Walter W. Heller was said to have been an “educator of Presidents.” As an economist and Presidential advisor in the inner circles of DC, Heller worked with more candidates and officeholders than perhaps any other man. As he himself described, his influence went all the way back to Adlai Stevenson and kept on through Kennedy, Johnson, Carter, and Mondale. To his mind, he takes credit for turning Presidents into thorough Keynesians starting with JFK in January 1963 and the tax cut “stimulus” that Heller claims was “born on my desk.”
As an economist and advisor, Heller seems to have spent a lot of time about the 1960’s and almost none describing the 1970’s. Perhaps his greatest contribution to that decade was a quote attributed to him describing economics. “An economist is a man who, when he finds something works in practice, wonders if it works in theory.”
Among the most pernicious of these theories to have been backward applied in exactly that manner is “rational” expectations theory. This was developed in the 1980’s to try to explain the disaster of the 1970’s in terms that would save econometrics. Thus, it is applied in great detail and mathematics to “inflation” and is often discussed only in that context. Among the most influential to have used rational expectations theory was John Taylor as the basis for the Taylor “rule.”
In a 2007 speech, then-Federal Reserve Chairman Ben Bernanke described the updated expectations framework as it at that time related to inflation and gradualism in monetary policy (into the onrushing storm).
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