Shocking!

by Don Boudreaux on December 3, 2007

in Books, Myths and Fallacies

Even though her latest book was reviewed in the “Economics” section of last-week’s Washington Post Book World, Naomi Klein’s books are to economics what Spiderman comic books are to arachnology.  Here’s a letter that I sent last Sunday to Book World.

In her new book, Naomi Klein reveals what she sees as a smoking gun in the hands of the late Milton Friedman.  It’s true that Mr. Friedman wrote that “only a crisis - actual or perceived – produces real change” (“Doing Well by Doing Ill,” November 25).  From these words Ms. Klein draws the fantastically mistaken conclusion that Mr. Friedman was summoning capitalists to wreak havoc upon an unsuspecting world.  Unfortunately, reviewer Shashi Tharoor’s defense of Mr. Friedman – that he should not be read literally – also misses the point.

Ms. Klein’s mistake is the sophomoric one of confusing description with prescription.  Mr. Friedman’s claim was descriptive.  It is of the same genre as the claim made to my family years ago by a physician who shared our frustration at my overweight father’s refusal to eat a healthier diet: “It’ll likely take a heart attack to convince him to eat less and exercise more.”  If Ms. Klein had heard this statement, I suspect that she would have warned us that my dad’s doctor was prescribing for him a heart attack!

Sincerely,
Donald J. Boudreaux

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muirgeo December 3, 2007 at 9:27 am

Where did Friedman write these words? I'm trying to find it in context? If in one of his popular books anyone know what chapter?

dave smith December 3, 2007 at 9:41 am

Wow. The belief behind that statement by Friedman is hardly original. Many, many would believe that "crisis" only produces real change. Friedman didn't come up with the concept; he basically restated "necessity is the mother of invention."

If that's the best the left can do….

Don Boudreaux December 3, 2007 at 9:50 am

Friedman wrote these words in his 1962 book (co-authored by his wife Rose Friedman) Capitalism and Freedom.

muirgeo December 3, 2007 at 10:27 am

Here is Friedmans actual letter to Pinochet with his "prescription" calling for a "Shock" program.

IMO looking back at our policy in Chile I'd say it was indefensible and despicable. Freidman referred to it as the "Miracle of Chile".

Like I've always said Libertarian economies exist no where in the world among free people. As in Chile they could only exist by use of force.

Reading books here such as the Myth of the Rational Voter I'm more and more convinced of the undemocratic illogic of the libertarian ideology….IT DOESN'T WORK.

http://wwww.naomiklein.org/files/resources/pdfs/friedman-pinochet-letters.pdf

kebko December 3, 2007 at 10:54 am

Wow, that letter from Friedman is a real smoking gun. What an evil genius.

abhi December 3, 2007 at 10:58 am

Just because libertarian economies don't exist, doesn't mean libertarian economic policy doesn't work.

It's just plain stupid to say that just because it is not implemented it is wrong. It is just a matter of time that people will realize the illogic of non-libertarian economics and we'll see *more* libertarian ideologies, but maybe not *compeletely* libertarian. That's the key, MORE.

Remember, just a couple of decades back, the world was rife with socialism. Consider how many countries have discarded it of free will now.

In summary it doesn't matter where we are, it's which way we're headed, ok?

Randy December 3, 2007 at 11:12 am

Actually, libertarian practices do work, and are very much in evidence in the modern world. It is only in value for value transactions that are freely entered into that wealth is created. All other transactions are redistributive and therefore dependant on the wealth created in the libertarian transactions. The core is libertarian, and the political classes would do well to never forget it.

Rich Berger December 3, 2007 at 11:15 am

Muirgeo-

I read the letter to which you linked. I guess I must be far gone because I thought his advice was very reasonable and clearly expressed. He identified the pros and cons of cold turkey and the gradual approach. Remember that Chile was facing of inflation of 10-20% per month. What would you have recommended?

Milton Friedman has been dead for a little over a year. It appears that there is a campaign on the left to discredit him. I guess the rats feel that it's safe to come out now that he can no longer respond in person.

PaulD December 3, 2007 at 11:26 am

"Like I've always said Libertarian economies exist no where in the world among free people. As in Chile they could only exist by use of force."

All that this says is that there is not a country in the world where a majority of voters are libertarian. I don't find this surprising. It certainly does not imply that a libertarian policies cannot work in real life.
The notion of libertarian policies being imposed by government force is somewhat of an oxymoron. It may be that aspects of the Chilean dictatorship were imposed by force. To that extent, the government was not libertarian.

Sam Grove December 3, 2007 at 11:40 am

muirgeo is fond of the strawman.

Not to mention self referencing assertions: a free market doesn't exist, therefore one can't exist. Once upon a time many things did not exist but came to pass as products of implemented visions.

Muirgeo refuses to make the effort to comprehend, has limited imaginative scope, and does not comprehend the moral nature of political power. A fascist of the do-gooder species.

Methinks December 3, 2007 at 11:44 am

Libertarian economies exist no where in the world among free people. As in Chile they could only exist by use of force.

Except anywhere where there is economic growth. The Baltics come to mind. Estonia based it's post-Soviet economy directly on Milton Friedman's ideas.

Here's a more accurate quote:"Socialist economies (collectivist societies) exist nowhere in the world among free people. They can only exist by force."

Of course, let's not forget that Pinochet rode to power after the socialist Allende destroyed the economy and the constitution and stole private property. It always amazes me that the brutality of socialist dictators is played down and excused while the left churns its guts over Chile. The fact that the Gulags in Russia (where at least 20 million people were forced into slave labour, for the state during Stalin's reign alone) were proclaimed necessary to economic development is overlooked and even excused by the very same people who screech with bottomless hatred for Pinochet.

PaulD December 3, 2007 at 11:45 am

I also read Milton Friedman's advice and thought it was a well-reasoned analysis. He recommends a "shock" program in response to inflation in the range of 300% a year. The alternative to Friedman's "shock" program would be to try to gradually reduce the hyperinflation. Friedman did not believe that the Chilean economy could survive a long-term effort to gradually reduce hyperinflation and he was likely correct in this assessment.
I recall the "shock" the U.S. economy went through in the early 1980's to reign inflation in the low-double digits. Although the effort to control inflaction in the US was costly for a short-period, it laid the ground work for the much great economic boom that followed.

John Pertz December 3, 2007 at 12:04 pm

We need a new rule here. Just because Muriego says something doesnt mean that we need to always respond to it. Lets keep these comments rolling as if he never spoke. Its just a waste of time.

Brad December 3, 2007 at 12:10 pm

muirgeo. Chilean grapes. End of argument.

Unit December 3, 2007 at 12:31 pm

Muirgeo,

the letter from Friedman is impressive for its scientific standards. Every argument is justified and backed-up, both theoretically and with historical examples. I don't know if his advice was applied to the letter and my impression is that whatever Pinochet did it actually worked. I only wish that Castro had called up Friedman while he was still alive, he might have gotten some good advice too.

Methinks December 3, 2007 at 12:38 pm

John Pertz,

Great idea, but I don't think that'll happen.

PaulD,

In his memoir, I seem to recall Milton Friedman said that it's not possible to slowly wring hyper-inflation out of the economy. When the inflation rate is that high, it's either "shock" treatment or nothing. The only reason our "shock" treatment wasn't as bad as Chile's is that our rate of inflation wasn't as high.

Dano December 3, 2007 at 1:14 pm

From, "The Life and Times of Milton Friedman," Reason, march 2007:
In fact, Friedman’s only direct connection with Chile came when fellow Chicago economist Arnold Harberger, who was closely involved with the Chilean program, invited him to give a week of lectures and public talks in Chile in 1975. While there, Friedman did have one brief meeting with Pinochet. The dictator asked the professor to write him a letter laying out what he thought Chile’s economic policies should be. Friedman did this, calling for quick and severe cuts in government spending and inflation as well as a more open trade policy. He did not take the opportunity to upbraid Pinochet for any of his repressive policies.

"That was the extent of Friedman’s involvement with the regime. Defending himself against accusations of complicity with or approval of Pinochet in a 1975 letter to the University of Chicago student newspaper, Friedman noted that when he spoke to communist leaders he 'never heard complaints' that he was giving aid and comfort to their governments. 'I approve of none of these authoritarian regimes—neither the Communist regimes of Russia and Yugoslavia nor the military juntas of Chile and Brazil,' he wrote. 'But I believe I can learn from observing them and that, insofar as my personal analysis of their economic situation enables them to improve their economic performance, that is likely to promote not retard a movement toward greater liberalism and freedom.'"

Dano December 3, 2007 at 1:24 pm

Another quote:

" 'I have nothing good to say about the political regime that Pinochet imposed,” Friedman said in 1991. “It was a terrible political regime. The real miracle of Chile is not how well it has done economically; the real miracle of Chile is that a military junta was willing to go against its principles and support a free-market regime designed by principled believers in a free market….In Chile, the drive for political freedom that was generated by economic freedom and the resulting economic success ultimately resulted in a referendum that introduced political democracy.'

"It may have been more morally satisfying to have no relationship with Pinochet, merely condemn him from afar. But in choosing to let his economic advice rise above political revulsion, Friedman almost certainly helped Chile in the long term–though it’s important to remember that the 'Chicago boys' were more responsible than Friedman himself, and that they were not following his prescriptions relentlessly or in any way under his direct instruction."

From, Doherty, "The Economist and the Dictator" 15 December 2006, Reason Online http://www.reason.com/news/show/117278.html

Paul Zrimsek December 3, 2007 at 1:48 pm

The economy presided over by Pinochet always struck me as a quite ordinary capitalist welfare state. What was there about it that made it libertarian in a way that the US is not?

muirgeo December 3, 2007 at 4:15 pm

In summary it doesn't matter where we are, it's which way we're headed, ok?

Posted by: abhi

Looks to me like the world economy is very shacky possibly on the verge of another deregulatory disaster. 60% of the worlds population lives on 2 bucks a day and the idea that we may be headed for a down turn is not encouraging.

muirgeo December 3, 2007 at 4:20 pm

The notion of libertarian policies being imposed by government force is somewhat of an oxymoron. It may be that aspects of the Chilean dictatorship were imposed by force. To that extent, the government was not libertarian.

Posted by: PaulD

The only way to push libertarian policies is by force or deciet…..they don't get freely accepted by an educated population left to choice. They are incompatible with the human nature and the nature of society.

muirgeo December 3, 2007 at 4:34 pm

Here's a more accurate quote:"Socialist economies (collectivist societies) exist nowhere in the world among free people. They can only exist by force."

Posted by: Methinks

That' probably true but there are societies that regularly elect socialist heads of state. Chili for instance.

But again I'm not advocating socialism….it's as big a failure as liberalism (classic). What I advocate and what exist most successfuly are pluralistic democracies.

muirgeo December 3, 2007 at 4:43 pm

Of course, let's not forget that Pinochet rode to power after the socialist Allende destroyed the economy and the constitution and stole private property.

Posted by: Methinks

This is some BS that I'm pretty sure don't fly. It's hard to know what the Allende economy would have done left to its own with out our dispicable hegmonic interference. I think our countries economy would tank as well if the world embargoed us.

So much of our success has occured from pilfering and hegemony over other countries. It's hard to attribute our success just to free markets and capitalism.

How dare Chile take control of its copper mines…same story over and over. Our government is regularly used by scum bags to get their products to the market rather then relying on the market itself.

One things for sure the guys on top of the economic ladder are the last to push for free markets and hands off government.

Rich Berger December 3, 2007 at 5:03 pm

Muirgeo-

The world economy is shacky? Is that because of the housing crisis?

"That' probably true but there are societies that regularly elect socialist heads of state. Chili for instance." Is that up north, or the famous food? Who knew Chili could vote?

Love your stuff.

Mark December 3, 2007 at 6:22 pm

Muirgeo,
I think Paul Zrimsek's question at 1:48:55 was directed towards you. Have an answer?

muirgeo December 3, 2007 at 6:58 pm

Rich,

Yep some of the stuff is pretty grammatically bad and funny. But when that becomes the subject of the posts I know I'm doing well on substance. I take solace in the fact that Charles Darwin was incredibly inept in his grammer and speeling (hee hee)…..and still we did evolve from other species.

muirgeo December 3, 2007 at 7:09 pm

The economy presided over by Pinochet always struck me as a quite ordinary capitalist welfare state. What was there about it that made it libertarian in a way that the US is not?
Paul Zrimsek

Let's see now;

-a controversial campaign against leftist political parties—Check

-including the repression of the civil liberties.—Check

-implemented classical liberal economic policies including privatization and rollback of state welfare institutions.—check

-established a military government.—check

Indeed you ARE right. Sounds like our own ordinary libertarian trending government. Of course we don't yet have the massive human rights violations, mass-murders, torture, kidnapping, illegal detention, and censorship of the press that they had but sure this was a " quite ordinary capitalist welfare state"…at least it was if that's what YOU want to believe….and who am I to argue with such stupefying logic.

colson December 3, 2007 at 7:40 pm

"How dare Chile take control of its copper mines…same story over and over."

You used the word "its" to describe the mines. That is based on the assumption that the mines were "its" to begin with.

Paul Zrimsek December 3, 2007 at 7:41 pm

Mark: Looks like the answer was "no".

Dr. Troy Camplin December 3, 2007 at 8:27 pm

I'm not shocked that a prescriptionist — and all Leftist philosophers are prescriptionists — make the mistake of thinking a description is a prescription.

muirgeo December 3, 2007 at 8:35 pm

You used the word "its" to describe the mines. That is based on the assumption that the mines were "its" to begin with.

Posted by: colson

That's kinda like saying I used "its" oil to describe the oil under the sands in Iraq.

Why would you NOT think the copper mines in Chile were not "its" mines?

Now when one refers to Chile's military Hunta and overthrow of the government "its" might be inappropriate….because it was more like "OURS".

Methinks December 3, 2007 at 8:46 pm

But again I'm not advocating socialism….it's as big a failure as liberalism (classic). What I advocate and what exist most successfuly are pluralistic democracies.

No, you just don't understand that you're advocating socialism. There's a difference.

It's hard to know what the Allende economy would have done left to its own…

Actually, the economic destruction resulting from his theft of private property and assorted communist policies was pretty clear to everyone in Chile and incited the coup. The fact that this is not clear to you, of course, is unsurprising.

Sam Grove December 3, 2007 at 9:20 pm

One things for sure the guys on top of the economic ladder are the last to push for free markets and hands off government.

We know that. The question is what to do about it.

Unit December 3, 2007 at 10:18 pm

"The only way to push libertarian policies is by force or deciet….." – Muirgeo

Libertarian policies can only be pushed onto the government by the people because they entail repealing oppressive laws and regulations, and yes force and deceit has been used to that end in the past.

"…they don't get freely accepted by an educated population left to choice." – Muirgeo

East Germans finally just walked over that wall, they voted with their feet. Are you implying (like Plac Ebo a few posts ago) that people do want to live in chains?

"They are incompatible with the human nature and the nature of society." -Muirgeo

So human nature is to erect self-imposed dictatorships and reject freedom? Any evidence for this statement? And even if that were indeed the case why would you indulge "society" in its evil ways?

muirgeo December 4, 2007 at 1:25 am

Estonia based it's post-Soviet economy directly on Milton Friedman's ideas.

Posted by: Methinks

Even their social security system, public welfare and universal health care???

Python December 4, 2007 at 2:01 am

You gotta hand it to Muirgeo. She's like the guy at the sporting event who streaks across the field – thinking he succeeded just because you looked at him.

Nothing that the streaking greased hog is saying here has anything to do with not knowing a description from a prescription, but here we are refuting her, like sheep. Just like her posts on income mobility had nothing to do with income mobility. "Oh, Friedman's name was mentioned, type in stock response against Libertarianism." "Income was mentioned, type in stock response about inequality."

We are fighting against the knee jerk.

P.S. Still waiting for links to that Michigan study that shows that a majority of Americans' income is stagnant through time. Wake me up when you get that, won't you?

vidyohs December 4, 2007 at 7:20 am

Methinks,
Once it amazed me also, but after doing some online research and verifying the twisted mentality of the left I use the example of Augusto Pinochet and Abimal Guzman to make that twisted mentality clear.
Google both names and see how the two are treated by the left. Guzman, is a hero to them, and Pinochet is hated with an intensity that is mind boggling. The reason Pinochet is hated so intensely is that he proved all of the socialist ideals dead wrong.

"It always amazes me that the brutality of socialist dictators is played down and excused while the left churns its guts over Chile. The fact that the Gulags in Russia (where at least 20 million people were forced into slave labour, for the state during Stalin's reign alone) were proclaimed necessary to economic development is overlooked and even excused by the very same people who screech with bottomless hatred for Pinochet.

Posted by: Methinks | Dec 3, 2007 11:44:42 AM

Unit December 4, 2007 at 7:38 am

Muirgeo,

you often bring up pluralistic democracy. Have you ever read a book on voting theory? Do you know that every voting scheme has inherent problems (Arrow's theorem) and that different plausible scheme yield entirely different results so that it's not even clear what "will of the people" means? And what about the problem of interest-groups that have inordinate power on government decisions (lobbying)? These are inherent problems of pluralistic democracy, because when the government starts to make decisions that affect only small parts of the population, these smaller groups have an interest in forming a lobby.

Methinks December 4, 2007 at 9:10 am

Well put, Python.

Vidyohs,

As late as the 80's researchers graduate students in Russian history were denied access to materials if their position was deemed too anti-communist by the university commissars. Universities that, of course, endlessly pontificate about intellectual freedom and rush to publicly defend professors like De Genova and Chomsky who rage against the United States.

When Milton Friedman publicly asked why there was so much outrage over his brief encounter with Pinochet but none over his much more involved consultancy with the Chinese government, he was met with a deafening silence in response.

muirgeo December 4, 2007 at 9:49 am
muirgeo December 4, 2007 at 9:56 am

Almost all the above replies rely on mischaracterizations and falsehoods. No one on the left proclaims Stalins reign a good thing.Oh wait that was vidhoyys writing that…. never mind.

But just to differentiate the two regimes. The reason I personally have problems with Chile is because my country was the perpetrator. Just like it is now in the Middle East. And here we have people telling us about the "miracle of Chile" when it was everything a libertarian should be against.

muirgeo December 4, 2007 at 10:02 am

And what about the problem of interest-groups that have inordinate power on government decisions (lobbying)? These are inherent problems of pluralistic democracy, because when the government starts to make decisions that affect only small parts of the population, these smaller groups have an interest in forming a lobby.

Posted by: Unit

Unit,

There is no form of government that's neat…. libertarianism just seems like it would be neat. That's why you all like it so much. But again it doesn't exist ever in a stable state. Look all around and you see social democracies. They are our best bet. The best we can do is to optimize their performance. But yeah….IMO the best way to get better government is more democracy not less. IMO and the most important thing we can do is to kill all the lobbyist ( mostly figuratively )…. or at least severely restrict their influence because the argument is of bribery and conflict of interests always supersedes the stupid idea of money being "free speech".

Another thing we could do is get rid of all tax deductions and write offs.

I'm all ears Unit if you have a better prescription for setting up society.

Python December 4, 2007 at 10:24 am

Muirgeo,

Per your links…

The PBS NOW link is further evidence that incomes are NOT stagnant. Here is a line "Though the condition [being in the low income brackets] was rarely permanent — it was surprisingly common."

So you have a bunch of people who at one time were in the low income bracket, and the situation is described as being "rarely permanent". Let's see, many people many people moving across income brackets, wow, thanks for showing that income mobility is real, yet again.

The claim by Krugman was that incomes were stagnant. How could they be when it is "common" for people to be in the low bracket for a temporary amount of time? If incomes were stagnant, wouldn't the stay in a particular bracket be either permanent or near to it?

You are supposed to be supporting his argument not finding evidence against it. Keep trying. I think you will find that Krugman is dead wrong, and maybe you will understand that him being wrong on income mobility means that the basis for our supposed discontent is based on bad thinking.

muirgeo December 4, 2007 at 10:28 am

So Python,

I gave you reference to one of many studies that shows a dramatic rise in inequality that was NOT offset by increases in mobility.

Now you tell me why you think that happened? I think it happened because of changes in policy. I think there is reason to believe that how we set the rules effects how prosperity is divided with out decreasing the economy overall and possibly with greater economic increases overall.

So why would we choose a path that creates more inequality when other options are available? Because some people are more equal then others when you let those with money and power have undo influence over the government.

I'd say the answer is unchecked greed… that's where democracy comes in. And it's not about redistributing wealth it's about making the rules fair so that workers all share more equally in the economic advancements made by our society.

Bottom line is the government is what you hate but many people get rich from it and for some reason you contradict your own principles by making excuses and providing cover for them.

If you want to have an honest discussion please reply. If you think you're ideas are so superior that you need to rebut with mis-characterizations, name calling or innuendo then just don't bother. Do you really want to just discuss the issue with people who think just like you while ignoring as much as half of the rest of the population?

Another question. Do you want a society based on privilege or based on merit? On a scale of 1 to 10 1 being privilege based and 10 being merit where do you think we are.

I'd say we are about a 6.5 and we can do much better. That's really all my message is about. Not socialism, not communism just a government by the people.

muirgeo December 4, 2007 at 10:50 am

Python

You asked for data that showed, "P.S. Still waiting for links to that Michigan study that shows that a majority of Americans' income is stagnant through time."

I gave it to you and now instead of good debate you've fallen back onto intellectual dishonesty…… whatever…..

Unit December 4, 2007 at 11:20 am

Muirgeo,

"Look all around and you see social democracies. They are our best bet. The best we can do is to optimize their performance."

I grew up in a social democracy. It was very hard to find a job, rent an apartment, make a life, etc…that's why I left. Of course we need to optimize performance, nobody is denying that. Often the choice is between a government that does a lot poorly versus one that does less but more efficiently.

"But yeah….IMO the best way to get better government is more democracy not less."

This is a bit general. Don't forget that majority rule implies the use of force. Whatever the social decision is that is reached (and keep in mind that is quite arbitrary and depends heavily on the voting schemes), it will then have to be enforced with the threat of penalties, jail, etc…I'm afraid you're embellishing what is really arbitrary "coercion" with the nice sounding "more democracy".

"IMO and the most important thing we can do is to kill all the lobbyist ( mostly figuratively )…. or at least severely restrict their influence because the argument is of bribery and conflict of interests always supersedes the stupid idea of money being "free speech"."

OK so you should like libertarians, because they're the only ones with specific proposal for reducing the influence of lobbyist. Read some public choice literature. It's all about this problem. And since lobbying is a "democratic failure", the answer cannot be "more democracy", because you get more failure.

"Another thing we could do is get rid of all tax deductions and write offs."

Sure. Is that called "Flat Tax"?

"I'm all ears Unit if you have a better prescription for setting up society. "

Nobody here is advocating dictatorship, I think most here are concerned with "limited democracy" with an acute awareness and emphasis on the word "limited".

Best.

muirgeo December 4, 2007 at 11:33 am

"This is a bit general. Don't forget that majority rule implies the use of force."

Unit

Any rule implies use of force…does it not?

muirgeo December 4, 2007 at 11:40 am

"OK so you should like libertarians, because they're the only ones with specific proposal for reducing the influence of lobbyist."

Unit

That's interesting because it's NOT the impression most have given me here. Russ actully stated that rules to control lobbyist would be "anti-competitive".

Randy December 4, 2007 at 12:26 pm

The thing to understand about lobbyists is that they don't come to Washington to give money, but to make money. Yes, they pay, but they do so in expectation of a return. The problem isn't the money in the hands of the lobbyists, but the money in the hands of the power brokers. If we want to keep aways the cockroaches, we have to stop leaving crumbs on the counter.

Methinks December 4, 2007 at 1:01 pm

The problem with greased pigs is that they're slippery and they are pigs.

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