David R. Henderson  

Solow on Friedman

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I promised recently that I would post on Robert Solow's views on Friedman once I had got over the shock. I am now over the shock.

Because Solow's piece is quite brief, I won't try to summarize it here. Instead, I'll point out the main thing that is lacking: evidence. And the evidence I know of goes almost entirely the other way. (I'll explain the "almost" shortly.)

Start with Solow's second paragraph:

There was of course the person: Milton was an ideologue, a True Believer, not given to skepticism or self-doubt. There are many of those, but he was an ideologue equipped with a very sharp and quick mind. And, what is not the same thing, he was a superb debater and a happy warrior: relentless, plausible, tactical, convincing, good with an audience, always smiling. (When we argued, he would often say: "Bob, I don't understand you." What he meant was: "How can you be so stupid?" But he would not say that.)

I agree that Milton was an ideologue. Solow and I might have different views about the meaning of that word. An ideologue is, of course, a person who has an ideology. And what is an ideology? Cue Webster's:
a: a systematic body of concepts especially about human life or culture
b : a manner or the content of thinking characteristic of an individual, group, or culture
c : the integrated assertions, theories and aims that constitute a sociopolitical program

By that definition, I'm an ideologue--and so, likely, is Solow. So that's not the real issue. The real issue is the next phrase: "a True Believer." That term was invented by Eric Hoffer in a book by the same title. I recommend the book. Read it and I think that, if you know much about Milton Friedman, you'll know that he was not that. Solow and I have no disagreement about Milton's awesome debating skills.

What about "not given to skepticism or self-doubt?" Score one for Solow--for the "short run" Milton Friedman. I had been around Milton countless times--in conversations and in audiences--and I never saw evidence of self-doubt. Indeed, in one of my first publications in economics, published in a 1982 Fraser Institute book, I took on his view, expressed in a Newsweek column, that President Carter's "real wage insurance" proposal was a form of wage and price controls in which the penalties for violations were spelled out. I had written Milton a letter arguing the opposite, but he didn't budge. That's why I wrote the paper. So in the short run, Milton didn't have doubts. That makes him pretty similar to, I don't know, almost everyone. I do recall, though, that when I sent him a draft of the paper, he didn't disagree.

But now take a look at the very long run. During World War II and for a few years after, Milton was a Keynesian. Not just in the sense that he thought aggregate demand was important but in the sense that he thought fiscal policy was the important lever for government to pull to influence the economy. Indeed, one of his early contributions was a 1943 book, with Carl Shoup and Ruth Mack, titled Taxing to Prevent Inflation. He advocated what the book's title suggests. You can't get much more Keynesian fiscalist than that.

Yet Milton Friedman changed. He became the most prominent and articulate advocate of the view that monetary policy, not fiscal policy, was what mattered. Why did he change? I think it was the evidence, which he and Anna J. Schwartz gathered through the 1950s. That led to their 1963 book, A Monetary History of the United States, 1867-1960. In my Reason review of his and Rose Friedman's autobiography, Two Lucky People, I pointed out that my biggest disappointment was that he didn't tell the reader how he switched from being a strong Keynesian to being a strong monetarist. When I later ran into him at a Hoover dinner, he told me that many people had been disappointed by that but that his switch was very gradual. So, however quickly or slowly he changed his views, he did change them. Not as quickly as John Maynard Keynes, whom Solow seems to admire (I'm not sure here--read the Solow passage on Keynes and see what you think) for how quickly he changed his views. But he did change them slowly as evidence accumulated.

Here's what I found to be the shocking part of Solow's article:

The second part of my response to the question is that I'm glad there is no Milton Friedman anywhere on the political-economy spectrum today. 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. I suppose that such debates also help to clarify implicit assumptions and shady arguments, but I think that is a small benefit compared with the cost in sheer hassle.

Do you notice what's missing? Solow doesn't tell us what the "fruitless" debates were. The main debates I can think of between Friedman and many of the rest of the profession were about three things: (1) the relative potence of fiscal and monetary policy, (2) whether the Phillips curve trade-off between inflation and unemployment presented policy-makers with a stable menu of choices, and (3) whether inflation is "everywhere and always a monetary phenomenon." Solow thought fiscal policy was more potent and, in his classic 1960 article co-authored with Paul Samuelson, argued that the Phillips curve gave policy makers a "menu." (The Samuelson-Solow article is more nuanced than I remembered. It's not clear how stable they thought the menu was. What is clear is that they never even hinted that the long-run Phillips curve was vertical.) Friedman thought monetary policy was more potent and argued that the long-run Phillips curve was vertical. Friedman argued that changes in the growth rate of the money supply were the main cause of changes in inflation. Guess who won on all three.

And even if you think Friedman didn't win, the debates were still debates worth having. There was nothing fruitless about them.

One thing more re the "fruitless" debate. I first met Bob Solow when he came to the University of Western Ontario in about February of 1972, when I was taking a year of advanced undergrad economics there. Students were encouraged to visit him and I did so. We talked for about 30 to 40 minutes. I found him very likable. I felt so comfortable with him that I went a little too far. I asked him why Paul Samuelson was so nasty. Solow got a little defensive and said that Samuelson was his best friend. So here's what his best friend was quoted saying about Friedman in a Time article on Friedman in the 1960s:

To keep the fish that they carried on long journeys lively and fresh, sea captains used to introduce an eel into the barrel. In the economics profession, Milton Friedman is that eel.

As Da Ali G would say, "Respect."


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COMMENTS (14 to date)
AMW writes:

Actually, Ali G would say "Respek."

Marcus Nunes writes:

David
I was flabbergasted with Solow´s 'appraisal':
http://thefaintofheart.wordpress.com/2013/05/22/milton-friedmans-are-bad-for-the-economy-and-for-society/

Brian writes:

David,

Merriam-Webster gives a definition of "ideologue" close to what Solow no doubt intended.

Definition of IDEOLOGUE
1: an impractical idealist : theorist
2: an often blindly partisan advocate or adherent of a particular ideology

It's more than just someone who has an ideology. I would say that Solow is clearly wrong on this score--Friedman obviously had a coherent, well-articulated economic belief system for which he advocated strongly, but he was no blind partisan. Solow's use of the word was inaccurate, pejorative, and unfortunate. His harsh reaction is exactly what one would expect of, well, an ideologue.

Those 'fruitless debates' led, among other things, to the ending of military conscription, the replacement of Bretton Woods' monetary arrangements with the flexible exchange rates we know of today (and the Chicago Merc), the acceptance of the idea that inflation was always and everywhere a monetary phenomenon that could be controlled by central banks, airline, RR and trucking deregulation, wiser anti-trust policy (until recently), the elimination of confiscatory marginal tax rates, and the Great Moderation of 1982-2007.

Had Friedman been alive in 2008, we might have been spared some of the worst fallout from the financial meltdown. I think Solow is envious.

mike davis writes:

Solow’s comment about “fruitless debates” misses the point about why we have debates. They are not about changing the minds of the debaters, nor even changing the minds of those who already have a point of view. Debates are good for framing the questions and informing those who come fresh to an issue. I first became interested in economics after taking an intro course from a great teacher who was a committed Keynesian. That experience led me to a regular Newsweek subscription, the great Samuelson v Friedman debates and ultimately a more careful reexamination of the textbook Keynesianism. The debate didn’t change Samuelson’s mind, but it changed mine.

David R. Henderson writes:

@Marcus Nunes,
I read your post on Samuelson and Solow and I think you missed the point about Samuelson's "eel" comment. Samuelson was showing Friedman the ultimate respect: it was not a sneer. Later, it's true, Samuelson sneered, but not, as far as I know, while Milton was alive.

Daublin writes:

Nice to see you raise the issue, David.

I've been running into the same thing with my friends who read a lot of liberal blogs. They have a general sense that Milton Friedman is some sort of enemy, but they don't have any specific reasons why.

The guy was a real person, with important ideas. It's distasteful to turn him into a vague bogeyman.

Roger McKinney writes:

It's easy to tell a real ideologue: they call opponents ideologues. In psychology it's called projecting.

I don't understand how Solow can be so free market and admire Keynes. The last chapters of GT demonstrate how socialist Keynes was.

David J writes:

Shocking is right. I don't know how he could consider Friedman's career as bad for the profession and society. I, too, would like to at least have some examples from Solow to illustrate his point. Even if you think that Friedman provided no value to the economics profession through his scholarly work, he inspired many other people to study economics (here's one). I find it hard to believe that an economist and professor such as Solow would completely discount that important impact which Friedman had on both the profession and society.

Marcus Nunes writes:

@ David Henderson
I could not imagine PS showing ultimate respect for Friedman. That´s the source of my confusion on the eel reference (especially coming right after you said you asked Solow why PS was so nasty). I partly remember his "no sight worse than old men drooling..." about Friedman and money.
And if I remember well, Solow has one on Friedman sex and money.

Marcus Nunes writes:

@ David
This is from your essay with Hummel on Was money really easy under Greenspan:
During the Keynesian dark ages persisting through the mid-1970s, no one—except a few monetary cranks and monetarist economists cloistered in their academic ivory towers—believed that the Federal Reserve’s monetary policy even mattered. This was a period when Paul Samuelson, who would go on to win the 1970 Nobel Prize in economics the second time it was awarded, could proclaim in a 1969 Newsweek column that “there is no sight in the world more awful than that of an old-time economist, foam-flecked at the mouth and hell-bent to cure inflation by monetary discipline. God willing, we shan’t soon see his like again.”

Given the time (1969) and place (Newsweek Column opposite Friedman), who else could PS be reffering to?

Panha writes:

Most Keynesians I know are either never read Friendman's and Hayek's, or never heard of Hayek.

Harry David writes:

Milton Friedman's openness to new ideas can be seen in the evolution of his ideas over the course of his career on the theory and empirics of monetary institutions and policy.

Further, his reliance on empirical hypotheses in addition to theory suggests openness as well. (I am setting aside the question of whether his stated methodology was flawed.)

This piece by Robert Hetzel shows these points very well, on the broader expanse of his economic views:
http://www.richmondfed.org/publications/research/economic_quarterly/2007/winter/pdf/hetzel.pdf

To highlight the change in his views on money, consider that he moved from the fiscal policy that you (David) highlighted to a series of other positions as his understanding changed over time: monetization of deficits; optimum quantity of money; k-rule; and then, finally, freezing the stock of money.

His theory evolved, too, as he developed the expectations-augmented Phillips curve and onward from there.

Solow's conjecture seems to be refuted by the facts.

Jeff writes:

Friedman disagreed with political liberals, some of whom had PhD's in economics, on a number of issues. He "won the debates" with them, not because he was a great debater, but because over time reality showed it's hand and it turned out that Friedman's predictions were correct and those of his opponents were not.

This happened with airline and trucking deregulation, the great inflation and Paul Volcker's defeat of it, the draft, fixed exchange rates, the performance of the Soviet and Eastern bloc economies, the Euro, and many other issues. On all of them Friedman was proven right.

There is not one major issue that Friedman got wrong. Even if you think the 4 percent M2 growth rule he used to advocate was a bad idea, you have to agree with him that, at the time he was advocating it, it would have performed better than what the Fed actually did.

Liberals persist in attacking and distorting Friedman because he makes them look stupid.

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