sts of high unemployment, when inflation was attacked with monetary and fiscal restraint. Thus, it is ironic that by the end of the 1970s, when the oil price shocks had demonstrated the complex causes pushing the CPI higher, virtually all conservative economists vehemently opposed incomes policy and pushed for classic central bank restraints and eventually full-blown monetarism. Once the central bank earned "credibility" in the persistent use of conventional monetary restraints, they argued, embedded inflationary expectations would subside and inflation be brought under control. This alternative approach is spelled out in a series of policy analyses published by the American Enterprise Institute under the direction of the late William Fellner (1978, 1979, 1981-82). Under their advice, policy would be aimed at bringing down the growth rate of nominal GNP gradually. Fellner cites Phillip Cagan's econometric analysis on reducing inflation by slack demand, advising that it would take three years, "an optimistic guess," and "five years or somewhat more" as a "pessimistic guess" to get a positive credibility kick for the central bank's monetary restraint (Fellner, 1978, pp. 10-41). This kind of theoretical and operational guide was the prevalent intellectual underpinnings for the Volcker experiment in monetarism and subsequent Federal Reserve programs under the Reagan-Bush administrations. The policy was essentially a monetarist strategy that only had to be held consistently and persistently. Little mention was made of the economic costs from unemployment and lost output (Fellner, 1978). In retrospect, the policy experience of both Republicans and Democrats in the past twenty-five years leads to the realization that economic slack with persistent high levels of unemployment of workers and unutilized plant capacity did not and cannot cure inflation, as measured by the CPI. Aggregate demand policy, operating through monetary, fiscal, and exc...
