Milton Friedman, 1912-2006
MILTON FRIEDMAN, who died this week at 94, was an extraordinary economist, fully deserving of the Nobel Prize, but his insights into the workings of the money supply do not provide a template for public policy. Rather, they offer a lesson in the limitations of economics to advance social improvement.
"Friedman's monetary framework has been so influential that, in its broad outlines at least, it has nearly become identical with modern monetary theory and practice," said Ben Bernanke , chairman of the Federal Reserve, in 2003. Bernanke was referring to Friedman's insight that a tightening of money supply by the Fed exacerbated the Great Depression in the 1930s, and that loose monetary policy contributed to 1970s stagflation. Paul Volcker's leadership of the Fed in reducing inflation in the 1980s, and his successor Alan Greenspan's deft management of the money supply after the Sept. 11 attacks, owe much to Friedman's work.
Friedman ranged far beyond monetary policy to recommend that government end the military draft, decriminalize drugs, issue vouchers for private school, encourage private retirement accounts instead of Social Security, and replace the graduated income tax with a flat tax to limit using the tax code for social purposes.
Friedman believed in the power of free markets, to the point where it sometimes seemed his only use for government was to regulate the flow of money.
The consequence of Friedman's policies was to deepen social and economic inequality. Corporate CEOs could feel entitled to enormous pay packages if, in their view, the marketplace rather than a compliant board of directors, was responsible. Government was hard put to intervene on the side of those not so advantaged, because politicians who espoused the Friedman philosophy kept taxes low and skewed tax cuts in favor of the wealthy.
Friedman could not understand why people criticized his speeches in Chile in 1975 that aligned him with the Pinochet dictatorship. He compared them to his talks in China, which should have been questioned as well for their support of a communist dictatorship. Free enterprise does not always equal political and social freedom. And even when his thinking helped topple totalitarian regimes, as in Eastern Europe and the Soviet Union, the resulting transformation came down hard on those at the margins of the economy.
Friedman's thinking was a reaction to the interventionist policies of the New Deal, for which he worked in the 1930s. What's needed now is a corrective to the limited-government, free-market preoccupations of Milton Friedman, to shift more of society's resources to those who really need them.
