In 1992, Milton Friedman Said the Fed Was Too Tight!

A Benjamin Cole post

“The Federal Reserve has reduced the federal funds rate repeatedly from nearly 10% in 1989 to about 3% recently. According to conventional wisdom on Wall Street, that is evidence that monetary policy has been extremely easy, that the Fed has done all it can to stimulate the economy, and that it is pushing on a string, as another ancient cliché has it. This wisdom may be conventional, but it is incorrect.”—Milton Friedman, The Wall Street Journal, October 23, 1992.

It was October 1992, inflation as measured by the CPI was running at about 3.2 percent, and real GDP was expanding at about 4.0%.

Yet the title of Friedman’s op-ed concerning the Fed? Too Tight For A Strong Recovery

The monetary master added, “It is hard to escape the conclusion that the restrictive monetary policy of the Federal Reserve deserves much of the blame for the slow, and interrupted, recovery from the 1990 recession.”

If readers are surprised, maybe they should not be. Three other times in his career—at least three—Friedman bashed central banks for being too tight: The Great Depression, the 1956-7 recession in the United States, and the Great Stagnation of Japan in the 1990s.

In that long-ago October in 1992, Friedman also opined that Fed open-market operations—the buying of bonds—would be the most effective tool, even if commercial banks were loath to lend. It was paleo-QE.


As many others have pondered, what has happened to America’s right-wing economists? There was a time when the preeminent right-winger—Milton Friedman—would call for robust, pro-growth policies from the Fed, even when the economy was growing and inflation was a little above 3%. And The Wall Street Journal would print it!

Can anyone name an establishment right-wing economist today who would demand a more growth-oriented central bank? Who is not obsessed with 0% inflation, if not deflation?

When did America’s right-wing economists become “higher interest-rate crack-heads”?

And why?


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