Must-Read: Milton Friedman (1976): Inflation and Unemployment

Must-Read: An answer to a question from Robert Waldmann. Milton Friedman rejects rational expectations, seeing instead “quinquennia or decades” before “the public… [will have] adapted its attitudes or its institutions to a new monetary environment…”:

Milton Friedman (1976): Inflation and Unemployment:

A major factor in some countries and a contributing factor in others may be that they are in a transitional period…

…this time to be measured by quinquennia or decades not years. The public has not adapted its attitudes or its institutions to a new monetary environment. Inflation tends not only to be higher but also increasingly volatile and to be accompanied by widening government intervention into the setting of prices. The growing volatility of inflation and the growing departure of relative prices from the values that market forces alone would set combine to render the economic system less efficient, to introduce frictions in all markets, and, very likely, to raise the recorded rate of unemployment. On this analysis, the present situation cannot last. It will either degenerate into hyperinflation and radical change; or institutions will adjust to a situation of chronic inflation; or governments will adopt policies that will produce a low rate of inflation and less government intervention into the fixing of prices…