Paul Krugman vs. Milton Friedman

By Kindred Winecoff

Krugman in 2007 on Milton Friedman:

For example, the Fed responded to the 2001 recession by slashing interest rates and allowing the money supply to grow at rates that sometimes exceeded 10 percent per year. Once the Fed was satisfied that the recovery was solid, it reversed course, raising interest rates and allowing growth in the money supply to drop to zero.

[S]ince the early 1980s the Federal Reserve and its counterparts in other countries have done a reasonably good job, undermining Friedman's portrayal of central bankers as irredeemable bunglers. Inflation has stayed low, recessions... have been relatively brief and shallow. And all this happened in spite of fluctuations in the money supply that horrified monetarists, and led them—Friedman included—to predict disasters that failed to materialize.

That is in defense of the sort of Fed "tweaking" that led to the loose money of 2001-2004 -- and inflation of the housing bubble -- that Krugman now derides. I'm not a moneterist, but I'm just sayin': if in 2007 you say the Fed was right to pursue expansionary monetary policy (and you said the same thing in 2001, 2002, 2003, 2004, 2005, and 2006), and in 2009 you say the Fed was wrong to pursue those same policies because they led to bubbles, then maybe you should stop lobbing hand grenades at your ideological opponents for not being omniscient.

Just sayin'.

Nevertheless, that whole article is worth reading. It's a eulogy of sorts, and Krugman shows a fair bit of respect (though it comes with several accusations of intellectual dishonesty). It's basically the story of a very smart guy grabbling with the ideas of another very smart guy that he very much disagrees with but is forced to respect. And there's also a distinct note of admiration for Friedman's ability to steer public policy, a level of influence that Krugman has often yearned for but seldom achieved.

Here's his conclusion, which applies every bit as much to Krugman as to Friedman:

The answer, I suspect, is that he got caught up in an essentially political role. Milton Friedman the great economist could and did acknowledge ambiguity. But Milton Friedman the great champion of free markets was expected to preach the true faith, not give voice to doubts. And he ended up playing the role his followers expected. As a result, over time the refreshing iconoclasm of his early career hardened into a rigid defense of what had become the new orthodoxy.

In the long run, great men are remembered for their strengths, not their weaknesses, and Milton Friedman was a very great man indeed—a man of intellectual courage who was one of the most important economic thinkers of all time, and possibly the most brilliant communicator of economic ideas to the general public that ever lived. But there's a good case for arguing that Friedmanism, in the end, went too far, both as a doctrine and in its practical applications.

Perhaps the only difference between the two in this regard is that there is no such thing as "Krugmanism".

Comments

[John Galt:]

> Friedmanism, in the end, went too far, both as a doctrine and in its practical applications.

This is what the collectivists always say. " I believe ( in something), we must just accept it in moderation". Or they might say something like, " this time it's different".

The collectivists and looters are always pointing fingers, they play I "shoulda, woulda, coulda" done this, you, "shoulda, woulda, coulda" done that.

They play blame games, scapegoats, and often don't even understand the issues at hand. It amazes me how little "experts" often know. A wise man once told me that "experts" don't have all the right answers, they just ask the best questions.

Sep 15 09:58 AM

[Tony Petroski:]

IPE: Enjoyable article. It's true there is no such thing as Krugmanism.

Quick: Describe "Clintonomics?"

Friedman was a great man and we could use his advice right now.

Sep 15 10:25 AM

[Mark Bern:]

"if in 2007 you say the Fed was right to pursue expansionary monetary policy (and you said the same thing in 2001, 2002, 2003, 2004, 2005, and 2006), and in 2009 you say the Fed was wrong to pursue those same policies because they led to bubbles, then maybe you should stop lobbing hand grenades at your ideological opponents for not being omniscient."

"And he ended up playing the role his followers expected."

The two quotes above from the article suggest that in respect to playing the expected role, Krugman is more politically motivated than Friedman. The difference is that Friedman commanded more public respect, as he should have, because he maintain his position and ideologies even in the face of adversity. Krugman merely attempts to read the popular position and tries to get out in front of it. Even though he lacks conviction, he is bound to be right at least some of the time. And he seems to be right most of the time, if we measure "right" by what is fashionably accepted at any given time.

Any idiot can come to the conclusion that totally free markets will succumb to the excesses of greed and stray off of the preferred path unless kept in check by prudent regulatory oversight. Our current dilemma occurred, not because of a lack of oversight, but because of the misapplication of oversight and the regulators turning a blind eye to what was happening. Free markets work if they are accompanied by transparency. Without transparency, nothing will work well forever. Friedman was right, but our government leaders let him down by not doing their part, IMHO.

Sep 15 10:31 AM

[John Galt:]

That's what I'm saying with the Collectivists. It's all about what's popular, the hot issue and with help from the media. Then they always know what's best.

The interesting thing is how quickly they sacrafice their own for the sake of their collective argument. If somebody does a bad job, it's a noble goal but bad management. They *do* know what's best for you and deserve control over your life.

Global warming could destroy the earth, so give your freedom to regulate, control, fix. If global warming turns out to be a hoax, then they just sacrafice the people who made those false arguments under the rug and continue business as usual.

Krugman and his kind love an argument about normative issues. It's too hot ( global warming), there are too many people ( over population). I mean, you be a server at a restaurant and on any given day 5 people will complain it's too hot in there, and 5 people will complain it's too cold.

Krugman and his collectivist friends just want control. They want to lump everybody together and preside over them with backing of a gun. Lenders/borrowers couldn't possibly set the price of money, that would be madness right? WE have to step in and let the PHD's of the government set interest rates to create "stability". How'd that work out?

Sep 15 11:04 AM

[nova:]

Paul Krugman vs. Milton Friedman. There is a big difference between these two: one was a real scientist and another is just a demagogue.

Sep 15 01:07 PM

[mna:]

Excellent commentary. Couldn't agree more.


On Sep 15 10:31 AM Mark Bern wrote:

> "if in 2007 you say the Fed was right to pursue expansionary monetary
> policy (and you said the same thing in 2001, 2002, 2003, 2004, 2005,
> and 2006), and in 2009 you say the Fed was wrong to pursue those
> same policies because they led to bubbles, then maybe you should
> stop lobbing hand grenades at your ideological opponents for not
> being omniscient."
>
> "And he ended up playing the role his followers expected."
>
> The two quotes above from the article suggest that in respect to
> playing the expected role, Krugman is more politically motivated
> than Friedman. The difference is that Friedman commanded more public
> respect, as he should have, because he maintain his position and
> ideologies even in the face of adversity. Krugman merely attempts
> to read the popular position and tries to get out in front of it.
> Even though he lacks conviction, he is bound to be right at least
> some of the time. And he seems to be right most of the time, if
> we measure "right" by what is fashionably accepted at any given time.
>
>
> Any idiot can come to the conclusion that totally free markets will
> succumb to the excesses of greed and stray off of the preferred path
> unless kept in check by prudent regulatory oversight. Our current
> dilemma occurred, not because of a lack of oversight, but because
> of the misapplication of oversight and the regulators turning a blind
> eye to what was happening. Free markets work if they are accompanied
> by transparency. Without transparency, nothing will work well forever.
> Friedman was right, but our government leaders let him down by not
> doing their part, IMHO.

Sep 15 05:42 PM

[The Geoffster:]

There was no need for Krugmanism. We already had Marxism.

Sep 15 08:13 PM

[TheSnail:]

Your obsession with Krugman has in the past week earned you how many new followers?

Zero.

Hmmm....wonder why?

Sep 16 02:16 AM

[Kindred Win...:]

My site traffic at IPE@UNC has quadrupled.

Sep 16 12:05 PM

[pseudonym888:]

Ben Bernanke is a Milton Friedmanite:

www.reason.com/news/sh...

Sep 22 03:14 AM