David R. Henderson  

Henderson on Milton Friedman

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What were Friedman's other characteristics that mattered? I'll explain by telling my own tale of discovering Milton Friedman.

In the summer of 1968, when I was 17 and had just finished reading almost all of Ayn Rand's works, fiction and non-fiction, I happened to pick up an issue of Newsweek. In a column titled "The Public Be Damned," accompanied by a photo of a smiling, bald-headed economist, Friedman argued that the attitude expressed in that title, far from being businessmen's attitude toward the public, is actually the attitude of the U.S. Post Office. I loved the column and started working through the old Newsweeks in the University of Winnipeg library, finding quickly that Friedman wrote in the magazine every three weeks. I liked virtually every piece of his I read, although, truth be told, I wondered why he kept giving advice to the Federal Reserve Board on how to centrally plan the money supply, rather than advocating getting rid of the Fed.


This is from my article "Why Milton Friedman Was Rare," published in the latest issue of Econ Journal Watch. It's part of a symposium. We were asked to write on why there is not another Milton Friedman today. I started to write about that why there couldn't be another Milton Friedman, but, within a few paragraphs, changed my mind. The writing process sometimes does that. I found myself unconvinced that there couldn't be another Milton Friedman. I think the odds of one are very low, but I'm not willing to say there couldn't be.

Another excerpt:

Milton Friedman not only existed--and thrived--at the University of Chicago,
but also had a huge impact in the bigger world beyond academe. Why did he do so well and have so much influence in that bigger world? I came to see that it had to do with his rare combination of abilities and personal characteristics. I've mentioned his brilliance. The three other characteristics that I think mattered most were: his integrity, his passion, and his warmth. I don't know if they should be in that order--they were all important, and related.

For two views of Friedman very different from mine, see Richard Posner's "Why is There No Milton Friedman Today" and Robert Solow's "Why is There No Milton Friedman Today?"

I'm still a little in shock from reading their pieces. If I have something to say in response, a possibility that is highly likely, I'll post on it.


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CATEGORIES: Economic Philosophy



COMMENTS (22 to date)
Dallas writes:

Solow's piece really blows my mind. It reminds me of his TNR piece last fall.

Jon writes:

Milton succeeded as a public intellectual. I would juxtapose him in the role against the recent R&R tussle. Their way back machine demonstration was a real shock. How many weeks of breathless articles did we have about how they hoarded their data? Only they didn't.

We have plenty of idea men still, but the newspaper quality is low. Anytime historical research takes me to read old press articles, I am amazed by the technical detail and lucid explanations. We don't have that now and that means good ideas don't get amplified and bad ideas don't get rightly ridiculed.

We've reached the point were even technocrats can hold nakedly wrong views because the social lattice supports those views enough to make it a reputable farce even among practitioners.

david writes:

They didn't provide the data. If you want to see an economist providing data, go look at Daron Acemoglu's website, where you can actually get the Stata *.dta and *.do files generating the actual tables published in his papers. No hidden magic.

What R&R did was compile a long list of their per-country sources, and let readers go hunt down those time-series themselves. They published data sources but not the data. This was why a coding error slipped past for so long, and was only uncovered when someone wrangled the actual spreadsheet from them.

david writes:

(by the way, it is completely reasonable for an academic to be reluctant to provide actual spreadsheets, particularly for a topic where 99% of the work is compiling and recoding time series from a hundred different national agencies, each with their own definitions of whatever, into a comparable format.

But it is not honest to just write "Netherlands Bureau of Economic Analysis (2009)" and then say that you have provided "data" by merely citing the source.)

Vangel writes:

...I liked virtually every piece of his I read, although, truth be told, I wondered why he kept giving advice to the Federal Reserve Board on how to centrally plan the money supply, rather than advocating getting rid of the Fed.

That is my problem with Friedman. While I love some of his commentaries and use them and excerpts from his show to teach my kids about some economic issues all of the contradictions make me turn away from him as an economist. In fact I would say that those who argue that Friedman was more of a mathematician and an activist than he was an economist are closer to the truth than those who attack or praise him. Friedman's methodology does not and cannot work in the real world. We can't ignore the fact that most of our assumptions are unrealistic but argue that our models will make good predictions because they happen to be correct at some time or another. We cannot use linear equations to model a complex system. And we cannot pretend that we are libertarians while we argue for policies that maintain or expand the power of the state. Even his defenders would be hard pressed to argue that when it came to the subject of money he favoured central control and central planning. He did not want to do away with public education; he simple wanted to tinker with it so that it improved a bit. Dr. Friedman was not a true libertarian because he was too eager to embrace the role of the state in so many ordinary activities where it intervened and I would still rank him well below Mises on my scale of great economists.

Jon writes:

David, I was able to find actual time series information in wayback timestamped in 2011. Since they made the bald claim that it possible to retrieve the data from the site in 2010, I imagine this is also possible.

http://web.archive.org/web/20111003065742/http://www.carmenreinhart.com/data/

Tim writes:

Dr. Friedman was not a true libertarian

These kinds of statements are far too common in the libertarian movement. I think we should be careful to expel people simply because we have disagreements with them, or do not find their distaste for state power to be enough for our liking. I cringe every time I read something like this about a person who thoroughly advocated liberty like Friedman did.

Plus, he begat David Friedman, who I consider one of the greatest proponents of Anarchism in our time. That's a gift that continues to give.

Philo writes:

Solow writes: “I think that Milton Friedmans are bad for economics and bad for society. Fruitless debates with talented (near-)extremists waste a lot of everyone’s time that could have been spent more constructively, either in research or in arguing about policy issues in a more pragmatic way.”

Well, if the debates are defined initially as “fruitless,” of course they were time-wasting. But some of Friedman’s arguments did bear fruit, and others may yet do so as well; and even those that are too extreme for our times are worth contemplating. The world needs visionaries like Friedman just as much as it needs practical politicians who confine themselves within the limits of what is politically possible at the moment. Even the politician, in crafting his latest compromise, should have a conception (though he may have to refrain from expressing it publicly) of what a still better policy would be, if only people were wise enough to accept it.

(I suspect that Solow's real objection to Friedman is not that his ideas were politically unrealistic but that they were--in Solow's view--morally objectionable. But if he had said that he would have had to support it, and I am confident that he couldn't have done so convincingly.)

Mark V Anderson writes:

I found it interesting that Posner mentions that Friedman's timing was perfect. I agree with this. Friedman would not have become the household name he did become if Keynesianism hadn't started showing its deficits just about the time the Friedman was reaching his peak in intellectual power in the '70's. Of course the counter revolution to Keynesianism would not have been nearly as effective without Friedman's intellectual leadership.

Also, I wish that Posner had also stated that Keynes was just a lucky with his timing. Would his theories be merely a blip in the economic profession if the Great Depression had not come along when it did? And one could say the same about Karl Marx also. Economists that do not speak to the great events of their time are mostly ignored.

I also am a bit skeptical about Posner's comment that Keynes wasn't an ideologue. Maybe Posner simply agreed more with Keynes. No one that one agrees with is an ideologue.

Steve Sailer writes:

I started reading Friedman's Newsweek columns around 1971. I remember the one saying Nixon's wage-and-price controls wouldn't work.

Michael J Foy Sr writes:

The reason he did not advocate getting rid of the Fed is that the period from the end of the Civil War through the first decades of the Twentieth Century proved it was needed to regulate banks-commercial and investment and safe guard the money supply.

Brian writes:

Posner writes:

"It is the period since 2001 in which
Friedman’s ideals have been most fully realized in the United States, yet this has
been a period of economic and political decline, in significant part as a result of
regulatory laxity in banking and securities regulation (financial markets, it turns out,
are not self-regulating) and exaggerated belief in the economic efficacy of reducing
taxes as a method of stimulating economic activity, a dogma that risks starving
government for funds needed for infrastructure, basic research, and combating
global warming."

Does anyone here agree with this assessment of economic and political activity ove the last decade? Bush/Obama have come closer to realizing Friedman's ideas than any previous administrations? Really?!

It's hard to see why anyone should be shocked or upset by Posner's view of Friedman when he shows no indication of understanding simple recent history.

Jim Rose writes:

Robert lucas said a few years ago that robert solow responded to the last few decades of developments on macroeconomics by cracking jokes. solow's comments on Friedman are in the same evasive debating style.

Greg G writes:

@Brian

Friedman never got the rule based Fed policy he wanted but he was happier with Fed policy between 2001 and his death than any other period. Russ Roberts did an excellent EconTalk episode with Milton where he makes this clear. Bernake considers himself to be a Friedman disciple. There was more financial deregulation in the period between 2001 and Friedman's death than before and we did see some of the substantial tax cuts he wanted during that period.

Milton was a very great economist but it has to tarnish his legacy that he died right before the Great Recession without seeming to have a glimmer of recognition that we were in the midst of a housing bubble and the massive credit expansion that required.

EclectEcon writes:

I'm not surprised by Solow's piece. It smacks of the usual smug elitism of Cambridge that was never (or rarely) evident in Friedman's writings or public appearances. Not surprised, but still upset by it.

Posner's piece puzzles me, though I guess it shouldn't. As my friends know, I have long had a high regard for Posner's work, but his foray into monetary/macro economics ever since the financial crisis has been quite disappointing.

Brian writes:

Greg G,

You say "he was happier with Fed policy between 2001 and his death than any other period."

This may be true (I don't know since I haven't seen the episode you mention), but Friedman was already very complimentary of the Fed under Alan Greenspan in 1999 (see the video
http://www.youtube.com/watch?v=UlNxIc9gUMc), so I doubt that post 2001 was much different.

You also say "There was more financial deregulation in the period between 2001 and Friedman's death than before and we did see some of the substantial tax cuts he wanted during that period."

More post-2001 deregulation than in the 30 years before that? I doubt it. What's your evidence for this claim? Friedman always talked about Reagan's 1980's policies on taxes and deregulation as being the gamechanger, so I doubt he would agree with your or Posner's assessment. In any case, deregulation had little to do with the financial collapse (see Bryan Caplan's recent post of the Fed study), so Posner's main thesis (that recent events have been unkind to Friedman's point of view) is not supported.

Greg G writes:

Brian

I was not saying that more deregulation occurred during the period 2001 to Milton's death than in the three decades prior. I was saying that the prior trend toward financial deregulation was preserved and continued between 2001 and Milton's death.

There was a huge expansion of the shadow banking system during the latter period. This was driven largely by the ability to avoid regulation that would have applied if done through the traditional banking system. Milton was not concerned about that. It ended vey badly without him even recognizing we were in a financial bubble.

That does, and should, affect his reputation despite the fact that he was a great economist by any measure.

The reason he did not advocate getting rid of the Fed...

He did advocate getting rid of it...and replacing it with a computer programmed to increase M2 by 3-5% per year.

Solow is just sad, and Posner is weird. Yeah, yeah, Friedman's timing was perfect, that's the ticket.

Read Two Lucky People to see how his emergence as a public intellectual came about only after decades of perseverance and (sometimes) ridicule. Friedman was nonpareil, like Shakespeare. The guy who desperately wants to be Milton Friedman today, is Krugman, and I often think his sourness is due to the fact that, down deep, he knows he's not up to it.

Also, we are really unlucky that Friedman died before 2008. He'd be arguing that, 'It's the monetary policy.' Wasn't one of Friedman's pet peeves that monetary policy wasn't about interest rates? That's pretty much what Scott Sumner has been saying, with ever more evidence piling up that he's right.

Really poor form from Jamie Galbraith, repeating this canard;

We may surmise that Friedman’s affinity for first principles were behind his support for the Chilean dictator Augusto Pinochet, a man who granted freedom—and life itself—only to those who dared not oppose him. Here was a grisly contradiction between “economic freedom” and the real thing. My impression is that Friedman did his best to ignore Pinochet’s crimes, and then made up excuses when he had to. This is perhaps harsh. But it’s a more generous view than the alternative, which is to believe that he thought the socialists, communists, poets and musicians in the National Stadium got what they had coming.

Appallingly sloppy scholarship, as Friedman did not support Pinochet. He once met with him for half an hour (when he was in Chile to speak to a group of students at a private university) and they spoke about the control of inflation--Friedman being the world renowned expert. Friedman published the letter he wrote to Pinochet following up on that meeting in Two Lucky People.

It's telling when an economist can't be bothered to ascertain the facts before slandering someone. Something Friedman would never have done.

Greg Jaxon writes:

@Michael J Foy Sr: [citation needed]
Even if this were the motive behind the Fed.Res.Act (doubtful), it doesn't explain why Dr. Friedman presumed their policy-making could be beneficial.
Its more likely that he thought it had been helpful, or that he and his students were financial beneficiaries (directly or indirectly) of the Fed's famous expense account.
I don't recall him making an argument for a money-supply monopolist from first principles. I think he took that as a "done deed" and only tried to ride the waves of change it was causing. Note that these far outstrip - in magnitude, regional extent, and duration - the boom/bust cycles of the Gilded Age.

Eric Hosemann writes:

I'm paraphrasing Posner:"It is the period since 2001 in which Friedman's ideas were most fully realized in the United States..." Surely he must be joking. Both Solow and Posner bordered on ad hominem.Two of the most unappealing pieces I've read all week.

John Brennan writes:

@those who presume to know what MF though of the Fed:

“Letter to the editor: Money Matters”
by Milton Friedman
Newsweek, 25 April 1994, p. 16
©The Newsweek/Daily Beast Company LLC
In your review of economist Paul Krugman’s book “Peddling Prosperity” (“Quick and Dirty 101,” Business, April 4), you refer to “Milton Friedman’s theory that the Federal Reserve could manage the economy by focusing on money-supply measures.” This is almost the opposite of what I have in fact argued. Let me quote briefly from two ancient Newsweek columns of mine. In “The Case for a Monetary Rule” (Feb. 7. 1972), I wrote: “I and most other monetarists have long favored a policy of a steady and moderate rate of growth of the quantity of money. We have strongly opposed the Fed’s trying to fine-tune the economy … We conclude that the urgent need is to prevent the Fed from being a source of economic disturbance.” I also wrote, in “Defining ‘Monetarism’” (July 12, 1982): “Bad monetary policy can destroy a healthy economy but good monetary policy cannot by itself cure a sick economy.” I have long been in favor of abolishing the Federal Reserve rather than believing that it can “manage the economy.”

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