Friedman’s doomsaying was easy to caricature in the relatively prosperous mid-century. In 1966, Solow, the rival economist, memorably cracked, “Everything reminds Milton of the money supply. Well, everything reminds me of sex, but I keep it out of the paper.” Friedman pushed on. In 1968, he published another influential paper arguing that all government attempts to lower unemployment below the natural rate would lead to inflation. That happened to be right around the time that L.B.J.’s welfare expansion intersected with a civilian tax cut and increased military spending in Vietnam. Inflation skyrocketed. Suddenly, the whole country looked like a “natural experiment” for Friedman’s theories. The economy crashed, and the Presidency changed hands to Richard Nixon, who had been a Friedman acolyte since his wilderness years after the Dwight D. Eisenhower Vice-Presidency.
People started looking to Friedman for answers. In 1969, he was on the cover of Time, prophet-like, under the banner “Will There Be a Recession?” After the 1973 oil crisis, Friedman seemed like the only economist who could explain the devastating stagflation that rocked the U.S. and U.K. In 1980, the election of Ronald Reagan in the U.S. and Margaret Thatcher in the U.K., both hugely sympathetic to Friedman, ushered in a decade in which his ideas truly became, as Burns writes, conventional wisdom.
But, throughout this decade mirabilis, Friedman maintained his remarkable tendency to look a gift horse in the mouth. In October, 1979, amid soaring inflation, Paul Volcker, the new chairman of the Fed, announced that the board would stop controlling interest rates—a seemingly direct response to Friedman’s August Newsweek column, which argued that Volcker should do exactly that. Volcker’s whole tenure was Friedman-inflected; in April, 1980, he said, of Fed policy, that “people of monetarist persuasion will believe it more than others.” The resulting “Volcker shock” sent unemployment soaring, but the Fed stuck it out “through foul weather and fair,” and the economy dramatically recovered in 1984, just in time for Reagan’s reëlection. What’s more, unemployment rates eventually went down, which seemed to prove another key Friedman contention—that there didn’t have to be a trade-off between unemployment and inflation. It seemed like monetarism’s finest hour.