Fed Being Tempted Into SIN

Narratives get more energy these days because of social media and cable TV, but they've always existed. Back in the 1970s, one narrative was that inflation was not caused by too much money creation by the Fed, as Milton Friedman argued. Instead, it was caused by OPEC or "inflation expectations." And politicians came up with a plan...it proved disastrous.

In October 1974, with inflation running at about 12% (no, not a typo), President Ford announced a plan to "Whip Inflation Now," which was supposed to reduce inflation, not by tightening monetary policy, but by changing consumers' habits. Consumers were encouraged to wear "WIN" buttons.

The good news was that this approach was a more free-market method than the government-enforced wage & price controls imposed under President Nixon. The bad news was that by ignoring monetary policy as the ultimate source of inflation it was destined to fail.

The theory behind the WIN campaign was that inflation was caused by consumers spending too much money, so reducing inflation required consumers to save more and spend less, by, for example, growing their own vegetables, car-pooling, and using less energy in their homes. The idea was that changing consumer spending habits would wrestle inflation under control.

It's easy to look back now and laugh at this absurd attempt to reduce inflation. Alan Greenspan, who worked for Ford in the White House, wrote in his book "The Age of Turbulence" that, at that time, he was thinking, "this is unbelievably stupid."

These days it appears the Fed has come full circle and is trying to create more inflation. We decided to give the campaign a name : Start Inflation Now. And maybe the Fed should print some SIN buttons.

That, in a nutshell is the policy proposal published by David Wilcox, a former influential research director at the Federal Reserve, and David Reifschneider, a former Fed economist and adviser to Treasury Secretary Janet Yellen (who backs the reappointment of Jerome Powell).