Milton Friedman Did a Bad, Bad Thing...

He left no students at Chicago.

Uncle Milton said:

• Have the government buy and sell shirt-term assets in order to keep the stock of inside money balances growing smoothly.

• That is the "free market" policy.

• And it is good because "free market" policies are always good.

But he never explained to any students why government intervention to stabilize the output of the retail banking sector--checking account deposits--was a free market policy (why not some other sector?why not auto production? freight car loadings?).

And he never explained what to do if stabilizing checking account deposits wasn't enough.

And so now Chicago has nothing coherent or useful or constructive to say about our current situation.

cf. krugman.blog.nytimes.com, passim.

Comments

[john]

Hey! I studied graduate economics at Chicago in the late 1970s, after Uncle Miltie left for the Hoover Institute I'm sorry to say. It wasn't THAT bad, even though Lucas and Becker, among others, were there. (Fredric Mishkin was just getting his start there at the time, too.)

Stigler's class on Government Regulation and the Economy was wonderful. Basically, he dismantled libertarianism and the idea of a free market completely, by explaining how regulation was itself an economic good, so in a free market would be bought and sold like any other good, therefore the market wouldn't be "free" by the usual definition of "free market" if it were, in fact, "free" by the usual definition of free market. (He was a great lecturer, too.)

I also sat in on Lucas' micro class and took all the Rational Markets type finance classes from Fama, Miller, etc. There were some others on the list, now forgotten. Good times. The degree of irrelevancy of my entire Chicago Econ education, outside of Stigler's class, to the real world has to be up there with studying phrenology or 16th century English biography literary styles.

A few weeks ago I was chatting with one of your compatriots in the UCB Econ Department, and of course he brought out the "so you believe in free markets" canard when he found out I'd been at Chicago. It seems there were two Chicagos in economics - one in Stigler's classroom, and one everywhere else - just like there were two for statistics/econometrics - one in Theil's classroom and one in Zellner's.

[panglossiannotes]

Brad, interesting, just been talking to my son, him home from Berlin and now a bit leftist from the USperspective, about uncle Milton who've I've never thought to be an ideological character, and the new Chicago crew and was saying something similar to your post.

Please can the pragmatist group with Krugman Stiglize et al to form a - what view. Please, please, please.

[Josh]

I thought Friedman was against a central, government driven monetary authority. He only supported having it have fixed rules for growth if there is to be one at all.

[MattYoung]

Uncle Milt suffered that all too common disease among economists, assuming a socialist monetary system.

OK, the question is, what happens to the greenback monetary system after a sudden shock, say the doubling the accuracy of capital estimation.

To the extent we know where things are, we can trade on accuracy. When we are uncertain, we utilize aggregate insurance, credit.

We know where things are exactly, today. The ship captain, port manager, train conductors are all on the phone, on the web, watching each other in real time.

As banking, having the slow equilibrium rate, adjusts, it spends risky time running behind the information curve. Gets confused.

But all the sectors do, so what. Get unconfused.

Big money is going to be made making goods flow like information, through the cell network. For example, in Fresno CA; we should, allocate heavy freight corridors fares into the shopping malls, with separate corridors for ultra lites; and we can do this cheaply.

It becomes much more efficient to get the goods you want, move freight, heavily, big rigs, three trailers, trains, right into the back end of the shopping malls. Then sign up neighborhoods for vehicle restriction weights, try it out.

The consumer manages his goods flow, via internet shopping. We eliminate inventory; run tags and the consumer arrives with his ultra lite within minutes that his goods arrived. He is on is shipping web, at the distributor e mail list, plugged in and wired for automated shopping.

The perfect Keynesian therapy, build infrastructure so it is more efficient to get good stuff.

[Sandwichman]

"Have the government buy and sell shirt-term assets..."

So this is how people lose their shirt?

[Bailoutscam.com]

"Shirt-term assests"

Are those are the ones you get to keep on your back as the investment bankers and Bernie Madoffs of the world rip you off?

[Nathan Kaufman]

http://en.wikipedia.org/wiki/Glass-Steagall_Act

Professor

Do you have more information or perspective on what various economists and schools of thought have to say about the Glass Steagall Act and other financial regulation?

[KenHoughton]

Re: Stigler. I gave an Intermediate Macro "guest lecture" this semester arguing that Regulation is an Economic Good, citing evidence from some of the 1973 SEC discussion docs that ultimately led to floating-rate commissions and (indirectly) the rebirth of the debt markets. (Did it mainly because none of the Masters students seems to have heard the idea; nice to see it has a long tradition.)

Mostly, though, the kids wanted to talk about how to get into Investment Banking. Though several of them were also asking if it's worth it, so I guess that's something.

[PeterE]

Judging from his writings, Friedman argues for the market as the best way to organize economic activity in a free society. In Capitalism and Freedom he emphasizes that markets require governments to define property rights, enforce contracts, interpret laws and provide a monetary framework. He thinks governments need to do many things.

[James Wimberley]

In reply to Sandwichman and Bailoutscam.com: A shirt-term asset is a security which may lead to open-ended losses on maturity, such as a short sale or option.

[DW]

I think Friedman would be aghast at some of the things done using him as justification, as would Adam Smith.

Honestly, he had a lot of common sense, and wasn't an idiot like the people who abuse his theories.

[Marco Antonio Moreno]

Hi
The theory of Milton Friedman is a Myth.
The idea of the free market is a deceit
the world goes to the collapse to follow the ideas of Friedman