Stock Ownership

Doug Henwood dhenwood at panix.com
Sun Apr 30 13:32:53 MDT 1995


At 9:04 PM 4/30/95, Steve.Keen at unsw.edu.au wrote:

>A neat illustration of this occurred in Australia, when one year
>the money supply rose by 30%. A pair of conservative economists
>stuck their necks out with a newpaper article predicting a
>rate of inflation the next year of 27%, on the basis of a
>conservative theory of economics known as rational expectations.
>I had great fun mocking their prediction with my students, since
>it was based on the notion that the money supply was exogenous--
>determined by government action--and such a rate of growth of
>the money supply would "rationally" lead people to expect a
>rate of inflation of 27% the next year, thus causing such
>a rate.
>
>In fact, the rate of inflation the following year was 2% (the lowest
>rate in 25 years), and the money supply shrunk by 2%--the boom
>had collapsed.

Last year, I found myself on a panel (at a Grant's Interest Rate Observer
conference) with Sir Alan Walters, one of Maggie Thatcher's economic gurus.
Since I knew he was going to be there, I made sure to devote several
paragraphs of my talk to making fun of British monetarism - numbers very
much like these, which showed absolutely no relation between money &
inflation. Sir Alan came up to me later and told me what I said about money
was "absolute rubbish," because I'd used the wrong measure of money (M2,
from the IMF's International Financial Statistics). I should have used M0
instead. Silly me.

They've always got an answer for you. What did these Oz monetarists say
when inflation turned out to be 2%?

Doug

--

Doug Henwood
[dhenwood at panix.com]
Left Business Observer
250 W 85 St
New York NY 10024-3217
USA
+1-212-874-4020 voice
+1-212-874-3137 fax




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