Discussion of Tobin and Poole Reports

ROBERT J. GORDON began the discussion by noting the wide divergence between Tobin’s and Poole’s predictions of the path of the economy, given a steady 5 to 6 percent annual growth in the money supply. While Poole saw the possibility of decelerating inflation and recovery from a mild recession in a year or so, Tobin, even in his more optimistic view, had unemployment increasing until 1978. Gordon found that his own calculations tended to support Tobin’s results. Because increases in wage rates could not be expected to ease markedly for a long time, the resulting rate of inflation would allow only a 2 to 21/2 percent growth rate in output over a five- to ten-year period to accompany a 6 percent growth in the money supply. Unemployment would thus creep upward, as Tobin forecast. Gordon felt that the major effect of more rapid growth in the money supply—say, 8 percent—would be to hold down the unemployment rate, rather than to raise the inflation rate.