Garrett Smith emails:
Aprapros your latest comments on Krugman and his correct characterization of Friedman as a Keynesian http://www.economicpolicyjournal.com/ 2012/05/in-review-paul- krugmans-new-book.html...
I went back and listened to a podcast interview with Milton Friedman and Russ Roberts of GMU on EconTalk http://www.econtalk.org/archives/2006/08/milton_ friedman.html from 2006 (just a few months before Friedman passed away). They talk about money and the FED for about 26 minutes. There are some very revealing points in the interview. Perhaps the most interesting narrative is Friedman talking about he believes there has never been another 20 year period that had smaller year over year money growth (1986-2006). He says this created one of the best 20 year periods for economic growth ever. He goes on to say that he is for abolishing the FED and replacing it with a computer that would grow the money supply at k% every year.
When one puts these comments into context (ie. the enormous financial panic of 2008 happened just 2 years after) the Austrian critique of mechanistic money growth becomes even more validated. That is, all forms of non commodity backed inflation is harmful even if it is at a relatively small/predetermined rate. Even relatively small steady inflation creates huge dislocations, because again, the price mechanism is broken. I just wish he had been around to see his theory smashed once again.
I always laughed when I read or heard Friedman suggest replacing the Fed with a computer (Walter Williams made this suggestion once as well). My question is: Who programs the computer? Would it not be subjected to manipulation?
ReplyDeleteWhen it comes to money, why not be Free To Choose?
This is precisely the same argument I make against BitCoin, despite its adherants protestations that its strong encryption is "artificial inflation proof."
DeleteThere is NO computer system immune from hacking.
BitCoin flame war in three, two, one...
"...the Austrian critique of mechanistic money growth becomes even more validated. That is, all forms of non commodity backed inflation is harmful even if it is at a relatively small/predetermined rate."
ReplyDeleteNot so fast! From the fact that Austrian Critique is validated does not imply that the Friedmanite Gradulalist approach must necessarily lead to inflation.
Yes, Friedman advocated a "relatively small inflationary bias" for his Bernanke Computer. It simply does not follow, however, that inflation is "hard wired and built in" to the Monetarist model.
In fact, if you look at the literature of the Thatcher years, one overwhelming consistent criticism of the "Monetarist Thatcher" was that the Monetarist drive was everywhere and anywhere DEFLATIONARY.
If Monetarism is a false analysis, then it should be easy to refute Friedman and Anna Schwartz's analysis of the Great Depression. In this analysis, they argued that the Money Supply contracted by fully one third. Was their data faulty? If we cut the money supply by one third today, WOULD EVERYTHING CONTINUE AS IT WAS?
Clearly, this type of criticism of Monetarism as given is misplaced. I truly believe (based on evidence of Friedman's books and interviews) that the incrementalist view is based - in part - on a "human understanding". Friedman would state that, "You cannot use this empirical device to micromanage the economy".
The language Friedman uses is found almost everywhere today, including this site. "Stepping on the accelerator", "Stepping on the Brakes", etc. and onto the more complex.
It is not a question of "Conquering" the opposition. Monetarism has its place as well as a Wanniski type analysis that recommends Free and Open Markets. Say's Law is not a Law as "F = ma" is, nor is it supposed to be. ABCT is built - if I understand it correctly - on analysis of the same Type.
It appears that, as Kant was supposed to "transcend" Hume (but didn't), we have a number of people who believe that Monetarism has been falsified - and it hasn't (Yet).
Friedman would have taken these complaints in stride (as he often did) and politely attempt to steer the conversation to the data.
He was as puzzled at times as anyone else. Did this imply that Friedmanite Monetarism was false? I don't think so. Perhaps Monetarism is INCOMPLETE.
That, BTW, is not so bad.
Charles Wilson
Please read the following, "Monetarism is not Enough":
ReplyDeletehttp://www.margaretthatcher.org/document/110796
Charles Wilson
I wonder if the LRC and mises.org crowds will ever get tired of ragging on Milton Friedman.
ReplyDeleteQuestion for those crowds: Who would you rather have leading the Fed, Milton Friedman or the Ben Bernanke?
Not being an Austrian economist but a Marxist who has read Mises and Hayek, I would like to point out that Friedman's claim re. economic growth is completely false. The below data is from Angus Maddison [well respected for his growth and GDP work] and the UN -- I am amazed that Friedman would have made such a claim although there was that little matter of data quality earlier.
ReplyDelete“Real global GDP growth averaged 4.9% a year in the Golden Age years from 1950 through 1973, but dropped to 3.4% annually in the unstable period between 1974 and 1979. Dissatisfied with the instability, inflation, low profits and falling financial asset prices of the 1970s, advanced country elites pushed hard for a switch to a more business friendly political-economic system; global Neoliberalism was the result. World GDP growth averaged 3.3% a year in the early Neoliberal period of the 1980s, then slowed dramatically to 2.3% from 1990-99 as Neoliberalism strengthened, making the 1990s by far the slowest growth decade of the post war era.” (James Crotty)
“Real global GDP growth averaged 4.9%a year in the Golden Age years from 1950 through 1973, but dropped to 3.4% annually in the unstable period between 1974 and1979. Dissatisfied with the instability, inflation, low profits and falling financial asset prices of the 1970s, advanced country elites pushed hard for a switch to a more business friendly political-economic system; global Neoliberalism was the result. World GDP growth averaged 3.3% a year in the early Neoliberal period of the 1980s, then slowed dramatically to 2.3% from 1990-99 as Neoliberalism strengthened, making the 1990s by far the slowest growth decade of the post war era.” (James Crotty)
ReplyDeleteOne more time -
ReplyDelete“Real global GDP growth averaged 4.9%a year in the Golden Age years from 1950 through 1973, but dropped to 3.4% annually in the unstable period between 1974 and1979. Dissatisfied with the instability, inflation, low profits and falling financial asset prices of the 1970s, advanced country elites pushed hard for a switch to a more business friendly political-economic system; global Neoliberalism was the result. World GDP growth averaged 3.3% a year in the early Neoliberal period of the 1980s, then slowed dramatically to 2.3% from 1990-99 as Neoliberalism strengthened, making the 1990s by far the slowest growth decade of the post war era.” (James Crotty)
Global growth for the oughts is, when using similar methodology [Angus Maddison and UN], lower still.