Unemployment, Inflation, and Monetarism

Abstract

The Council's Report provides a look at the 1969-71 game plan to disinflate by means of retarding aggregate demand.... The President-Elect's Task Force on Inflation recommended, as a first interim step, that aggregate demand be slowed so as to bring the unemployment rate back to some equilibrium region around 4.5 percent.... What happened was that, under the cover of the expectation and acceptance of such a limited step towards re-equilibration, the Administration gradually tightened monetary and fiscal policy so severely as 'gradually' to send the unemployment rate whizzing past the equilibrium zone to around 6 percent. To my knowledge the theory of how, and how well, this medicine would act to cure the patient of his inflation was never spelled out by the Council of Economic Advisers. [pp. 533--34]

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