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Speaking of Milton Freedman,

Today there is great disparity of wages between countries. In countries with high wages for labor, doing away with most tariffs and other trade restrictions cannot be justified by its effect on the quality of life of all the masses, as Adam Smith had done . Those who call up Smith's Lessee Fare arguments abuse his justification. Lower wages were precluded by subsistence wages in Smith's day. In our country there is room for wage cuts. To get around this Milton Freedman and other conservative economists argue {hereafter I will just use Freedman to stand for their ilk} that wage cuts the flight of unskilled production jobs will encouraging the masses to obtain better education so that they may obtain higher paying skilled employment.

What seems to have escaped Milty's mind is that we already have millions of higher educated folks who can not find jobs...We tried Milton's ideas and they don't work...

Sure, tariffs will cause higher prices but more that that, they will give us back our jobs...At which time, the forces of what the market will bear will control the costs...

I'm no fan of Milton Freedman and he's part of the reason this Country's in the financial mess it is in...

Milton Friedman’s ideas are now pretty well discredited, given that he thought that only monetary stimulus was necessary to avoid recessions or depressions. The problem with Friedman’s arguments about “free markets” is that “free markets” depend on an objective store of value in which to negotiate trade.

When you have wholesale currency manipulation by central banks as you have today, you don’t have that any more. The entire playing field is tilted one way or another. The Japanese, for example, interfere with the value of the yen vs. the dollar when the yen grows stronger than about 83 yen to a USD. Their BOJ waded into the currency markets to weaken the yen three times in 2011 alone. That was done specifically to maintain the viability of their exports to the US. Friedman didn’t account for this - he just assumed and wished for floating currencies.

Well, economists are famous for such assumptions in their theories. And usually, those assumptions are where their theories wash up on the rocks of reality.

When you have currency pegs, as you have between China and the US, all of Friedman’s theories on trade simply go out the window. His base assumptions are null and void. The PRC pegs their currency to the US dollar to maintain a trade advantage of being able to undercut US producer prices. If the yuan were floated against the US dollar, it would be nowhere near as advantageous to export production to the PRC.

But putting aside his ideas on trade, Friedman’s big theory on which his rep as an economist depends is his theory of monetarism. His central argument was that increases in the money supply increased production and employment.

Well, since 2003, we’ve seen the money supply go upwards like a homesick angel. And the GDP of the US hasn’t responded as Friedman’s theories would indicate - the expansion of the money supply was plowed into surplus housing, inflated housing value, which was bound up in a whole lot of fraudulent financial instruments. Ergo, Friedman’s monetarism (of which, I should NB, Greenspan was an ardent follower) is simply wrong. Increasing the money supply does not lead to an increase in production or employment (or wages), especially when financial rent-seekers have developed schemes to capture the increase in money supply for themselves.

Here’s a nice little chart:

http://research.stlouisfed.org/fred2/series/M2

M2 isn’t the most complete picture of the money supply; the Fed grew so concerned at how outlandish the M3 chart (the most complete measure of the money supply) looked that they ceased publishing it in 2006. So let’s just use the M2 charge. Notice the growth of M2 in the 1990’s. Then reckon on how much growth the US had in the 1990’s — pretty good, overall.

Now look at the growth of M2 in the ‘00’s. And think about how much growth we have not had vs. the 90’s for that huge increase in M2. Friedman’s theory is done for right there.

Now, look at the growth in the money supply in the last four years vs. our economic growth. Here is where Friedman’s theory of monetarism is not only dead, facts have driven a wooden stake through it’s chest, shot a revolver’s worth of silver bullets into it’s brain, then buried it in a steel casket. There’s no way to argue that Friedman’s theories are still valid when you look at the tepid to nearly non-existent economic growth since 2008 and the absurd, wild increase in the US money supply since then.

Now, on the subject of economists:

Nearly all economists are found to be wrong, once the world’s actual facts migrate outside the limited datasets which have been used to create and “test” their economic theories. And for modern economists, their datasets date from mostly post-WWII (in the US, 1947 was when the large economics datasets really start), and then limited amounts of data post-WWI. The reason why so many economists refused to believe we were in a housing bubble in 2005/6/7 was that the modern econ datasets included no data from a debt deflation - ie, the Great Depression, or the Long Depression of the 1870’s to 1880’s.

I’ve read far more economics (especially since 2005) than most people here on FR. As a result, I’ve come to the conclusion that, regardless of political outlook (be it left or right), most economists, and especially 20th century economists, are frauds with PhD’s. They’re never called to account when they’re wrong, being cloistered in academic environments, sucking on the public teat, they suffer almost no ill effects for being wrong, and unlike the private sector businessman, it is very rare that they ever even had any skin in the game based on their theories. The fastest way to lose money in today’s economy or markets is to hew to the siren song of some dead economist.

The single best use for economists would be as slave labor in a gold mine we use to prop up the US dollar with some hard assets as rapidly as we can. I’m thinking of an American version of Kolyma. Put it in Alaska, there’s plenty of gold, cold and mosquitoes there.