March 9, 2018

What a difference 0.1% makes

Five weeks ago, when the January employment report was released, the stock market took a dive, supposedly triggered by a wage increase 50% above expectations (0.3% versus 0.2% expected). Today´s release, which showed a robust employment gain of 313 thousand, more than 50% above the 200 thousand expected, but with wage growth coming in 50% below expectations (0.1% versus 0.2% expected) was accompanied by a strong rise in the stock market. Meanwhile Fed BoG members Powell and Brainard mouthed strong words for more than three rate hikes this year. Powell mentioned, “avoid overheating” while Brainard said “winds” had changed from “Head” to…...

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Milton Friedman remains a touchstone in macroeconomics, even for those who disagree with his policy prescriptions. So it is unfortunate that one of Friedman’s serious stimulus proposals, that of money-financed fiscal programs, is generally recalled in connection with his bantering about “helicopter drops.” But let’s go back, way back, to the Friedman’s 1948 paper “A Monetary and Fiscal Framework for Economic Stability,” published in the American Economic Review. In his article Friedman argued for a balanced national budget at full employment, but for deficits during recessions, and perhaps surpluses in boom times.  Friedman contended issuing debt to finance government outlays,… Read More