Is Milton Friedman a Utopian?

Richard Parker's February 6th Boston Globe article "The Pragmatist and the Utopian" is an interesting comparison between legendary economists John Kenneth Galbraith and Milton Friedman. In the article, Parker gives a long history of what he sees as the relationship between Friedman, his ideas and the conservative wing of the Republican Party. (To be fair, it's not clear whether the article's claims come directly from Parker, or from conversation(s) with Galbraith that are then related in the article). According to his reading of history, Parker wants his readers to believe that Friedman is a dangerous utopian, while Galbraith is a commonsensical pragmatist. Along the way, however, he doesn't quite get the history right and essentially ignores Galbraith's positions during the time periods in question, although one supposes he addresses all that in his forthcoming book on Galbraith's life. As a senior fellow in Harvard's Kennedy School, it is hardly surprising that Parker's views are pro-Galbraith and pro-Keynes and he is certainly entitled to hold those views, in print or otherwise. I just want to suggest a few items touched on in this piece that I find to be incorrect or misleading. These are important and interesting issues that require wide reading and a lot of discussion.

In his opening paragraph, Parker suggests that the nature of conservatism has changed. "Abandoning a once fiercely defended reputation for caution in the face of change, it seems today's proudly swaggering conservatives have adopted the revolutionary role that for 200 years they existed to defeat." Two hundred years? To what (whom) is he referring? Leaving that historical question aside for the moment, conservatives have usually been criticized by liberals for being stupid or disengaged or for having simplistic beliefs or for being suspicious of their intellectual betters -- you know, people like Parker and Galbraith. But Parker is unhappy that today's conservatives are revolutionary and filled with Big Ideas and unlike previous conservatives. I guess conservatives can never win admiration from liberals no matter what they do. If it were only the ideas, Parker wouldn't be so unhappy and attempting in his new book to resurrect the moribund "pragmatism" -- i.e., socialism (why can't liberals be honest about this for just once?) -- of his Harvard colleague, whether "reluctant" or not. (Galbraith's claim that America's genius lies in its "reluctant pragmatism" is wrong, but that's an issue for another day). But now, the ideas of Friedman and other "utopians" of the Right have somehow carried the day -- and the Congress -- and the White House. One can only imagine the fear and loathing this generates in the posh town homes and on various campuses in good old Blue-state Cambridge, Mass! But we need not speculate, for we can read it for ourselves in the pages of the Globe.

In 1962, Friedman published Capitalism and Freedom, a set of policy discussions about which he made himself -- as he usually does -- crystal clear. Is the book utopian? No. The discussions are quite balanced, and Friedman admits several roles for the state, as well as putting forth his opinions on the benefits and costs of various policy options. He would be among the first to admit that there is no clear, philosophical "line in the sand" that enables us to decide what government ought to do. That's pragmatism, not utopianism. (Perhaps Parker has confused Friedman and the entire Chicago School with some of the modern neo-Austrians?) Anyway, if TCS devotees have not read this book, I recommend they do so regardless of their own political predilections.

After listing all of Galbraith's real world political accomplishments (although, for some of us, this list is a pretty gruesome read) Parker claims that Friedman, as a utopian, advocated the following: the complete abolition of regulation in airlines, energy, and telephones, the "doing away with" of the Federal Reserve, and the SEC, farm price supports, import duties, and fixed exchange rates -- "not to mention national parks, progressive taxation and Social Security." (Oh, the horror...the horror!) In fact, one ought never confuse a political platform's rhetoric with reality. Friedman did not advocate dismantling the Federal Reserve, for example, but suggested that it follow a monetary decision rule. And it's a minor point, perhaps, but F. A. Hayek did not argue that Keynesian macroeconomic policy led to serfdom in his famous The Road to Serfdom. Keynes is barely mentioned in the book and not even in connection with macro policy. It was Soviet-style central planning that, for Hayek, would lead to serfdom and which was the focus of his argument. Also, Parker's claim that Hayek was the Chicago economics department's "libertarian hero" is very questionable. Friedman himself has said that, at Chicago, Hayek wasn't even involved in either economic theorizing or applied economics. And Hayek was never a libertarian. Many modern libertarians believe that Hayek was much more politically akin to Tony Blair than to Murray Rothbard. Parker's statements about Hayek are intellectually sloppy even for a Harvard professor writing in a daily newspaper.

Parker writes that Friedman "revived" the doctrine called monetarism. How does one revive a doctrine that historically was never called by that name prior to the 1960s? It's true that Friedman drew attention to, and built on, work done in the quantity theory tradition by Knut Wicksell and Irving Fisher, as well as even Keynes, but monetarism is wholly an invention of the 1960s and Friedman could not, therefore, revive it in the 1950s. (Friedman has, incidentally, never liked that term for his ideas. The term monetarism was coined by Karl Brunner). Another peculiar Parker contention is that Chicago economics had no influence until Friedman met Goldwater and advised him in 1964. Historically, this is silly. But this is followed by the further claim that, after Goldwater's huge defeat, Friedman was marginalized. Yeah, some marginalization! One must really wonder how Friedman managed to become so influential after he was "confined" to an every-other-week Newsweek column? Well, when in doubt, blame OPEC. Yes, the "old bipartisan pragmatism of American politics" (exactly what country has Parker lived in during his life?) just fell apart in the 1970s, and there stood Friedman, all ready to move in and take advantage of its sad demise!

In any case, Friedman was absolutely right to criticize Nixon for wage and price control policy regardless of whether one calls that criticism "far right." Has Parker ever read (Nixon's "price czar") C. Jackson Grayson's The Confessions of A Price Controller? Doubtful. He's too busy listing Galbraith's term as World War II "price czar" approvingly. I once watched -- I think it was an episode of Galbraith's tendentious Age of Uncertainty -- him describe the glee he felt when some poor businessmen came to his Washington office begging for a price increase. The look in his eyes as he recounted the story was like something out of an Ayn Rand novel, and I don't mean a look one would find on any of her hero's faces. Perhaps Parker saw that episode as well, his head nodding in liberal approval. All I felt was complete disgust. But for Galbraith, and so many others, to have been young then and pro-Keynesian and in Washington, well, dare I say it sounds almost....utopian?

Parker claims that Reagan's White House fully accepted Friedman's monetarist positions for the Fed and acted on them. It's true that, starting in late 1979, the Fed began to target the quantity of money, seeing at that time a double-digit inflation rate, high unemployment, and a prime rate that peaked at over 22%. (This was all due to the Keynesian fine tuning under Ford and Carter, but Parker and Galbraith want to argue, one supposes, that had only Galbraith been doing the tuning...well, everything would somehow have come out better.) In fact, Friedman's (or Hume's....or Mill's....or Fisher's....) ideas worked exactly as he said they would: cutting the quantity of money did bring the inflation rate down. But this outcome came at a price: a severe recession. So, according to Parker, the Fed and Regan abandoned Friedman and pursued a policy of "turbo-charged" Keynesian-style deficits to get Reagan re-elected in 1984 even after his disastrous -- yes, here it comes again, the worst political cliché in modern economic history -- "tax cuts for the wealthy."

One could -- and many have -- written books about the economic history of the early 1980s. There simply is not space in this sort of posting to carefully construct the conditions and policies from that period. Supplysiders claim victory for their policies after the 1981 tax cuts, conveniently forgetting 1982's massive tax increase, TEFRA. (Remember then-Senator Bob Dole, the "Tax collector for the welfare state?") Monetarists claim credit for wringing inflation out of the system, also ignoring the tax changes as well as other institutional changes. Keynesians claim credit for the incipient boom that began in 1983 because the deficits were large, which is Parker and Galbraith's position. This claim ignores the fundamental question of whether these deficits were passive or policy in nature, a distinction that Keynesians always make about, e.g., the early years of the Great Depression but always fail to make about the early 1980s when deficits were bound to rise in response to deteriorating economic conditions.

But Parker is just warming up. He blames Enron-type firms and the savings and loan episodes on Friedman's deregulation obsessions, conveniently ignoring the moral hazard engendered by Democratic legislators -- in the dead of night -- raising the taxpayer-backed account guarantee amount from $40 to $100K on savings accounts. And what SEC deregulation is Parker writing about? Does he really believe that Enrons can be stopped by federal securities regulations? (Well, of course he does. Stupid question I guess.) In fact, he blames the "deeply corrupt" late 1990s on Friedman even though all that "irrational exuberance" stuff happened under the sainted William Jefferson Clinton! (Friedman is some powerful guy, huh? Or maybe all of that was just more of the "bipartisan, reluctant pragmatism" thing?)

In case you were wondering why now, why this particular article in the Globe, all that becomes clear at the very end when the topic of Social Security arises. Yes, it's Friedman again, having advocated for four decades the privatization of SS accounts. (There he goes again!) A completely "untested" idea. (Has Parker ever heard of Chile?) Anyway, the young George W. Bush has bought into the Friedmaniac position, and so, Katy, bar the door! And yet Parker then attacks Bush's proposal for not being private enough! He writes: "...despite its stated principle of substituting individual freedom for the heavy hand of government - (it) incongruously leaves forced taxation to fund accounts and Washington lawmakers to decide where we'll be able to invest the funds, and when and under what conditions we can withdraw them." This Parker calls a utopian contradiction. If I held his political views, I'd call it prudent. Instead, he claims such ideas are filled with "fatal contradictions."

Parker suggests that Americans have the policies they voted for and that Americans generally must be more liberal than the "far right" Friedman and his allies because, after all, we have: "publicly financed retirement security and medical care, free (sic) public education, progressive taxation, unemployment insurance, the minimum wage, basic labor rules, food and drug regulation, environmental protection -- as well as steering the economy past the devastating recessionary or inflationary swings of the past," all in order to "moderate the harsh and uncertain consequences of an unregulated market capitalism..." Voters are so very pragmatic, you see. If Parker has ever heard of Public Choice theory, he clearly fails to mention or appreciate it. But if voters really are sending messages about these things then Bush, who made no secret of his SS plans prior to the election, just got a message of support -- did he not? Just as Reagan got the same messages of support in 1980 and 1984 for his policies. One cannot have one's cake and eat it too, even at Harvard.

Parker argues throughout this piece that Friedman and Galbraith have been great rivals. While it's true they have been politically opposed for decades, and true that they both had large PBS television programs in the late 1970s, it is Friedman who has prevailed, clearly and overwhelmingly, in this alleged contest. Although this outcome no doubt distresses Parker and Galbraith, its truth is incontestable.

Parker ends his meanderings with a quote from the great Keynesian sage himself: "If you hear someone in public life say that he is going to stand firmly on principle, you should take cover -- and warn others to do the same." What is one to make of this? That Galbraith believes anything done on principle is bad? Dangerous? (Does that include his own, oft-professed, socialistic rationalizations?) Does he mean that there are no politicians who have ever acted on principle? Is he that cynical? Can he see no principles in the U.S. Constitution? Isn't always relying on pragmatism over principle itself a principle? And if so, when the sages of Cambridge begin to pontificate, ought we to duck and cover?

Bob Formaini is CEO of Quantecon, a Dallas-based economic consulting firm, and a TCS contributor.

"In 1962, Friedman published Capitalism and Freedom, a set of policy discussions about which he made himself -- as he usually does -- crystal clear. Is the book utopian? No. The discussions are quite balanced, and Friedman admits several roles for the state, as well as putting forth his opinions on the benefits and costs of various policy options"

Friedman is anything BUT "utopian", I would say he's probably the most grounded in his field.

It's also cute how these so-called "experts" avoid mentioning Greenspan in their little rants- now there is a hardcore capitalist.

Interesting. There is a natural tendency among people to assume that (1) "moderation" should be defined as the middle range between no government and totalitarian government, and (2) moderate compromise avoids the worst of both worlds, so that the sensible person must be moderate. That's why it's so common in American poliics to try to paint the other guys as "extreme," "out of the mainstream," etc.

It was the genius of Hayek (and less so Friedman, AFAIK) to note that government itself is immoderate, because of its informational deficiencies. The moderate thing to do is to let millions of competitive experiments be conducted one market exchange at a time. A sort of evolutionary pressure then weeds out the bad experiments and keeps the good ones. With government planning of the economy it's an all-or-nothing gamble, drawing one ball out of an urn with 1000 and hoping it's got a high number on it. With economic freedom it's drawing 700 or 800 balls out of an urn and getting the results of the best one.

Excellent post.

I would also add that it is not only nationalization of production that destroys an economy (government planning), but also any economic controls hovering over private enterprise (fascism).

Years ago I read a book by Friedman called "Free to choose". I never forgot the gist of it which was the country was formed on a basis of freedom! Govt. should have stayed out of almost everything it got into exceptions being keeping the currency safe, protecting us from foreign intervention, securing the borders, and a few basics unique to protecting the safety and security of the republic. Friedman was right then and he is right now. A brilliant man, way over my head.

Your description applies more to Hayek. You may recall that Friedman was the champion of monetarism, a now discredited belief that growth in the economy could be controlled by controlling the money supply. He was on hand during the Nixon administration when it scrapped Bretton Woods (gold standard) and decided to try to jump start the economy by increasing the money supply. The result--the worst inflation in the country's history, which in turn resulted in the oil embargo, a result foreseen by Mundell. I like Freidman's libertarian ideas a lot, but he was wrongheaded about his monetarist theories, which might be fairly described as somewhat utopian.

Galbraith is another story. I've read a lot of his material, and honestly, I don't think the guy had a clue about how the economy works. I never could understand his popularity.

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