Who Was Milton Friedman?

The New York Review of Books has:

Who Was Milton Friedman? by Paul Krugman

If I can find time later, I'll pull some excerpts. For now, here's how Krugman concludes the much longer essay on Friedman's economics and politics:

...In his 1965 review of Friedman and Schwartz's Monetary History, the late Yale economist and Nobel laureate James Tobin gently chided the authors for going too far. "Consider the following three propositions," he wrote. "Money does not matter. It does too matter. Money is all that matters. It is all too easy to slip from the second proposition to the third." And he added that "in their zeal and exuberance" Friedman and his followers had too often done just that.

A similar sequence seems to have happened in Milton Friedman's advocacy of laissez-faire. In the aftermath of the Great Depression, there were many people saying that markets can never work. Friedman had the intellectual courage to say that markets can too work, and his showman's flair combined with his ability to marshal evidence made him the best spokesman for the virtues of free markets since Adam Smith. But he slipped all too easily into claiming both that markets always work and that only markets work. It's extremely hard to find cases in which Friedman acknowledged the possibility that markets could go wrong, or that government intervention could serve a useful purpose.

Friedman's laissez-faire absolutism contributed to an intellectual climate in which faith in markets and disdain for government often trumps the evidence. Developing countries rushed to open up their capital markets, despite warnings that this might expose them to financial crises; then, when the crises duly arrived, many observers blamed the countries' governments, not the instability of international capital flows. Electricity deregulation proceeded despite clear warnings that monopoly power might be a problem; in fact, even as the California electricity crisis was happening, most commentators dismissed concerns about price-rigging as wild conspiracy theories. Conservatives continue to insist that the free market is the answer to the health care crisis, in the teeth of overwhelming evidence to the contrary.

What's odd about Friedman's absolutism on the virtues of markets and the vices of government is that in his work as an economist's economist he was actually a model of restraint. As I pointed out earlier, he made great contributions to economic theory by emphasizing the role of individual rationality—but unlike some of his colleagues, he knew where to stop. Why didn't he exhibit the same restraint in his role as a public intellectual?

The answer, I suspect, is that he got caught up in an essentially political role. Milton Friedman the great economist could and did acknowledge ambiguity. But Milton Friedman the great champion of free markets was expected to preach the true faith, not give voice to doubts. And he ended up playing the role his followers expected. As a result, over time the refreshing iconoclasm of his early career hardened into a rigid defense of what had become the new orthodoxy.

In the long run, great men are remembered for their strengths, not their weaknesses, and Milton Friedman was a very great man indeed—a man of intellectual courage who was one of the most important economic thinkers of all time, and possibly the most brilliant communicator of economic ideas to the general public that ever lived. But there's a good case for arguing that Friedmanism, in the end, went too far, both as a doctrine and in its practical applications. When Friedman was beginning his career as a public intellectual, the times were ripe for a counterreformation against Keynesianism and all that went with it. But what the world needs now, I'd argue, is a counter-counterreformation.

Update: From email, more on Milton Friedman:

Hi Mark,

I am writing to you because I thought you and your blog readers and students might appreciate hearing about this. “Milton Friedman Day” will be celebrated next Monday, January 29 and The Economist will pay tribute to the famous and highly influential economist by hosting an online discussion with prominent economists and officials such as Leo Melamed, Ben Stein and Governor Arnold Schwarzenegger.

Beginning today, members of the public are invited to engage in the spirited discussion by submitting their their questions to Free Exchange, The Economist’s economics blog, moderated by Megan McArdle. To join please visit: http://www.economist.com/debate/freeexchange/.

And, while I'm at it, here's another email:

Dear Mark,

In my efforts to keep you updated, I’m happy to tell you that Governor Schwarzenegger and Mayor Newsome have declared Milton Friedman Day in California and San Francisco.  I’ve included the press release below.

Also, your readers might like to know about the activities going on at Economist.com and the video contest on YouTube, both outlined in the press release...

STATE OF CALIFORNIA AND CITY OF SAN FRANCISCO BOTH DECLARE JANUARY 29, 2007 TO BE MILTON FRIEDMAN DAY

Governor Schwarzenegger and Mayor Newsome Join the City of Chicago and Partners in Honoring The Nobel Prize-Winning Economist and his Work with a Day of Remembrance

Events Include Web-based Discussion Hosted by The Economist, a Day of National Debate at Universities across the Country, You Tube Video Contest, and National PBS Broadcast of “The Power of Choice: The Life and Ideas of Milton Friedman”

Stanford, California – January 23, 2007 – Governor Arnold Schwarzenegger and Mayor Gavin Newsome yesterday announced that they were declaring Monday, January 29th, to be Milton Friedman Day in the State of California and in the City of San Francisco.  In making these proclamations, the Governor and Mayor join the City Council of Chicago, Mayor Richard M. Daley, The University of Chicago, The Chicago Mercantile Exchange, The Economist, Free to Choose Media, and more than two dozen partner organizations in declaring the 29th as a day of remembrance honoring the Nobel-Prize-winning economist.

The announcements were made yesterday afternoon by Governor Schwarzenegger, in person, and by Mayor Newsome, via a letter read by John Raisian, director of the Hoover Institution.  The proclamations were read at the Hoover Institution’s memorial service honoring Dr. Friedman, held at Stanford University’s Memorial Hall.

In his proclamation, Governor Schwarzenegger stated: “Milton Friedman helped restore our faith in the freedom of the individual to choose in every sense of the word – political, economic and social – and was devoted to the simple idea that we are responsible for our own lives, to live them as we see fit as long as it does not violate the liberty of others.”  To see the full text, please visit http://gov.ca.gov/index.php?/proclamation/5205/ .

On Milton Friedman Day, Monday, January 29, 2007, at 10:00 p.m. ET (check local listings), PBS will premiere “The Power of Choice: The Life and Ideas of Milton Friedman,” an exclusive documentary on the remarkable life and visionary ideas of the 1976 Nobel Laureate in economics.  The special, produced for PBS by Free to Choose Media, will give viewers a new understanding of the magnitude of this legendary economist’s influence on the modern world.  More on this PBS program is available at: www.freetochoosemedia.org.

At 2 p.m. on Monday, January 29, The University of Chicago and the Chicago Mercantile Exchange will host a memorial service at the University’s Rockefeller Chapel to honor the Nobel prize-winning economist’s impact on the economy and spread of freedom.  For more on this event visit: http://www-news.uchicago.edu/releases/07/070122.friedman.shtml.

In addition, You Tube will host a “Challenge the Status Quo” video contest in honor of Friedman.  The contest, sponsored by Izzit.org. and the Idea Channel, is open to anyone who is interested in producing a video in the spirit of Dr. Friedman, whose passion in life was challenging the status quo.  Cash prizes will be offered to the first, second and third place winners.  For more information, visit http://www.youtube.com/group/statusquo .

Finally, The Economist’s blog, Free Exchange, will host an online discussion with prominent economists and political leaders from around the world on the legacy of the late Milton Friedman, from January 25 through January 29. Free Exchange visitors will have the opportunity to read postings from these guest bloggers and post their own responses, reactions and questions about the impact of Dr. Friedman’s work.  For more on this online event visit: www.economist.com/debate/freeexchange/index.cfm.

Additional organizations hosting services, special events, and online activities, or promoting “Milton Friedman Day” include: the American Economics Association, the Manhattan Institute, The Heartland Institute, The Milton & Rose D. Friedman Foundation, the Association of Private Enterprise Educators, Cascade Policy Institute, the Fund for American Studies, the Minaret of Freedom Institute, The State Policy Network, Atlas Economic Research Foundation, Acton Institute, Economic Thinking, the Reason Foundation and the Alabama Policy Institute, as well as several universities, including Rutgers, Florida State, San Jose State and Central Tennessee State.  A full schedule of events is posted at www.miltonfriedmanday.org.

Comments

[bailey]

Krugman also is looked to as a giant in his profession. BUT, I fully expect him to adjust to ensure he will NOT get "caught up in an essentially political role."

[kostas]

right...

lets go from the "five-year production plans" can never work to socialist planned economy can work too: under well controlled conditions. The trick is to have sufficiently broad control over the economy otherwise the pernicious market forces will destabilize and subvert the deliberate clock-work of the planned production quotas.

[pgl]

Have you ever noticed how often the National Review parties invited Milton Friedman to show up? I'm sure they throw a nice party but if one did not go over the top in praising freedom and capitalism, one likely would not be on the invite list. So maybe Friedman was rational enough to know how to get on those guest lists.

[Emmanuel]

Whoa, comparing Milton Friedman to St. Ignatius of Loyola is a bit of a stretch. I sure hope that they won't be comparing Ayn Rand to Mother Teresa next.

Bailey--good one. Though I am favorably disposed to Paul Krugman, I somehow think that writing for the New York Review of Books will do him no favors in the impartiality sweepstakes. Let him without clear political bias cast the first stone.

[--Andrew]

I don't think Krugman is saying we should swing the pendulum all the way to a socialist planned economy. If anything he is advocating both here (and I'd say even in most of his columns) a rationalized and thinking approach that is ideologically moderate in outlook. I've always got the impression that he had more of a practical orientation for a economist (a nice thing for an engineer such as myself) where he was more focused on the goals, mechanisms and results of economic policy than the specific ideology behind them. He also has the "liberal" outlook that a nation or society should try to keep itself economically healthy, while at the same time try to do what it can to help the largest number of its people and keep the economic/societal playing field even. However I will admit that, from what I've seen, he has engaged in some stridency in his columns, but with less hyperbole than many others and always well researched and supported by data (which is more than I can say for some of those others). In today's political environment it seems it is difficult to get yourself heard over the ideologs and zealots without applying a bit of theatrical license and volume, you just need to try not to become one in doing so.

I always enjoy discussions with non-ideological, intelligent, and open-minded people; people that truely have conservative or liberal (or libertarian) outlooks and are not zealots. They are not afraid to consider other viewpoints that are contrary to their own, and actually welcome criticism, realizing that this is the only honest way to improve their own views and theories. Say what you want about Krugman, but at least the man is open-minded.

[PrestoPundit]

Krugman has got to be the most dishonest economist working today -- either that or a giant shining star of economic ignorance. The dishonest -- or ignorance -- begins with his opening paragraph: "Until John Maynard Keynes published The General Theory of Employment, Interest, and Money in 1936, economics — at least in the English-speaking world — was completely dominated by free-market orthodoxy". This simply isn't true, as anyone familiar with the history of economic thought knows well. I'm guessing that Krugman knows full well that this isn't true -- and we're once again getting fed a reeking pile of Krugman spin. How can we trust an economist who clearly deals constantly in dishonesties?

[Winslow R.]

Milton's priorities were

1) Individual choice

2) Steady growing money supply

Amalgamate the two:

Allow every individual citizen to choose to be involved in the money creation process. Friedman's ideas failed because individual choice doesn't work well in a top loaded system which gives all the perks to Goldman Sachs etc. by allowing the top few to leverage 50x while those at the bottom have no leverage at all.

[--Andrew]

One of Mr. Thoma's recent posts (I think it was "The Current Debacle in Iraq is What You Get When You Turn Op-Ed Columns into Foreign Policy") quoted Gideon Rachman of the Financial Times, who stated that often "The best opinion journalism has a clarity and readability that far surpasses most academic papers or diplomatic telegrams. But opinion journalism also has its characteristic vices. An editor of The Economist in the 1950s once advised his journalists to “simplify, then exaggerate”. This formula is almost second nature for newspaper columnists and can make for excellent reading."

Simplfying things to make them more readable to the general public may set more expert reader's teeth on edge. But, as long as the the overall accuracy is not greatly affected (and you admit/explain the edits when asked/called on it), is not the same thing as being "dishonest". People want to read a consise column, not a footnoted treatise. Dishonest is using obfuscation and over-simplification to advocate for your ideological position and engage in the peer pressure "double-speak" of "1984" tradition. These types typically then get indignant, attack the accuser, or give non-denial denials when called on these same obfuscations.

[js paine]

kostas

"lets go from the "five-year production plans" can never work to socialist planned economy can work too: under well controlled conditions"

i like your line
but what are u doing in a place like this ???

my small circle
of ex " total plan" fanatics
have been working
on a new CENTRAL PLAN MODEL

we call PLANS-MART

interested ??

and just imagine
we met
at a uncle milty fest

[js paine]

andrew
as usual i find your's
a very thoughtful comment

"I always enjoy discussions with non-ideological, intelligent, and open-minded people;"

now is it the case
ideological people are most often
not
open minded ???

(btw unintelligent i'm assuming
you think is orthogonal
to this open closed mind divide )

but then you suggest you do enjoy ideological folks conversation so long as they are
"people that truely have conservative or liberal (or libertarian) outlooks and are not zealots"

so is zealot the same as closed minded ???

perhaps a convinced mind might be worth a few exchanged words

if that's so
then a convinced closed mind
and a mind able and willing
to lend a careful ear
are not a contradiction

and a zealot is a firey closed mind
open only to attack and undisturbed preaching

a convinced mind like mine
is as often as not
challenged by contrary views
and even if unswayed

not just eager to refute contrary notions

if confident of his/her ground and ability
he/her might be most interested in the joust

its been my experience
that convinced minds
not sharing
your sense of tentative searching
once its gone on too long
are likely to grow impatient
and prefer the devil himself

[maria]

"...an online discussion with prominent economists and officials such as Leo Melamed, Ben Stein and Governor Arnold Schwarzenegger."

This struck me as funny although since "and officials" is in the sentence I can't claim it is beyond hilarious.

[callahan]

Was he uncle Milty?

[Real Person from the Real World]

I think Winslow hit the nail right on:
Allow every individual citizen to choose to be involved in the money creation process. Friedman's ideas failed because individual choice doesn't work well in a top loaded system which gives all the perks to Goldman Sachs etc. by allowing the top few to leverage 50x while those at the bottom have no leverage at all.
####
As for accusations that Krugman is dishonest, well, I don't know economic history other than a few general ones describing economists or the general Worldly Philosophers book, but when I look at how tough and miserable life has become and what I see causing it, and read Krugman, the two match perfectly as far as I can see. Kugman says what I would like to, and says it in economic terms that would be difficult for me.

Freedman was lionized in life, but I think his real popularity was that the "Greed is Good" set saw him as their apologist, who spoke in terms that the rest of us would have ignored from them since they are greedy bastards, but listened to without agreeing to Friedman, because there are economists like KRUGMAN that maintain counterviews.

Krugman, I wish I could read you more often. You are one guy, that if I made a decent buck I would pay to read!

[reason]

I'm for the Monopoly economy - pass go and collect $200. (I also call it bubble up as against trickle down).

But I think someone should have Friedman on his anti-democracy bias. Friedman's story was basically that democracy has an inherent tendency to theft. This was repeated often enough that it became treated as fact, but I don't think the evidence is clear at all.

There are two sides to the economy production and consumption and there is a conflict between efficiency in production and fairness in consumption. Conflict usually implies compromise, I would have liked more emphasis on the necessity of compromise. Perhaps we will get that from Krugman.

[Sanpete]

This is more or less a copy of a post I made over at Ezra's blog, where he made note of Krugman's piece as well. I know Mark likes to invite Krugman and others to respond when appropriate, or there may be others here who can respond, so maybe this is a better place to say this, as it involves Krugman's own care to be fully intellectually honest.

Part of Krugman's assessment of Friedman is that the latter was intellectually dishonest in his popular work. It's unfortunate that Krugman was unable to produce more solid evidence to back up his claims. To some people, charges of intellectual dishonesty are very serious things, and I think they should only be made where the evidence is very strong. (I think this should also apply to people who reproduce those charges. Mark didn't do that, that I noticed, but having directed people to Krugman's piece, I'm sure he'll share my concern.) This goes double if the target of the criticism is recently dead and people are still picking his bones, while he can no longer respond. Maybe Krugman has evidence not in his piece, but the case he makes gives me more reason to doubt Krugman than Freidman.

In his 1967 presidential address he declared that "the US monetary authorities followed highly deflationary policies," and that the money supply fell "because the Federal Reserve System forced or permitted a sharp reduction in the monetary base, because it failed to exercise the responsibilities assigned to it"—an odd assertion given that the monetary base, as we've seen, actually rose as the money supply was falling. (Friedman may have been referring to a couple of episodes along the way in which the monetary base fell modestly for brief periods, but even so his statement was highly misleading at best.)

Not very strong evidence, especially for the sweeping kind of charge Krugman makes. Who knows, without the context, what Friedman had in mind. Unfortunately, we can't just assume that Krugman has taken proper note of the context, as the next quote will show.

By 1976 Friedman was telling readers of Newsweek that "the elementary truth is that the Great Depression was produced by government mismanagement," a statement that his readers surely took to mean that the Depression wouldn't have happened if only the government had kept out of the way—when in fact what Friedman and Schwartz claimed was that the government should have been more active, not less.

I don't think Friedman's readers would be warranted in taking the comment as Krugman says they did. The quote is apparently from a Newsweek article by Friedman called "Economic Myths and Public Opinion." Here is the quote in context:

The elementary truth is that the Great Depression was produced by government mismanagement. It was not produced by the failure of private enterprise, it was produced by the failure of government to perform a function which had been assigned to it.

If that's the same article Krugman refers to, rather than an oddly redundant one, it's plain whose intellectual honesty ought to be in question. Maybe Krugman got the quote from another source, without the context, and failed to check it. But that alone would be inexcusable in this context. I'll add that the editing of the New York Review of Books should also be stronger in this kind of case, if this is the true quote.

I don't follow Krugman, but I've read him a bit now and then, have admired his work, and am vaguely aware of agreeing with his general drift. I've had three occasions recently to read Krugman, and in each case have found what seem to me reasons to see him as less than a good example of the intellectual honesty he accuses Friedman of lacking. I hope I'm wrong, or that this run is just an unhappy coincidence of misunderstandings.

[Real Person from the Real World]

Some people may be taking the comments a bit too literally.... I don't think PK was actually making a serious accusation of intellectual dishonest. Friedman was respected by the economic community, but his ideas are anathema to a lot of people too. Rather than say Milty was all greed and no heart, PK wanted to excuse him and say that in public, Milty only went with the flow, but was more discerning in his writings. Let's get off the "intellectual" dishonesty thread where everyone calls everyone else, who they disagree with, intellectually dishonest.

[kostas]

This piece by Krugman
...
( a prominent economist ? never heard of him till i came to this blog. is this blog actually run by his buddies for him, so that he can refer to himself as prominent in third-person?)
...
is a case of a small dog barking at the bigger dog, the bigger dog in this case was so much bigger that even barking was not feasible until he passed away. Bring it on, lets all go pee on his grave.

[Sanpete]

Let's get off the "intellectual" dishonesty thread where everyone calls everyone else, who they disagree with, intellectually dishonest.

Surely good advice. It does appear that Krugman was serious in his charge, which he repeats several times, but he does try to put it a larger context that he appears to see as making it perhaps more understandable. I think he utterly failed to make his case about the charge itself, though, and should never have made it on such evidence as he gives.

[anne]

Every night, before she goes to sleep, I tell my sweet little Virginia another story of how Milton Friedman, frontiers-boy, used to split rails with the best of the rail splitters and how she too could grow up to be a rail splitter if only she were to persevere in rail splitting. Am I being reverential enough?

[Sanpete]

I don't think your snark is very relevant, anne, but then I can't tell whom you're addressing. I do think you are among those most likely to have such reverence, just not for Friedman.

[anne]

No; as snarks go, this was a fine snark and I am much taken with it and will have to use it again. Doesn't even count for Confession though, but I have those that do.

[reason]

The name Friedman seems to attract unusual company. Kostas seems unusually ignorant for this blog.

I repeat my charge, that reading between the lines Friedman devalued democracy and we are stilling paying for that.

[Lafayette]

"Advances in technology and the growth of the Internet have simply not created a liquidity problem—or one that existing forms of money couldn’t evolve to meet. While purchases over the Internet have expanded at unbelievable rates in the last decade, the vast majority of Internet purchases have been made with credit cards."

This may be true of the American phenomenon (of the internet's impact upon retailing), but it is NOT European. (And, lest we forget, the EU has a size and economic dimension larger than the US.)

In Europe, retail purchasing employs a debit card, not a credit card. So, one spends what one has earned not what one can borrow. Yes, this does not mean the consumer credit financing does not exist in the EU and, yes, this has sparked some private bankruptcies - but not of major proportions.

I wonder, in this article, if the author is not driving at the fact that most retail is debt financed in the US. This, indeed, is worrisome, since Americans save a ridiculously small percentage of their income, preferring to put much of their discretionary income into "equity savings" (under the presumption that the return is larger). These are nonetheless risk instruments, unlike savings accounts.

From a macro-perspective there is no distinction between the two. Both remain disposable savings for purposes of expenditure. One must also consider the instrumentation of mortgaging, which also contributes to disposable income.

My point: US consumers have a far greater latitude in obtaining and employment of "disposable funds" for purposes of expenditure. And, as is obvious, all economies begin and end with consumer expenditure - its prime generator.

What is nonetheless worrisome is the sense that America is spending beyond its means ... which can continue for as long as other nations want to keep dollars as reserve currencies. That sword of Damoclese, however, will remain hanging over American economic activity for some time to come. Should it ever drop ...

Wikipedia: The Sword of Damocles ... is a frequently used allusion, epitomizing the imminent and ever-present peril faced by those in positions of power. More generally, it is used to denote a precarious situation and sense of foreboding thereof, especially one in which the onset of tragedy is restrained only by a delicate trigger or chance.