Paul Krugman: Milton Friedman as a Minor Post Hicksian:
I think [it] is really interesting is the way Friedman has virtually vanished from policy discourse. Keynes is very much back…. Hayek is back… even if… many self-proclaimed Austrians bring little to the table but the notion that fiat money is the root of all evil…. But Friedman is pretty much absent. This is hardly what you would have expected not that long ago… when Greg Mankiw declared Friedman, not Keynes, the greatest economist of the 20th century, when Ben Bernanke concluded a speech praising Friedman with the famous line…. "I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again…." So what happened?… Both of Friedman’s key contributions to macroeconomics [collapsed]…. Friedman was still very much associated with the notion that the Fed can control the money supply, and controlling the money supply is all you need to stabilize the economy. In the wake of the 2008 crisis, this looks wrong from soup to nuts…. And in retrospect the same was true in the 1930s, so that Friedman’s claim that the Fed could easily have prevented the Great Depression now looks highly dubious. Second… Friedman’s success… in predicting stagflation was what really pushed his influence… his notion of a… vertical Phillips curve in the long run, became part of every textbook exposition. But it’s now very clear that at low rates of inflation the Phillips curve isn’t vertical at all, that there’s an underlying downward nominal rigidity to wages and perhaps many prices too that makes the natural rate hypothesis a very bad guide under depression conditions. So Friedman’s economic analysis has taken a serious hit.