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November 16, 2006

Milton Friedman

Wire reports are stating that Milton Friedman has died. WSJ:

Nobel prize winner Milton Friedman, one of the most influential economists of the last century, died today. He was 94.

Mr. Friedman's death was also announced at a conference of the libertarian Cato Institute in Washington by the institute's vice president of academic affairs, James A. Dorn. The audience of academics and policy makers observed several moments of silence in observance

Cato Institute

Prominent free-market economist Milton Friedman, recipient of the 1976 Nobel Prize for Economic Science, passed away today at the age of 94. Friedman was widely regarded as the leader of the Chicago School of monetary economics, which stresses the importance of the quantity of money as an instrument of government policy and as a determinant of business cycles and inflation. In addition to his scientific work, Friedman also wrote extensively on public policy, always with primary emphasis on the preservation and extension of individual freedom. Friedman's ideas hugely influenced both the Reagan administration and the Thatcher government in the early 1980s, revolutionized establishment economic thinking across the globe, and have been employed extensively by emerging economies for decades.

Condolences to a couple of people on the blogs I know from the blogs: David and Patri.

More from David Smith and a link to his Nobel acceptance lecture. Matthew Sinclair has some of the Free to Choose series (unfortunately, the full version seems to have disappeared from the net).

Hedge Fund Guy has another video link and this:

He castigated the effects of teachers unions, the medical monopoly in America, excessive monetary growth, unions, wage and price controls, social security, public housing, welfare, etc., long before it was fashionable. Most of these opinions were predicated on the consistent theme that by violating an individual's liberty, one is neglecting the wisdom of those who are in a best position to judge the appropriateness of a certain course of action.

And I do wish we were able to get this point over more effectively:

Many liberals characterize him and his ilk (eg, me) as mean and indifferent to the poor, but he was a true utilitarian, for equality of rights, he just differed on tactics.

The Cassandra Page has a series of quotes:

Hell hath no fury like a bureaucrat scorned.

I'm in favor of legalizing drugs. According to my values system, if people want to kill themselves, they have every right to do so. Most of the harm that comes from drugs is because they are illegal.

Many people want the government to protect the consumer. A much more urgent problem is to protect the consumer from the government.

The government solution to a problem is usually as bad as the problem.

The most important single central fact about a free market is that no exchange takes place unless both parties benefit.

Via Reason comes this at The Wine CommonSewer, Milton at Cinco Di Mayo this year.

There will be thousands more pieces I have no doubt. Just check Google Blogsearch and Technorati to read your fill.

Samuel Brittan in the FT:

It was not until I came across Friedman, and learned that he had spent more time in lobbying against the US “draft” than on any other policy issue, that I began to take seriously the wider philosophic protestations of the pro-market economists.

Damn right, we are not slaves to be used by the State as they would wish, we are individuals who contract the State to do what we cannot do independently.

He regarded the anti-drugs laws as virtually a government subsidy for organised crime.

Does anyone think of it now as anything else?

His son David, in an attempt to avoid following in his father's footsteps, became at first a physicist, but eventually found the lure of socio-economic arguments too difficult to resist. His father was highly tolerant of David's excursions into anarchocapitalism preferring deviations in that direction to lapses towards the conventional left.

Obituaries aren't really supposed to make you laugh but, umm, giggle. David is here.

The authors found that state control of entry into the medical profession kept up the level of fees to the detriment of patients. These findings never ceased to get under the skin of the profession.

Damn right. The beginnings of public choice theory.

But he believed that an objective study of the facts, case by case, combined with an underlying belief in personal choice, would usually swing the argument in favour of private provision in the market place.

Yes, I'll buy that. In fact I have, it underpins much of my view of the interaction between economics and policy.

Milton on drugs, Virginia Postrel, Jane Galt, and the NYT obituary. Also Austan Goolsbee.

Richard Adams starts pissing in the grave before they've even put the body in it. Vile.

The Times' obituary. Something of a pity the paper has gone tabloid. The old rule of thumb was that you knew when someone really important had died. They got a full page obit in The Times.

Radley Balko has a great video piece.

Arnold Kling:

The late Bernie Saffran used to say, "Milton Friedman and Paul Samuelson teach the same price theory, but only Friedman applies it to policy."

Division of Labour with a foreword that Friedman wrote for their book.

Mark Thoma with a Wall Street Journal piece. Published today: yes, Friedman was still writing and thinking about economics right to the end.

Houston's Clear Thinkers have some great quotes.

When Professor Friedman moved to San Francisco in the 1970's, the city was debating rent control. So he wrote a letter to The San Francisco Chronicle declaring: "Anybody who has examined the evidence about the effects of rent control, and still votes for it, is either a knave or a fool."

"One of the great mistakes is to judge policies and programs by their intentions rather than their results. We all know a famous road that is paved with good intentions. The people who go around talking about their soft heart -- I share their -- I admire them for the softness of their heart, but unfortunately, it very often extends to their head as well, because the fact is that the programs that are labeled as being for the poor, for the needy, almost always have effects exactly the opposite of those which their well-intentioned sponsors intend them to have."

Lynne Kiesling:

I celebrate a life well-lived.

David Tufte:

A short list of the ideas he either gave birth, nurtured or resuscitated includes: the idea that monetary policy is even worth our attention, skepticism of government solutions, the volunteer army, school choice, what we now call the earned income tax credit, the lack of an exploitable policy tradeoff between inflation and unemployment, income tax witholding, decriminalization, flexible exchange rates, to name just a few.

Tyler Cowen, Alex Tabarrok,

Milton Friedman loved liberty.  Even today, chills run down my spine whenever I read the slashing opening to Capitalism and Freedom

President Kennedy said, "Ask not what your country can do for you - ask what you can do for your country."... Neither half of that statement expresses a relation between the citizen and his government that is worthy of the ideals of free men in a free society.

Damn right.

Johan Norberg:

To explain this in a way that even those who disagree with economic liberalism should understand: If a scholar holds a few lectures in Myanmar or Libya, and explains that an impartial judiciary or a free media is good and will build a foundation for democracy, that doesn´t make this scholar a supporter of the dictatorship in Myanmar or Libya. Ok?

And if an apolitical scientist tells the Chinese leaders that they must deal with its environmental problems not even this makes him a supporter of China´s dictatorship. Or is he? In that case there are a lot of supporters of tyranny out there.

You can see the double standard here, right? The latter happens all the time, but no one would accuse such a scholar or scientist of being a supporter of the communist regime (or whatever regime it was). It´s Milton Friedman´s economic views his critics hate, but because they don´t know how to falsify them, they make up bizarre accusations about Pinochet that they would never dream of using against anyone whose views they share.

And this:


Several times Rose interrupted him with an opposing view. She turned out to be more hardcore in her views than he was.

The Guardian's obituary (of all places!) is positively fulsome.

Milton Friedman, who has died aged 94, was one of the greatest economists of all time. He may come to be included in the same category of pre-eminent figures as Adam Smith, Ricardo, Marx and John Maynard Keynes. When he began his main work, while professor at Chicago University in the 1950s and 60s, Keynesian orthodoxy dominated almost all academic macro-economics, and much of public policy in this field. By the time Friedman's project was mostly complete, in the 1970s and 80s - with a Nobel prize in 1976 - that orthodoxy had been shattered.

....

Yet, with his colleague Anna Schwartz, he wrote the finest ever book on economic history, A Monetary History of the United States, 1867-1960, published in 1963.

Err, Harry Hutton's view of it all:

Should we let the invisible hand caress our organ of government, as Friedman argued, or should we reintroduce the Golden Age of Steam? What do you think?

Mark Perry with further quotes:

10. The high rate of unemployment among teenagers, and especially black teenagers, is both a scandal and a serious source of social unrest. Yet it is largely a result of minimum wage laws. We regard the minimum wage law as one of the most, if not the most, antiblack laws on the statute books.

11. Industrial progress, mechanical improvement, all of the great wonders of the modern era have meant relatively little to the wealthy. The rich in Ancient Greece would have benefitted hardly at all from modern plumbing : running servants replaced running water. Television and radio? The Patricians of Rome could enjoy the leading musicians and actors in their home, could have the leading actors as domestic retainers. Ready-to-wear clothing, supermarkets - all these and many other modern developments woul have added little to their life. The great achievements of Western Capitalism have redounded primarily to the benefit of the ordinary person. These achievements have made available to the masses conveniences and amenities that were previously the exclusive perogative of the rich and powerful.

David Friedman's blog comment:

Cattle die, kindred die,
Every man is mortal:
But the good name never dies
Of one who has done well.

Patri Friedman with the Milton Friedman choir video.

James Bartholomew.

Danny Finkelstein (pbuh)  has up the 2 minute video of Friedman telling the I Pencil story.

William Polley with a more personal obituary.

November 16, 2006 in Economics | Permalink

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Comments

The lessons he taught us will not be forgotten. If only Dave Cameron could still remember them.

Posted by: Josh | Nov 16, 2006 6:42:27 PM

It may be true that Economics is just footnotes to Smith and Ricardo, but some footnoters can still do the world a service.

Posted by: dearieme | Nov 16, 2006 7:07:30 PM

The IMF wrote the epitaph for Monetarism in its World Economic Review, October 1996, p.106:

"...instability of monetary demand, especially in the context of supply shocks and declines in potential output growth, complicated the task of monetary authorities. As a result, during the 1980s most central banks – with some notable exceptions – either abandoned or downplayed the role of monetary targets".

Friedman agreed:

"In fact in an interview with Milton Friedman (published in the Financial Times 6 June 2003) Milton Friedman even seems to repudiate the monetary policy of monetarism and is quoted as saying 'The use of quantity of money as a target has not been a success,' ... 'I'm not sure I would as of today push it as hard as I once did.'"
http://en.wikipedia.org/wiki/Monetarism

"Monetarism relies on the predictability of velocity rather than absolute stability, so in the 1970s one could make a case for the short-run quantity theory. However, the 1980s and 1990s have not been kind to Monetarist assumptions. Velocity was highly unstable with unpredictable periods of increases and declines. In such an environment, the link between the money supply and nominal GDP broke down and the usefulness of the quantity theory of money came into question. Many economists who were convinced by Friedman and Monetarism in the 1970s abandoned this approach in the mid- to late-1980s. The empirical relationship had simply broken down."
http://www.econweb.com/MacroWelcome/monetarism/notes.html

But Friedman certainly deserves credit for devising - along with Edmund Phelps - the concept of a "natural rate" of unemployment.

Posted by: Bob B | Nov 16, 2006 8:35:55 PM

So what part of capitalism does this undermine?

Posted by: Josh | Nov 17, 2006 12:06:29 AM

I think I'm confusing the various neo-liberal philosophies.

http://en.wikipedia.org/wiki/Supply_side_economics#Supply-side_vs._Monetarism_.26_New_Classical_Economics

Supply side economics, that I think is probably the most important to this blog, is apparently a competitor to monetarism.

Posted by: Josh | Nov 17, 2006 12:22:51 AM

"Supply side economics, that I think is probably the most important to this blog, is apparently a competitor to monetarism."

If you say so, Josh, but I don't think anyone else here is saying that. Friedman certainly wasn't alone among economists in championing market capitalism and opposing statist interventions but he was very much the high-priest of monetarism and that turned out to have wobbly foundations - on the evidence. And if we want to find insights into reasons for the decade-long stagnation of Japan's economy from 1992 then we look to Keynes's economics, not to Friedman's. Under our prevailing arrangements for national monetary policy, the Bank of England sets interest rates (not the "money supply") to maintain a stable rate of inflation, which is not a Friedmanite way of working.

I happen to think that flag waving for "free markets" tends to obscure the hugely relevant fact that efficiently functioning markets depend crucially on infrastructures of laws, regulations and institutions. Take those way and we converge with the bandit capitalism of Russia during Yeltsin's presidency, which doesn't work very well because of the ensuing high transactions costs in trying to maintain security of contracts.

The intelligent and productive issue to pursue is to ask what sort of laws, regulations and institutions are most conducive to economic prosperity. There's a large and illuminating research literature, for instance, on whether the property rights in the tradition of Anglo-Saxon case law provide a better framework for promoting business than the Code Napoleon. That approach is more likely to prove illuminating than running around flag-waving for "free markets".

I'm also distinctly uneasy about rubbishing any interventionist role for the state in managing economies and public infrastructures. Taken to logical extremes that ultimately leads to tardiness in the state opting to repair and reinforce the levies which protected New Orleans from flooding - with disastrous consequences. Adam Smith was wiser:

"The third and last duty of the sovereign or commonwealth is that of erecting and maintaining those public institutions and those public works, which, though they may be in the highest degree advantageous to a great society, are, however, of such a nature that the profit could never repay the expense to any individual or small number of individuals, and which it therefore cannot be expected that any individual or small number of individuals should erect or maintain."
Wealth of Nations (1776), Bk 5, Chp 1, Pt 3.

In the news, much is being made of Friedman's influence on Mrs Thatcher. Perhaps so but that didn't stop the Thatcher governments from investing billions of public money in the British-Leyland/Rover Group car company and into the coal mining industry in Britain. We can argue about whether that was misjudged but the Thatcherites certainly saw an activist role for government albeit with a long term aim of reducing the share of GDP take by the state in taxes. The present success of the London capital market owes much to the implementation of the Big Bang in 1986 so I'm certainly not down-playing the potential significance of activist supply-side policy.

Posted by: Bob B | Nov 17, 2006 5:25:09 AM

Following various links you get to his grandson, Patri's, page, which is living proof of Tim and I suspect Milton's belief that inherited wealth is fine as someone will always squander it.

Tim adds: I have a feeling that Patri is making plenty. He's a software engineer at Google and has been known to win quite a lot at poker too.

Posted by: Matthew | Nov 17, 2006 8:39:10 AM

Richard Adams therefore reveals much about himself in the process and has done the reading public a favour.

Posted by: james higham | Nov 17, 2006 9:25:59 AM

Have you seen that in the first comment on Richard Adams column, someone pointed out that Friedman worked out what went wrong in the Great Depression, and Adams immediately replies saying "Great, so 30 years after the event Friedman figured out the the Great Depression. That's called hindsight".

The only conclusion to draw from this is that Adams is an idiot.

(Someone below that says "I've been fantasising about Thatcher's death now for 16 years". Nice).

Tim adds: Read further for my response to Adams.

Posted by: Blithering Bunny | Nov 17, 2006 10:41:53 AM

Bob says:
>that didn't stop the Thatcher governments from investing billions of public money in the British-Leyland/Rover Group car company and into the coal mining industry in Britain.

This reminds me of Laban Tall's regular jibe that Thatcher as education minister closed down more grammar schools than ever, when in fact these processes had a momentum of their own which she tried to stop.

In the case of the regular and vast payments to semi-nationalised industries, her government eventually succeeded in stopping these, but it simply wasn't a matter of being able to walk into no. 10 and say, right, no more of that then.

As I always say in these cases, read her memoirs to get the background.

Posted by: Blithering Bunny | Nov 17, 2006 11:40:22 AM

Bob B writes: "efficiently functioning markets depend crucially on infrastructures of laws, regulations and institutions. Take those way and we converge with the bandit capitalism of Russia during Yeltsin's presidency, which doesn't work very well because of the ensuing high transactions costs in trying to maintain security of contracts."

I could not agree more, and I don't doubt that the late M. Friedman would agree too. No-where did he argue that markets did not require rules: namely, rules banning force and fraud. The old claim, made by socialists and statists, that champions of laissez-faire disregard the need for laws and institutions is a pure strawman. Law and liberty are intertwined.

"I'm also distinctly uneasy about rubbishing any interventionist role for the state in managing economies and public infrastructures."

Depends what you mean by such "public infrastructures." Friedman supported the idea that the state had to perform basic functions, including defence. Defence against something like mass flooding of human settlements presumably might fit into that. Having said that, free marketeers, in assessing things like the Katrina disaster, would argue that state-run flood defences could encourage people to become complacent - the so-called moral hazard issue. So they would want to ensure that the insurance market worked to incentivise people to live in safe areas and move from flood-risk zones, etc.

Friedman was a giant, no doubt about that.

Posted by: Johnathan Pearce | Nov 17, 2006 3:00:26 PM

Tim, spare us the crocodile tears over Richard Adams' piece and particularly Johan Norberg's ludicrous apologia for the Chilean infamy. It was only six months ago that you were approvingly linking to attempts to smear Galbraith as a Communist.

http://timworstall.typepad.com/timworstall/2006/05/john_kenneth_ga.html

For what it's worth, the entire point here is that Friedman, personally and through the "Chicago Boys", advocated and promoted policies (like the abolition of trade union bargaining rights and minimum wages) that could only possibly have been enacted through fascist means. To go to a dictator's country and say "slash wages, smash the unions and run a large fiscal surplus, but hey ... don't go doing anything *undemocratic*, will you?" is just crazy.

Posted by: dsquared | Nov 17, 2006 5:12:28 PM

"As I always say in these cases, read her(Thatchers) memoirs to get the background." .. yes indeed, with such gems as "his vice was second thoughts".

Posted by: johnnybonk | Nov 18, 2006 2:49:53 AM

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