Posted on 11/18/2006 5:08:44 AM PST by A. Pole
MILTON FRIEDMAN, who died this week at 94, was an extraordinary economist, fully deserving of the Nobel Prize, but his insights into the workings of the money supply do not provide a template for public policy. Rather, they offer a lesson in the limitations of economics to advance social improvement.
[...]
Friedman believed in the power of free markets, to the point where it sometimes seemed his only use for government was to regulate the flow of money.
The consequence of Friedman's policies was to deepen social and economic inequality. Corporate CEOs could feel entitled to enormous pay packages if, in their view, the marketplace rather than a compliant board of directors, was responsible. Government was hard put to intervene on the side of those not so advantaged, because politicians who espoused the Friedman philosophy kept taxes low and skewed tax cuts in favor of the wealthy.
[...]
Friedman's thinking was a reaction to the interventionist policies of the New Deal, for which he worked in the 1930s. What's needed now is a corrective to the limited-government, free-market preoccupations of Milton Friedman, to shift more of society's resources to those who really need them.
(Excerpt) Read more at boston.com ...
Bump
These Boston Globe people are low class turds.
Condolences to Milton Friedman's family and friends.
Doesn't the negate the concept of "free market"?
The few people who have really studied the economic history of the world after WWII, know that Friedman has totally revolutionized the role of government in the economy and economic thought in general.
The Central Banks of the world, who have more control over the economy than any government, have adopted Friedman's theories as their Bible. It is gospel.
The result has been over 2 decades of solid economic growth over the entire world and the end of communist/socialist economic thought.
Friedman was a true hero.
RIP Uncle Miltie. A great mind gone.
Well said!
"Capitalism and Freedom", together with "Road to Serfdom" and "The Law" were the books that changed my whole perspective.
What a back-handed "tribute" to one of the great men of the 20th century! Considering only "Capitalism and Freedom", consider how many of the ideas there were considered over-the-top goofy and are now axiomatic reality. Others are finally under realistic discussion rather than relegated to la-la land. All this from a man who never held any substantial public office. His only authority was that of being consistently, demonstrably, right.
In one of the later interviews I read, Friedman was asked to rate his worst and best causes. He unhesitatingly regretted most devising income tax withholding, it concealed the true impact of the cost of government from the taxpayers. His favorite, the one he was devoting most time to in later years, was school vouchers, he had come to the conclusion they were bedrock essential.
By mid 1975, Pinochet set about making economic reforms variously called "neoliberal" or sometimes "free market" by its supporters. He declared that he wanted "to make Chile not a nation of proletarians, but a nation of proprietors." To formulate his economic policy, Pinochet relied on the so-called Chicago Boys, who were economists trained at the University of Chicago and heavily influenced by the monetarist policies of Milton Friedman.
Pinochet launched an era of deregulation of business and privatization. To accomplish his objectives, he abolished the minimum wage, rescinded trade union rights, privatized the pension system, state industries, and banks, and lowered taxes on income and profits. Supporters of these policies (most notably Milton Friedman himself) have dubbed them "The Miracle of Chile", due to the country's sustained economic growth since the late 1980s.[1]
Pinochet's neoliberal economic policies' benefits have been sharply contested. In 1973, unemployment was only 4.3%. Following ten years of junta rule in 1983, unemployment skyrocketed to 22%. Real wages declined by more than 40%. In 1970, 20% of Chile's population lived in poverty. In 1990, in the last year of Pinochet's dictatorship, poverty doubled to 40%.[2] Between 1982 and 1983, the GDP dropped 19%. In 1970, the daily diet of the poorest 40 percent of the population contained 2,019 calories. By 1980 this had fallen to 1,751, and by 1990 it was down to 1,629. Furthermore, the percentage of Chileans without adequate housing increased from 27 to 40 percent between 1972 and 1988, despite the government's boast that the new economy would solve homelessness.[3] Meanwhile, the wealthy were raking it in. In 1970, the richest one-fifth of the population controlled 45% of the wealth compared to 7.6% for the poorest one-fifth. In 1989, the richest one-fifth controlled 55% of the wealth while the poorest one-fifth controlled only 4.4%.
It is fair to say that when Friedman's theories are put into practice, serious flaws become evident. To deny that, is to deny reality.
> Friedman believed in the power of free markets, to the point where it sometimes seemed his only use for government was to regulate the flow of money. <
Words from a genuine ignoramus!
Milton Friedman was a "classical liberal," in the truest and best sense of the term. He believed that government not only should regulate the money supply, but also that it should protect against foreign enemies and domestic criminals, enforce contracts, and perform other functions in those limited cases where it can be shown beyond a reasonable doubt that the free market is inadequate.
Also overlooked in most of his obituaries, as well as in most of the discussion here on FR, is that Friedman was the most accomplished SCIENTIFIC ECONOMIST in the history of the discipline. His ability to integrate economic theory with empirical research surpasses anything accomplished by the other giants of economics, among whom I include Smith, Malthus, Ricardo, Mill, Marshall, Fisher and Keynes.
Eulogy for Professor Friedman
The news was a shock. Friedman gone? It can't be so. He's one of the Five Immortals.
Along with Alchian, Buchanan, Coase, and Samuelson, Friedman was one of those unique figures who dominate the times they live in. Four have lived into their 90s and Buchanan's only a few years away from it.
All five have made our lives richer by their powerful intellects.
Their contributions to economic theory are obscure today, known mainly to us dismal scribblers, but eventually their work will stand out to future generations as the cause of a profound change in the lives of everyone on the planet.
Those of us who were here to watch them work, and watch them sow the seeds of the mighty oaks growing today, sit quietly in awe. These men were geniuses.
The fields they dominated, and the work they did has changed the world forever.
Alchian for his single-minded pursuit of a general theory of economics, Buchanan for his work on taxation and expenditure, Coase for his insight into the role of government in economic growth, and Samuelson for his theoretical tools, all pushed economic theory forward by decades of work, and provided floods of insights to their colleagues and students. Their true worth will last for centuries.
But of all of these, Friedman's work on monetary theory altered and illuminated the times he lived in. He will be remembered best, because his work mattered most.
In a thousand years, some future economist will write an article for an encyclopedia abouth the history of monetary theory, detailing the work done since Aristotle, and in the first paragraph - perhaps the first sentence - Milton Friedman's name will be written in bold letters.
He is that important; first to economics, but more importantly to mankind.
His monumental work - The Monetary History of the United States - showed exactly how dramatic changes in the stock of money create equally dramatic changes in employment, income, production, tax revenue, inflation and interest rates; changes which have altered the course of history in peace and war.
This, more than his work on personal liberty, will define his memory. Without economic stability, political stability is impossible. The last great depression taught us that lesson, as war, and injustice - even in the US - enflamed the passions of the world and led to the deaths of millions of innocent people. That will never happen again, thanks to Milton Friedman.
When Paul Volcker faced roaring and growing inflation in 1979, as the new Chairman of the Board of Governors of the Federal Reserve System, he faced a crisis.
Gold and silver prices were soaring, oil had recently been rationed, the economy looked ready to crash, and the government's answer to the problem was a WIN button, asking us to Whip Inflation Now. It was a desperate time.
The usual rules for money management provided little guidance, and in fact, were counter-productive. Those now-discredited laws instructed the Fed to add more money to the system as short-term interest rates rose, thereby easing the burden of the supply of funds and reducing short-term rates.
Had Volcker followed those rules, the Unites States would have discovered hyper-inflation and runaway prices. That's what Friedman taught us, and that's why we all trembled for ourselves and our future generations.
Eventually, in a hyper-inflationary world, as prices rise uncontrolled, some future Fed Chairman would decide to rein in the irrational exuberance of the times and push the economy into a collapse worse than the Great Depression of 1929-33. We'd seen it over and over again, since the invention of money, thousands of years past.
With startlingly clear eyes, Volcker saw that the United States faced a collapse similar to that of Weimar Germany, and a bleak future of warring states fighting for advantage in a dark, cold world unless inflation could be tamed.
Fortunately, the answer to the problem was there for all to see. 15 years earlier, Friedman published his Monetary History of the US, telling the monetary authorities what to look for and what to do. The rest is history. Volcker took his advice. He would control the stock of money, he announced.
But did he mean it?
We all held our breath, and watched him in action. Would he really do it? Would he really change the way the world works? It'd never happened before.
Then, in a stroke, he proved he meant to control inflation. One day, when Fed Funds were trading at 20.25%, he drained reserves from the system. In the parlance of the Street, he did matched sales. He *reduced* the amount of money in the system while interest rates soared.
On that day, inflation died.
The Fed's policy let the world know there was a new Sheriff in town, one that played by the modern, scientific rules of money growth; one that would kill inflation. By these actions, Volcker bankrupted the Hunt brothers as the silver market collapsed, and sent word to all that inflation was a thing of the past.
In the years since then, the economy has stabilized: inflation has fallen from 16% to 2; Fed Funds from 20% to 1; the US economy has created millions of jobs, and trillions in tax revenue, investment, production and consumption; the national political system has seen the ouster of a single-party state in power since Roosevelt; we've seen the introduction of a true two-party system; we've witnessed the collapse of the Soviet Union and Socialism; we've watched the triumph of personal liberty; and we now have a clearer path to the future.
Is all this the legacy of Volcker and Friedman?
Yes.
By removing the confusion surrounding economic growth, and placing it firmly in the hands of an independent Federal Reserve,Volcker took the economy out of the hands of the government.
Volcker told politicians to forget about buying votes by creating make-work jobs in subsidized industries protected from foreign competition, and to focus on regulation, taxation, and public expenditures, the true functions of government. Let the Fed handle long-term growth.
Since then, we've seen two business cycles, each of 10 years, under two different political parties, with minor recessions in between. We now seem on path to another business cycle longer than the others - 10 or 15 years, or more!
This is unprecedented.
Friedman's work has changed the world forever.
We live in exciting times, and I'm glad to be here. I'm also glad to have had Professor Friedman as a friend.
May the good Lord take him and keep him, may He make His face to shine upon him, and may he sail on God's own ocean forever.
Amen, amen, amen.
Everyone should feel equally sh-t upon, I guess?
> Buchanan for his work on taxation and expenditure <
Fair enough.
But let's not forget that he and Tullock literally INVENTED a entirely new academic discipline, Public Choice Theory, which has bridged the divide between formal economic theory and formal political philosophy.
[And although I join fully in your admiration for Buchanan, I also think it was a great injustice that Tullock didn't share Buchanan's Nobel Prize.]
Lucysmom, check these articles, particularly the first. I points out that the effect of the "Chicago School" reforms have led to significant positive long term changes for Chile. Inflation was a huge problem in the past, and the reforms made a huge difference.
http://www.cgu.edu/include/SPE_Keech2004.pdf
http://www.imf.org/external/pubs/ft/fandd/2000/03/aninat.htm
Great Post thanks for your time ! Enjoyed reading it.
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