Milton Friedman

A lot of people think the economist Milton Friedman (1912-2006) was a god. In his lifetime he was viewed as the god of the free market. His economic theories were adopted by, to name a few, Margaret Thatcher in Britain and Ronald Reagan in the U.S. Those economies, like may others, found new life with some of his suggestions, like those of monetary policy, tax cuts and privatization.

What first brought Friedman to prominence, and won him the Nobel Prize in Economics (1976), was his theory in monetary policy. He believed that the proper control of the money supply was the fundamental key to a healthy economy and a stable world. Good monetary policy was the key to keeping down inflation, an occurrence that has in the past caused great hardship and instability in many nations. Friedman's fame grew from his theory that if the U.S. had controlled its currency better during the Great Depression that event may not have happened. Likewise, it is believed that if Germany after WW1 had not printed money like crazy in order to fulfill the financial demands put on it by its vanquishers, it wouldn’t have descended into the economic abyss it did, making it ripe for a despotism like Hitler.

My thoughts are that we learn from experience. So I think one should take Friedman's idea, that the Great Depression could have been prevented if the U.S. had only managed its currency better, with caution and skepticism. What Friedman suggested is that the U.S. and others, in the 1920's and 30's, had the wherewithal to be good monetarists, but failed to act so. However, I think they had no such wherewithal in those days because people back then were still inexperienced in such matters, as in prudent monetary policies. Nevertheless, people still insist on transposing the knowledge we have today on a less sophisticated world of the past. I mean, sure, with the knowledge we have today we probably could have prevented WW1 or WW2. But that was a different world, absent of the knowledge and the dynamics we have today.

Friedman's policies have railed against socialism. Now, I am no socialist but I have socialist tendencies, like the belief in universal and state run health systems. Such coverage can lift an anxiety of people’s shoulders which potentially can free people to function better. And by what I see in the countries that do have it, for the most part, the practice of medicine works better than in the US and the costs are lower, and life expectancy is longer. I thus believe in a mixed economy in which aspects of capitalism and socialism are mixed and balanced off against each other. And this type of governance is what is spreading around the world, including in the U.S., albeit kicking and screaming all the way. After all, universal health care is one way to help balance the inequalities that the broader economy generates.

I appreciate and believe in some of Milton Friedman's ideas. And they would probably all work if conditions were perfect. One thing he did believe is that if you have a free and open market the facts and information about it should also be free and accessible. This is something that did not occur during the 'subprime market' in mortgages of the past decade. The information and facts surrounding subprime loans and their derivatives were not open to scrutiny and were dishonest. Many of the facts and realities about the subprime market and their 'toxic assets' were manipulated and hidden by Wall Street. This was the major reason for the financial calamity we have today, chiefly due to a lack of transparencies in the mortgage lending practices of the last decade.

Friedman realized that a measure of regulations and consumer protections had to be in place to keep markets honest, fluid and mutually beneficial. He knew that unfettered market on their own were not the 'hole grail' because of their potential for human abuses. This is something the Bush administration failed to see in its unquestioning acceptance of laissez faire, unfettered markets. As a consequence that unquestioning acceptance seriously destabilized the US economy due to the administration's blind faith that the free market on its own, with as little interference from government as possible, can solve society's major problems. (So blinded by faith was George W. Bush that he really didn't understand what went wrong.)

Milton Friedman's fundamental policies in the wrong hands have incurred a naive and reckless approach to economic activity. They have also encouraged abuses. But he would be the first to recognize that's what comes with the territory due the natural capacity to do wrong and get things wrong. Oh, if only we could hear from him today.