Customer Reviews

Rational Expectations and Inflation (Harpercollins Series in Economics)

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Interesting book written by a monetarist, one of the main mathematical thinkers on the side of laissez faire. The 2nd chapter is worth the book. It discusses the Reagan-Bush aim to bankrupt the U.S. Gov't. by increasing the debt while decreasing taxes, but the main point is missed altogether because the actual path taken is not one of the two options discussed: to bust the budget, reduce taxes, and borrow the difference in the money market. The free market standpoint taken for granted in the book has led us to the point where the Dollar has been significantly degraded because of the trade deficit, and the trade deficit is due to loss of manufacturing capacity, first to Mexico, more recently to Asia. None of that is foreseen in the text. The book was written in the era when Reaganomics had first taken hold in the U.S. To summarize what was not foreseen, the order of magnitude of the trade deficit is now greater than the budget deficit, which means that China has more than enough money to lend us to finance what we fail to pay in taxes. The book discusses great inflations, but unfortunately leaves out the inflation of the Dollar after it was cut loose from gold in 1971. That inflation foreshadowed our current one, but in an era before our manufacturing capacity had been squandered away at the altar of deregulation and free trade. The section called 'some unpleasant monetarist arithmetic' is scientifically faulty, like most models in macroeconomics it's not even falsifiable.