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Left, Milton Friedman (second from left) at a meeting of president-elect Ronald Reagan’s top economic advisors, November, 1980. Right, John Kenneth Galbraith and President Lyndon Johnson discussing economic policy, 1966.
Left, Milton Friedman (second from left) at a meeting of president-elect Ronald Reagan’s top economic advisors, November, 1980. Right, John Kenneth Galbraith and President Lyndon Johnson discussing economic policy, 1966. (Photo / Ron Edmonds; Courtesy FSG/John Kenneth and Catherine Galbraith)

The pragmatist and the utopian

John Kenneth Galbraith and Milton Friedman defined an epic clash of ideas that continues to shape the debate over America's economic future.

REPUBLICANS NOWADAYS count themselves the party of ideas. ''Ideas matter,'' Ronald Reagan proclaimed a quarter-century ago--words that have since become a GOP shibboleth. But with his recent Inaugural and State of the Union addresses, President Bush reminded us that today's conservatives don't love just any kind of ideas, even conservative ones. Big ideas are better than small, and bold ideas--ideas meant to profoundly reshape world history in the name of high principle--are always preferable to cautious ones. Abandoning a once fiercely defended reputation for caution in the face of change, it seems today's proudly swaggering conservatives have adopted the revolutionary role that for 200 years they existed to defeat.

In the mid-1980s, Harvard economist John Kenneth Galbraith, that old lion of liberalism, began warning of the dangers for the Republic in this reversal of roles. The author of more than three dozen books--among them ''American Capitalism'' (1952), ''The Affluent Society'' (1958), and ''The New Industrial State'' (1967)--Galbraith could fairly claim to know something about ''big ideas,'' and not just as an ivory-towered intellectual. He was America's ''price czar'' in World War II, helped engineer the reconstruction of Germany and Japan under Truman, was both an ambassador and close confidant of JFK, and early on helped design Lyndon Johnson's War on Poverty (before breaking with LBJ over the Vietnam War). And as a leading figure in the Democratic Party from the New Deal forward, he had played senior roles in half a dozen presidential campaigns.

With the advent of this new breed of conservatism, Galbraith said, liberals and conservatives no longer represented merely two differing views along a more or less common political spectrum. Conservatives had always attacked the alleged ''utopianism'' of their opponents, but as this generation consolidated power, he predicted early in the Reagan years, conservatism itself would grow more and more dangerously utopian. Under such circumstances liberalism would need to serve as the defender of America's true political genius: its capacity for what Galbraith called ''reluctant pragmatism.''

To Galbraith, these new conservatives--in their fervent assault on ''big government''--willfully ignored the fact that government's dramatic growth over the past century (from an average of 10 percent of GDP in 1900 to roughly 35 percent today) was not the result of liberal utopianism but a pragmatic accommodation to the demands of voters. Publicly financed retirement security and medical care, free public education, progressive taxation, unemployment insurance, the minimum wage, basic labor rules, food and drug regulation, environmental protection--as well as government's postwar Keynesian role (in which Galbraith had long and famously been involved) steering the economy past the devastating recessionary or inflationary swings of the past--were welcomed by a majority of Americans as the means to moderate the harsh and uncertain consequences of an unregulated market capitalism and to hold at bay far more radical alternatives on both the right and left. Even when Republicans controlled the White House, Galbraith noted, neither Eisenhower nor Nixon had sought to overturn the pragmatic big-government accomplishments of their predecessors--and in several instances added to them.

But with the arrival of Ronald Reagan, a new GOP had had enough of such pragmatism. To them big government, and their party's long-standing minority status, could only be explained in Manichaean terms, by the destructive hegemony of an elite cabal of radical academics, ambitious politicians and bureaucrats, and cultural cosmopolitans. And it was that elite's hunger for political control and cultural domination that now justified the new GOP's role in a war of ideas, from which the conservatives firmly believed there could emerge only one winner.

Credit for this remarkable shift in the dominant conservative worldview belongs not to Reagan, however, but to Galbraith's old nemesis, University of Chicago economist Milton Friedman. And as the story of Friedman's rise and his long-running rivalry with Galbraith shows, the clash of ideas represented by these two postwar American titans is still shaping debate over the nation's economic future.

. . .

ONE CAN DATE THE REMARKABLE rise of Friedman's influence to his role as chief economic advisor to Barry Goldwater's 1964 presidential campaign. For that race--to which today's conservatives proudly trace their roots--Friedman helped craft a policy agenda that was far more sweeping than any GOP candidate had ever endorsed or imagined before. Friedman proposed not just the abolition of government regulation of industries such as airlines, energy, and telephones. He also wanted to do away with the Federal Reserve, the SEC, farm price supports, import duties, and fixed exchange rates--not to mention national parks, progressive taxation, and Social Security.

In the 1964 election, Galbraith--who was actively campaigning for Lyndon Johnson--found himself facing off against Friedman, and not for the first time. Ever since the rise of Keynesianism in the 1930s, Chicago's economics department had been fighting a lonely battle in opposition to it. To such figures as Frank Knight, Jacob Viner, and Henry Simon, the Keynesian model of government as ''macromanager'' of the economy was the worst possible form of big government--in the alarmist words of the department's libertarian hero, Friedrich von Hayek, no less than ''the road to serfdom.''

As a rising star in the department, Friedman's theoretical contribution to this battle in the 1950s was to revive and refine the doctrine of ''monetarism,'' which sought to show that only by abandoning all forms of macromanagement--except for the Federal Reserve's steady and conservative oversight of the money supply--could the free market economy (and with it, the Republic) be saved. Chicago's influence, however, remained inconsequential in economics and politics until Friedman was introduced to Goldwater during the early days of the New Frontier, when both Keynesianism and Galbraith's political influence were at their heights.

The Goldwater campaign went down to resounding defeat, and for the next several years Friedman (like most of the Goldwater crowd) languished in what amounted to political Siberia. Confined to a column in Newsweek, he attacked both moderate Republicans and the hated Keynesians, the ''socialist'' Galbraith in particular. After Richard Nixon took office in 1969, Friedman started peppering the new administration with economic advice. But the wily Nixon--ever suspicious of his party's far-right wing--kept him at bay, an isolation Friedman repaid two years later by denouncing Nixon as ''the most socialist president'' in American history after he imposed wage-and-price controls to stem soaring inflation. (Galbraith, needless to say, was even more dangerous, and his election in 1971 as president of the American Economic Association was something Friedman fought hard to derail.)

By the mid-1970s, however, the Chicagoan's fortunes were rising. With the nation wracked by a combination of high inflation and unemployment (''stagflation''), OPEC's price hikes, the aftershock of the Sixties' ''cultural revolution,'' and crumbling confidence post-Vietnam, the old bipartisan pragmatism of American politics fell apart.

As other Goldwater veterans leapt into the breach, led by Ronald Reagan (who had nominated Goldwater at the 1964 GOP convention), Friedman concentrated his new efforts on popularizing his academic theory of ''monetarism'' as the alternative to 30 years of Keynesian economic policy. To a public disgruntled with Washington's by then fumbling attempts to macromanage the economy under Gerald Ford and Jimmy Carter, he said there was a simple solution: discard the Keynesian goal of ''fine tuning'' through fiscal policy, concentrate on managing the money supply, set a basically fixed rate of growth for that money supply, and watch the economy soar.

When Reagan reached the White House in 1981 he fully supported the Federal Reserve's adoption of Friedman's ideas. Yet monetarism's honeymoon proved short-lived. The Fed's application indeed choked inflation out of the economy--but in the process produced the worst recession since the 1930s. Reversing course by 1983, the Fed abandoned its newfound principles--and the economy took off, just in time for Reagan's reelection, fueled by deficits (born from Reagan's tax cuts on the wealthy and sharp increase in military spending) so massive that even the Reagan- and Friedman-friendly Economist magazine called them ''turbo-charged Keynesianism.''

In the 1990s, Alfred Malabre Jr., the Wall Street Journal's longtime economics editor and a passionate supporter of Friedman's in the 1970s, looked back soberly on the Chicagoan and his GOP allies. Friedman and his colleagues, he wrote, were ''super salespeople,'' peddling a ''wildly utopian'' program, ''economic medicine that promised far more than it could possibly deliver....''

A decade after Malabre's reassessment, it's even easier to see the enormous costs and embarrassing contradictions of that new conservative utopianism. Friedman's passionate calls for financial and securities market deregulation played no small role in ushering in the half-trillion dollar S&L fiasco of the 1980s and the deeply corrupt Wall Street stock market boom of the 1990s. His tax-reduction-at-all-costs policies helped lead to the nation's yawning budget deficits. His trade and foreign exchange advice to two decades' worth of rolling debt crises from Asia to Mexico to Russia, as well as America's seemingly unhaltable and gargantuan trade deficits. And just last month--the GOP's revulsion over ''big government'' and ''free spending'' notwithstanding--White House budget officials made clear that 2005 will bring yet another year of record spending and record deficits, with as much as half a trillion dollars piled on top of the 6 trillion dollars in debt Republican administrations have accumulated since Reagan first took office.

Yet there is one big idea that Friedman persuaded Goldwater to advocate 40 years ago which remains untested: the privatization of Social Security.

Back in 1978, a young Texas congressional candidate named George W. Bush, much enamored of Friedman's thinking, called for privatization of Social Security in order to ''fix'' the crisis that he said would bankrupt the system by the late 1980s. As his State of the Union speech Wednesday night made clear, however, Bush's soaring vision for the future of Social Security--despite its stated principle of substituting individual freedom for the heavy hand of government--incongruously leaves forced taxation to fund the accounts and Washington lawmakers to decide where we'll be able to invest the funds, and when and under what conditions we can withdraw and spend them.

For America's ''party of ideas,'' it is still only their opponents' ideas which have failed. To the fatal contradictions inherent in their own utopian principles, they seem to remain impervious.

Today, as the battle for the future of Social Security is joined, Americans might do well to heed the advice offered by that reluctant pragmatist Galbraith: ''If you hear someone in public life say that he is going to stand firmly on principle, you should take cover--and warn others to do the same.''

Richard Parker is a senior fellow at the Shorenstein Center at Harvard's Kennedy School of Government, and the author of ''John Kenneth Galbraith: His Life, His Politics, His Economics'' (FSG), to be published this month. 


(Illustration / Peter Mitchell)
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