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Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,♪ [music] ♪
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,- [Tyler] Monetarism is\Nanother framework
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,for thinking about business cycles.
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,Nobel laureate Milton Friedman\Nof the University of Chicago,
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,he was the most famous proponent\Nof monetarism.
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,And, as the name suggests,\Nmonetarism emphasizes
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,the importance of the money supply,
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,and it emphasizes the decisions\Ncentral banks make
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,about what to do\Nwith the money supply.
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,Now monetarism is based\Non something called
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,the quantity theory of money.
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,That means, in the long run,
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,the absolute amount of money\Nin an economy doesn't matter,
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,doesn't influence real output\Nor real employment.
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,But, in the short run, changes\Nin the rate of inflation can matter.
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,So there are two potential dangers\Nin monetarism:
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,too much inflation,\Nand too little inflation.
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,Let's think first\Nabout too much inflation,
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,because this is a big part
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,about how monetarism\Nbecame more popular.
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,In the 1970s, in America,
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,rates of inflation were considered\Nto be too high,
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,and monetarism had a way\Nto explain this.
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,It said the Federal Reserve\Nwas creating
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,too much new money for the economy,
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,and that means prices will be rising
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,and inflation tends to distort
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,the allocation\Nof economic resources.
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,Individuals cannot tell\Nwhich prices are going up
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,because of the inflation,
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,and which prices are going up
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,because something is\Nmore or less valuable,
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,and that what we should do\Nis lower the rate of inflation
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,and bring about\Nmore economic stability.
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,So, at the time, a lot of Keynesian economists were accepting this higher rate of inflation,
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,but monetarism was saying that yes, at first more inflation is going to get you higher economic output,
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,but pretty quickly people figure out\Nthat there's inflation going on,
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,and that inflation ceases to be effective
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,in stimulating the economy.
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,On the other side of the ledger,
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,there's the danger that\Nmonetary growth will be too low,
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,and that means the rate\Nof price inflation will be too low
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,or there may be deflation all together.
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,And, in that setting,\Naccording to monetarism,
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,aggregate demand will be too low.
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,In this case, monetarist\Nand Keynesian doctrine,
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,they're actually pretty similar.
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,Monetarists, like Keynesians,
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,believe that a lot\Nof nominal wages are sticky--
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,that is they can't be readjusted\Nor renegotiated all the time.
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,This may be a matter of contract,\Nor a matter of law, minimum wages,
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,or maybe just a matter\Nof workplace morale.
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,But when you have sticky wages,
Dialogue: 0,9:59:59.99,9:59:59.99,Default,,0000,0000,0000,,and that flow of nominal purchasing power