Unemployment, Mortgage Woes? It's All Milton Friedman's Fault
Sunday's paper featured the latest Week In Review attack on "feral"free markets by Times economics reporter Peter Goodman. This time the focus of his criticism is the late Nobel Prize winning economist Milton Friedman.
Last December 30, in a story headlined "The Free Market: A False Idol After All?" Goodman wrote:
But now the invisible hand is being asked to account for what it has wrought. In this country, many economic complaints - from the widening gap between rich and poor to the expense of higher education - are being dusted for its fingerprints.
This Sunday Goodman took the same tone of repressed glee, with an unsympathetic slant toward free-market ideas:
Joblessness is growing. Millions of homes are sliding into foreclosure. The financial system continues to choke on the toxic leftovers of the mortgage crisis. The downward spiral of the economy is challenging a notion that has underpinned American economic policy for a quarter-century - the idea that prosperity springs from markets left free of government interference.
The modern-day godfather of that credo was Milton Friedman, who attributed the worst economic unraveling in American history to regulators, declaring in a 1976 essay that "the Great Depression was produced by government mismanagement."
Five years later, Ronald Reagan entered the White House, elevating Mr. Friedman's laissez-faire ideals into a veritable set of commandments. Taxes were cut, regulations slashed and public industries sold into private hands, all in the name of clearing government from the path to riches. As the economy expanded and inflation abated, Mr. Friedman played the role of chief evangelist in the mission to let loose the animal instincts of the market.
But with market forces now seemingly gone feral, disenchantment with regulation has given way to demands for fresh oversight, placing Mr. Friedman's intellectual legacy under fresh scrutiny.
Just as the Depression remade government's role in economic life, bringing jobs programs and an expanded welfare system, the current downturn has altered the balance. As Wall Street, Main Street and Pennsylvania Avenue seethe with recriminations, a bipartisan chorus has decided that unfettered markets are in need of fettering. Bailouts, stimulus spending and regulations dominate the conversation.
In short, the nation steeped in the thinking of a man who blamed government for the Depression now beseeches government to lift it to safety. If Mr. Friedman, who died in 2006, were still among us, he would surely be unhappy with this turn.
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So firm was his regard for market forces, so deep his disdain for government, that Mr. Friedman once said: "If you put the federal government in charge of the Sahara Desert, in five years there would be a shortage of sand."
This antagonism toward bureaucracy seemed to spring from Mr. Friedman's conception of his country as a bastion of rugged individualism. During an interview on PBS in 2000, he noted that Adam Smith, the father of classical economics, published his canonical work, "The Wealth of Nations," in 1776, "the same year as the American Revolution."
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Among professional economists, Mr. Friedman's analytical mastery was near-universally admired.
His first breakthrough came in the 1950s with his idea that people's savings and spending were not a function of psychological factors, but based on rational estimations of wealth.
His greatest contribution came the following decade, when Mr. Friedman dismantled the consensus view that inflation was a tolerable byproduct of high employment. He demonstrated that high inflation would eventually cost jobs, as businesses were discouraged to invest by the higher wages they had to pay.
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But the reviews for Mr. Friedman's work grow mixed when the subject moves to his role as chief proselytizer in the drive to reduce the role of government in public life.
Goodman's kicker does come from a Friedman supporter:
But as America reaches for regulation to tame the markets, the keepers of the Friedman flame remain resolute that government is no solution.
"Friedman taught some fundamental long-run truths and he was adept and skilled and almost brilliant at getting them into the public domain," said Allan H. Meltzer, an economist at Carnegie Mellon. "Now we've come into a crisis that has dampened enthusiasm for those policies, and we're headed back into a period of more regulations that will do the same bad things as in the past."
