from the (short-run) Lucas aggregate supply function. The Lucas approach is very different from that the traditional view. Instead of starting with empirical data, he started with a classical economic model following very simple economic principles.

{\displaystyle Y=Y_{n}+a(P-P_{e})\,}

where Y is log value of the actual output, Yn is log value of the “natural” level of output, a is a positive constant, P is log value of the actual price level, and Pe is log value of the expected price level. Lucas assumes that Yn has a unique value.

Note that this equation indicates that when expectations of future inflation (or, more correctly, the future price level) are totally accurate, the last term drops out, so that actual output equals the so-called “natural” level of real GDP. This means that in the Lucas aggregate supply curve, the only reason why actual real GDP should deviate from potential—and the actual unemployment rate should deviate from the “natural” rate—is because of incorrect expectations of what is going to happen with prices in the future. (The idea has been expressed first by Keynes, General Theory, Chapter 20 section III paragraph 4).

This differs from other views of the Phillips curve, in which the failure to attain the “natural” level of output can be due to the imperfection or incompleteness of markets, the stickiness of prices, and the like. In the non-Lucas view, incorrect expectations can contribute to aggregate demand failure, but they are not the only cause. To the “new Classical” followers of Lucas, markets are presumed to be perfect and always attain equilibrium (given inflationary expectations).

We re-arrange the equation into:

{\displaystyle P=P_{e}+{\frac {Y-Y_{n}}{a}}}

Next we add unexpected exogenous shocks to the world supply v:

{\displaystyle P=P_{e}+{\frac {Y-Y_{n}}{a}}+v}

Subtracting last year’s price levels P−1 will give us inflation rates, because

{\displaystyle P-P_{-1}\ \approx \pi }

and

{\displaystyle P_{e}-P_{-1}\ \approx \pi _{e}}

where π and πe are the inflation and expected inflation respectively.

There is also a negative relationship between output and unemployment (as expressed by Okun’s law). Therefore, using

{\displaystyle {\frac {Y-Y_{n}}{a}}=-b(U-U_{n})}

where b is a positive constant, U is unemployment, and Un is the natural rate of unemployment or NAIRU, we arrive at the final form of the short-run Phillips curve:

{\displaystyle \pi =\pi _{e}-b(U-U_{n})+v\,}

This equation, plotting inflation rate π against unemployment U gives the downward-sloping curve in the diagram that characterises the Phillips curve.

### New Keynesian version

The New Keynesian Phillips curve was originally derived by Roberts in 1995,[17] and since been used in most state-of-the-art New Keynesian DSGE models like the one of Clarida, Galí, and Gertler (2000).[18][19]

{\displaystyle \pi _{t}=\beta E_{t}[\pi _{t+1}]+\kappa y_{t}}

where {\displaystyle \kappa ={\frac {\alpha [1-(1-\alpha )\beta ]\phi }{1-\alpha }}}. The current expectations of next period’s inflation are incorporated as {\displaystyle \beta E_{t}[\pi _{t+1}]}

## NAIRU and rational expectations

Short-Run Phillips Curve before and after Expansionary Policy, with Long-Run Phillips Curve (NAIRU)

In the 1970s, new theories, such as rational expectations and the NAIRU (non-accelerating inflation rate of unemployment) arose to explain how stagflation could occur. The latter theory, also known as the “natural rate of unemployment“, distinguished between the “short-term” Phillips curve and the “long-term” one. The short-term Phillips Curve looked like a normal Phillips Curve, but shifted in the long run as expectations changed. In the long run, only a single rate of unemployment (the NAIRU or “natural” rate) was consistent with a stable inflation rate. The long-run Phillips Curve was thus vertical, so there was no trade-off between inflation and unemployment. Edmund Phelps won the Nobel Prize in Economics in 2006 in part for this. However, the expectations argument was in fact very widely understood before his work on it.[20]

In the diagram, the long-run Phillips curve is the vertical red line. The NAIRU theory says that when unemployment is at the rate defined by this line, inflation will be stable. However, in the short-run policymakers will face an inflation-unemployment rate tradeoff marked by the “Initial Short-Run Phillips Curve” in the graph. Policymakers can therefore reduce the unemployment rate temporarily, moving from point A to point B through expansionary policy. However, according to the NAIRU, exploiting this short-run tradeoff will raise inflation expectations, shifting the short-run curve rightward to the “New Short-Run Phillips Curve” and moving the point of equilibrium from B to C. Thus the reduction in unemployment below the “Natural Rate” will be temporary, and lead only to higher inflation in the long run.

Since the short-run curve shifts outward due to the attempt to reduce unemployment, the expansionary policy ultimately worsens the exploitable tradeoff between unemployment and inflation. That is, it results in more inflation at each short-run unemployment rate. The name “NAIRU” arises because with actual unemployment below it, inflation accelerates, while with unemployment above it, inflation decelerates. With the actual rate equal to it, inflation is stable, neither accelerating nor decelerating. One practical use of this model was to provide an explanation for stagflation, which confounded the traditional Phillips curve.

The rational expectations theory said that expectations of inflation were equal to what actually happened, with some minor and temporary errors. This in turn suggested that the short-run period was so short that it was non-existent: any effort to reduce unemployment below the NAIRU, for example, would immediately cause inflationary expectations to rise and thus imply that the policy would fail. Unemployment would never deviate from the NAIRU except due to random and transitory mistakes in developing expectations about future inflation rates. In this perspective, any deviation of the actual unemployment rate from the NAIRU was an illusion.

However, in the 1990s in the U.S., it became increasingly clear that the NAIRU did not have a unique equilibrium and could change in unpredictable ways. In the late 1990s, the actual unemployment rate fell below 4% of the labor force, much lower than almost all estimates of the NAIRU. But inflation stayed very moderate rather than accelerating. So, just as the Phillips curve had become a subject of debate, so did the NAIRU.

Furthermore, the concept of rational expectations had become subject to much doubt when it became clear that the main assumption of models based on it was that there exists a single (unique) equilibrium in the economy that is set ahead of time, determined independently of demand conditions. The experience of the 1990s suggests that this assumption cannot be sustained.

## Theoretical questions

The Phillips curve started as an empirical observation in search of a theoretical explanation.[citation needed] Specifically, the Phillips curve tried to determine whether the inflation-unemployment link was causal or simply correlational. There are several major explanations of the short-term Phillips curve regularity.

To Milton Friedman there is a short-term correlation between inflation shocks and employment. When an inflationary surprise occurs, workers are fooled into accepting lower pay because they do not see the fall in real wages right away. Firms hire them because they see the inflation as allowing higher profits for given nominal wages. This is a movement along the Phillips curve as with change A. Eventually, workers discover that real wages have fallen, so they push for higher money wages. This causes the Phillips curve to shift upward and to the right, as with B. Some research underlines that some implicit and serious assumptions are actually in the background of the Friedmanian Phillips curve. This information asymmetry and a special pattern of flexibility of prices and wages are both necessary if one wants to maintain the mechanism told by Friedman. However, as it is argued, these presumptions remain completely unrevealed and theoretically ungrounded by Friedman.[21]

Economists such as Milton Friedman and Edmund Phelps reject this theory because it implies that workers suffer from money illusion. According to them, rational workers would only react to real wages, that is, inflation adjusted wages. However, one of the characteristics of a modern industrial economy is that workers do not encounter their employers in an atomized and perfect market. They operate in a complex combination of imperfect markets, monopolies, monopsonies, labor unions, and other institutions. In many cases, they may lack the bargaining power to act on their expectations, no matter how rational they are, or their perceptions, no matter how free of money illusion they are. It is not that high inflation causes low unemployment (as in Milton Friedman’s theory) as much as vice versa: Low unemployment raises worker bargaining power, allowing them to successfully push for higher nominal wages. To protect profits, employers raise prices.

Similarly, built-in inflation is not simply a matter of subjective “inflationary expectations” but also reflects the fact that high inflation can gather momentum and continue beyond the time when it was started, due to the objective price/wage spiral.

However, other economists, like Jeffrey Herbener, argue that price is market-determined and competitive firms cannot simply raise prices.[citation needed] They reject the Phillips curve entirely, concluding that unemployment’s influence is only a small portion of a much larger inflation picture that includes prices of raw materials, intermediate goods, cost of raising capital, worker productivity, land, and other factors.

### Gordon’s triangle model

Robert J. Gordon of Northwestern University has analyzed the Phillips curve to produce what he calls the triangle model, in which the actual inflation rate is determined by the sum of

The last reflects inflationary expectations and the price/wage spiral. Supply shocks and changes in built-in inflation are the main factors shifting the short-run Phillips Curve and changing the trade-off. In this theory, it is not only inflationary expectations that can cause stagflation. For example, the steep climb of oil prices during the 1970s could have this result.

Changes in built-in inflation follow the partial-adjustment logic behind most theories of the NAIRU:

1. Low unemployment encourages high inflation, as with the simple Phillips curve. But if unemployment stays low and inflation stays high for a long time, as in the late 1960s in the U.S., both inflationary expectations and the price/wage spiral accelerate. This shifts the short-run Phillips curve upward and rightward, so that more inflation is seen at any given unemployment rate. (This is with shift B in the diagram.)
2. High unemployment encourages low inflation, again as with a simple Phillips curve. But if unemployment stays high and inflation stays low for a long time, as in the early 1980s in the U.S., both inflationary expectations and the price/wage spiral slow. This shifts the short-run Phillips curve downward and leftward, so that less inflation is seen at each unemployment rate.

In between these two lies the NAIRU, where the Phillips curve does not have any inherent tendency to shift, so that the inflation rate is stable. However, there seems to be a range in the middle between “high” and “low” where built-in inflation stays stable. The ends of this “non-accelerating inflation range of unemployment rates” change over time.

### Joke article

In 2008, Gregor Smith published a joke article in the prestigious Journal of Money, Credit and Banking titled “Japan’s Phillips Curve Looks Like Japan”. This article points out the uncanny resemblance between Japan’s Phillips curve and the country’s geographic shape.[22]

## References

1. Chang, R. (1997) “Is Low Unemployment Inflationary?” Federal Reserve Bank of Atlanta Economic Review 1Q97:4-13
2. Jump up^ Friedman, Milton (1968). “The role of monetary policy”. American Economic Review. 68 (1): 1–17. JSTOR 1831652.
3. Phelan, John (23 October 2012). “Milton Friedman and the rise and fall of the Phillips Curve”. thecommentator.com. Retrieved September 29, 2014.
4. Jump up^ “Phillips Curve: The Concise Encyclopedia of Economics – Library of Economics and Liberty”.
5. Jump up^ “Velocity of MZM Money Stock”. 22 December 2016.
6. Oliver Hossfeld (2010) “US Money Demand, Monetary Overhang, and Inflation Prediction” International Network for Economic Research working paper no. 2010.4
7. Jump up^ Phillips, A. W. (1958). “The Relationship between Unemployment and the Rate of Change of Money Wages in the United Kingdom 1861-1957”. Economica. 25 (100): 283–299. doi:10.1111/j.1468-0335.1958.tb00003.x.
8. Samuelson, Paul A.; Solow, Robert M. (1960). “Analytical Aspects of Anti-Inflation Policy”. American Economic Review. 50 (2): 177–194. JSTOR 1815021.
9. Jump up^ Fisher, Irving (1973). “I discovered the Phillips curve: ‘A statistical relation between unemployment and price changes'”. Journal of Political Economy. The University of Chicago Press. 81 (2): 496–502. doi:10.1086/260048. JSTOR 1830534. Reprinted from 1926 edition of International Labour Review.
10. Jump up^ Forder, James (2014). Macroeconomics and the Phillips Curve Myth. Oxford University Press. ISBN 978-0-19-968365-9.
11. Jump up^ Domitrovic, Brain (10 October 2011). “The Economics Nobel Goes to Sargent & Sims: Attackers of the Phillips Curve”. Forbes.com. Retrieved 12 October 2011.
12. Jump up^ Akerlof, George A.; Dickens, William T.; Perry, George L. (2000). “Near-Rational Wage and Price Setting and the Long-Run Phillips Curve”. Brookings Papers on Economic Activity. 2000 (1): 1–60.
13. Jump up^ Jacob, Reed (2016). “AP Macroeconomics Review: Phillips Curve”. APEconReview.com.
14. Jump up^ Blanchard, Olivier (2000). Macroeconomics (Second ed.). Prentice Hall. pp. 149–55. ISBN 0-13-013306-X.
15. Jump up^ Clarida, Richard; Galí, Jordi; Gertler, Mark (1999). “The science of monetary policy: a New-Keynesian perspective”. Journal of Economic Literature. American Economic Association. 37 (4): 1661–1707. doi:10.1257/jel.37.4.1661. JSTOR 2565488.
16. Jump up^ Blanchard, Olivier; Galí, Jordi (2007). “Real Wage Rigidities and the New Keynesian Model”. Journal of Money, Credit, and Banking. 39 (s1): 35–65. doi:10.1111/j.1538-4616.2007.00015.x.
17. Jump up^ Roberts, John M. (1995). “New Keynesian Economics and the Phillips Curve”. Journal of Money, Credit and Banking. 27 (4): 975–984. JSTOR 2077783.
18. Jump up^ Clarida, Richard; Galí, Jordi; Gertler, Mark (2000). “Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory”. The Quarterly Journal of Economics. 115 (1): 147–180. doi:10.1162/003355300554692.
19. Jump up^ Romer, David (2012). “Dynamic Stochastic General Equilibrium Models of Fluctuation”. Advanced Macroeconomics. New York: McGraw-Hill Irwin. pp. 312–364. ISBN 978-0-07-351137-5.
20. Jump up^ Forder, James (2010). “The historical place of the ‘Friedman-Phelps’ expectations critique”. European Journal of the History of Economic Thought. 17 (3): 493–511. doi:10.1080/09672560903114875.
21. Jump up^ Galbács, Peter (2015). The Theory of New Classical Macroeconomics. A Positive Critique. Heidelberg/New York/Dordrecht/London: Springer. doi:10.1007/978-3-319-17578-2. ISBN 978-3-319-17578-2.
22. Jump up^ Smith, Gregor W. (1 September 2008). “Japan’s Phillips Curve Looks Like Japan”. 40 (6): 1325–1326. doi:10.1111/j.1538-4616.2008.00160.x – via Wiley Online Library.

https://en.wikipedia.org/wiki/Phillips_curve

# Milton Friedman

(Redirected from Milton friedman)
Milton Friedman

Friedman in 2004
Born July 31, 1912
Brooklyn, New York, U.S.
Died November 16, 2006 (aged 94)
San Francisco, California, U.S.
Nationality American
Spouse(s) Rose Friedman
Institution
School or
Chicago School
Alma mater
Doctoral
Simon Kuznets
Doctoral
students
Phillip Cagan
Harry Markowitz
Lester G. Telser[1]
David I. Meiselman
Neil Wallace
Miguel Sidrauski
Influences
Influenced
Contributions
Awards
Information at IDEAS / RePEc
Signature
Notes

Milton Friedman (July 31, 1912 – November 16, 2006) was an American economist who received the 1976 Nobel Memorial Prize in Economic Sciences for his research on consumption analysis, monetary history and theory, and the complexity of stabilization policy.[4] With George Stigler and others, Friedman was among the intellectual leaders of the second generation of Chicago price theory, a methodological movement at the University of Chicago’s Department of Economics, Law School, and Graduate School of Business from the 1940s onward. Several students and young professors that were recruited or mentored by Friedman at Chicago went on to become leading economists; they include Gary Becker, Robert Fogel, Thomas Sowell,[5] and Robert Lucas, Jr.[6]

Friedman’s challenges to what he later called “naive Keynesian” theory[7] began with his 1950s reinterpretation of the consumption function. In the 1960s, he became the main advocate opposing Keynesian government policies,[8] and described his approach (along with mainstream economics) as using “Keynesian language and apparatus” yet rejecting its “initial” conclusions.[9] He theorized that there existed a “natural” rate of unemployment, and argued that employment above this rate would cause inflation to accelerate.[10] He argued that the Phillips curve was, in the long run, vertical at the “natural rate” and predicted what would come to be known as stagflation.[11] Friedman promoted an alternative macroeconomic viewpoint known as “monetarism“, and argued that a steady, small expansion of the money supply was the preferred policy.[12] His ideas concerning monetary policy, taxation, privatization and deregulation influenced government policies, especially during the 1980s. His monetary theory influenced the Federal Reserve’s response to the global financial crisis of 2007–08.[13]

Friedman was an advisor to Republican U.S. President Ronald Reagan[14] and Conservative British Prime Minister Margaret Thatcher.[15] His political philosophy extolled the virtues of a free market economic system with minimal intervention. He once stated that his role in eliminating U.S. conscription was his proudest accomplishment. In his 1962 book Capitalism and Freedom, Friedman advocated policies such as a volunteer military, freely floating exchange rates, abolition of medical licenses, a negative income tax, and school vouchers.[16] His support for school choice led him to found the Friedman Foundation for Educational Choice, later renamed EdChoice.[17]

Milton Friedman’s works include many monographs, books, scholarly articles, papers, magazine columns, television programs, and lectures, and cover a broad range of economic topics and public policy issues. His books and essays have had an international influence, including in former communist states.[18][19][20][21] A survey of economists ranked Friedman as the second-most popular economist of the twentieth century after John Maynard Keynes,[22] and The Economist described him as “the most influential economist of the second half of the 20th century … possibly of all of it”.[23]

[show]

## Early life

Friedman was born in Brooklyn, New York on July 31, 1912. His parents, Sára Ethel (née Landau) and Jenő Saul Friedman,[24] were Jewish immigrants from Beregszász in Carpathian Ruthenia, Kingdom of Hungary (now Berehove in Ukraine). They both worked as dry goods merchants. Shortly after Milton’s birth, the family relocated to Rahway, New Jersey. In his early teens, Friedman was injured in a car accident, which scarred his upper lip.[25] A talented student, Friedman graduated from Rahway High School in 1928, just before his 16th birthday.[26][27]

In 1932, Friedman graduated from Rutgers University, where he specialized in mathematics and economics and initially intended to become an actuary. During his time at Rutgers, Friedman became influenced by two economics professors, Arthur F. Burns and Homer Jones, who convinced him that modern economics could help end the Great Depression.

After graduating from Rutgers, Friedman was offered two scholarships to do graduate work—one in mathematics at Brown University and the other in economics at the University of Chicago.[28] Friedman chose the latter, thus earning a Master of Arts degree in 1933. He was strongly influenced by Jacob Viner, Frank Knight, and Henry Simons. It was at Chicago that Friedman met his future wife, economist Rose Director. During the 1933–1934 academic year he had a fellowship at Columbia University, where he studied statistics with renowned statistician and economist Harold Hotelling. He was back in Chicago for the 1934–1935 academic year, working as a research assistant for Henry Schultz, who was then working on Theory and Measurement of Demand. That year, Friedman formed what would prove to be lifelong friendships with George Stigler and W. Allen Wallis.[29]

## Public service

Friedman was initially unable to find academic employment, so in 1935 he followed his friend W. Allen Wallis to Washington, where Franklin D. Roosevelt‘s New Deal was “a lifesaver” for many young economists.[30] At this stage, Friedman said that he and his wife “regarded the job-creation programs such as the WPA, CCC, and PWA appropriate responses to the critical situation,” but not “the price- and wage-fixing measures of the National Recovery Administration and the Agricultural Adjustment Administration.”[31] Foreshadowing his later ideas, he believed price controls interfered with an essential signaling mechanism to help resources be used where they were most valued. Indeed, Friedman later concluded that all government intervention associated with the New Deal was “the wrong cure for the wrong disease,” arguing that the money supply should simply have been expanded, instead of contracted.[32] Later, Friedman and his colleague Anna Schwartz wrote A Monetary History of the United States, 1867–1960, which argued that the Great Depression was caused by a severe monetary contraction due to banking crises and poor policy on the part of the Federal Reserve.[33]

During 1935, he began work for the National Resources Committee, which was then working on a large consumer budget survey. Ideas from this project later became a part of his Theory of the Consumption Function. Friedman began employment with the National Bureau of Economic Research during autumn 1937 to assist Simon Kuznets in his work on professional income. This work resulted in their jointly authored publication Incomes from Independent Professional Practice, which introduced the concepts of permanent and transitory income, a major component of the Permanent Income Hypothesis that Friedman worked out in greater detail in the 1950s. The book hypothesizes that professional licensing artificially restricts the supply of services and raises prices.

During 1940, Friedman was appointed an assistant professor teaching Economics at the University of Wisconsin–Madison, but encountered antisemitism in the Economics department and decided to return to government service.[34][35] From 1941 to 1943 Friedman worked on wartime tax policy for the Federal Government, as an advisor to senior officials of the United States Department of the Treasury. As a Treasury spokesman during 1942 he advocated a Keynesian policy of taxation. He helped to invent the payroll withholding tax system, since the federal government badly needed money in order to fight the war.[36] He later said, “I have no apologies for it, but I really wish we hadn’t found it necessary and I wish there were some way of abolishing withholding now.”[37]

### Early years

In 1940, Friedman accepted a position at the University of Wisconsin–Madison, but left because of differences with faculty regarding United States involvement in World War II. Friedman believed the United States should enter the war.[38] In 1943, Friedman joined the Division of War Research at Columbia University (headed by W. Allen Wallis and Harold Hotelling), where he spent the rest of World War II working as a mathematical statistician, focusing on problems of weapons design, military tactics, and metallurgical experiments.[38][39]

In 1945, Friedman submitted Incomes from Independent Professional Practice (co-authored with Kuznets and completed during 1940) to Columbia as his doctoral dissertation. The university awarded him a PhD in 1946. Friedman spent the 1945–1946 academic year teaching at the University of Minnesota (where his friend George Stigler was employed). On February 12, 1945, his son, David D. Friedman was born.

### University of Chicago

In 1946, Friedman accepted an offer to teach economic theory at the University of Chicago (a position opened by departure of his former professor Jacob Viner to Princeton University). Friedman would work for the University of Chicago for the next 30 years. There he contributed to the establishment of an intellectual community that produced a number of Nobel Prize winners, known collectively as the Chicago school of economics.

At that time, Arthur F. Burns, who was then the head of the National Bureau of Economic Research, asked Friedman to rejoin the Bureau’s staff. He accepted the invitation, and assumed responsibility for the Bureau’s inquiry into the role of money in the business cycle. As a result, he initiated the “Workshop in Money and Banking” (the “Chicago Workshop”), which promoted a revival of monetary studies. During the latter half of the 1940s, Friedman began a collaboration with Anna Schwartz, an economic historian at the Bureau, that would ultimately result in the 1963 publication of a book co-authored by Friedman and Schwartz, A Monetary History of the United States, 1867–1960.

Friedman spent the 1954–1955 academic year as a Fulbright Visiting Fellow at Gonville and Caius College, Cambridge. At the time, the Cambridge economics faculty was divided into a Keynesian majority (including Joan Robinson and Richard Kahn) and an anti-Keynesian minority (headed by Dennis Robertson). Friedman speculated that he was invited to the fellowship, because his views were unacceptable to both of the Cambridge factions. Later his weekly columns for Newsweek magazine (1966–84) were well read and increasingly influential among political and business people.[40] From 1968 to 1978, he and Paul Samuelson participated in the Economics Cassette Series, a biweekly subscription series where the economist would discuss the days’ issues for about a half-hour at a time.[41][42]

Friedman was an economic adviser to Republican presidential candidate Barry Goldwater during 1964.

## Personal life

### Retirement

In 1977, at the age of 65, Friedman retired from the University of Chicago after teaching there for 30 years. He and his wife moved to San Francisco where he became a visiting scholar at the Federal Reserve Bank of San Francisco. From 1977 on, he was affiliated with the Hoover Institution at Stanford University. During the same year, Friedman was approached by the Free To Choose Network and asked to create a television program presenting his economic and social philosophy.

The Friedmans worked on this project for the next three years, and during 1980, the ten-part series, titled Free to Choose, was broadcast by the Public Broadcasting Service (PBS). The companion book to the series (co-authored by Milton and his wife, Rose Friedman), also titled Free To Choose, was the bestselling nonfiction book of 1980 and has since been translated into 14 foreign languages.

Friedman served as an unofficial adviser to Ronald Reagan during his 1980 presidential campaign, and then served on the President’s Economic Policy Advisory Board for the rest of the Reagan Administration. Ebenstein says Friedman was “the ‘guru’ of the Reagan administration.”[43] In 1988 he received the National Medal of Science and Reagan honored him with the Presidential Medal of Freedom. Milton Friedman is known now as one of the most influential economists of the 20th century.[44][45] Throughout the 1980s and 1990s, Friedman continued to write editorials and appear on television. He made several visits to Eastern Europe and to China, where he also advised governments. He was also for many years a Trustee of the Philadelphia Society.[46][47][48]

### Later life

According to a 2007 article in Commentary magazine, his “parents were moderately observant [Jews], but Friedman, after an intense burst of childhood piety, rejected religion altogether.”[49] He described himself as an agnostic.[50] Friedman wrote extensively of his life and experiences, especially in 1998 in his memoirs with his wife Rose, titled Two Lucky People.

### Death

Friedman died of heart failure at the age of 94 years in San Francisco on November 16, 2006.[51] He was still a working economist performing original economic research; his last column was published in The Wall Street Journal the day after his death.[52] He was survived by his wife (who died on August 18, 2009) and their two children, David, known for the anarcho-capitalist book The Machinery of Freedom, and Janet.

## Scholarly contributions

### Economics

Friedman was best known for reviving interest in the money supply as a determinant of the nominal value of output, that is, the quantity theory of money. Monetarism is the set of views associated with modern quantity theory. Its origins can be traced back to the 16th-century School of Salamanca or even further; however, Friedman’s contribution is largely responsible for its modern popularization. He co-authored, with Anna Schwartz, A Monetary History of the United States, 1867–1960 (1963), which was an examination of the role of the money supply and economic activity in the U.S. history. A striking conclusion of their research regarded the way in which money supply fluctuations contribute to economic fluctuations. Several regression studies with David Meiselman during the 1960s suggested the primacy of the money supply over investment and government spending in determining consumption and output. These challenged a prevailing, but largely untested, view on their relative importance. Friedman’s empirical research and some theory supported the conclusion that the short-run effect of a change of the money supply was primarily on output but that the longer-run effect was primarily on the price level.

Friedman was the main proponent of the monetarist school of economics. He maintained that there is a close and stable association between inflation and the money supply, mainly that inflation could be avoided with proper regulation of the monetary base’s growth rate. He famously used the analogy of “dropping money out of a helicopter.”,[53] in order to avoid dealing with money injection mechanisms and other factors that would overcomplicate his models.

Friedman’s arguments were designed to counter the popular concept of cost-push inflation, that the increased general price level at the time was the result of increases in the price of oil, or increases in wages; as he wrote,

Inflation is always and everywhere a monetary phenomenon.

— Milton Friedman, 1963.[54]

Friedman rejected the use of fiscal policy as a tool of demand management; and he held that the government’s role in the guidance of the economy should be restricted severely. Friedman wrote extensively on the Great Depression, which he termed the Great Contraction, arguing that it had been caused by an ordinary financial shock whose duration and seriousness were greatly increased by the subsequent contraction of the money supply caused by the misguided policies of the directors of the Federal Reserve.

The Fed was largely responsible for converting what might have been a garden-variety recession, although perhaps a fairly severe one, into a major catastrophe. Instead of using its powers to offset the depression, it presided over a decline in the quantity of money by one-third from 1929 to 1933 … Far from the depression being a failure of the free-enterprise system, it was a tragic failure of government.

— Milton Friedman, Two Lucky People, 233[55]

Friedman also argued for the cessation of government intervention in currency markets, thereby spawning an enormous literature on the subject, as well as promoting the practice of freely floating exchange rates. His close friend George Stigler explained, “As is customary in science, he did not win a full victory, in part because research was directed along different lines by the theory of rational expectations, a newer approach developed by Robert Lucas, also at the University of Chicago.”[56] The relationship between Friedman and Lucas, or new classical macroeconomics as a whole, was highly complex. The Friedmanian Phillips curve was an interesting starting point for Lucas, but he soon realized that the solution provided by Friedman was not quite satisfactory. Lucas elaborated a new approach in which rational expectations were presumed instead of the Friedmanian adaptive expectations. Due to this reformulation, the story in which the theory of the new classical Phillips curve was embedded radically changed. This modification, however, had a significant effect on Friedman’s own approach, so, as a result, the theory of the Friedmanian Phillips curve also changed.[57] Moreover, new classical Neil Wallace, who was a graduate student at the University of Chicago between 1960 and 1963, regarded Friedman’s theoretical courses as a mess.[58] This evaluation clearly indicates the broken relationship between Friedmanian monetarism and new classical macroeconomics.

Friedman was also known for his work on the consumption function, the permanent income hypothesis (1957), which Friedman himself referred to as his best scientific work.[59] This work contended that rational consumers would spend a proportional amount of what they perceived to be their permanent income. Windfall gains would mostly be saved. Tax reductions likewise, as rational consumers would predict that taxes would have to increase later to balance public finances. Other important contributions include his critique of the Phillips curve and the concept of the natural rate of unemployment (1968). This critique associated his name, together with that of Edmund Phelps, with the insight that a government that brings about greater inflation cannot permanently reduce unemployment by doing so. Unemployment may be temporarily lower, if the inflation is a surprise, but in the long run unemployment will be determined by the frictions and imperfections of the labor market.

Friedman’s essay “The Methodology of Positive Economics” (1953) provided the epistemological pattern for his own subsequent research and to a degree that of the Chicago School. There he argued that economics as science should be free of value judgments for it to be objective. Moreover, a useful economic theory should be judged not by its descriptive realism but by its simplicity and fruitfulness as an engine of prediction. That is, students should measure the accuracy of its predictions, rather than the ‘soundness of its assumptions’. His argument was part of an ongoing debate among such statisticians as Jerzy Neyman, Leonard Savage, and Ronald Fisher.[60]

### Statistics

One of his most famous contributions to statistics is sequential sampling. Friedman did statistical work at the Division of War Research at Columbia, where he and his colleagues came up with the technique. It later became, in the words of The New Palgrave Dictionary of Economics, “the standard analysis of quality control inspection”. The dictionary adds, “Like many of Friedman’s contributions, in retrospect it seems remarkably simple and obvious to apply basic economic ideas to quality control; that however is a measure of his genius.”[61]

## Public policy positions

### Federal Reserve

Due to its poor performance,[62] Friedman believed that the Federal Reserve Board should be abolished.[63][64] Friedman was deeply critical about Federal Reserve policies, even during the so-called ‘Volcker shock’ that was labelled ‘monetarist.’[65] He further believed that if the money supply was to be centrally controlled (as by the Federal Reserve System) that the preferable way to do it would be with a mechanical system that would keep the quantity of money increasing at a steady rate.

### Exchange rates

Friedman was a strong advocate for floating exchange rates throughout the entire Bretton-Woods period. He argued that a flexible exchange rate would make external adjustment possible and allow countries to avoid Balance of Payments crises. He saw fixed exchange rates as an undesirable form of government intervention. The case was articulated in an influential 1953 paper, “The Case for Flexible Exchange Rates”, at a time, when most commentators regarded the possibility of floating exchange rates as a fantasy.[66][67]

### School choice

In his 1955 article “The Role of Government in Education”[68] Friedman proposed supplementing publicly operated schools with privately run but publicly funded schools through a system of school vouchers.[69] Reforms similar to those proposed in the article were implemented in, for example, Chile in 1981 and Sweden in 1992.[70] In 1996, Friedman, together with his wife, founded the Friedman Foundation for Educational Choice to advocate school choice and vouchers. In 2016, the Friedman Foundation changed its name to EdChoice to honor the Friedmans’ desire to have the educational choice movement live on without their names attached to it after their deaths.[17]

### Conscription

While Walter Oi is credited with establishing the economic basis for a volunteer military, Milton Friedman was a proponent, stating that the draft was “inconsistent with a free society.”[71][72] In Capitalism and Freedom, he argued that conscription is inequitable and arbitrary, preventing young men from shaping their lives as they see fit.[73] During the Nixon administration he headed the committee to research a conversion to paid/volunteer armed force. He would later state that his role in eliminating the conscription in the United States was his proudest accomplishment.[12] Friedman did, however, believe a nation could compel military training as a reserve in case of war time.[73]

### Foreign policy

Biographer Lanny Ebenstein noted a drift over time in Friedman’s views from an interventionist to a more cautious foreign policy.[74] He supported US involvement in the Second World War and initially supported a hard line against Communism, but moderated over time.[74] He opposed the Gulf War and the Iraq War.[74] In a spring 2006 interview, Friedman said that the USA’s stature in the world had been eroded by the Iraq War, but that it might be improved if Iraq were to become a peaceful independent country.[75]

### Libertarianism and the Republican Party

He served as a member of President Reagan’s Economic Policy Advisory Board starting at 1981. In 1988, he received the Presidential Medal of Freedom and the National Medal of Science. He said that he was a libertarian philosophically, but a member of the U.S. Republican Party for the sake of “expediency” (“I am a libertarian with a small ‘l’ and a Republican with a capital ‘R.’ And I am a Republican with a capital ‘R’ on grounds of expediency, not on principle.”) But, he said, “I think the term classical liberal is also equally applicable. I don’t really care very much what I’m called. I’m much more interested in having people thinking about the ideas, rather than the person.”[76]

### Public goods and monopoly

Friedman was supportive of the state provision of some public goods that private businesses are not considered as being able to provide. However, he argued that many of the services performed by government could be performed better by the private sector. Above all, if some public goods are provided by the state, he believed that they should not be a legal monopoly where private competition is prohibited; for example, he wrote:

There is no way to justify our present public monopoly of the post office. It may be argued that the carrying of mail is a technical monopoly and that a government monopoly is the least of evils. Along these lines, one could perhaps justify a government post office, but not the present law, which makes it illegal for anybody else to carry the mail. If the delivery of mail is a technical monopoly, no one else will be able to succeed in competition with the government. If it is not, there is no reason why the government should be engaged in it. The only way to find out is to leave other people free to enter.

— Milton Friedman, Friedman, Milton & Rose D. Capitalism and Freedom, University of Chicago Press, 1982, p. 29

### Social security, welfare programs, and negative income tax

After 1960 Friedman attacked Social Security from a free market view stating that it had created welfare dependency.[77]

Friedman proposed that if there had to be a welfare system of any kind, he would replace the existing U.S. welfare system with a negative income tax, a progressive tax system in which the poor receive a basic living income from the government.[78] According to the New York Times, Friedman’s views in this regard were grounded in a belief that while “market forces … accomplish wonderful things”, they “cannot ensure a distribution of income that enables all citizens to meet basic economic needs”.[78]

### Drug policy

Friedman also supported libertarian policies such as legalization of drugs and prostitution. During 2005, Friedman and more than 500 other economists advocated discussions regarding the economic benefits of the legalization of marijuana.[79]

### Gay rights

Friedman was also a supporter of gay rights.[80][81] He never specifically supported same-sex marriage, instead saying “I do not believe there should be any discrimination against gays.”[81]

### Economic freedom

Michael Walker of the Fraser Institute and Friedman hosted a series of conferences from 1986 to 1994. The goal was to create a clear definition of economic freedom and a method for measuring it. Eventually this resulted in the first report on worldwide economic freedom, Economic Freedom in the World.[82] This annual report has since provided data for numerous peer-reviewed studies and has influenced policy in several nations.

Along with sixteen other distinguished economists he opposed the Copyright Term Extension Act and filed an amicus brief in Eldred v. Ashcroft.[83] He supported the inclusion of the word “no-brainer” in the brief.[84]

Friedman argued for stronger basic legal (constitutional) protection of economic rights and freedoms to further promote industrial-commercial growth and prosperity and buttress democracy and freedom and the rule of law generally in society.[85]

## Honors, recognition, and influence

George H. Nash, a leading historian of American conservatism, says that by, “the end of the 1960s he was probably the most highly regarded and influential conservative scholar in the country, and one of the few with an international reputation.”[86] Friedman allowed the libertarian Cato Institute to use his name for its biannual Milton Friedman Prize for Advancing Liberty beginning in 2001. A Friedman Prize was given to the late British economist Peter Bauer in 2002, Peruvian economist Hernando de Soto in 2004, Mart Laar, former Estonian Prime Minister in 2006 and a young Venezuelan student Yon Goicoechea in 2008. His wife Rose, sister of Aaron Director, with whom he initiated the Friedman Foundation for Educational Choice, served on the international selection committee.[87][88] Friedman was also a recipient of the Nobel Prize in Economics.

Upon Friedman’s death, Harvard President Lawrence Summers called him “The Great Liberator” saying “… any honest Democrat will admit that we are now all Friedmanites.” He said Friedman’s great popular contribution was “in convincing people of the importance of allowing free markets to operate.”[89]

In 2013 Stephen Moore, a member of the editorial forward of the Wall Street Journal said, “Quoting the most-revered champion of free-market economics since Adam Smith has become a little like quoting the Bible.” He adds, “There are sometimes multiple and conflicting interpretations.”[90]

### Nobel Memorial Prize in Economic Sciences

Friedman won the Nobel Memorial Prize in Economic Sciences, the sole recipient for 1976, “for his achievements in the fields of consumption analysis, monetary history and theory and for his demonstration of the complexity of stabilization policy.”[4]

### Hong Kong

Friedman once said, “If you want to see capitalism in action, go to Hong Kong.”[91] He wrote in 1990 that the Hong Kong economy was perhaps the best example of a free market economy.[92]

One month before his death, he wrote the article “Hong Kong Wrong – What would Cowperthwaite say?” in the Wall Street Journal, criticizing Donald Tsang, the Chief Executive of Hong Kong, for abandoning “positive noninterventionism.”[93] Tsang later said he was merely changing the slogan to “big market, small government,” where small government is defined as less than 20% of GDP. In a debate between Tsang and his rival, Alan Leong, before the 2007 Chief Executive election, Leong introduced the topic and jokingly accused Tsang of angering Friedman to death.

### Chile

Main articles: Miracle of Chile and Chicago Boys

During 1975, two years after the military coup that brought military dictator President Augusto Pinochet to power and ended the government of Salvador Allende, the economy of Chile experienced a severe crisis. Friedman and Arnold Harberger accepted an invitation of a private Chilean foundation to visit Chile and speak on principles of economic freedom.[94] He spent seven days in Chile giving a series of lectures at the Universidad Católica de Chile and the (National) University of Chile. One of the lectures was entitled “The Fragility of Freedom” and according to Friedman, “dealt with precisely the threat to freedom from a centralized military government.”[95]

In an April 21, 1975, letter to Pinochet, Friedman considered the “key economic problems of Chile are clearly … inflation and the promotion of a healthy social market economy“.[96] He stated that “There is only one way to end inflation: by drastically reducing the rate of increase of the quantity of money …” and that “… cutting government spending is by far and away the most desirable way to reduce the fiscal deficit, because it … strengthens the private sector thereby laying the foundations for healthy economic growth”.[96] As to how rapidly inflation should be ended, Friedman felt that “for Chile where inflation is raging at 10–20% a month … gradualism is not feasible. It would involve so painful an operation over so long a period that the patient would not survive.” Choosing “a brief period of higher unemployment…” was the lesser evil.. and that “the experience of Germany, … of Brazil …, of the post-war adjustment in the U.S. … all argue for shock treatment“. In the letter Friedman recommended to deliver the shock approach with “… a package to eliminate the surprise and to relieve acute distress” and “… for definiteness let me sketch the contents of a package proposal … to be taken as illustrative” although his knowledge of Chile was “too limited to enable [him] to be precise or comprehensive”. He listed a “sample proposal” of 8 monetary and fiscal measures including “the removal of as many as obstacles as possible that now hinder the private market. For example, suspend … the present law against discharging employees”. He closed, stating “Such a shock program could end inflation in months”. His letter suggested that cutting spending to reduce the fiscal deficit would result in less transitional unemployment than raising taxes.

Sergio de Castro, a Chilean Chicago School graduate, became the nation’s Minister of Finance in 1975. During his six-year tenure, foreign investment increased, restrictions were placed on striking and labor unions, and GDP rose yearly.[97] A foreign exchange program was created between the Catholic University of Chile and the University of Chicago. Many other Chicago School alumni were appointed government posts during and after the Pinochet years; others taught its economic doctrine at Chilean universities. They became known as the Chicago Boys.[98]

Friedman did not criticize Pinochet’s dictatorship at the time, nor the assassinations, illegal imprisonments, torture, or other atrocities that were well known by then.[99] In 1976 Friedman defended his unofficial adviser position with: “I do not consider it as evil for an economist to render technical economic advice to the Chilean Government, any more than I would regard it as evil for a physician to give technical medical advice to the Chilean Government to help end a medical plague.”[100]

Friedman defended his activity in Chile on the grounds that, in his opinion, the adoption of free market policies not only improved the economic situation of Chile but also contributed to the amelioration of Pinochet’s rule and to the eventual transition to a democratic government during 1990. That idea is included in Capitalism and Freedom, in which he declared that economic freedom is not only desirable in itself but is also a necessary condition for political freedom. In his 1980 documentary Free to Choose, he said the following: “Chile is not a politically free system, and I do not condone the system. But the people there are freer than the people in Communist societies because government plays a smaller role. … The conditions of the people in the past few years has been getting better and not worse. They would be still better to get rid of the junta and to be able to have a free democratic system.”[101][102] In 1984, Friedman stated that he has “never refrained from criticizing the political system in Chile.”[95] In 1991 he said: “I have nothing good to say about the political regime that Pinochet imposed. It was a terrible political regime. The real miracle of Chile is not how well it has done economically; the real miracle of Chile is that a military junta was willing to go against its principles and support a free market regime designed by principled believers in a free market. […] In Chile, the drive for political freedom, that was generated by economic freedom and the resulting economic success, ultimately resulted in a referendum that introduced political democracy. Now, at long last, Chile has all three things: political freedom, human freedom and economic freedom. Chile will continue to be an interesting experiment to watch to see whether it can keep all three or whether, now that it has political freedom,that political freedom will tend to be used to destroy or reduce economic freedom.”[103] He stressed that the lectures he gave in Chile were the same lectures he later gave in China and other socialist states.[104]

During the 2000 PBS documentary The Commanding Heights (based on the book), Friedman continued to argue that “free markets would undermine [Pinochet’s] political centralization and political control.”,[105][106] and that criticism over his role in Chile missed his main contention that freer markets resulted in freer people, and that Chile’s unfree economy had caused the military government. Friedman advocated for free markets which undermined “political centralization and political control”.[107]

### Iceland

Friedman visited Iceland during the autumn of 1984, met with important Icelanders and gave a lecture at the University of Iceland on the “tyranny of the status quo.” He participated in a lively television debate on August 31, 1984 with socialist intellectuals, including Ólafur Ragnar Grímsson, who later became the president of Iceland.[108] When they complained that a fee was charged for attending his lecture at the University and that, hitherto, lectures by visiting scholars had been free-of-charge, Friedman replied that previous lectures had not been free-of-charge in a meaningful sense: lectures always have related costs. What mattered was whether attendees or non-attendees covered those costs. Friedman thought that it was fairer that only those who attended paid. In this discussion Friedman also stated that he did not receive any money for delivering that lecture.

### Estonia

Although Friedman never visited Estonia, his book Free to Choose exercised a great influence on that nation’s then 32-year-old prime minister, Mart Laar, who has claimed that it was the only book on economics he had read before taking office. Laar’s reforms are often credited with responsibility for transforming Estonia from an impoverished Soviet Republic to the “Baltic Tiger.” A prime element of Laar’s program was introduction of the flat tax. Laar won the 2006 Milton Friedman Prize for Advancing Liberty, awarded by the Cato Institute.[109]

### United Kingdom

After 1950 Friedman was frequently invited to lecture in Britain, and by the 1970s his ideas had gained widespread attention in conservative circles. For example, he was a regular speaker at the Institute of Economic Affairs (IEA), a libertarian think tank. Conservative politician Margaret Thatcher closely followed IEA programs and ideas, and met Friedman there in 1978. He also strongly influenced Keith Joseph, who became Thatcher’s senior advisor on economic affairs, as well as Alan Walters and Patrick Minford, two other key advisers. Major newspapers, including the Daily Telegraph, The Times, and The Financial Times all promulgated Friedman’s monetarist ideas to British decision-makers. Friedman’s ideas strongly influenced Thatcher and her allies when she became Prime Minister in 1979.[110][111]

## Criticism

Econometrician David Hendry criticized part of Friedman’s and Anna Schwartz’s 1982 Monetary Trends.[112] When asked about it during an interview with Icelandic TV in 1984,[113] Friedman said that the criticism referred to a different problem from that which he and Schwartz had tackled, and hence was irrelevant,[114] and pointed out the lack of consequential peer review amongst econometricians on Hendry’s work.[115] In 2006, Hendry said that Friedman was guilty of “serious errors” of misunderstanding that meant “the t-ratios he reported for UK money demand were overstated by nearly 100 per cent”, and said that, in a paper published in 1991 with Neil Ericsson,[116] he had refuted “almost every empirical claim […] made about UK money demand” by Friedman and Schwartz.[117] A 2004 paper updated and confirmed the validity of the Hendry–Ericsson findings through 2000.[118]

Although Keynesian Nobel laureate Paul Krugman praised Friedman as a “great economist and a great man” after Friedman’s death in 2006, and acknowledged his many, widely accepted contributions to empirical economics, Krugman had been, and remains, a prominent critic of Friedman. Krugman has written that “he slipped all too easily into claiming both that markets always work and that only markets work. It’s extremely hard to find cases in which Friedman acknowledged the possibility that markets could go wrong, or that government intervention could serve a useful purpose.”[119]

In her book The Shock Doctrine, author and social activist Naomi Klein criticized Friedman’s economic liberalism, identifying it with the principles that guided the economic restructuring that followed the military coups in countries such as Chile and Indonesia. Based on their assessments of the extent to which what she describes as neoliberal policies contributed to income disparities and inequality, both Klein and Noam Chomsky have suggested that the primary role of what they describe as neoliberalism was as an ideological cover for capital accumulation by multinational corporations.[120]

### Visit to Chile

Because of his involvement with the Pinochet government, there were international protests when Friedman was awarded the Nobel Prize in 1976.[121] Friedman was accused of supporting the military dictatorship in Chile because of the relation of economists of the University of Chicago to Pinochet, and a controversial six-day trip[122] he took to Chile during March 1975 (less than two years after the coup that deposed President Salvador Allende). Friedman answered that he never was an adviser to the dictatorship, but only gave some lectures and seminars on inflation, and met with officials, including Augusto Pinochet, while in Chile.[123]

Chilean economist Orlando Letelier asserted that Pinochet’s dictatorship resorted to oppression because of popular opposition to Chicago School policies in Chile.[124] After a 1991 speech on drug legalisation, Friedman answered a question on his involvement with the Pinochet regime, saying that he was never an advisor to Pinochet (also mentioned in his 1984 Iceland interview[95]), but that a group of his students at the University of Chicago were involved in Chile’s economic reforms. Friedman credited these reforms with high levels of economic growth and with the establishment of democracy that has subsequently occurred in Chile.[125][126] In October 1988, after returning from a lecture tour of China during which he had met with Zhao Ziyang, Friedman wrote to The Stanford Daily asking if he should anticipate a similar “avalanche of protests for having been willing to give advice to so evil a government? And if not, why not?”[127]

### Capitalism and Freedom

Capitalism and Freedom is a seminal work by Friedman. In the book, Friedman talks about the need to move to a classically liberal society, that free markets would help nations and individuals in the long-run and fix the efficiency problems currently faced by the United States and other major countries of the 1950s and 1960s. He goes through the chapters specifying a specific issue in each respective chapter from the role of government and money supply to social welfare programs to a special chapter on occupational licensure. Friedman concludes Capitalism and Freedom with his “classical liberal” stance, that government should stay out of matters that do not need and should only involve itself when absolutely necessary for the survival of its people and the country. He recounts how the best of a country’s abilities come from its free markets while its failures come from government intervention.[77]

## Selected bibliography

• A Theory of the Consumption Function (1957)
• A Program for Monetary Stability (Fordham University Press, 1960) 110 pp. online version
• Capitalism and Freedom (1962), highly influential series of essays that established Friedman’s position on major issues of public policy excerpts
• A Monetary History of the United States, 1867–1960, with Anna J. Schwartz, 1963; part 3 reprinted as The Great Contraction
• “The Role of Monetary Policy.” American Economic Review, Vol. 58, No. 1 (Mar., 1968), pp. 1–17 JSTOR presidential address to American Economics Association
• “Inflation and Unemployment: Nobel lecture”, 1977, Journal of Political Economy. Vol. 85, pp. 451–72. JSTOR
• Free to Choose: A personal statement, with Rose Friedman, (1980), highly influential restatement of policy views
• The Essence of Friedman, essays edited by Kurt R. Leube, (1987) (ISBN 0-8179-8662-6)
• Two Lucky People: Memoirs (with Rose Friedman) ISBN 0-226-26414-9 (1998) excerpt and text search
• Milton Friedman on Economics: Selected Papers by Milton Friedman, edited by Gary S. Becker (2008)
• An Interview with Milton Friedman, John B. Taylor (2001). Macroeconomic Dynamics, 5, pp 101–31

## Notes

1. Jump up^ Ebenstein, Lanny (2007). Milton Friedman: A Biography. Palgrave Macmillan. p. 89.
2. Jump up^ Charles Moore (2013). Margaret Thatcher: The Authorized Biography, Volume One: Not For Turning. Penguin. pp. 576–77.
3. Jump up^ Lanny Ebenstein (2007). Milton Friedman: A Biography. St. Martin’s Press. p. 208.
4. “Milton Friedman on nobelprize.org”. Nobel Prize. 1976. Retrieved February 20, 2008.
5. Jump up^ Thomas Sowell (2016-09-16). A Personal Odyssey. Free Press. p. 320. ISBN 0743215087.
6. Jump up^ The Chicago School: How the University of Chicago Assembled the Thinkers Who Revolutionized Economics and Business
7. Jump up^ “Milton Friedman”. Commanding Heights. PBS. October 1, 2000. Retrieved September 19, 2011.
8. Jump up^ Milton Friedman—Economist as Public Intellectual
9. Jump up^ Mark Skousen (2009-02-28). The Making of Modern Economics: The Lives and Ideas of the Great Thinkers. M.E. Sharpe. p. 407. ISBN 0-7656-2227-0.
10. Jump up^ Among macroeconomists, the “natural” rate has been increasingly replaced by James Tobin‘s NAIRU, the non-accelerating inflation rate of unemployment, which is seen as having fewer normative connotations.
11. Jump up^ Nobel prize winner Paul Krugman stated that, “In 1968 in one of the decisive intellectual achievements of postwar economics, Friedman not only showed why the apparent tradeoff embodied in the idea of the Phillips curve was wrong; he also predicted the emergence of combined inflation and high unemployment … dubbed ‘stagflation.” Paul Krugman, Peddling Prosperity: Economic Sense and Nonsense in an Age of Diminished Expectations (1995) p. 43 online
12. Doherty, Brian (June 1, 1995). “Best of Both Worlds”. Reason Magazine. Retrieved October 24, 2009
13. Jump up^ Edward Nelson, “Friedman’s Monetary Economics in Practice,” Finance and Economics Discussion Series, Divisions of Research & Statistics and Monetary Affairs, Federal Reserve Board, April 13, 2011. Nelson stated, “in important respects, the overall monetary and financial policy response to the crisis can be viewed as Friedman’s monetary economics in practice.” and “Friedman’s recommendations for responding to a financial crisis largely lined up with the principal financial and monetary policy measures taken since 2007.” Nelson, “Review,” in Journal of Economic Literature (Dec, 2012) 50#4 pp. 1106–09
14. Jump up^ Lanny Ebenstein (2007). Milton Friedman: A Biography. St. Martin’s Press. p. 208.
15. Jump up^ Charles Moore (2013). Margaret Thatcher: The Authorized Biography, Volume One: Not For Turning. Penguin. pp. 576–77.
16. Jump up^ Milton Friedman (1912–2006)
17. Sullivan, Maureen (July 30, 2016). “Milton Friedman’s Name Disappears From Foundation, But His School-Choice Beliefs Live On”. Forbes. Retrieved 14 September 2016.
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20. Jump up^ Johan Norberg, Defaming Milton Friedman: Naomi Klein’s disastrous yet popular polemic against the great free market economist, Reason Magazine, Washington, D.C., Oct. 2008
21. Jump up^ Friedman 1999, p. 506
22. Jump up^ Davis, William L, Bob Figgins, David Hedengren, and Daniel B. Klein. “Economic Professors’ Favorite Economic Thinkers, Journals, and Blogs”, Econ Journal Watch 8(2): 126–46, May 2011.
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25. Jump up^ Alan O. Ebenstein, Milton Friedman: a biography (2007) p. 10; Milton & Rose Friedman, Two Lucky People. Memoirs, Chicago 1998, p. 22.
26. Jump up^ Eamonn Butler, Milton Friedman (2011) ch 1
27. Jump up^ Alan O. Ebenstein, Milton Friedman: a biography (2007) pp. 5–12
28. Jump up^ “Milton Friedman and his start in economics”. Young America’s Foundation. August 2006. Retrieved March 12, 2012.
29. Jump up^ Ebenstein, Milton Friedman: a biography (2007) pp. 13–30
30. Jump up^ Feeney, Mark (November 16, 2006). “Nobel laureate economist Milton Friedman dies at 94”. The Boston Globe. Retrieved February 20, 2008.
31. Jump up^ Friedman 1999, p. 59
32. Jump up^ “Right from the Start? What Milton Friedman can teach progressives.” (PDF). J. Bradford DeLong. Retrieved February 20, 2008.
33. Jump up^ Bernanke 2004, p. 7
34. Jump up^ Friedman 1999, p. 42
35. Jump up^ Friedman 1999, pp. 84–85
36. Jump up^ Milton Friedman; Rose D. Friedman (1999). Two Lucky People: Memoirs. University of Chicago Press. pp. 122–23. ISBN 9780226264158.
37. Jump up^ Doherty, Brian (June 1995). “Best of Both Worlds”. Reason. Retrieved July 28, 2010.
38. “Milton Friedman Biography – Academy of Achievement”. Achievement.org. Retrieved 2014-04-22.
39. Jump up^ Philip Mirowski (2002). Machine Dreams: Economics Becomes a Cyborg Science. Cambridge University Press. pp. 202–03. ISBN 9780521775267.
40. Jump up^ CATO, “Letter from Washington,” National Review, September 19, 1980, Vol. 32 Issue 19, p. 1119
41. Jump up^ Rose and Milton Friedman
42. Jump up^ Inventory of the Paul A. Samuelson Papers, 1933–2010 and undated | Finding Aids | Rubenstein Library
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45. Jump up^ Sullivan, Patricia (November 17, 2006). “Economist Touted Laissez-Faire Policy”. The Washington Post. Retrieved February 20, 2008.
46. Jump up^ Milton Friedman – Biography | Cato Institute
47. Jump up^ Trustees
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50. Jump up^ Asman, David (November 16, 2006). “‘Your World’ Interview With Economist Milton Friedman”. Fox News. Retrieved August 2, 2011.
51. Jump up^ Christie, Jim (November 16, 2006). “Free market economist Milton Friedman dead at 94”. Reuters. Retrieved February 20, 2008.
52. Jump up^ Peter Robinson (2008-10-17). “What Would Milton Friedman Say?”. forbes.com. Retrieved 2014-12-13.
53. Jump up^ Optimum Quantity of Money. Aldine Publishing Company. 1969. p. 4.
54. Jump up^ Friedman, Milton. Inflation: Causes and Consequences. New York: Asia Publishing House.
55. Jump up^ “Milton Friedman: END THE FED”. Themoneymasters.com. Retrieved 2014-04-22.
56. Jump up^ Friedman, Milton (1969). Memoirs of an Unregulated Economist. Aldine Publishing Company. p. 4.
57. Jump up^ Galbács, Peter (2015). The Theory of New Classical Macroeconomics. A Positive Critique. Heidelberg/New York/Dordrecht/London: Springer. doi:10.1007/978-3-319-17578-2. ISBN 978-3-319-17578-2.
58. Jump up^ Kevin Hoover; Warren Young (2011). Rational Expectations – Retrospect and Prospect (PDF). Durham: Center for the History of Political Economy at Duke University.
59. Jump up^ “Charlie Rose Show”. December 26, 2005. Missing or empty |series= (help)
60. Jump up^ David Teira, “Milton Friedman, the Statistical Methodologist,” History of Political Economy (2007) 39#3 pp. 511–27,
61. Jump up^ The Life and Times of Milton Friedman – Remembering the 20th century’s most influential libertarian
62. Jump up^ https://www.youtube.com/watch?v=m6fkdagNrjI “There in no institution in the US that has such a high public standing and such a poor record of performance” “It’s done more harm than good”
63. Jump up^
64. Jump up^ https://www.youtube.com/watch?v=m6fkdagNrjI “I have long been in favor of abolishing it.”
65. Jump up^ Reichart Alexandre & Abdelkader Slifi (2016). ‘The Influence of Monetarism on Federal Reserve Policy during the 1980s.’ Cahiers d’économie Politique/Papers in Political Economy, (1), pp. 107–50. https://www.cairn.info/revue-cahiers-d-economie-politique-2016-1-page-107.htm
66. Jump up^ [1]
67. Jump up^ [2]
68. Jump up^ Friedman, Milton (1955). Solo, Robert A., ed. “The Role of Government in Education,” as printed in the book Economics and the Public Interest (PDF). Rutgers University Press. pp. 123–144.
69. Jump up^ Leonard Ross and Richard Zeckhauser (December 1970). “Review: Education Vouchers”. The Yale Law Journal. 80 (2): 451–61. doi:10.2307/795126. JSTOR 795126.
70. Jump up^ Martin Carnoy (August 1998). “National Voucher Plans in Chile and Sweden: Did Privatization Reforms Make for Better Education?”. Comparative Education Review. 42 (3): 309–37. doi:10.1086/447510. JSTOR 1189163.
71. Jump up^ Milton Friedman (1991). The War on Drugs. America’s Drug Forum.
72. Jump up^ Rostker, Bernard (2006). I Want You!: The Evolution of the All-Volunteer Force. Rand Corporation. p. 4. ISBN 978-0-8330-3895-1.
73. Friedman, Milton (November 15, 2002). Capitalism and Freedom. University Of Chicago Press. p. 36.
74. Ebenstein, Lanny (2007). Milton Friedman: a biography. New York: St. Martin’s Press. pp. 231–32. ISBN 978-0-230-60409-4.
75. Jump up^ Ebenstein, Lanny (2007). Milton Friedman: a biography. New York: St. Martin’s Press. p. 243. ISBN 978-0-230-60409-4.
76. Jump up^ Friedman and Freedom. Queen’s Journal. Archived from the original on August 11, 2006. Retrieved February 20, 2008., Interview with Peter Jaworski. The Journal, Queen’s University, March 15, 2002 – Issue 37, Volume 129
77. Milton Friedman; Rose D. Friedman (1962). Capitalism and Freedom: Fortieth Anniversary Edition. U. of Chicago Press. ISBN 9780226264189.
78. Frank, Robert H (2006-11-23). “The Other Milton Friedman: A Conservative With a Social Welfare Program”. New York Times. The New York Times.
79. Jump up^ “An open letter”. Prohibition Costs. Retrieved November 9, 2012.
80. Jump up^ “Milton Friedman”. Liberal Democratic Party (Australia). Retrieved February 19, 2013.
81. Alan O. Ebenstein, Milton Friedman: A Biography (2007) p. 228
82. Jump up^ “Economic Freedom of the World project”. Fraser Institute. Retrieved 16 February 2016.
83. Jump up^ “In the Supreme Court of the United States” (PDF). Harvard Law School. Retrieved February 20, 2008.
84. Jump up^ Lessig, Lawrence (November 19, 2006). “only if the word ‘no-brainer’ appears in it somewhere: RIP Milton Friedman (Lessig Blog)”. Lessig.org. Retrieved April 2, 2013.
85. Jump up^ “A New British Bill of Rights: The Case For”. ISR Online Guide. Retrieved 16 February 2016.
86. Jump up^ Lanny Ebenstein (2007). Milton Friedman: A Biography. Palgrave Macmillan. p. 260.
87. Jump up^ Selection Committee Announced for the 2008 Milton Friedman Prize for Advancing Liberty,” Cato Institute, September 5, 2007. Accessed 4 January 2014.
88. Jump up^ Milton Friedman Prize page at Cato Institute website. Accessed 5 January 2014.
89. Jump up^ Summers, Larry (November 19, 2006). “The Great Liberator”. The New York Times.
90. Jump up^ Stephen Moore, What Would Milton Friedman Say?” Wall Street Journal, May 30, 2013 p. A13
91. Jump up^ Ingdahl, Waldemar (March 22, 2007). “Real Virtuality”. The American. Retrieved February 20, 2008.
92. Jump up^ Friedman, Milton; Friedman, Rose (1990). Free to Choose: A Personal Statement. Harvest Books. p. 34. ISBN 0-15-633460-7.
93. Jump up^ Friedman, Milton (October 6, 2006). “Dr. Milton Friedman”. Opinion Journal. Retrieved February 20, 2008.
94. Jump up^ Letter from Arnold Harberger to Stig Ramel as reprinted in the Wall Street Journal 12/10/1976, and in Two Lucky People: Memoirs By Milton Friedman, Rose D. Friedman. Appendix A, pp. 598–99. Accessible at books.google.com
95. Milton Friedman (August 31, 1984). Iceland Television Debate (Flash Video) (Television production). Reykjavík: Icelandic State Television. Event occurs at 009:48:00. Retrieved June 27, 2010.
96. [http:// Two Lucky People: Memoirs By Milton Friedman, Rose D. Friedman. Appendix A, pp. 591–93. Letter from Friedman to Pinochet, April 21, 1975.]
97. Jump up^ Mask II, William Ray (May 2013). The Great Chilean Recovery: Assigning Responsibility For The Chilean Miracle(s) (Thesis). California State University, Fresno.
98. Jump up^ “Chile and the “Chicago Boys””. The Hoover Institution. Stanford University. Retrieved 20 June 2014.
99. Jump up^ O’Shaughnessy, Hugh (December 11, 2006). “General Augusto Pinochet”. The Independent. Retrieved February 20, 2008.
100. Jump up^ Newsweek of June 14, 1976
101. Jump up^ “Free to Choose Vol. 5”. Archived from the original on February 9, 2008. Retrieved February 20, 2008.
102. Jump up^ Frances Fox Piven vs. Milton Friedman, Thomas Sowell, debate, 1980, YouTube.
103. Jump up^ The Smith Center: Milton Friedman’s lecture, “Economic Freedom, Human Freedom, Political Freedom”, by Milton Friedman, delivered November 1, 1991.
104. Jump up^ Friedman 1999, pp. 600–01
105. Jump up^ “Interview with Jeffery Sachs on the “Miracle of Chile””. PBS. Retrieved February 20, 2008.
106. Jump up^ “Commanding Heights: Milton Friedman”. PBS. Retrieved December 29, 2008.
107. Jump up^ “Milton Friedman interview”. PBS. Retrieved February 20, 2008.
108. Jump up^ Friedman, Milton; Grímsson, Ólafur Ragnar. Milton Friedman on Icelandic State Television in 1984.
109. Jump up^ “Mart Laar”. Cato Institute. Retrieved February 20, 2008.
110. Jump up^ John F. Lyons (2013). America in the British Imagination: 1945 to the Present. Palgrave Macmillan. p. 102.
111. Jump up^ Subroto Roy & John Clarke, eds., Margaret Thatcher’s Revolution: How it Happened and What it Meant (Continuum 2005)
112. Jump up^ David F. Hendry; Neil R. Ericsson (October 1983). “Assertion without Empirical Basis: An Econometric Appraisal of ‘Monetary Trends in … the United Kingdom’ by Milton Friedman and Anna Schwartz,” in Monetary Trends in the United Kingdom, Bank of England Panel of Academic Consultants, Panel Paper No. 22, pp. 45–101.See also Federal Reserve International Finance Discussion Paper No. 270 (December 1985), which is a revised and shortened version of Hendry–Ericsson 1983.
113. Jump up^ “M.Friedman – Iceland TV (1984)”. YouTube. Retrieved 16 February 2016.
114. Jump up^ van Steven Moore, CMA (1984-08-31). “Milton Friedman – Iceland 2 of 8”. YouTube. Retrieved 2014-04-22.
115. Jump up^ J. Daniel Hammond (2005). Theory and Measurement: Causality Issues in Milton Friedman’s Monetary Economics. Cambridge U.P. pp. 193–99.
116. Jump up^ David F. Hendry; Neil R. Ericsson (July 1989). “An Econometric Analysis of UK Money Demand in Monetary Trends in the United States and the United Kingdom by Milton Friedman and Anna J. Schwartz” (PDF). International Finance Discussion Papers: 355. Federal Reserve. Retrieved 2 August 2013.
117. Jump up^ Hendry, David F. (25 April 2013). “Friedman’s t-ratios were overstated by nearly 100%”. ft.com. Retrieved 1 May 2013.
118. Jump up^ Escribano, Alvaro (2004). “Nonlinear error correction: The case of money demand in the United Kingdom (1878–2000)” (PDF). Macroeconomic Dynamics. 8 (1): 76–116. doi:10.1017/S1365100503030013.
Escribano’s approach had already been recognized by Friedman, Schwartz, Hendry et al. (p. 14 of the pdf) as yielding significant improvements over previous money demand equations.
119. Jump up^ The New York Review of Books, Who Was Milton Friedman?, February 15, 2007
120. Jump up^ Noam Chomsky (1999). Profit Over People: Neoliberalism and Global Order. New York, NY: Seven Stories Press.
121. Jump up^ Feldman, Burton (2000). “Chapter 9: The Economics Memorial Prize”. The Nobel Prize: A History of Genius, Controversy, and Prestige. New York: Arcade Publishing. p. 350. ISBN 1-55970-537-X.
122. Jump up^ O’Shaughnessy, Hugh (11 December 2006). “General Augusto Pinochet”. The Independent.
123. Jump up^ Friedman, Milton; Friedman, Rose D. “Two Lucky People: One Week in Stockholm”. Hoover Digest: Research and Opinion on Public Policy. 1998 (4).
124. Jump up^ Orlando Letelier, “Economic Freedom’s Awful Toll”, The Nation, August 28, 1976.
125. Jump up^ The Drug War as a Socialist Enterprise, Milton Friedman, From: Friedman & Szasz on Liberty and Drugs, edited and with a Preface by Arnold S. Trebach and Kevin B. Zeese. Washington, D.C.: The Drug Policy Foundation, 1992.
126. Jump up^ YouTube clip: Milton Friedman – Pinochet and Chile
127. Jump up^ Friedman, Milton; Friedman, Rose D. Two Lucky People: Memoirs. University of Chicago Press. ISBN 9780226264158. Retrieved 18 October 2016.

## References

• Bernanke, Ben (2004). Essays on the Great Depression. Princeton University Press. ISBN 0-691-11820-5
• Butler, Eamonn (2011). Milton Friedman. Harriman Economic Essentials.
• Ebenstein, Alan O. (2007). Milton Friedman: a biography.
• Friedman, Milton (1999). Two Lucky People: Memoirs. University of Chicago Press. ISBN 0-226-26415-7.
• Wood, John Cunningham, and Ronald N. Wood, ed. (1990), Milton Friedman: Critical Assessments, v. 3. Scroll to chapter-preview links. Routledge.

Free to Choose (original series) https://www.youtube.com/watch?v=f1Fj5tzuYBE

Videos

# Robert Mundell

Robert Mundell
Born October 24, 1932 (age 84)
Institution Johns Hopkins University (1959–61, 1997–98, 2000–01)
University of Chicago (1965–72)
Graduate Institute of International Studies in Geneva, Switzerland (1965–75) [1]
University of Waterloo (1972–74)
McGill University (1989–1990)[2]
Columbia University (1974 – present)
Chinese University of Hong Kong (2009 – present)
Field Monetary economics
School or
Supply-side economics
Alma mater London School of Economics
UBC Vancouver School of Economics
University of Washington
Massachusetts Institute of Technology
University of Waterloo
Doctoral
Charles Kindleberger[3]
Doctoral
students
Jacob A. Frenkel
Rudi Dornbusch[4]
Carmen Reinhart[5]
Influences Ludwig Von Mises
Influenced Arthur Laffer
Jude Wanniski
Michael Mussa
Contributions Mundell–Fleming model
Optimum currency areas
Research on the gold standard
Awards Nobel Memorial Prize in Economics (1999)
Information at IDEAS / RePEc

Robert Alexander Mundell, CC (born October 24, 1932) is a Nobel Prize-winning Canadian economist. Currently, he is a professor of economics at Columbia University and the Chinese University of Hong Kong.

He received the Nobel Memorial Prize in Economics in 1999 for his pioneering work in monetary dynamics and optimum currency areas. Mundell is known as the “father”[6] of the Euro, as he laid the groundwork for its introduction through this work and helped to start the movement known as supply-side economics. Mundell is also known for the Mundell–Fleming model and Mundell–Tobin effect.

## Background

Mundell was born in Kingston, Ontario, Canada. He earned his BA in Economics at the University of British Columbia in Vancouver, Canada, and his MA at the University of Washington in Seattle. After studying at the University of British Columbia and at The London School of Economics in 1956,[7] he then attended the Massachusetts Institute of Technology (MIT), where he obtained his PhD in Economics in 1956. In 2006 Mundell earned an honorary Doctor of Laws degree from the University of Waterloo in Canada.[8] He was Professor of Economics and Editor of the Journal of Political Economy at the University of Chicago from 1965 to 1972, Chairman of the Department of Economics at the University of Waterloo 1972 to 1974 and since 1974 he was Professor of Economics at Columbia University.[9] He also held the post of Repap Professor of Economics at McGill University.[10][11]

## Career

Since 1974 he has been a professor in the Economics department at Columbia University; since 2001 he has held Columbia’s highest academic rank – University Professor. After completing his post-doctoral fellowship at the University of Chicago in 1957, he began teaching economics at Stanford University, and then Paul H. Nitze School of Advanced International Studies at Johns Hopkins University during 1959–1961.[2] In 1961, he went on to staff the International Monetary Fund. Mundell returned to academics as professor of economics at the University of Chicago from 1966 to 1971, and then served as professor during summers at the Graduate Institute of International Studies in Geneva until 1975. In 1989, he was appointed to the post of Repap Professor of Economics at McGill University.,[10][11] In the 1970s, he laid the groundwork for the introduction of the euro through his pioneering work in monetary dynamics and optimum currency forms for which he won the 1999 Nobel Prize in Economics. During this time he continued to serve as an economic adviser to the United Nations, the IMF, the World Bank, the European Commission, the Federal Reserve Board, the United States Department of Treasury and the governments of Canada and other countries. He is currently the Distinguished Professor-at-Large of The Chinese University of Hong Kong.

Among his major contributions are:

## Awards

Mundell was awarded the Guggenheim Fellowship in 1971 and the Nobel Memorial Prize in Economics in 1999. In 2002 he was made a Companion of the Order of Canada.

In 1992, Mundell received the Docteur Honoris Causa from the University of Paris. Mundell’s honorary professorships and fellowships were from Brookings Institution, the University of Chicago, the University of Southern California, McGill University, the University of Pennsylvania, the Bologna Center and Renmin University of China. He became a fellow of the American Academy of Arts and Sciences in 1998. In June 2005 he was awarded the Global Economics Prize World Economics Institute in Kiel, Germany and in September 2005 he was made a Cavaliere di Gran Croce del Reale Ordine del Merito sotto il Titolo di San Ludovico by Principe Don Carlo Ugo di Borbone Parma.

The Mundell International University of Entrepreneurship in the Zhongguancun district of Beijing, People’s Republic of China is named in his honor.

## International monetary flows

Mundell is best known in politics for his support of tax cuts and supply-side economics; however, in economics it is for his work on currency areas[12] and international exchange rates[13] that he was awarded the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel by the Bank of Sweden (Sveriges Riksbank). Nevertheless, supply-side economics featured prominently in his Bank of Sweden prize speech.

In the 1960s, Canada, of which Mundell is a native, floated its exchange: this caused Mundell to begin investigating the results of floating exchange rates, a phenomenon not widely seen since the 1930s “Stockholm School” successfully lobbied Sweden to leave the gold standard.

In 1962, along with Marcus Fleming, he co-authored the Mundell–Fleming model of exchange rates, and noted that it was impossible to have domestic autonomy, fixed exchange rates, and free capital flows: no more than two of those objectives could be met. The model is, in effect, an extension of the IS/LM model applied to currency rates.

According to Mundell’s analysis:

• Discipline under the Bretton Woods system was more due to the US Federal Reserve than to the discipline of gold.
• Demand side fiscal policy would be ineffective in restraining central banks under a floating exchange rate system.
• Single currency zones relied, therefore, on similar levels of price stability, where a single monetary policy would suffice for all.

His analysis led to his conclusion that it was a disagreement between Europe and the United States over the rate of inflation, partially to finance the Vietnam War, and that Bretton Woods disintegrated because of the undervaluing of gold and the consequent monetary discipline breakdown. There is a famous point/counterpoint over this issue between Mundell and Milton Friedman.[14]

This work later led to the creation of the euro and his prediction that leaving the Bretton Woods system would lead to “stagflation” so long as highly progressive income tax rates applied. In 1974, he advocated a drastic tax reduction and a flattening of income tax rates.

Mundell, though lionized by some conservatives, has many of his harshest critics from the right: he denies the need for a fixed gold based currency or currency board[citation needed] (he still often recommends this as a policy in hyperinflationary environments) and he is both a fiscal and balance of payments deficit hawk. He is well known for stating that in a floating exchange rate system, expansion of the money supply can come about only by a positive balance of payments.

In 2000, he predicted that before 2010, the euro zone would expand to cover 50 countries, while the dollar would spread throughout Latin America, and much of Asia would look towards the yen.[15] Such predictions have proved highly inaccurate.

## Nobel Prize winner

Mundell won the Nobel Memorial Prize in Economic Science in 1999 and gave as his prize lecture a speech titled “A Reconsideration of the Twentieth Century”. According to the Nobel Prize Committee, he got the honor for “his analysis of monetary and fiscal policy under different exchange rate regimes and his analysis of optimum currency areas”.

Mundell concluded in that lecture that “the international monetary system depends only on the power configuration of the countries that make it up”. He divided the entire twentieth century into three parts by different periods of time:

• The first third of the century, from its beginning to the Great Depression of the 1930s, economics was dominated by the confrontation of the Federal Reserve System with the gold standard.
• The second third of the century was from World War II to 1973, when the international monetary system was dominated by fixing the price of gold with the US dollar.
• The last third of the century started with the destruction of the old monetary system due to the problem of inflation.

With the destruction of the old monetary system, a new international monetary system was finally founded. Controlling inflation by each country became a main topic during this era.

## Television appearances

Mundell has appeared on CBS‘s Late Show with David Letterman. His first appearance was on October 17, 2002[16] where he gave The Top 10 List on “Ways My Life has Changed Since Winning the Nobel Prize.” In March 2004[17] he told “You might be a redneck” jokes followed in May 2004[18] with “Yo Mama” jokes. In September 2004[19] he appeared again, this time to read excerpts from Paris Hilton‘s memoir at random moments throughout the show. In November 2005[20] he told a series of Rodney Dangerfield‘s jokes. On February 7, 2006[21] he read Grammy Award nominated song lyrics, the night before CBS aired the 48th Grammy Awards.

Mundell also appeared on Bloomberg Television many times.

Mundell has also appeared on China Central Television‘s popular Lecture Room series. Professor Mundell was also a special guest making the ceremonial first move in Game Five of the 2010 World Chess Championship between Viswanathan Anand and Veselin Topalov.

Mundell started the Pearl Spring Chess Tournament, a double round robin tournament with six players. The first tournament in 2008 was won by the Bulgarian, Veselin Topalov. The next two: 2009–2010 was won by the Norwegian, Magnus Carlsen.

## References

1. Jump up^ http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1999/mundell-bio.html
2. Nobel Prize Winners from Johns Hopkins University
3. Jump up^ Essays in the theory of international capital movementspage 3. Retrieved September 12, 2016.
4. Jump up^ RUDI DORNBUSCH by Stanley Fischer – Project Syndicate
5. Jump up^ Warsh, David (November 1, 2009). “What The Woman Lived”. Economic Principals. Retrieved October 17, 2016.
6. Jump up^
7. Jump up^ “Robert Mundell – Nobel Prize Winners – Key facts – About LSE – Home”. .lse.ac.uk. March 13, 2009. Retrieved January 1, 2012.
8. Jump up^ [1]
9. Jump up^ http://www.polyu.edu.hk/iao/nobel2009/mundell_bio.pdf
10. “Robert A. Mundell – Biography”. Nobelprize.org. Retrieved January 1, 2012.
11. “Biography | The Works of Robert Mundell”. Robertmundell.net. Retrieved January 1, 2012.
12. Jump up^ A Theory of Optimum Currency Areas; The American Economic Review, Vol. 51, No. 4, pp. 657–665, 1961
13. Jump up^ Capital Mobility, and Stabilization Policy under Fixed and Flexible Exchange Rates; Revue Canadienne d’Economique et de Science Politique, Vol. 29, No. 4, pp. 475–485, 1963
14. Jump up^ “Mundell-Friedman debate” (PDF). Retrieved January 1, 2012.
15. Jump up^ Mark Milner and Charlotte Denny (January 14, 2000). “The new endangered species | Business”. London: The Guardian. Retrieved January 1, 2012.
16. Jump up^ show #1891 Archived August 15, 2006, at the Wayback Machine.
17. Jump up^ show #2144 Archived October 17, 2006, at the Wayback Machine.
18. Jump up^ show #2162 Archived May 16, 2006, at the Wayback Machine.
19. Jump up^ show # 2238 Archived February 23, 2006, at the Wayback Machine.
20. Jump up^ show #2466 Archived December 15, 2005, at the Wayback Machine.
21. Jump up^ show #2505 Archived May 16, 2006, at the Wayback Machine.

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## Stephen Moore–Who is the Fairest of Them All?: The Truth About Opportunity, Taxes, and Wealth in America—Videos

#### Fairest of Them All: Finding Real Economic Justice – CBN.com

An Evening with Stephen Moore

Stephen Moore delivered the keynote address at the 2012 Annual Dinner of the Kansas Policy Institute October 18, 2012. Moore is an economic writer and policy analyst who founded and served as president of the Club for Growth from 1999 to 2004. He is currently a member of the editorial board of the Wall Street Journal, regularly writes for that paper’s opinion page and frequently appears on national broadcast media including CNBC and Fox News.

An Overdue Book

By Thomas Sowell

“…If everyone in America had read Stephen Moore’s new book, “Who’s The Fairest of Them All?”, Barack Obama would have lost the election in a landslide.

The point here is not to say, “Where was Stephen Moore when we needed him?”  A more apt question might be, “Where was the whole economics profession when we needed them?” Where were the media?  For that matter, where were the Republicans?

Since “Who’s The Fairest of Them All?” was published in October, there was little chance that it would affect this year’s election.  But this little gem of a book exposes, in plain language and with easily understood facts, the whole house of cards of assumptions, fallacies and falsehoods which constitute the liberal vision of the economy.

Yet that vision triumphed on election day, thanks to misinformation that was artfully presented and seldom challenged. The title “Who’s The Fairest of Them All?” is an obvious response to liberals’ claim that their policies are aimed at creating “fairness” by, among other things, making sure that “the rich” pay their “fair share” of taxes.  If you want a brief but thorough education on that, just read chapter 4, which by itself is well worth the price of the book.

A couple of graphs on pages 104 and 108 are enough to annihilate the argument about “tax cuts for the rich.”  These graphs show that, under both Republican President Calvin Coolidge and Democratic President John F. Kennedy, high-income people paid more tax revenues into the federal treasury after tax rates went down than they did before.

There is nothing mysterious about this. At high tax rates, vast sums of money disappear into tax shelters at home or is shipped overseas. At lower tax rates, that money comes out of hiding and goes into the American economy, creating jobs, rising output and rising incomes.  Under these conditions, higher tax revenues can be collected by the government, even though tax rates are lower. Indeed, high income people not only end up paying more taxes, but a higher share of all taxes, under these conditions.

This is not just a theory.  It is what hard evidence shows happened under both Democratic and Republican administrations, from the days of Calvin Coolidge to John F. Kennedy to Ronald Reagan and George W. Bush.  That hard evidence is presented in clear and unmistakable terms in “Who’s The Fairest of Us All?”

Another surprising fact brought out in this book is that the Democrats and Republicans both took positions during the Kennedy administration that were the direct opposite of the positions they take today.  As Stephen Moore points out, “the Republicans almost universally opposed and the Democrats almost universally favored” the cuts in tax rates that President Kennedy proposed.

Such Republican Senate stalwarts as Barry Goldwater and Bob Dole voted against reducing the top tax rate from 91% to 70%.  Democratic Congressman Wilbur Mills led the charge for lower tax rates.

Unlike the Republicans today, John F. Kennedy had an answer when critics tried to portray his tax cut proposal as just a “tax cut for the rich.”  President Kennedy argued that it was a tax cut for the economy, that changed incentives meant a faster growing economy and that “A rising tide lifts all boats.”

If Republicans today cannot seem to come up with their own answer when critics cry out “tax cuts for the rich,” maybe they can just go back and read John F. Kennedy’s answer.

A truly optimistic person might even hope that media pundits would go back and check out the facts before arguing as if the only way to reduce the deficit is to raise tax rates on “the rich.”

If they are afraid that they would be stigmatized as conservatives if they favored cuts in tax rates, they might take heart from the fact that not only John F. Kennedy, but even John Maynard Keynes as well, argued that cutting tax rates could increase tax revenues and thereby help reduce the deficit.

Because so few people bother to check the facts, Barack Obama can get away with statements about how “tax cuts for the rich” have “cost” the government money that now needs to be recouped.  Such statements not only promote class warfare, to Obama’s benefit on election day, they also distract attention from his own runaway spending behind unprecedented trillion dollar deficits. …”

http://townhall.com/columnists/thomassowell/2012/11/28/an_overdue_book/page/full/

#### WSJ Economist Moore: No Grounds for Obama’s Tax on Wealthy

By Jim Meyers and John Bachman

“…Moore is a senior economics writer and editorial board member for The Wall Street Journal. He is the founder and former president of the Club for Growth and a best-selling author. He also wrote the cover story for Newsmax magazine’s October issue.

Moore’s new book is “Who’s The Fairest of Them All: The Truth about Opportunity, Taxes and Wealth in America.”

In an exclusive interview with Newsmax TV, Moore was asked if Obama and the Democrats are advocating higher taxes on the wealthy to improve the economy or to win over middle-class voters.

“I don’t think anybody thinks that raising tax rates will improve the economy. At least I certainly hope no one does because the history is so unequivocal that that’s not the case,” Moore says.

“In fact, what you want is lower tax rates, not higher tax rates, especially when we’re living in a global economy where United States companies are competing against companies in India and China and Germany and France and all over the world.

“So there’s no case on economic grounds for raising tax rates. President Obama is selling that idea on the grounds of fairness and that’s really the reason I wrote this book, to sort of define what does it really mean to be a fair society.

“What I show in this research is that the fairest  system of them all is the free enterprise system. The free enterprise system is what creates growth, creates jobs and higher living standards for almost all Americans. So it’s hard to improve on that system. President Obama believes that the way to create a fairer system is to redistribute income from the rich to the poor. That’s never worked very well.”

Americans are an “aspirational society” and don’t believe that rich people are evil, Moore adds.

“Most of us aspire to be rich and that’s really the American Dream — to try to work hard, start a business, do the right thing so you can get rich. And America’s still the best country in the world to do that, despite all the obstacles that government tries to create.

“I think President Obama is driven much more by an ideology that says, ‘Redistribute wealth instead of creating.’ It’s almost like the wealth is just automatically there and all we have to do is just cut up that pie differently. What I show in the book is that when you try to do that, what happens is the pie shrinks and everybody is worse off.”

Vice President Joe Biden recently said the middle class has been “buried” during the last few years. But Moore argues that the demise of the middle class is a myth.

He comments: “First of all, let me say that the demise of the middle class over the last three years is very real. We have seen a very steep decline in middle income earnings over the last three and a half years. Since President Obama came into office, there’s been a $4,500 decline in income. That’s huge. That’s one month’s income. “What I was talking about in the book is, over the last several decades, in the ‘80s, ‘90s and even the first of the 2000s, the middle class did very well. President Obama says, ‘Oh, the recent decades have been a time of decline in the middle class.’ That’s not true. The real decline of the middle class was George Bush’s last year in office and Barack Obama’s first three and a half years in office.” Moore points out that the wealthiest 10 percent of Americans pay most of the taxes — 75 percent of income taxes and 45 percent of all taxes. Yet some argue that the richest Americans are still doing really well when compared to the other 90 percent and can afford to chip in a little more in taxes. “Look, we do need more tax revenues if we want to balance this budget. There’s absolutely no question about it,” Moore says. “Tax revenues as a percent of our GDP are lower than they’ve been in 40 years. My response to this argument about why not just soak the rich is that that’s never really worked very well. History proves if you want to get more revenues out of rich people, cut their tax rates, don’t raise them. That’s a lesson that John F. Kennedy taught us, Ronald Reagan taught us, even George W. Bush taught us. “I don’t think there’s any evidence that raising tax rates way up is going to get more money out of the rich because the rich will find shelters, they will find tax carve-outs and loopholes and deductions to hide their money.” Another argument from the left is that we should raise tax rates to where they were under President Clinton. President Obama has pointed out that those rates did not slow down economic growth during Clinton’s tenure. Moore takes issue with that point of view. “A couple of things,” he says. “One is that President Obama doesn’t want to just raise the rates to the Clinton era, he wants them to be a lot higher. People forget that also in the Obamacare healthcare law, there’s a 3.8 percent investment surtax so rates would actually go up about four percentage points higher than they were in the Clinton administration. “But the other thing to point out is the Clinton years were prosperous, in part because under a Republican Congress and Bill Clinton, who was a conservative in terms of his fiscal policies, government spending fell as a share of GDP from 22 percent to 18 percent. So that’s like a tax cut when you cut government spending by four percentage points of GDP. “Barack Obama’s done just the opposite. He’s raised gross spending by almost four percentage points of GDP. We’ve been averaging about 24 percent, which is the highest it’s been any time since World War II when we were fighting the Nazis and the Japanese. “So the point I would make is that Barack Obama’s kind of the anti-Clinton. Obama’s not a fiscal conservative. He’s driven up the debt by over$1 trillion a year. Just last week, the numbers came out that we had a $1.1 trillion deficit in 2012. That’s four straight years with trillion-dollar deficits. That isn’t fiscal conservatism. That doesn’t help anybody.” The Bush-era tax cuts are set to expire next year at the same time that automatic cuts in government spending are scheduled to take effect, possibly leading to what some have called a “fiscal cliff.” That makes this year’s election crucial, Moore asserts. “The most important fiscal cliff is this tax increase, and the reason this is such an important election is if Barack Obama wins, he will have a mandate from voters to raise tax rates,” he tells Newsmax. “I agree with the Congressional Budget Office and a lot of other economists that that’s something that could cause a double dip recession. And if you think the economy’s bad now, wait until those tax rates go up in 2013. “One of the arguments for Mitt Romney is he’s actually going to cut the rates, not raise them. I do think we need spending cuts. There’s a lot of people who say that we can’t afford to do these spending cuts next year. Yes, we can afford to do that. “In fact, we have to do that. We have to start really taking a blade to government spending because that’s so inefficient and every dollar the government spends is a dollar less the private sector has to spend on its own expansions.” Mitt Romney is vowing to cut taxes by 20 percent across the board and pay for those cuts by eliminating loopholes. Romney also says he believes in a progressive tax structure. “I like his tax plan,” Moore says. “I don’t agree with everything in it but [I agree with] the basic concept, which Ronald Reagan did with Dan Rostenkowski and Bob Packwood and Ted Kennedy and Democrats back in the 1980s. “It’s amazing how the Democrats have moved to the left. Back then, what we did is we cut tax rates significantly, very significantly, and we closed off loopholes to make a much more efficient tax system and it worked really well. That’s what Mitt Romney, for the most part, is trying to do — get rid of the pollution and the special interest carve-outs in the tax system, lower the rates for everybody. “It’s been proven time again, that’s a very productive way to get the economy moving again. The numbers can add up. Ronald Reagan proved the numbers can add up. When we did the 1986 tax act, that lowered the rate all the way down to 28 percent. We actually got more revenues into the treasury, not less.” Asked to give Romney’s plan a letter grade, Moore responds: “I’ll give him a B-plus. The tax plan is strong and it will move us right in the right direction. “Now I’d like to see a flat tax. I’m a Steve Forbes guy. One rate for everybody with no deductions, no loopholes and you get rid of the double tax on saving and investment. That would be the optimal tax system but Mitt Romney’s plan moves us in that direction. “Interestingly, under Mitt Romney, the top tax rate would be about 28 percent. Under Barack Obama, the top tax rate goes up to 42 percent. That’s a big difference.” Read Latest Breaking News from Newsmax.com http://www.newsmax.com/Newsfront/moore-obama-tax-plan/2012/10/09/id/459261#ixzz2DeMBPkui #### 75% of Obamacare taxes will be on middle-class Stephen Moore: We’ve Spent Over a Million Dollars For Each Green Job Wall Street Journal Stephen Moore – Ron Paul’s IRS proposal Wall Street Journal’s Stephen Moore on the 2012 Election Ashbrook Center – Stephen Moore – Can Capitalism Make a Comeback? – April 4 2012 Stephen Moore, Senior Economics writer for the Wall Street Journal speaks at an Ashbrook Center Major Issues Lecture on April 4, 2012. Moore addresses the topic : Can Capitalism Make a Comeback? Stephen Moore – America at a Crossroads Dr. Mathew Manweller of Central Washington University and Stephen Moore of the Wall Street Journal join members of the Freedom Foundation to discuss the direction the United States going into the 2012 election. Read Full Post | Make a Comment ( None so far ) ## Last Dance For Love–Congress Blocks Debt Limit Hike–For Now–Who Is The Political Class Fooling–Bring The Troops and Jobs Home and Send The Bureaucrats and Big Spenders Home–Save Medicare and Social Security–Hot Stuff–Videos #### Pronk Pops Show 30:June 2, 2011 #### Pronk Pops Show 29:May 26, 2011 #### Pronk Pops Show 28:May 18, 2011 #### Pronk Pops Show 27:May 9, 2011 #### Listen To Pronk Pops Podcast or DownloadShows 30- #### Listen To Pronk Pops Podcast or DownloadShows 27-29 #### Listen To Pronk Pops Podcast or Download Shows 22 (Part 2)-26 #### Listen To Pronk Pops Podcast or Download Shows 16-22 (Part 1) #### Listen To Pronk Pops Podcast or Download Shows 10-15 #### Listen To Pronk Pops Podcast or Download Shows 1-9 #### Donna Summer Last Dance #### America Addicted To Debt & Spending #### Obama Spending  Summary of Outlays, Revenues (Receipts), Deficits, Surpluses Fiscal Years 1980-2010(Nominal Dollars in Millions) Fiscal Year Outlays Revenues (Receipts) Deficits (-), Surpluses 1980 590,941 517,112 -73,830 1981 678,241 599,272 -78,968 1982 745,743 617,766 –127,977 1983 808,364 600,562 -207,802 1984 851,805 666,488 -185,367 1985 946,344 734,037 -212,308 1986 990,382 769,155 -221,277 1987 1,004,017 854,288 -149,730 1988 1,064,417 854,288 -155,178 1989 1,143,744 991,105 -152,639 1990 1,252,994 1,031,958 -221,036 1991 1,324,226 1,054,988 -269,238 1992 1,381,529 1,091,208 -290,321 1993 1,409,386 1,154,335 -255,051 1994 1,461,753 1,258,566 –203,186 1995 1,515,742 1,351,790 -163,392 1996 1,560,484 1,453,053 -107,431 1997 1,601,116 1,579,232 -21,884 1998 1,652,458 1,721,728 69,270 1999 1,701,842 1,827,452 125,610 2000 1,788,950 2,025,191 236,241 2001 1,862,846 1,991,082 128,236 2002 2,010,894 1,853,136 –157,758 2003 2,159,899 1,782,314 -377,585 2004 2,292,841 1,880,114 -412,727 2005 2,471,957 2,153,611 -318,346 2006 2,655,050 2,406,869 -248,181 2007 2,728,686 2,567,985 -160,701 2008 2,982,544 2,523,991 -458,553 2009 3,517,677 2,104,989 -1,412,688 2010 3,456,213 2,162,724 -1,293,489 #### Monthly Treasury Statement http://www.fms.treas.gov/mts/mts0411.txt #### Brian Wesbury, FT Advisors, Debt Ceiling #### Cheerleading Chant – We’ve Got the Power-Hold That Line #### Palin to Both Parties: Vote Against Raising Debt Ceiling #### Sen. Rand Paul on Debt Default #### Rep. Paul Ryan: President Not Showing the Leadership Needed to Fix Debt Crisis Brian Wesbury Tells The Truth About Paul Ryan #### Daniel J. Mitchell On Balancing The Budget #### Congress Blocks Debt Limit Hike #### House defeats debt limit increase [NBC: 6-01-2011] #### National Debt Clock #### http://www.usdebtclock.org/ ## United States public debt “…The United States public debt is a measure of the obligations of the United States federal government and is presented by the United States Treasury in two components and one total: • Debt Held by the Public, representing all federal[1] securities held by institutions or individuals outside the United States Government; • Intragovernmental Holdings, representing U.S. Treasury securities held in accounts which are administered by the United States Government, such as the OASI Trust fund administered by the Social Security Administration; and • Total Public Debt Outstanding, which is the sum of the above components.[2] As of May 6, 2011, the Total Public Debt Outstanding of the United States of America was$14.32 trillion and was approximately 98% of calendar year 2010’s annual gross domestic product (GDP) of $14.66 trillion.[2][3][4] Using 2010 figures, the total debt (96.3% of GDP) ranked 12th highest against other nations.[citation needed] The national debt should not be confused with the trade deficit, which is the difference between net imports and net exports. State and Local Government Series securities, issued by state and local governments, are not part of the United States government debt.[5] The deficit is presented on a cash rather than an accruals basis, although the accrual deficit provides more information on the longer-term implications of the government’s annual operations.[6] The annual government deficit or surplus refers to the cash difference between government receipts and spending ignoring intra-governmental transfers. The gross public debt increases or decreases as a result of this unified budget deficit or surplus. However, there is certain spending (supplemental appropriations) that add to the gross debt but are excluded from the deficit. Gross debt has increased over$500 billion each year since fiscal year (FY) 2003, with increases of $1 trillion in FY2008,$1.9 trillion in FY2009, and $1.7 trillion in FY2010.[7] Together with the budget deficit, this debt was one of the reasons given by Standard & Poor’s to downgrade the United States’ credit outlook to “negative” on April 18, 2011.[8] …” http://en.wikipedia.org/wiki/United_States_public_debt #### Dollar is DEAD, National Debt over the 14 Trillion Ceiling! #### Ron Paul’s Debt Ceiling Warning #### The Political Games Behind the Debt-Ceiling Debate #### Senator Pat Toomey Explains That Failing To Raise Debt Limit Doesn’t Cause Default #### Sen. Toomey Gives a Speech on the Debt Limit at AEI #### GOP Senate Leader Won’t Support Debt-Limit Increase Without Medicare Reform #### STEPHEN MOORE House GOP Rally Behind “cut, cap and balance” strategy #### Stephen Moore: Trillion is the New Billion?! #### Will Congress Raise Debt Ceiling? [FOX: 5-13-2011] #### Donna Summer – Hot Stuff Any Representative or Senator that votes for raising the National Debt ceiling should be voted out of office the next time they run for re-election. The political class in Washington D.C. are child abusers that would burden your children and grandchildren with massive interest payments anda massive national debt that could never be paid off. This is both unconstitutional and immoral. Do not let either Democrats or Republicans get away with unbalanced budgets. Force both parties to balance the budget by changing from a warfare and welfare economy to a peace and prosperity economy by requiring balanced budgets every year starting with Fiscal Year 2012. Force both parties to eliminate the current Federal income tax system and replace it with the FairTax, a national retail consumption tax of 20% on the sale of all new goods and services. Force both parties to live within the means of the American people by limiting government spending outlays to 80% of FairTax collections or revenues in the prior year with the remaining 20% going to pay down the national debt! Force the permanent closing of ten Federal Departments to limit the size and scope of Federal Government and reduce both the tax and regulatory burden on small and medium size businesses. Force out of office the big spenders of both the Democratic and Republican Parties. Bring The Troops and The Jobs Home! Send The Bureaucrats and Big Spenders Home! Create over 30 million full time jobs for unemployed and under-employed American citizens by implement the above economic policies. The vast majority of the American people oppose an increase in the national debt ceiling. No more paths to a balance budget or path to prosperity–balance the budget by opposing any increase in the debt ceiling. Path to Citizenship = Amnesty for Illegal Aliens Path to A Balance Budget = Unbalanced Budgets = Deficit Spending = Raising The National Debt Ceiling Path to Prosperity = Unbalanced Budgets = Deficit Spending = Raising The National Debt Ceiling Join the Second American Revolution. Run of elected office. Campaign for Liberty. Vote for candidates who are for a peace and prosperity economy. Defeat candidates that favor the continuation of the warfare and welfare economy–Democrats and Republicans! #### 3/09/11: Sen. Rand Paul on balancing the budget # Background Articles and Videos ## Which Budgets Are Balanced And Living Within The Means of The American People? #### 4/5/11 Republican Leadership Press Conference #### Republican Party Budget Proposals  S-1 FY2012 Chairman’s Markup (Nominal Dollars in Billions) Fiscal Year Outlays Revenues Deficits Debt Held By Public 2011 3,618 2,230 -1,388 10,351 2012 3,529 2,533 -995 11,418 2013 3,559 2,860 -699 12,217 2014 3,586 3,094 -492 12,801 2015 3,671 3,237 -434 13,326 2016 3,858 3,377 -481 13,886 2017 3,998 3,589 -408 14,363 2018 4,123 3,745 -379 14,800 2019 4,352 3,939 -414 15,254 2020 4,544 4,142 -402 15,681 2021 4,739 4,354 -385 16,071 2012-2021 39,958 34,870 -5,088 n.a. http://budget.house.gov/UploadedFiles/PathToProsperityFY2012.pdf #### Sen. Toomey Unveils his FY 2012 Budget #### Senator Pat Toomey Talks with Michael Medved about his Budget  S-1 FY2012 Senator Pat Toomey(Nominal Dollars in Billions) Fiscal Year Outlays Revenues DeficitsSurplus Debt Held By Public 2011 3,625 2,230 -1,351 10,351 2012 3,477 2,538 -919 11,418 2013 3,485 2,964 -521 12,217 2014 3,509 3,216 -291 12,801 2015 3,623 3,391 -233 13,326 2016 3,765 3,524 -241 13,886 2017 3,853 3,736 -117 14,363 2018 3,955 3,916 -39 14,800 2019 4,140 4,108 -32 15,254 2020 4,302 4,325 23 15,681 2021 4,493 4,566 73 16,071 2012-2021 38,602 36,304 -2298 n.a. http://www.scribd.com/doc/55116239/Restoring-Balance-Final #### Democratic Party Budget Proposals  S-1 FY2012 President’s Budget (Nominal Dollars in Billions) Fiscal Year Outlays Revenues Deficits Debt Held By Public 2011 3,819 2,174 -1,645 10,856 2012 3,729 2,627 -1,101 11,881 2013 3,771 3,003 -768 12,784 2014 3,977 3,333 -646 13,562 2015 4,190 3,583 -607 14,301 2016 4,468 3,819 -649 15,064 2017 4,669 4,042 -627 15,795 2018 4,876 4,257 -619 16,513 2019 5,154 4,473 -681 17,284 2020 5,442 4,686 -735 18,103 2021 5,697 4,923 -774 18,967 2012-2021 45,952 38,747 -7,205 n.a. http://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/tables.pdf #### Tea Party Budget Proposals  S-1 FY2012 Tea Party’s Balanced/Surplus Budget(Nominal Dollars in Billions) Fiscal Year Outlays Revenues Surpluses Debt Held By Public 2012 2,500 2,500 0 10,900 2013 2,800 2,800 0 10,900 2014 3,000 3,000 0 10,900 2015 3,200 3,200 0 10,900 2016 3,300 3,300 0 10,900 2017 3,400 3,500 100 10,800 2018 3,500 3,700 200 10,600 2019 3,600 3,900 300 10,300 2020 3,700 4,000 300 10,000 2021 3,800 4,300 500 9,500 2012-2021 32,800 34,200 1,400 n.a. #### Sen. Rand Paul Calls for Action on Federal Budget #### 03/17/11: Sen. Rand Paul Introduces Five-Year Balanced Budget Plan  S-1 FY2012 Senator Rand Paul(Nominal Dollars in Billions) Fiscal Year Outlays Revenues DeficitsSurplus Debt Held By Public 2011 3,708 2,228 -1,480 10,430 2012 3,100 2,547 -553 11,051 2013 3,152 2,755 -397 11,532 2014 3,227 3,088 -139 11,748 2015 3,360 3,244 -116 11,942 2016 3,430 3,349 19 11,997 2012-2016 16,269 15,083 -1,188 n.a. http://campaignforliberty.com/materials/RandBudget.pdf ### 50% Recognize Official Debt Ceiling Figures Understate the Problem “…A new Rasmussen Reports national telephone survey finds that 38% of Likely Voters nationwide correctly believe that raising the debt ceiling will let the government fund spending levels that have already been approved by Congress. Thirty-two percent (32%) believe that it will authorize the federal government to spend more money, while 30% are not sure. (To see survey question wording, click here.) At the same time, 50% realize that the official debt ceiling of approximately$14 trillion does not include the cost of commitments the federal government has made for future retirement, Social Security and Medicare benefits. Only 17% mistakenly believe that the official figures include these commitments. One-in-three voters (33%) are not sure.

When the cost of these future commitments is included, the total debt is approximately five times higher than the reported figures, somewhere in the range of \$70 trillion. The government does put out an annual report estimating these figures, but they rarely intrude on the fiscal debate in Congress. The total amount of outstanding debt has grown even faster than the growth of the reported debt over the past decade. …”

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