Archive for the 'DayToDay' Category

University of Chicago economics professor Austan Goolsbee writes in the New York Times:

A Charismatic Economist Who Loved to Argue

By AUSTAN GOOLSBEE
Published: November 17, 2006

Someone walked into our lunchroom yesterday at the University of Chicago and announced that Milton Friedman had died. Mr. Friedman spent his intellectual life here, so I started asking people here about him and what they remembered. It became clear that despite retiring almost 30 years ago (and despite being only 5-foot-3), he still casts a long shadow.

To much of the world, he is known for his free market, antigovernment message and his influence on conservative leaders. But in an interview, Mr. Friedman once said that while his efforts to influence public policy had received more public attention, they had been more of an avocation. “My real vocation,” he said, “has been scientific economics.”

What struck me as I talked with my colleagues yesterday was how Mr. Friedman’s legacy among economists is in some ways similar but in some ways quite different from the public view. His manner of research, his personality, even the topics he studied spawned a great deal of the economics we know today — even among economists whose politics differ greatly from his. A striking number of topics he worked on, for example, ultimately developed into other people’s Nobel awards.

One of Mr. Friedman’s major impacts on economics was in establishing a basic worldview. Economics is not a game or an academic exercise, in that view. Economics is a powerful tool to understand how the world works. He used straightforward theory. He gathered data from anywhere he could get it. He wanted to see how well economics fitted the world. That view now holds sway throughout much of the profession.

Mr. Friedman loved to argue. They say he was the greatest debater in all of economics. As improbable as it sounds, given Mr. Friedman’s small frame and thick glasses, few who saw him would deny that he had an astounding amount of charisma. It probably explains why he was so successful on television. While being an academic powerhouse, he really could explain things clearly.

Mr. Friedman brought his brashness and his love of debate to the University of Chicago and commenced the golden age for the most heralded center of economics. In his autobiographical statement for the Nobel in economic science, which he received in 1976, Mr. Friedman said that when he arrived in the 1930s, he encountered a “vibrant intellectual atmosphere of a kind that I had never dreamed existed.”

“I have never recovered.”

And we never recovered, either. Chicago remains a place with an intensity without precedent in the world of economics, where we seem to eat, drink and breathe economics, and Mr. Friedman’s personality has much to do with that. He always wanted to engage in a debate on something (or, according to his detractors, to make a pronouncement about something). Nowadays, much of the political edge to the research is gone — there are Democrats and Republicans on the faculty — but the intensity remains.

The funny thing about Mr. Friedman’s transition to iconic status is that it happened without his ever losing his bluntness. He wasn’t, necessarily, polite. Even at 93, he was out declaring that fixed exchange rates are price controls and so the euro is doomed. He really didn’t care if you liked what he said. That was true within economics just as much as it was in the policy arena.

Mr. Friedman was proof that a great economist could become famous for just talking about economics. But he wasn’t afraid to poke his nose in places where people said economists had no business being. He passed that attitude on to students like Gary S. Becker, who would win the Nobel in 1992, and in the wider profession, especially among a younger set of economists like Steven D. Levitt of “Freakonomics” fame.

Mr. Friedman’s legacy might mean laissez-faire politics to the outside world, but to economists — and especially Chicago economists — it is more about trying to understand how the world works and engaging in a debate about it.

When we heard the news at the University of Chicago that he had died, we actually stopped arguing and were quiet for a moment. It was a most extraordinary event for Chicago economists. Each of us seemed to contemplate Mr. Friedman’s legacy for ourselves. After that bit of calm, the argument resumed. It was, perhaps, just what the old man would have wanted.

Austan Goolsbee is a professor of economics at the University of Chicago Graduate School of Business. E-mail: goolsbee@gsb.uchicago.edu

The full article can be found here.

The New York Times has a good overview of just who Milton Friedman was and how important he was to world economics:

Milton Friedman, Free Markets Theorist, Dies at 94

Milton Friedman, the grandmaster of free-market economic theory in the postwar era and a prime force in the movement of nations toward less government and greater reliance on individual responsibility, died today in San Francisco, where he lived. He was 94.

His death was confirmed by Robert Fanger, a spokesman for the Milton and Rose D. Friedman Foundation in Indianapolis.

Conservative and liberal colleagues alike viewed Mr. Friedman, a Nobel prize laureate, as one of the 20th century’s leading economic scholars, on a par with giants like John Maynard Keynes and Paul Samuelson.

Flying the flag of economic conservatism, Mr. Friedman led the postwar challenge to the hallowed theories of Lord Keynes, the British economist who maintained that governments had a duty to help capitalistic economies through periods of recession and to prevent boom times from exploding into high inflation.

In Professor Friedman’s view, government had the opposite obligation: to keep its hands off the economy, to let the free market do its work. He was a spiritual heir to Adam Smith, the 18th-century founder of the science of economics and proponent of laissez-faire: that government governs best which governs least.

The only economic lever that Mr. Friedman would allow government to use was the one that controlled the supply of money — a monetarist view that had gone out of favor when he embraced it in the 1950s. He went on to record a signal achievement, predicting the unprecedented combination of rising unemployment and rising inflation that came to be called stagflation. His work earned him the Nobel Memorial Prize in Economic Science in 1976.

Rarely, his colleagues said, did anyone have such impact on both his own profession and on government. Though he never served officially in the halls of power, he was always around them, as an adviser and theorist.

“Among economic scholars, Milton Friedman had no peer,” Ben S. Bernanke, the Federal Reserve chairman, said today. “The direct and indirect influences of his thinking on contemporary monetary economics would be difficult to overstate.”

Professor Friedman also fueled the rise of the Chicago School of economics, a conservative group within the department of economics at the University of Chicago. He and his colleagues became a counterforce to their liberal peers at the Massachusetts Institute of Technology and Harvard, influencing close to a dozen American winners of the Nobel prize in economics.

It was not only Mr. Friedman’s antistatist and free-market views that held sway over his colleagues. There was also his willingness to create a place where independent thinkers could be encouraged to take unconventional stands as long as they were prepared to do battle to support them.

“Most economics departments are like country clubs,” said James J. Heckman, a Chicago faculty member and Nobel laureate who earned his doctorate at Princeton. “But at Chicago you are only as good as your last paper.”

Alan Greenspan, the former Federal Reserve chairman, said of Mr. Friedman in an interview on Tuesday. “From a longer-term point of view, it’s his academic achievements which will have lasting import. But I would not dismiss the profound impact he has already had on the American public’s view.”

To Mr. Greenspan, Mr. Friedman came along at an opportune time. The Keynesian consensus among economists, he said — one that had worked well from the 1930s — could not explain the stagflation of the 1970s.

But he also said that Mr. Friedman had made a broader political argument: that you have to have economic freedom to have political freedom.

Continue reading ‘The New York Times On Milton Friedman’

Larry Summers, former president of Harvard, and Treasury secretary in the Clinton administration, writes on Milton Friedman:

The Great Liberator

By LAWRENCE H. SUMMERS
Published: November 19, 2006

Brookline, Mass.

IF John Maynard Keynes was the most influential economist of the first half of the 20th century, then Milton Friedman was the most influential economist of the second half.

Not so long ago, we were all Keynesians. (“I am a Keynesian,” Richard Nixon famously said in 1971.) Equally, any honest Democrat will admit that we are now all Friedmanites. Mr. Friedman, who died last week at 94, never held elected office but he has had more influence on economic policy as it is practiced around the world today than any other modern figure.

I grew up in a family of progressive economists, and Milton Friedman was a devil figure. But over time, as I studied economics myself and as the world evolved, I came to have grudging respect and then great admiration for him and for his ideas. No contemporary economist anywhere on the political spectrum combined Mr. Friedman’s commitment to clarity of thought and argument, to scientifically examining evidence and to identifying policies that will make societies function better.

Mr. Friedman is perhaps best known for his views on money and monetary policy. Fierce debates continue on how the Federal Reserve and other central banks should set monetary policy. But the debates take place within the context of nearly total agreement on some basics: Monetary policy can shape an economy more than budgetary policy can; extended high inflation will not lead to prosperity and can lead to lower living standards; policy makers cannot fine-tune their economies as they fluctuate.

These insights may seem self-evident — but they were won through a combination of Mr. Friedman’s powerful argument and painful experience. I know. As an undergraduate in the early 1970s, I was taught that everyone other than Milton Friedman and a few other dissidents knew that fiscal policy was of primary importance for stabilizing economies, that the Phillips curve could be exploited to increase employment if only society would tolerate some increase in inflation and that economists would soon be able to tame economic fluctuations through finely calibrated policies. When I started teaching undergraduates a decade later, Mr. Friedman’s heresies had become the orthodoxy.

While much of his academic work was directed at monetary policy, Mr. Friedman’s great popular contribution lay elsewhere: in convincing people of the importance of allowing free markets to operate.

From what I’ve heard, Milton Friedman’s participation on a government commission on the volunteer military in the late 1960s was a kind of intellectual version of the play “Twelve Angry Men.” Gradually, through force of persistent argument and marshaling of evidence, he brought his fellow commission members around to the previously unthinkable view that both our national security and our broader interest would be best served by a volunteer military.

Another example of Mr. Friedman’s influence is the structure of modern financial markets. Today we take it as given that free financial markets shape finance. The dollar fluctuates unhindered against other currencies and there is an entire industry of trading futures and options on interest rates and currencies. At the time Mr. Friedman first proposed flexible exchange rates and open financial markets, it was thought that they would be inherently destabilizing and that governments needed to control the movement of capital across international borders.

There are other areas like vouchers for school choice, drug legalization and the abolition of certification requirements for lawyers, doctors and other professionals where Mr. Friedman has not yet and may never carry the day. But even in these areas, the climate of opinion and the nature of policy have shifted because of his powerful arguments.

This all would be enough to mark Milton Friedman as a great man. But beyond Milton Friedman the economist, there was Milton Friedman the public philosopher. Ask reformers in any one of the countries behind what we used to call the Iron Curtain where they learned to contemplate alternatives to communism during the closed era before the Berlin Wall fell and they will often tell you about reading Milton Friedman and realizing how different their world could be.

Milton Friedman and I probably never voted the same way in any election. To my mind, his thinking gave too little weight to considerations of social justice and was far too cynical about the capacity of collective action to make people better off. I believe that some of the great challenges we face today, like rising inequality and global climate change, require that the free market be tempered instead of venerated. And like any economist, I have my list of areas where I believe Mr. Friedman oversimplified or was simply wrong.

Nonetheless, like many others I feel that I have lost a hero — a man whose success demonstrates that great ideas convincingly advanced can change the lives of people around the world.

Lawrence H. Summers, a university professor of economics at Harvard, was Treasury secretary in the Clinton administration.

The full article can be found here.

With a sad heart, I report the news that Milton Friedman has died at the age of 94:

Milton Friedman, the Nobel Prize-winning economist who advocated an unfettered free market and had the ear of three U.S. presidents, died Thursday at age 94.

Friedman died in San Francisco, said Robert Fanger, a spokesman for the Milton and Rose D. Friedman Foundation in Indianapolis. He did not know the cause of death.

“Milton’s passion for freedom and liberty has influenced more lives than he ever could possibly know,” said Gordon St. Angelo, the foundation’s president and CEO, said in a statement. “His writings and ideas have transformed the minds of U.S. presidents, world leaders, entrepreneurs and freshmen economic majors alike.”

In more than a dozen books, a column in Newsweek magazine and a TV show on PBS, Friedman championed individual freedom in economics and politics. The longtime University of Chicago professor pioneered a school of thought that became known as the Chicago school of economics.

His theory of monetarism, adopted in part by the Nixon, Ford and Reagan administrations, opposed the traditional Keynesian economics that had dominated U.S. policy since the New Deal. He was a member of Reagan’s Economic Policy Advisory Board.

His work in consumption analysis, monetary history and stabilization policy earned him the Nobel Prize in economics in 1976.

“He has used a brilliant mind to advance a moral vision — the vision of a society where men and women are free, free to choose, but where government is not as free to override their decisions,” President Bush said in 2002. “That vision has changed America, and it is changing the world.”

Friedman favored a policy of steady, moderate growth in the money supply, opposed wage and price controls and criticized the Federal Reserve when it tried to fine-tune the economy.

A believer in the principles of 18th century economist Adam Smith, he consistently argued that individual freedom should rule economic policy. Outspoken and controversial, Friedman saw his theories attacked by many traditional economists such as Harvard’s John Kenneth Galbraith.

In an essay titled “Is Capitalism Humane?” he said that “a set of social institutions that stresses individual responsibility, that treats the individual … as responsible for and to himself, will lead to a higher and more desirable moral climate.”

Friedman acknowledged that “pure capitalism” did not exist, but said that nations that cherished freedom must strive to keep the economy as close to the ideal as possible.

He said government should allow the free market to operate to solve inflation and other economic problems. But he also urged adoption of a “negative income tax” in which people who earn less than a certain amount would get money from the government.

He lived to see free market reforms spread in the former communist world and Latin America, but played down his own influence.

“I hope what I wrote contributed to that, but it was not the moving force,” Friedman told The New York Sun in March 2006. “People like myself, what we did was keep these ideas open until the time came when they could be accepted.”

Few people have influenced economics, and through economics the entire world, as much as Milton Friedman. Most important to me was his contributions to vouchers, indeed it was him that brought vouchers to light and continued to champion them throughout the years.

RIP Milton Friedman, the world is a much better place because of you.

Update: Bruce Bartlett has more.

“The Holocaust disturbs us so deeply because it demonstrates that none of the things we associate with the advancement of civilization–peace, prosperity, industrialization, education, technological achievement–free us from the dark side of the human soul. Just as there is evil in the heart of every man, there is evil at the heart of even the most “civilized” human society. It is a humbling recognition. Man and society are both capable of the most appallingly depraved behavior. Only in the case of society, it occurs on an industrial scale”. –Mark Bowden, responding to Ahmadinejad