Friday, November 17, 2006

Milton Friedman

Milton Friedman died at age 94. An advocate for monetarism who held some sway in the Reagan and Thatcher governments in the 80’s, Mr. Friedman was a favorite of conservative and libertarian ideologues. He held an almost religious faith in the power and benefit of unregulated markets. He popularised the phrase "there's no such thing as a free lunch" and was awarded the Nobel Prize for economics in 1976. However, putting his ideas into practice did have their downside as the citizens of Chile have found out with their privatized pension system.

Richard Adams gives this assessment of Friedman’s career in the Guardian:
Given his status as a long-standing hate figure, the ssumption by many of the left is that his agenda was cemented into place during the Reagan and Thatcher administrations in the early 1980s, especially Friedman's well-known view that inflation is solely influenced by changes in the money supply. But very few of Friedman's most cherished proposals were ever put in to practice. Of those that where - such as monetarism - almost all turned into failure.

The great irony for Friedman's fans is that the one piece of public policy he was responsible for that was widely and internationally adopted was one that greatly increased the ability of central governments to collect taxes - a policy he later repudiated in disgust.

Obituaries of Friedman will doubtlessly sing of his successes. But close examination will show them to be few, and none unalloyed. For all his high public profile - thanks to his regular column in Newsweek and series on US television, Free to Choose, which made him into something of a star - today no mainstream academic economist is a monetarist and Friedman left no lasting school of academic heirs. Even the "Chicago school" at the University of Chicago has waned in influence, eclipsed by the mighty MIT army of economists that followed Samuelson.

In terms of the policies he inspired or influenced, however, the report card is not so glowing. His great claim, the idea that "inflation is always and everywhere a monetary phenomenon" may have set off the Monetarist versus Keynesian "econ-wars" of the late 1970s and 1980s. But Friedman's ideas of directly targeting the money supply were tried and rejected as a failure, in both the UK and the US, and Friedman himself backed away from his dogmatic earlier positions. Today, no major central bank directly targets money supply data in setting monetary policy - instead they are far more pragmatic. Even Friedman's great admirer Alan Greenspan never tied himself to the monetarist mast, preferring to keep his options open.

Friedman also railed long and hard for school vouchers to be adopted, to little avail, and his libertarian leanings provoked him to call for recreational drugs and prostitution to be legalised. He lobbied against environmental protection and regulations of all kinds, the vast majority of which were happily ignored by his friends and enemies. Even the economic reforms in Pinochet's Chile he is said to have inspired have run into trouble.

And Friedman's one success? In 1942, during world war two, Friedman actually went to work for the US government. While there he helped design the payroll tax that in Britain is known as PAYE, Pay As You Earn, and in the US as withholding tax, the system that allows the government to administer the taking of income tax directly from salaries and pay packets. Unlike everything else he argued for, withholding tax was withstood the test of time and is in use all around the world. It was the best thing that Keynesian-style government could ever have wished for, and Friedman bitterly regretted it. …

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