Were Recent Economic Policies Really Designed by Milton Friedman?

by Don Boudreaux on September 30, 2008

in Politics, The Economy

Here’s a letter that I sent today to the Wall Street Journal:

V. Nagarajan suggests that the financial turmoil on Wall Street combines with the fact that most winners of the Nobel Prize in Economic Science are Americans to reveal that economics is a discipline unworthy of Nobelity (Letters, September 30).

While some laureates are indeed undeserving of such high distinction, Mr. Nagarajan’s presumption that Uncle Sam’s economic policies are fashioned after the advice of distinguished economists is unwarranted.  One of America’s greatest economists is my colleague James Buchanan, winner of the 1986 Nobel Prize.  Jim’s life work shows that government officials seek office, not truth – and that success at their venal endeavor too often requires not merely ignoring sound economics but positively fleeing from it as if it were a fast-expanding cloud of anthrax spores.

Sincerely,
Donald J. Boudreaux

Be Sociable, Share!

Comments

comments

74 comments    Share Share    Print    Email

{ 37 comments }

GMU Phil Guy September 30, 2008 at 4:27 pm

Were Recent Economic Policies Really Designed by Milton Friedman?

Emphatically, no.

Friedman thought the government's role in business is to enforce contracts and provide a small number of public services (e.g. police, military, etc.).

If my memory serves me, Friedman played with the idea of completely privatizing medicine (he was critical of the AMA's stronghold on medical schools and institutions). Many politicians are playing with the idea of socialized/"universal" health care, this is just one example of how today's politicization of the economy are anything but realizations of Friedmanian economics.

Sam Grove September 30, 2008 at 4:42 pm

Politicians taking sound economic advice usually means using the adviser's name as cover.

Sam Grove September 30, 2008 at 5:27 pm

Were Recent Economic Policies Really Designed by Milton Friedman?

More likely a product of Keynesian economic thought.

muirgeo September 30, 2008 at 6:10 pm

"I first realized what a truly extraordinary person he was in early 1973 when I spent an unforgettable day with him barnstorming across California to promote his Proposition 1 — an amendment to the state constitution that would set a limit to the amount the state could spend in any year. We flew in a small private plane from place to place and at each stop held a press conference. In between, Gov. Reagan talked freely about his life and views. By the time we returned to our final press interview in Los Angeles, I was able to give an enthusiastic yes to a reporter's question whether I would support Reagan for president. And, I may say, I have never been disappointed since."

Milton Friedman… Economic policy advisor to Ronald Reagan

Free WIll Hunting September 30, 2008 at 7:11 pm

Seems odd that any economist would find a ceiling appealing…………

Sam Grove September 30, 2008 at 8:10 pm

So when did he say that?

Sam Grove September 30, 2008 at 9:18 pm

Friedman was an architect of the Federal withholding tax, in support of the war effort.
I think he came to regret it.

Crusader September 30, 2008 at 10:18 pm

Sam:

Evidence, cite?

Mace September 30, 2008 at 10:24 pm

What? No defenders of the venal profession here?

Free WIll Hunting September 30, 2008 at 10:48 pm

"set a limit to the amount the state could spend in any year."

sounds like a ceiling to me

Unit September 30, 2008 at 11:02 pm

The current crisis was definitely caused by too much deregulation and a culture of laissez-faire on the part of The People that has allowed politicians to act with impunity. Under no rules defining their proper behavior, the political class has messed with markets that it had no knowledge of, it has produce a mass of laws, acts, memos, orders, pressures, rules, bills, proposals, bailouts, handouts, rein-ins, shake-downs, intrusions, etc…with greed, arrogance and no oversight whatsoever. It's high time to socialize politics. No more independent individualistic politicians. From now on they will have their hands tight by strict regulations on what they 'can' and 'cannot' do. We can't afford another Great Depression.

Unit September 30, 2008 at 11:05 pm

…hands tied…sorry.

Adam September 30, 2008 at 11:45 pm

"So when did he say that?"

2004

Adam September 30, 2008 at 11:46 pm
DRDR September 30, 2008 at 11:49 pm

The letter is gone from that page already. Here is a static link: http://www.wsj.com/article/SB122273681684888705.html

Sam Grove September 30, 2008 at 11:59 pm

Surprisingly, it was a free market economist who helped the federal government implement the withholding tax in the first place. As was pointed out by the Austrian economist, Murray Rothbard (1926–1995), in his 1971 article "Milton Friedman unraveled":

One of Friedman's most disastrous deeds was the important role he proudly played, during World War II in the Treasury Department, in foisting upon the suffering American public the system of the withholding tax. Before World War II, when income tax rates were far lower than now, there was no withholding system; everyone paid his annual bill in one lump sum, on March 15. It is obvious that under this system, the Internal Revenue Service could never hope to extract the entire annual sum, at current confiscatory rates, from the mass of the working population. The whole ghastly system would have happily broken down long before this. Only the Friedmanite withholding tax has permitted the government to use every employer as an unpaid tax collector, extracting the tax quietly and silently from each paycheck. In many ways, we have Milton Friedman to thank for the present monster Leviathan State in America.

Link

Sam Grove October 1, 2008 at 12:03 am

Originally a Keynesian supporter of the New Deal and advocate of high taxes, in the 1950s his reinterpretation of the Keynesian consumption function challenged the basic keynesian model.

Friedman spent 1941–43 working on wartime tax policy for the Federal Government, as an advisor to senior officials of the United States Department of the Treasury. As a Treasury spokesman in 1942 he advocated a Keynesian policy of taxation, and during this time he helped to invent the payroll withholding tax system, although he later regretted it.

wikipedia

Sam Grove October 1, 2008 at 12:05 am

In the long life of an individual, it does not do to take a quote from his earlier life and conclude from that where he went from there.

brotio October 1, 2008 at 12:24 am

"In the long life of an individual, it does not do to take a quote from his earlier life and conclude from that where he went from there." – Sam Grove

At age one or so, Muirduck said, "gaga-googoo- rablety-blert" and he's been saying it ever since. Proving that for every rule there is an exception.

Sam Grove October 1, 2008 at 1:17 am

I don't find it necessary to insult muirgeo so gratuitously. I think it may be more accurate to suppose that he is a shining product of the government 12 year indoctrination system.

One clue is his frequent misspellings, such as "weather" for "whether", and "do" for "due". This is indicative of fairly modern educational fads in which it is claimed that spelling doesn't matter, that phonetic approximations are acceptable.

No doubt, along with that, he was subjected to the insane fad of placing self-esteem before accomplishment.

Nonetheless, he managed to make it through medical school where he had to learn a lot of big words in their original spelling and he got a job with the fairly prestigious Kaiser Permanente (of which I am a subscriber).

It is also likely true that the schools he attended were populated by liberal/progressive oriented teachers and their sincerity no doubt contributed hugely to his successful indoctrination.

Still, it is amazing how thoroughly an individual can be so intellectually confined to the obsolete left/right political spectrum as to suppose that anyone who takes issue with his assertions must lie on the "right" end of that spectrum.

I wonder what he feels to find most of us regulars opposed to the bailouts.

maximus October 1, 2008 at 1:41 am

Things sure must of changed in California after I left. I used to carry two medical policies because my wife had Kaiser and I refused to deal with them cause they were so awful. I always considered them the poster child for universal healthcare.

brotio October 1, 2008 at 1:49 am

Sam,

I know you don't do gratuitous insults, but the joke was there and I couldn't resist.

I'll stand by the implied assertion of that joke that most of the time Muirduck might as well just say, "gaga-googoo- rablety-blert" because that makes as much sense as most of what he says.

Jeff Goldberg October 1, 2008 at 2:01 am
Hans Luftner October 1, 2008 at 2:02 am

I wonder what he feels to find most of us regulars opposed to the bailouts.

It wouldn't surprise me to find that he still assumes we all love the bailouts, even after we said otherwise. At this point it honestly seems safer to assume he doesn't pay any attention to anything we say.

I wonder how he feels about his Democratic party being the primary proponents of the bailouts. Better make the Democrats veto-proof so we won't have to worry about Wall Street getting special favors from the government!

Per Kurowski October 1, 2008 at 6:55 am

Friedman would never ever have suggested using some few credit rating agencies so extensively to guide the world’s capital flows.

That said, in many other cases, seeing how they kept mum about it all, some Nobel prize winners should have the decency to return their price… don’t they take back Olympic medals if doping is discovered?

muirgeo October 1, 2008 at 8:18 am

"One clue is his frequent misspellings, such as "weather" for "whether", and "do" for "due". This is indicative of fairly modern educational fads in which it is claimed that spelling doesn't matter, that phonetic approximations are acceptable."
Sam

Sam actually it's due to a form of dyslexia that went undiagnosed while I attended Catholic Grade school for the first 8 grades and instead of being referred for evaluation I was mostly in the Principals Office where Sister Mary Jean frequently told my mother that I would never amount to anything.

Now days when I see children with history's of expressive language difficulties we send them to speech therapy offered by the public schools to their students and to students at private schools as well because they don't offer such things for their students. They have the liberty of just taking the best students while ignoring those that need the help the most.

Sam your world would be as miserably as any that Charles Dickens wrote about. And odds our that were you born into such a world you'd be one of the masses of struggling orphan boys growing up in a poor dreary poverty stricken life.

"Do you spell it with a "V" or a "W"?' inquired the judge. 'That depends upon the taste and fancy of the speller, my Lord'. "
Charles Dickens

muirgeo October 1, 2008 at 8:32 am

George is a happy traveller on the road to this wonderful place. Thanks to people like him, we are all his fellow travelers

Posted by: Jeff Goldberg

Jeff thanks for the link. You might want to get the unabridged version of F H Hayek's , The Road to Serfdom, and actually read it yourself.

"Nor is there any reason why the state should not assist the individuals in providing for the common hazards of life against which, because of their uncertainty, few individuals can make adequate provision. Where, as in the case of sickness and accident, neither the desire to avoid such calamities nor the efforts to overcome their consequences are as a rule weakened by the provision of assistance- where, in short, we deal with genuinely insurable risks- the case for the state's helping to organize a comprehensive system of social insurance is very strong."

F "frickin" A von Hayek

Funny proper interpretive responses to follow. I can hardly wait….

Hammer October 1, 2008 at 8:43 am

I gotta say, Friedman himself turned into a classic example of good intentions causing all sorts of problems unforeseen. Taking a little bit of money from paychecks to pay for a large expenditure seems like it would really help people, whether it is paying for insurance, saving for retirement or whatnot. Essentially it makes automatic the standard practice of saving a little over time to get to an otherwise frighteningly large goal.

However, we can see just how such things end up working. The pain and discomfort is so minor that the large goal can be raised to a much higher degree before we notice. The fact such a system allows for such maddness as Social Security, the current health insurance system, and of course the tax burden in general.

Muirgeo: I have to ask, why don't you use spell check? Just about every forum I read on a regular basis has one or two people whose excuse for poor spelling and grammar is "I have dyslexia". Well, you also have access to a spell checker.
Now, I am certainly not a flawless typist, and I don't expect others to be too, but if you know you have an issue with spelling to the point that other people point out "Your post makes no sense!" frequently, why don't you make use of one?

Sam Grove October 1, 2008 at 10:45 am

They have the liberty of just taking the best students while ignoring those that need the help the most.

That is a claim I often hear, but I tell you that most of the home schooling parents of my acquaintance remove their kids from public schools because the schools are unable or unwilling to deal with their child's variance from the norm. Some because the schools want to put their kids on ritalin to make the kids more normal.

One parent takes her kid to speech therapy, so it is not necessary to have them in public school to obtain this service. In fact, her father suffered in public school because of his dislexia.

I bet many catholic schools are not aware of the problem of dyslexia. In my youth, this problem was not known.

Sam Grove October 1, 2008 at 11:39 am

Catholic school: In my youth I heard many horror stories about Catholic schools. George Carlin had a routine about sister Mary Margaret..I think it was he.

Yes, we are all familiar with Dickens, but I hope you are aware that, in many ways, the past was much worse than modern times.

What matters is the interpretation. No doubt you hold that the misery of the time was because of laissez faire economics which you also insist does not, and cannot, exist.

We are aware that in Dickens' time the government engaged in protectionist policies for the sake of the politically favored, this 'mercantilism' has been and is the norm throughout the world for much of history.

But we also know that the freedom available in the U.S. drew people from their homelands from all over the world, lands dominated by despotic and controlling governments which, as we also know, we dominated by an oligarchy, because all governments, particularly those that rule over economic behaviors, are oligarchies.

Oil Shock October 1, 2008 at 12:43 pm

Hayek was simply wrong on that of health care. Under Richard Nixon, the state indeed helped organize another massive fraud called HMO.

Hayek always had this tendency to surprise everybody about his real convictions about liberty. Hayek was a lot more willing to go along with statism than was the case with Mises or Rothbard. His later work, constitution of liberty, made a lot of libertarians puke. It was chock full of statism. It might have been influenced by the fact that, by the time he wrote constitution of liberty, he had spent a few years at the University of Chicago with Milton Friedman and other monetarsists. I think, toning down the libertarian rhetoric was what ultimately helped him win the Nobel Prize, just 1 year after Mises's demise.

The Nobel Memorial prize was awarded for Business Cycle theory, which arguably, Mises deserved as much as Hayek. But then the Swedish GOVERNMENT was unlikely to award a steadfast libertarian like Mises.

Hans Luftner October 1, 2008 at 2:04 pm

My mother taught special ed in a public school. In order to keep their funding they classified kids that she thought really could have stayed in mainstream classes. But if you're budgeted for 30 students & only 20 students need special attention, what do you do? You classify another 10 students. My mother found it very frustrating. I find it very tragic.

& when I was a kid in public school my parents had to pay a speech therapist to help me, because the public school didn't offer it. I was also in the public school principal's office being told I wouldn't amount to anything. These are things that sometimes happen to some students at some schools, & you could hardly blame in on whether it's run by the church or the state. But I have to pay for your preferred schools either way, & that ticks me off.

I personally think school is a terrible way to teach children, which is why my kids will be homeschooled, supplemented with the occasional hired tutor. & here's the good news: whether you agree with my methods or not, none of the rest of you will be forced to pay a dime.

muirgeo October 1, 2008 at 2:20 pm

One more thing on the supposed superiority of private schooling. Private schools are often the ones pumping out people like Sarah Palin who believe the Earth is 6,000 years old, that man and dinosaurs walked the Earth together and that abstinence only is the best way to prevent teenage pregnancies.

Randy October 1, 2008 at 2:23 pm

Muirgeo,

So what? How are any of those beliefs any of your business?

Sam Grove October 1, 2008 at 2:58 pm

One of the drawbacks of democracy is that sometimes, or quite often, people with some form of ignorance are put in positions of power.

The problem of public schools is the inculcation of fallacious interpretations into many people thus producing graduates who think that democracy equals freedom, that greed is a quality unique to business, and that believe any wrong done by government is relieved by the democratic action that enabled those wrongs.

I won't say that private schools are always better than government schools except in two important regards:

1.Private schools have no authority to require parents to send their children to them. This leaves the power of choice in the hands of those that are in the market as buyers of educational services.

2. I don't have to foot the bill for the educational choices of other families.

Sam Grove October 1, 2008 at 3:13 pm

Muirgeo's concern is relevant only because of the federalization of education via the DOE, etc.

brotio October 1, 2008 at 8:30 pm

I wonder what Muirduck was doing spying on Sarah Palin's daughter. He seems to know for a fact that the young lady was engaged in unprotected sex.

Muirduck also seems to know for certain that because Sarah Palin presumably teaches her children that the only sure way to prevent making babies is not to try, that she would not tell them that if they're intent on ignoring that reality that there are ways to reduce the likelihood of pregnancy.

I knew that Mrs Palin had discussed what she believes should be the State's role in sex education. I did not know that Mrs Palin and her husband had discussed the very personal details of what they teach their children in their own home.

Previous post:

Next post: