Thursday, May 3, 2012

And you live on what planet, Professor?

Berkeley's J. Bradford DeLong attempts to debunk Milton and Rose Friedman's philosophy;
It would have been nice if the political program laid out a generation ago in Free to Choose had lived up to the Friedmans’ billing. It would have been nice if a relatively equal and prosperous society with full employment and equal opportunity had followed from a government that stood back from the economy and provided nothing but a minimal safety net, courts, and a constantly growing money supply.
Hmm.  Free to Choose came out in 1979, in the midst of the Great Stagflation with a misery index (inflation plus unemployment) that rose to an all time high during the Carter administration of 21.98.  With the Reagan presidency it began a steady decline unmatched by any Presidency since Harry Truman.

Reagan, of course, was known for carrying around a paper back copy of the original version of Free to Choose, Capitalism and Freedom, in his suit pocket so that he had ready access to its philosophy.  It seems likely that the Friedman's beliefs might have had something to do with the improvement.  Paul Volcker did credit Reagan with providing crucial support for his anti-inflation monetary policy beginning in January 1981,

For a quarter century (late 1982 through the end of 2007) the country enjoyed The Great Moderation of low inflation, lowered unemployment (often under 5% during the Clinton and W. Bush years), widely spread prosperity and an explosion in the standard of living.

Even today's grade school students carry cell phones that no one had back in the 1970s.  Nor did anyone have personal computers and access to the internet back then.

As to Professor DeLong's what have you done for me lately plaint, it hardly was consistent with the Friedmans' philosophy that the federal government should launch a concerted attack on the standards of the home lending industry beginning with the GSE Act of 1992, the HUD Best Practices Initiative of 1994, and the amended Community Reinvestment Act of 1995.

Without which interference the toxic mortgages which, when securitized and sold to investors around the world, would not have eventually brought down those financial systems.  Nor did the monetary policies of the Bernanke Fed, seemingly operating with a focus on interest rates, conform to any prescriptions of Milton Friedman who always warned against such a focus.

No, it's not that we too well embraced the policies favored by the Friedmans, it's that we didn't listen to them carefully enough.

No comments:

Post a Comment