National Affairs Article

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1、TheCycleofRulesandDiscretioninEconomicPolicyJohnB.Taylorndecember28,1948,thefamedfinancierWinthropOAldrich—whowasthenservingaspresidentofthenation’slargestbank,ChaseNational—addressedthefirstjointluncheonoftheAmericanEconomicAssociationandtheAmericanFinanceAssociatio

2、n.Thetwogroups—and,withthem,thelargercommunityofAmericaneconomists—werestrugglingtofindawayoutoftheseeminglyendlesseconomicstateofemergencyAmericahadexperi-encedinthepriortwodecades,andtoshapeapost-warapproachtomacroeconomicpolicy.Inhisremarks,Aldrichtookupathemethat

3、wouldreverberatethroughoutthepost-warera:thequestionofwhethermonetarypolicyshouldbeguidedbythegoaloflong-termpricestabil-ityoryieldtoshort-termpressurestokeepinterestrateslow.AldrichblamedtheFederalReserve’seasy-moneypoliciesofthe1920sforhelpingtocausetheGreatDepres

4、sion.Inthelate’40s,hewascon-cernedthattheFedwouldmonetizetheenormousWorldWarIIdebt,printingmoneytobuyupTreasurybondsandtherebyincreasingtheriskofinflation.“Thegoalofthemonetaryauthorities,”hesaid,shouldinsteadbeto“modifythepolicyofmaintainingrigidsupportlevelsforgove

5、rn-mentbondsandtoregaintheirfreedom”tocombatlong-terminflation.Thefollowingyear,thegroups’secondjointluncheonaddresswasgivenbyPaulDouglas,theUniversityofChicagoeconomistwhohadjustbeenelectedtotheU.S.SenatefromIllinois.Douglas’sthemesweresimilarJohnB.TayloristheMaryan

6、dRobertRaymondProfessorofEconomicsatStanfordUniversityandtheGeorgeP.ShultzSeniorFellowinEconomicsatStanford’sHooverInstitution.ThisessayisadaptedfromalecturedeliveredtothejointluncheonoftheAmericanEconomicAssociationandtheAmericanFinanceAssociationonJanuary7,2011.55

7、 NationalAffairs·Spring2011toAldrich’s,thoughhefocusedonfiscalpolicy.HeknewtheKeynesianargumentsforshort-termdeficitspendingbutwasconcernedaboutthenationaldebt:“[T]heproblemofbalancingthebu

8、dgetandofadoptingasoundfiscalpolicyisnotmerelyeconomic,”Douglasargued.“Itistoanevengreaterdegreeamoralissue.Weshallneedapropersenseofvalues