I am a bit slow commenting on the passing of Milton Friedman because I was travelling and having connectivity problems (in Montainview, CA, the homeland of Google), but I will now chime in with my two cents. First, I would take issue with claims about him being proven right on macroeconomic questions. Milton Friedman was the author and main promulgator of the money growth rule. His gospel was that we did not need the Fed, we just needed a computer that would increase the money supply by 3 percent annually. While central banks did experiment with this approach (including the Volcker Fed), I don't think that anyone in the world (not even Milton Freidman at the time of his death) still believes that this is a good way to manage monetary policy. One can view the current inflation targeting fad as a variant of the money rule, but even here there are few advocates of a strict target. Most proponents of inflation targetting support targetting with a human face, which is little different than monetary policy with a goal of maintaining low rates of inflation. His natural rate of unemployment hypothesis also ran into serious trouble in the late nineties. I won't repeat my diatribes following the awarding of the Nobel Prize to Edmund Phelps, but a "natural rate" of unemployment that seems to move around frequently and unpredictably (and possibly in response to actual rates of unemployment), is not very natural. I will give Friedman more credit on the political economy front. His views here certainly did have a huge influence on the world and I would agree that we should all think long and hard about a situation in which we are going to have the government tell people that they can't engage in some economic transaction in the manner in which they choose. Having said that, I think he and his followers are far too willing to accept government interventions that have the effect of shifting income upwards as just the natural working of the market. Regular readers of BTP know my shtick on this topic. The natural workings of the market don't give us patent and copyright protection -- that comes from the government: Bill Gates owes his good fortune at least as much to the government as his talent and hard work. Corporations are also creations of the government. It is the rules created by the government that make it easy for CEOs and other top management to rip off shareholders and other stakeholders, not the market. Similarly, the Wall Street folks get rich because they can use their political power to ensure that they are allowed to run gambling casinos without paying any taxes. (Imagine a Las Vegas casino that didn't have to pay the Nevada state gambling tax.) And of course, doctors, lawyers and other highly paid professionals earn so much more than dishwashers and custodians because of government protection (actually Friedman agrees with me on this one). I would also note that in my "free market" utopia, workers have the right to organize unions and bargain collectively. This right is absent in Mr. Friedman's world, hence his association with Chilean dictator Augusto Pinochet, who imprisoned tortured and killed people for union activity. As always, you can get my story free on-line in The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer. I only saw Milton Friedman in person once, but it made a lasting impression on me. About a decade ago, I stumbled into the wrong session at the American Economics Association Convention. Milton Friedman was weighing in on the impact of various presidents' councils of economic advisors. He was pointing out that many measures of considerable economic importance often get little scrutiny. The particular example I remember him discussing was the Americans With Disabilities Act, which requires businesses to make reasonable efforts to make their places of business accessible to employees and customers with disabilities. I stayed long enough to hear Mr. Friedman argue that this act imposed enormous costs on "normal people." I am afraid that I do see some important things differently.
-- Dean Baker
