Milton Friedman, R.I.P.

Bad but not entirely unexpected news this morning:

Influential Economist Friedman Dies at 94 - WSJ.com: By GREG IP: Nobel prize winner Milton Friedman, one of the most influential economists of the last century, died today. He was 94.

Mr. Friedman's Chicago School of thought stressed the virtues of unfettered markets. Mr. Friedman, a leading advocate of free markets, championed monetarism, the notion that the inflation can be regulated by the Federal Reserve's control of the money supply. He wrote extensively on the Great Depression and was an advocate of libertarian ideas such as the decriminalization of drugs.

Mr. Friedman died of heart failure after being taken to hospital near his home in San Francisco, his daughter, Janet Martell, said today. His wife Rose Friedman, who co-authored many of his books, survives him.

1912 — Born in New York.

1932-1933 — Receives bachelors degree from Rutgers University, masters degree from the University of Chicago.

1937 — Becomes a member of the research staff of the National Bureau of Economic Research, a post he would maintain until 1981.

1945 — With coauthor Simon Kuznets, publishes "Income From Independent Professional Practice," his doctoral thesis.

1946 — Receives doctorate from Columbia University and is hired to teach at the University of Chicago, where he serves as a professor of economics until 1976. Friedman would come to be seen as the leader of the Chicago School of monetary economics, which stresses the importance of the money supply as an instrument of policy and a determinant of the business cycle.

1951 — Wins the John Bates Clark Medal, which honors top economists under the age of 40.

1956 — "Studies in the Quantity Theory of Money" is published. In it, Friedman argues that increased monetary growth over the long run raises prices but has no effect on output. In the short term, increased money supply boost hiring and output.

1957 — "A Theory of Consumption Function" is published. Considered a landmark study, it tackles the notion, associated with John Maynard Keynes, that consumers adjust their spending to reflect current income, arguing instead that people's annual consumption is a function of what they expect to earn over the course of their lifetime.

1962 — "Capitalism and Freedom" is published. Friedman's key text on free markets, it argues in favor of floating currency exchange rates, an all-volunteer military, a negative income tax and education vouchers.

1963 — "A Monetary History of the United States, 1867-1960", co-authored with Anna J. Schwartz, is published. In a work that would become hugely influential in the field of monetary economics, Friedman and Schwartz used historical narrative and reams of supporting data to argue that steady control of the money supply is crucial in steering the economy. The book famously critiqued the Federal Reserve's performance during the Great Depression and the central bank launched a lengthy internal review of its policy-making after receiving a prepublication draft of the book. The Fed commissioned Elmus R. Wicker to write a rejoinder in hopes of deflecting some of Friedman's arguments.

1964 — Serves informally as an economic adviser to Republican presidential candidate Barry Goldwater. Later, Friedman served as an economic adviser to Richard Nixon's 1968 presidential campaign, and to Ronald Reagan's 1980 campaign.

1967 — Serves as president of the American Economic Association.

1975 — Friedman makes a controversial trip to Chile, along with several other University of Chicago professors, where he meets with dictator Gen. Augusto Pinochet.

1976 —Is awarded the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel in economics for his work in the fields of "consumption analysis, monetary theory and history and for his demonstration of the complexitity of stabilization policy."

1977 — Becomes a senior research fellow at the libertarian Hoover Institution at Stanford University.

1980 — PBS airs the 10-part "Free to Choose," which is made into a bestselling book co-authored with his wife, Rose Friedman. The series and book were a robust defense of the couple's free-market economic beliefs.

1981 — Serves as a member of Reagan's Economic Policy Advisory Board.

1988 — Receives Presidential Medal of Freedom and National Medal of Science.

2002 — President Bush speaks at a ceremony honoring Friedman, celebrating his 90th birthday and recognizing his contributions to the study of economics.

Nov. 16, 2006 — Friedman dies of heart failure at a hospital near his home in San Francisco. He was 94.

There's a story that at lunch at the White House in 2002 he told George W. Bush exactly what he thought about Bush's unpaid-for tax cuts. We will miss him.

Comments

[Colin Danby]

Yes. There were certainly reasons to doubt his political judgment, most notoriously around Chile. But he was an important theoretician and historian, a serious scholar, always worth reading. And he wrote well. I've always found his writings and film appearances work well with undergraduates because of their directness and clarity.

[Russell Bailyn]

What a shame. Milton Friedman was one of my prime influences in choosing a career in financial services. He will go down in history as one of the greats.

[kharris]

Is there more to the "cantankerous at the White House" story? Sounds like one that deserves to be part of what will become his legend.

[failingeconomist]

Of the huge amount he wrote and popularised (I've always been a fan of his championing of John Cowperthwaite in Hong Kong for example) the one thing I really hope remains is his insistence that outcomes matter, not intentions. This is of course entirely non-partisan as politicians (which James Buchan recently described as the least literate section of society in his book on Adam Smith) of both and all parties suggest and even enact things which will have exactly the opposite of the desired effect.

Snarling at them for their stupidity when they do so would be a suitable way, I hope you'll agree, to remember a great man. We'd all, of course, like more details about that 2002 lunch, would be a useful instruction tape for the rest of us.

[Barkley Rosser]

Friedman clearly goofed in going to Chile (although some might differ). However, in general, as someone who disagreed with him on many things, I will give him credit for his general consistency in his views. He would stand up to anybody.

A curious irony, I think discussed here once upon a time, is that in 1940 he was fired from the University of Wisconsin-Madison economics department. This was partly that he was viewed as an econometrician, which made him unpopular with some of the Old Institutionalists, but also because of anti-Semitism.

[Hyggelig]

A little known non-economic fact about Milton Friedman:

Together with Alan Greenspan, he convinced Richard Nixon to end the draft.

R.I.P.

[andres]

Interesting that several posters should mention his visit to Chile. Friedman, imo, was both within his rights and also not morally culpable for giving advice to the Pinochet government, given that he was not connected in any way to the Junta's human rights abuses.

What few people mention, however, is that Friedman gave _bad_ advice to the Chilean government. The exclusive reliance on fiscal and monetary austerity to reduce inflation resulted in a lot of unnecessary unemployment in the mid-1970's (Brazil and Mexico showed the correct way to proceed in the late 1980's and early 1990's). The wholesale privatization of the state sector, unaccountable to any sort of financial oversight, led to a prostrate banking system by 1982. Lastly, Friedman failed to give his Chicago Boys a needed tongue-lashing when they went against his own teaching by freezing the Peso's exchange rate in 1979, leading to an eventually overvalued currency and surprise surprise, wholesale capital flight by 1981-82.

Ok, sorry to speak ill of the dead. To be fair, both Capitalism and Freedom and Free to Choose, especially in the video version, are marvelously lucid statements of laissez faire economic philosophy, which should be viewed as essential starting points, _not_ gospel truth, when studying and applying economic theory.

[DDyer]

Regarding Friedman's poor judgment in choosing to advice to Pinochet, would anyone here, today want to advice a murderous regime? He was Free to Choose, right? Think about it.

[Auto]

A friend of mine on the faculty of Chicago's med school says Milton was the quickest, most determined, most relentless debater he'd ever met. Say something dumb to Milton and you risked getting skinned alive.

He says at one faculty party, Milton got into an argument with Sidney Verba, then at Chicago and now the Harvard librarian. Friedman so ripped into him that Verba left the room. Friedman darted between several other people, stepped on the seats of an empty couch and then, holding his drink in one hand and bracing himself on the back of the couch with the other, vaulted over the couch and onto the floor so that he could cut off the fleeing Verba -- and continue correcting his hapless opponent.

My friend said it was the kind of move you only saw in an action movie.

[bob mcmanus]

I miss him already. As a man, what isn't to like?

"Together with Alan Greenspan, he convinced Richard Nixon to end the draft."

*Liberals* should think about this. I am not at all surprised.

[jerry]

He had a long run.

[Jonathan Hendry]

Now Friedman can learn all about Curly's Gold.

[Ken Houghton]

I note, for the record, that Uncle Miltie's co-conspirator in Chile has fallen into relative obscurity and been mentioned by no one either here or as a possible short-list pseudo-Nobelist.

If the world were truly efficient, would not the brunt not have fallen so much on Arnold Harberger? Or is this another case of the dirty little secret that reputational inequalities lead to suboptimal results?

On the wonky personal side, he lived just long enough to see his alma mater become a Top 10 College Football team.

[jason]

"I do not regard it evil for an economist to render technical economic advice to the Chilean government to help end the plague of inflation, any more than I would regard it as evil for a physician to give technical medical advice to the Chilean government to end a medical plague."
- Milton Friedman

[SteveBreeze]

From a non-economist liberal point of view. Nixon ended the draft in the hopes of keeping students out of the street so he could continue the war as he had. This despite his running on having a “plan” to end it.

Nixon said “we are all Keynesians’ now”. Clearly Freedman’s economic world view has been dominant in US economic policy since Reagan in ’80. Did the US grow faster under Keynesian theory or under Freedman’s free market policies. Just askin. One thing we can be sure of the wealthy have faired far better then anyone else for the past 25 years. Guess it never hurts to tell the powerful what they want to hear to pump up your own status among the powerful.

[walkingtheline]

I miss Galbraith a lot more.

[greensmile]

I'm sorry to sound a sour note: Though Friedman's greatness, objectivity and intelligence served central bankers fairly well, wherever his principles have enlightened bankers, human rights have languished...just a corellation and not without exceptions nor any cause-effect I can see. I suspect his "freedom" mantra undermined "fairness" as another social value in need of promotion.
I crawled through all the obits and retrospective articles I could find in the post [link appended]. I obviously am not an economist and need a good place to ask: Is Richard Adams so terribly off the mark about Samuelson having more current influence than Friedman?
http://abombanation.blogspot.com/2006/11/end-of-era-please-bury-it-it-has-begun.html

[CJColucci]

Brad, will you do a post that tries to sift out the good and bad of his contributions as an economist? What is there, if anything, with continuing value in his economic work, as opposed to his popularizations?

[andres]

Off the top of my head, Friedman's contributions to economic theory are:

On spending/saving: the Permanent Income Hypothesis. ie that households plan their consumption and saving around a hypothetical permanent income which is generally stable over time.

On inflation: "The Quantity Theory of Money: A Restatement," which got boiled down by students to the proposition that inflation is always a monetary phenomenon. And that to prevent inflation, the central bank shouldn't allow the money supply to grow above the rate of real GDP growth.

On monetary policy: as a corollary of the above, the proposition that central banks should focus mainly on monetary aggregates, with the most damning example being the Fed's failure to prevent the money supply from contracting in 1929-1933 (_A Monetary History of the United States_, cowritten with Anna Schwarz).

On open-economy macroeconomics: the proposition that pure floating exchange rates are almost always the best foreign exchange arrangement (this is also the stance that earned him the hostility of the Gold Bugs and other supply-siders who favor hard money).

I may be out of date on my reading of the economic literature, but of the four contributions, only the last still seems to be standing among the mainstream of the economics profession, and even this last is the subject of controversy (most countries formally float their exchange rates, but most of these also intervene to make sure that the "floating" exchange rate usually remains stable). To cite all of the papers and events in which the first three contributions got either modified or knocked down would take too long here, but Friedman's academic reputation is not as high today as his libertarian/popularizing reputation is.

[Perry]

SteveBreeze,

Surely you are joking.

Real GDP in the 25 years after 1980 increased by 64% while in the 25 years from 1955 to 1980 increased by 69%. HUGE difference there, huh?

http://eh.net/hmit/gdp/gdp_answer.php?CHKnominalGDP=on&CHKrealGDP=on&CHKGDPdeflator=on&CHKpopulation=on&CHKnominalGDP_percap=on&CHKrealGDP_percap=on&year1=1950&year2=2005

Guess it never hurts to hang onto some long deeply held incorrect fantasy about the past any more than to acknowledge that we're better off economically today than we ever have been.

[SteveBreeze]

Perry;
Please save me the condescending attitude. Between you I and Bill Gates the average wealth is in the billions. Excuse me if I don't celebrate too much from my sudden great wealth.
Worker wages and median family income have barely budged since '80. I am no better of if my boss drives a Cadillac or a Bentley.

[Neil']

The late but not-so-[really]-great Milton Friedman and others' beloved "Laissez-faire economy" was always a fraud anyway for several reasons, aside from whether we should be compassionate per se. Just one basic point: the economy, *before* formal "interference* in the form of explicit regulations, isn't really free or natural anyway. Look at how the Fed manipulates interest rates and the money supply and thus job prospects, the wealth of investors, etc. (That "new money" cannot be made by market trading of a hard currency for goods/services - the governmet/private Fed has to "put it in by hand" in an ulitmately "political" way that must be allocated to "winners" of some stripe....) Then there is the favor of legal personhood and limited liability granted to corporations: that should not be granted with no string attached.

All of the above and more, are reasons why the government owes a social welfare system. (Just consider that those affected by its interest rate policies deserve compensation in some sense just as surely as anyone displaced by the flooding caused by a Federal dam....) But the conservative intellectuals almost always evade this issue and cover up the implications....

Tyrannogenius

[DAB]

Finally, savings for the Medicare Trust Fund. Milton was perhaps a Medicare beneficiary (due to his efforts, now labeled “recipients” as in “welfare queen in a Caddie.”) Unlike so many of his fellow citizens, he and Rose were free to choose their physicians and hospitals.

Ushering in an era of selfishness without shame, Milton provided cult-like right wing devotees with a theoretical underpinning for a toll on every road. He paved the way for global free markets – like those in adoption-ready infants and kidneys (giving a whole new meaning to human capital.) The freedom-rich Chinese have been among his most adroit pupils.

His monetarism conceit (M1, M2 targets anyone?) flopped and Keynesian deficit spending fiscal policy prevailed.

Rose is now free to collect the Social Security death benefit. Milton’s obit didn’t mention funeral services, but certainly they’ll be private.

Fellow pensioner Pinochet to follow. Somehow, freedom, GDP growth and low marginal tax rates aren’t always correlated.

[Methinks]

natural rate of unemployment, permanent income theory and moneterism are all alive and well and are part of economic teaching today, Andres.

Friedman was an incredible economist.

I notice that a lot of people here hate him because he advised Pinochet. Pinochet was brutal, indeed, and Friedman advised him that both politics and economies must be free. The fact that Pinochet didn't take the political advice is a failing of Pinochet, not of Friedman.

Interesting that there is so much disgust for Friedman's advice to Chile but not a word of protest against his advice to the Chinese government, or the governments of Communist Yugoslavia, Communist Poland or his trip to the Communist and extra-super brutal Soviet Union. All of those regimes were worse than Pinochet but not a peep of anger about his advice to brutal communist regimes. Why is that?

Friedman had more compassion for the poor than any of you condescending, paternalistic lot. His negative tax would have freed the poor to choose their own housing and how to structure their own families, instead of being dictated to by the state. His idea of school choice would mean the poor would have the ability to choose for their children the way that the wealthy and "smart" do now. You reformers have been fighting that measure. Why? Are the poor just too black and hispanic to make their own choices, your elite opinions? Unlike Galbraith, he didn't believe in a small group of Nomenklatura condescending to the poor and letting them twist in their misery under the heavy thumb of their beneficence. Friedman fought for the dignity of individual choice.

You on this blog don't know what it means to live without individual choice. You take freedom for granted. And you have the gall to spit on great men like Milton Friedmen who spent his life fighting for you to have it.