The End of the Age of Milton Friedman
The Bush administration has thrown in the towel on the long battle begun in the 1970s to minimize government oversight of the economy. In light of the credit crisis, it now wants to regulate Wall Street. Treasury Secretary Paulson has put to together broad set of reforms, not truly effectual, but a serious start.
This marks, at last, the end of the Age of Friedman. And not too soon.
There is a direct line from Milton Friedman's ascendancy in the 1970s to the debacle on Wall Street today. Friedman had been working his brand of economic ideology roughly since the late 1940s and early 1950s, but he did not strike gold with mainstream economists and the public until the hyper-inflation of the 1970s.
He had a double-barreled approach. He was a respected scholar who ingeniously sought to prove his views with empirical and statistical research. These views were largely anti-Keynesian. John Maynard Keynes preached that government spending could ward off recession or at least ameliorate their impact. Friedman argued there was little to do but maintain a regularly growing money supply.
But Friedman's monetarism was discarded long ago -- officially by the Federal Reserve in 1984. They worry about interest rates now, not money, which was always a Keynesian principle, if initially of lesser concern. And, in fact, traditional Keynesian stimulus has made a big comeback. The conservative Bush clambered to get aboard a Keynesian fiscal stimulus package initiated by the House Democrats in December.
The second barrel was Friedman's articulate popular policy writings. What did remain of Friedman's philosophy (aside from one academic contribution, the overstated natural rate of unemployment philosophy) was his deeply held, well-articulated and simplistic view that government regulation was almost always bad for us.
Competition was the great disciplinarian of market excess, wrote Friedman, obeying such predecessors as Friedrich van Hayek, author of The Road to Serfdom. By 1999, even Bill Clinton and many a Congressional Democrat fully supported the elimination of key financial regulations established in the New Deal.
As night follows day, what happened was a return of the excesses of the 1920s. Competition is not enough to ward off excesses. Free floating prices do not automatically stabilize economies. Financial markets in particular encourage excess naturally, a point made by the more profound economist, Hyman Minsky.
Friedman's followers will seldom admit that much of his public policy was not supported by genuine empirical research, unlike his monetarism. At least, because Friedman did the homework, one could debate with him on the groundwork of his views in these areas. In my view, the empirics never supported the stronger propositions he made.
But in the area of public policy, it was largely ideology. It was mostly an exaggerated application of Adam Smith's invisible hand: we would all be better off if we just maximize our profits.
Why did Friedman's views become popular? As he himself conceded, crisis in the 1970s demanded a new set of ideas.
Crisis in the 2000s is now demanding a return to greater realism. Will the nation overshoot, as it did with Friedman's ideological deregulation? Not likely. The powerful vested interests are around to keep government regulators in check. The Bush administration proposals reflect that; they are weak. And though the Democrats are on the case, it is most likely the nation will not do enough.
But if the demise of simplistic Friedmanite ideology is now upon us, at least this crisis has had one silver lining. And perhaps we can begin to discuss more openly, and better deal with, why this economy has served most Americans so poorly since the 1970s.
Loading comments…
Want to reply to a comment? Hint: Click "Reply" at the bottom of the comment; after being approved your comment will appear directly underneath the comment you replied to
Milton Friedman's "free market" dogma was a fraud from day one. Winners and losers are always determined by policy. Milton's policy was to raid the public sector and distribute it's assets to a select few under the false pretense of a non existent free market.
Agreed, that the "free market" is not very free. It has always been manipulated by the wealthiest at the expense of the public. But that is not the economic dogma preached in the halls of business, business schools or to the public at large. Sadly, no matter what the evidence now or in the foreseeable future, the propagandists will convince sufficient numbers of the duped that theirs is the one true way and meaningful change will be hard to come by.
Business and law schools now teach that if a company is to go bankrupt, go big because then the government will bail the company out under the rational that for it to go bankrupt would be more damaging than bailing it out. This is a subjective determination. Sound familiar, Bear Stearns ring a bell with more to come. This socializes investment losses while having profits privatized without scrutiny. It also makes bankruptcy a viable business plan which has alway been the case but now their are no consequences especially when the Federal Reserve is in the picture. THIS IS WHAT A SOVIET-FASCIST GOVERNMENT OPERATES, SOCIALISM FOR THE WEALTHY CAPITALISM FOR THE POOR AND WORKING CLASSES. On top of all this the Republicans want to eliminate taxes on corporations in favor of a national sales tax. THIS WOULD BE THE BIGGEST TAX INCREASE IN WORLD HISTORY.
I don't know. I think Friedman's "thinking" has been driven so far down the social economic strata that it will still take a clear, direct and repeated denunciation of supply side to get Americans on track to throw out the bums whose political careers have been built on this insipid foundation.
A crack in the edifice is good, now it needs to be exploited. That means that every voice that can be brought to bear on this should push the issue as hard and fast as is possible. It has to be taken to the street, and in terms that the public can follow, as a way of explaining the existential troubles that they are undergoing in this recession/
I do regret that Friedman will not be around to see the consequences of his stupidity, but the worst thing of all is that his philosophy should have been still born. The community of economists shirked their duty to the public and to science by letting this play out all these years.
It comtemporary metaphor is now global warming. I hope the academic world will take note of the parrallels.
"The Bush administration has thrown in the towel..." yeah, after they wiped their asses with it and lit it on fire.
Friedman's economics was *not* "Supply Side" economics. Supply side economics was a fraud cooked up to excuse lowering the top tax brackets during the Reagan/Bush years (and raising regressive taxes like social security to compensate for the revenue shortfall) -- at least according to David Stockman, Reagan's budget advisor. You may have seen Stockman in the news recently as he was being led away in handcuffs, indicted for securities fraud.
Another missing piece from the post above and comments is the role of subsidies. Talk of taxes and spending is almost misdirection when you consider the enormous impact of government subsidies (both local and federal). Three quarters of George W. Bush's net worth comes from just such a subsidy. See David Cay Johnston's "Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You with the Bill)" ...
You may have seen Stockman in the news recently as he was being led away in handcuffs, indicted for securities fraud.
Please give a URL on this. Googled it and can't find a thing.
Try googling "David Stockman indicted security fraud" - I get 1030 hits. Here's one:
http://www
The CORPORATE WELFARE KINGS, like Bush, the wealthy get the proceeds from government loans, and the interest an principal are paid back by individual taxpayers. SOCIALISM FOR THE WEALTHY AND CAPITALISM FOR THE POOR. It's a sweet deal when you get loan proceeds and the principal and interest paid for by others.
As I see it the basic principle at work is Corporate vs Human goals. Friedman types believe that Corporate goals augment Human goals. Well, now we can all see that this is generally not the case. We humans need to get back in control of our civilization. Serfdom is the ideal corporate environment, lets not go there without a fight.
This country never experienced serfdom and feudalism, except for slaves and indians. Looks like we'll get our chance. This country is only 225 years old. The European countries with their long history's had serfdom and feudalism which is why they provide a social security net for their citizens who suffered the consequences of those systems in the past. The wealthy of course gained because of those conditions.
Wombaticus: If you don't want to go there without a fight you need to learn the power of solidarity. Its the only power the working class has. But it is enough.
The only thing that will work to end this kind of mess is some kind of oversight of credit and margin in the financial - as opposed to the make, do and serve economy - markets. In the late '60s, the Fed jawboned successfully. The pressure probably has to be put on the lending side: higher reserve requirements on loans for pure speculation (as in paper barrels of oil etc) or to finance big dividend payouts in LBOs or to hedge funds. On the borrow side, the corollary would be to tighten enforceable margin requirements.
Bear, Stearns was done in because the holdings were acquired on borrowed money thirty times its actual assets, about 3.3%. The average down payment on homes in recent years was 7%, meaning many homes were bought with far less. In other words, more than a 7% drop in the value of new homes, would put most new buyers "under water." In Bear, Stearns case, there was a shortage of buyers for their assets, a complete lack of liquidity. Both examples make the typical margin player, at 50%, rather conservative.
Every boom has a bust, that is the nature of business cycles, but cheap money, meaning low interest rates, and excessive exuberance over housing prices, by lenders, by speculators and by borrowers with poor credit have lead this bust, probably causing widespread pain, unlike anything, since the Great Depression.
Jeff, I think you hit a big nail on the head when you said "regulate a regularly growing money-supp
These men confused "money" with "wealth" and, not too surprisingly, were eager to do so. Fast-forward a mere 40 years and we have a government that is printing "money" with carefree abandon... to satisfy just next years' proposed budget this government will "borrow from itself" more than $96,000.00 per SECOND. This is not a "rapidly growing supply of" anything at all ... except inflation. If we were printing paper bank-notes to match this supply of "money," as the Germans did between World Wars I and II, we'd have dended the world's forests by now.
This is what happens when economics tries to "drive the bus" instead of simply watching where it's going and assisting with the maps and route-planning. It creates ends that are merely ends unto themselves.
And yet, I know that Mr. Friedman was certain that he could do this even though he did not say specifically what was to back-up "all that money." But there was such a thing: a treaty negotiated by Henry Kissinger which required oil worldwide to be purchased with those dollars. Black gold.
Let us, instead, go back to the basic principles of trade: trade is the only source of wealth, and it must be among equals or comparables. "We can do it." For real. Again.
All that debt is prosperity, Ronald Reagoon told us so and is still believed to this day.
The Republicans traded in a Quarter for 2 dimes and thought they got a good deal.
The mighty Corporations own to much of the wealth and the government to let any real legislation that puts in controls work. What has been suggested by Paulson is a joke.
They now run the prison system--with the help of Democrats--and much of our government.
Isn't this Friedman? Make everything private run and the point of government is what?
Friedman, like Marx, forgot one minor little detail in creating his theories. You cannot have a human institution without accounting for humans. In Marx's case, this resulted in someone like Stalin coming to power and completely RUINING any chance of Marxism ever being realized. In Friedman's case, this resulted in Enron as the first of what has become the subprime mortgage crisis!
Traditional Marxists would very well take issue with you for identifying what took place in the USSR as "Marxism".
According to Marx, societies progressed to socialism/communism through a required series of economic and consequent political phases.
For the traditional Marxist, the workers' revolution would occur in the most economically developed capitalist society: in Europe Germany or England
Not economically backward Russia which had not yet had its bourgeois revolution. Nor the economic preconditions for socialism.
That "backward" Russia was the site caused a great deal of ideological distress. Trotsky attempted to resole the problem through his "Law "of Combined and Uneven Development.
In his "The Revolution Betrayed" Trotsky also sought to explain Stalinism as a bureaucratic perversion .
Rog:
You are right. Marx propounds the five stages of "dialectical materialism" with the synthesis, antethis, and forward through the stages: capitalism, socialism, and then communism (by the way the utopia). The USSR is mostly referred to as Marxist-Leninist in that Lenin took the Bolshviks into the "spark" of revolution trying to impose socialism prior to what the dictates of the Marxist "dialectic would have predicted.
Indeed, if you have been paying attention, it was Trotsky (of the Communist International) who wanted this spread worldwide, and of course the Bolsheviks wanted USSR first and the disenfranchisement of Trotsky followed. The interesting parallel is the PNAC of our own NeoCons, many of whom are described by Pat Buchanen as Trotskiites!! The PNAC appeared to want world domination that their Trotsky cousins propounded for the Soviets.
I still remember the battle between John Kenneth Galbraith and Milton Friedman for the hearts and minds of Americans watching Public Television. I gather that the whole affair grew out of the fact that Friedman was never invited for the "commentary appendix" offered after the "lesson" of each of the programs in Galbraith's AGE OF UNCERTAINTY series; so, by way of retaliation, Friedman recruited funding for his own series on which he could snub Galbraith! What was most telling, however, was the contrast in utopianism one could observe in watching both series. Towards the end of THE AGE OF UNCERTAINTY, Galbraith offered a profile of Singapore as an example of the benefits of the full exercise of Keynesian control. Friedman's "counter-move" was to begin HIS series with a profile of Hong Kong, which I liked to call "a celebration of the sweatshop!" If Friedman thought he was making a plea for freedom from oppressive Singaporean control, he managed to turn it into a sermon on the need for freedom to exploit. He may have thought that Singaporean workers constrained by government regulations were the perfect example of Hayek's "serfs;" but the massive underclass of underpaid Hong Kong workers comes a lot closer the dictionary definition of "serf!"
Recommend "The Shock Doctrine" by Naomi Klein for the ultimate discrediting of the Friedman doctrine. His "Chicago Boys" devasted Chile under Pinochet in their "experiment" of "free markets".
"This marks, at last, the end of the Age of Friedman. And not too soon."
I hope you are correct; another decade of Supply-side economics and unfettered, so-called "free-markets" would likely put true recovery out of reach--if it hasn't already.
Democrats [and true progressives, to a much lesser degree] now have the opening required to reinstated policies that could eventually rebuild the middle class, lessen the income gap between the 1% and the rest of US citizens, and set precedents for a new generation, a generation that has real potential to be more progressive than anything we can manage in the present day.
Let's just hope that the discrediting of Friedman's clearly elitist dogma isn't too late in its arrival.
The corporations will bribe the Democrats sufficiently not to interfere with their looting of the public treasury or for regulating them so that they operate above board. The whole purpose of "privatization" is to hide and expand corruption of public funds to private corporations, corruption is much easier to hide by a private entity than by government.
HuffPost's Pick
Milton Friedman was an absolute fraud and his policies and his advocates who puched his policies have put us where we are today, on the verge of a depression.
His policies were basically capitalist anarchy. No rules, trust big business, goverment should stay out of the way otherwise you interfer with money making.
These were policies advocated in the 1890's, 1920's, 1980's and since 2000. Each time they have resulted in economic disasters and produced legislation to prevent it from happeneing again. But each time things are corrected and go well, the greedy Milt Friedman types want the safety net removed.
Its amazing to see how these types scream about Capitalism and the free market when there is money to be made, but become Socialists when things are bad. They want their money and don't want to pay taxs on it or have the goverment interfer, but when they lose money they want the public and the Federal Goverment to bail them out.
They should not be able to have it both ways. You want Capitalism without safety nets, then when you fall, bankruptcy is the price you pay.....Do
Bankruptcy is too good for them.
How about some nice long prison terms? Ex post facto even.
"The contented and economically comfortable have a very discriminating view of government. Nobody is ever indignant about bailing out failed banks and failed savings and loans associatio
I'm glad yachts and mega-yachts sink just as easily as row boats.
HuffPost's Pick
Socialism for the rich, capitalism for the rest of us! That pretty much sums it up.
HuffPost's Pick
What we have today is not Capitalism. It is a collusion between governments and multi-national corporation. The object is to control the world's economies so the few reap the financial rewards at the expense of the many. e.g. your statement "they want their money and don't want to pay taxes on it or have the government interfer(e), but when they lose money they want the public and the Federal Government to bail them out.", another is doing business with the Chinese totalitarian state that supplies them slave labor, and assisting that same state monitor their populace and to even help them round up disidents. All this looks suspiciously like fascism; but for now, let's call it Corporatism.
iT'S socialism for the wealthy and capitalism for the poor and working classes whose tax monies are used to pay the principal and interest for the loan proceeds, government debt, which are doled out to the CORPORATE WELFARE KINGS.
You must be logged in to comment. Log in or connect with
