A Quote by Robert Lucas, Jr.
The central predictions of the quantity theory are that, in the long run, money growth should be neutral in its effects on the growth rate of production and should affect the inflation rate on a one-for-one basis.
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Significant changes in the growth rate of money supply, even small ones, impact the financial markets first. Then, they impact changes in the real economy, usually in six to nine months, but in a range of three to 18 months. Usually in about two years in the US, they correlate with changes in the rate of inflation or deflation."
"The leads are long and variable, though the more inflation a society has experienced, history shows, the shorter the time lead will be between a change in money supply growth and the subsequent change in inflation.
I was chairman of the steering committee for agriculture when we set up the target of 4% growth rate. I had written that if you want to achieve 4% growth rate in agriculture, you should have 8% growth in animal husbandry and fisheries and 8% in horticulture.
Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output... A steady rate of monetary growth at a moderate level can provide a framework under which a country can have little inflation and much growth. It will not produce perfect stability; it will not produce heaven on earth; but it can make an important contribution to a stable economic society.
Very few countries grow at high rate if inflation is high and volatile. I think, in a way, we are doing our bit to support a higher growth rate, but on a durable basis.
I will say this: the central banks can actually support growth beyond a point. When there is no inflation, they can cut interest rates, and that is the way they support growth, but if you cut interest rate to the bone, there is nothing more to cut. It is very hard to support growth beyond that.
When you are growing at a rapid rate, there is bound to be some inflation. I think a 5% rate of inflation is something that we should take in our stride.
Well, one of the things I should tell you is that if you look at the very long sweep of history what you see is that the rate of growth has been speeding up, the rate of progress, and that's because there's more and more people who are all engaged in this process of discovery.
In China, it was always said that a double-digit rate of growth would be dangerous. Now, the country has a growth rate of 6.9 percent and suddenly that is supposed to be a catastrophe for the global economy.
The rate of growth of the relevant population is much greater than the rate of growth in funds, though funds have gone up very nicely. But we have been producing students at a rapid rate; they're competing for funds and therefore they're more frustrated. I think there's a certain sense of weariness in the intellectual realm, it's not in any way peculiar to economics, it's a general proposition.
What central banks can control is a base and one way they can control the base is via manipulating a particular interest rate, such as a Federal Funds rate, the overnight rate at which banks lend to one another. But they use that control to control what happens to the quantity of money. There is no disagreement.
My monetary studies have led me to the conclusion that central banks could profitably be replaced by computers geared to provide a steady rate of growth in the quantity of money. Fortunately for me personally, and for a select group of fellow economists, that conclusion has had no practical impact… else there would have been no Central Bank of Sweden to have established the award [Nobel Prize] I am honoured to receive.
The standard growth theory tells us that economic growth in per capita basis comes from mainly two sources: capital deepening and total factor productivity growth, or TFP growth.
Monetary policy is like juggling six balls... it is not 'interest rate up, interest rate down.' There is the exchange rate, there are long term yields, there are short term yields, there is credit growth.
The data does not support that high-income tax cuts are the main drivers of growth, so I don't think that uncertainty over what the tax rate will be for someone that makes a million dollars a year has that big an impact on the economic growth rate in the country.
The growth of the American food industry will always bump up against this troublesome biological fact: Try as we might, each of us can only eat about fifteen hundred pounds of food a year. Unlike many other products - CDs, say, or shoes - there's a natural limit to how much food we each can consume without exploding. What this means for the food industry is that its natural rate of growth is somewhere around 1 percent per year - 1 percent being the annual growth rate of American population. The problem is that [the industry] won't tolerate such an anemic rate of growth.
Anyone who believes a growth rate in excess of 15% per annum over the long term is attainable should pursue a career in sales, but avoid one in mathematics.
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