Bronze-level articleMilton Friedman

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Friedman, thinking where to increase debt next.
The dismal "science"

Economics

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Notable economists
Not to be confused with Thomas Friedman.
A society that puts equality before freedom will get neither. A society that puts freedom before equality will get a high degree of both.
—Friedman on the land of great freedom and equality after he and his descendants placed their mark on it

Milton Friedman (1912 — 2006) was the great-granddaddy of Reaganomics and a Nobel Laureate economist. He held a libertarian point of view that was in favor of a strong private sector without government intervention — the free market cures all ills. Alan Greenspan said that his ideas altered the course of civilization, though he failed to mention in which direction.[1] His economic ideas were also implemented in the U.K. by Margaret Thatcher during the 1980s, similarly to great mirth.

Contents

[edit] Change of views

In 1946, Friedman was a supporter of the Keynesian economic system. He was a staunch advocate for the New Deal and the higher taxes that came with it. However, in the 1960s, he saw the error of his ways and came to believe that there was in fact a "natural rate of unemployment" that the central government (as opposed to other ones) had no control over. He thought that the Keynesian system would lead to the stagflation of the 1970s, which had nothing to do with Nixon's '71 wage and price controls or the '73 OPEC constraint of the oil supply.

[edit] The laissez-faire President

Friedman sat on Ronald Reagan's Economic Policy Advisory Board for the whole of the administration. Reagan even went so far as to give him the Presidential Medal of Freedom, an honor which Reagan himself had bestowed upon him in 1988.[2] The policies of Reagan's administration created many historical achievements, creating a long-lasting economic recovery with:

  1. Dramatic increases in defense spending, causing large deficits.
  2. The Savings and Loan crisis.[3]
  3. The stock market crash of 1987.[4]
  4. Raising the national debt from $700 billion to $3 trillion in a matter of only eight years.
  5. Changing the U.S. from the world's largest creditor to the world's largest debtor.[5]

[edit] Chile and the Chicago Boys

Friedman claimed himself as the reason for Chile's economic turnaround, the "Miracle of Chile," in the 1970s and 1980s. Friedman also believed that his ideas were ultimately responsible for the end of the repressive dictatorship of Augusto Pinochet, which governed Chile during that time:

What Friedman leaves out is the fact that at its ultimate extent, the "Miracle of Chile" failed in the 82' monetarist crisis, causing the government to severely intervene the economy and to bailout several banks and enterprises, raising the poverty levels from the 15% in 1973, to 44% by the end of 1982.[7] It was largely a miracle for the upper classes as the gap between the rich and poor exploded, monopolies and oligopolies became rampant, and the country took on large amounts of debt from the IMF.[8] (Not to mention the "disappearances" and other human rights abuses of the Pinochet regime.)

[edit] Spiro Latsis case study

In 1972, Spiro Latsis, a student of philosopher of science Imre Lakatos, launched a critique of Friedman's economics. Latsis used Friedman's economics as a case study to attack neo-classical economics in general. Latsis claimed that the research program had failed to make any predictions of novel facts, making it pseudoscientific by the standards of Lakatos' philosophy. Latsis also put forth a program of "economic behaviorism,"[9] and went on to organize a conference around methodology in economic research programs and his criticisms have sparked an ongoing debate over the nature of economic research.[10]

[edit] In fairness

Someone didn't age well...

Friedman's contribution to economics is often buried by his extreme libertarian philosophy. His Monetary History of the United States (written with Anna Schwartz) is still considered an (if not the) authoritative work on the history of the Federal Reserve.[11] When stagflation hit, Friedman made mathematically rigorous revisions to Keynesian models, specifically the Philips Curve (i.e. how inflation and unemployment could be balanced), that were later accepted by Keynesians and incorporated into their thought.

He also came up with concepts and advocated policies that would be considered downright socialist.[12] For example, he believed that welfare programs ought to be replaced with the negative income tax, i.e. a minimum income for all those who didn't qualify for the lowest tax bracket, which is similar to the way the Earned Income Tax Credit works. His permanent income hypothesis predicts that consumers will spend based on long-term income patterns, implying that rich people would continue to spend at the same rates despite a temporary tax break. This contradicted the simplistic trickle-down policy of George W. Bush and, ironically, Bush ended up proving Friedman correct.

Friedman's academic work tended to be far more nuanced than his policy prescriptions.[13]

[edit] Influence on libertarianism

Milton Friedman is a leading light in the "Chicago school" of economics, which is distinct from the Austrian school of Ludwig von Mises. The two competing schools are the source of one of the main splits in the libertarian movement. As a rule, the more radical Austrian schoolers — many of whom are anarcho-capitalists and anarchists in other ways as well (i.e. anti-war, anti-police state) — view Chicago schoolers as "Beltway libertarians" and stealth Reaganites whose utilitarian approach lacks a broader critique of the state beyond merely cutting spending and regulation.

Despite this, or perhaps because of it, Milton Friedman and the Chicago school have been much more influential on real world government policy, having guided the policies of Reagan, Thatcher, and several other countries at various points in time. That Reagan, Thatcher, and Pinochet could apply Friedman's economics stripped of anything else remotely libertarian may indicate the Austrians have a point. The real world influence of Austrian school economics, meanwhile, has been limited to occasional small-time politicians like Ron Paul. Another main difference is the Chicago school holds to the classical microeconomic model of supply and demand while the Austrian school rejects such mathematical models in favor of a strictly narrative study of human action they term "praxeology."

[edit] Religion

Friedman called himself an agnostic, though he defined atheism in the strong sense, so his views were similar to those of weak atheism. He also subscribed to the view of morality put forth by evolutionary psychology.[14]

[edit] Family

Friedman is the father of David D. Friedman, who is, believe it or not, more far-out than his father on economics, being an anarcho-capitalist and the author of a seminal book in that field entitled The Machinery of Freedom. David Friedman is one of the few anarcho-capitalists to adhere to the Chicago school and a utilitarian view of morality (many, perhaps the majority, are Austrian schoolers, and many adhere to a natural rights view.) This is a reason for much back and forth between Friedman's utilitarian versus the natural rights versions of anarcho-capitalism of Murray Rothbard, Morris and Linda Tannehill and others, as well as a source of some interesting, some would say way out there, ideas on the part of David Friedman, such as polycentric law being enforced by competing private courts.

[edit] See also

[edit] External links

[edit] Footnotes

  1. The standard Republican narrative of history ...falls apart very quickly.
  2. He forgot about it shortly after.
  3. The S&L Crisis: A Chrono-Bibliography, Federal Deposit Insurance Corporation
  4. 25 Years Later: In the Crash of 1987, the Seeds of the Great Recession, TIME
  5. Reagan Policies Gave Green Light to Red Ink, Washington Post
  6. Up for Debate - Reform Without Liberty: Chile's Ambiguous Legacy, PBS
  7. Successes and Failures in Poverty Eradication: Chile, World Bank
  8. The Neoliberal Experiment of 1973-1982: A Critical Summary, University of Chile
  9. Spiro J. Latsis. Situational Determinism in Economics. The British Journal for the Philosophy of Science Vol. 23, No. 3 (Aug., 1972), pp. 207-245
  10. For more, see Marcelo Resende and Rodrigo M. Zeidan. Lionel Robbins: A Methdological Reappraisal. CESIFO Working Paper No. 2165
  11. A Monetary History of the United States, reviewed by Hugh Rockoff, Encyclopedia of Economic History.
  12. Indeed, read the comment thread on this post at the Ludwig von Mises Institute.
  13. A good take on this is Paul Krugman's article Who Was Milton Friedman?
  14. Correspondence with Milton Friedman
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