 | The Cavalier daily Tuesday, October 12, 1971 |  |
Recession is Recession
The mildness of the 1969-1970
recession should be no cause for
jubilation among our policy
makers. A recession is a recession,
and even a mild one adds up to
many hardships. It is fair to ask,
therefore, whether these hardships
were necessary and whether they
served any useful purpose. This
brings us back to the economy's
predicament. The Federal Reserve
initiated its restrictive
recession-producing policies in
1969 in an attempt to stop the
inflation. Some critics are inclined
to believe that this was a misguided
objective— that it would be better
to "relax and enjoy" the inflation
rather than risk a recession by
fighting it. On this issue I side with
the Fed, and with the Nixon
Administration. Failure to fight the
inflation would have had at least
three adverse consequences. First,
an unchecked inflation results in
deterioration in our competitive
position on world markets.
This would be no cause for concern
in a world of flexible exchange
rates. In the real world, however,
balance of payments problems are
apt to lead to all sorts of inefficient
government interventions into
international trade. A basic cause of
the dollar's weakness recently is
that U.S. prices have been rising so
rapidly. Second, an unchecked
inflation produces arbitrary wealth
and income transfers withing the
economy, with much social
discontent on the part of those who
get the short end of the stick.
Third, an unchecked inflation tends
either to accelerate or to result in
unemployments, as employees seek
ever-larger wage adjustments to
protect themselves from anticipated
inflation in coming periods.
| The Cavalier daily Tuesday, October 12, 1971 | |