Thursday, March 15, 2007

Brad DeLong on Milton Friedman

In his review of Milton Friedman: A Biography by Lanny Ebenstein, Brad DeLong offers his views on the man, his ideas, and how some of them have now become "central parts of the liberal policy agenda".

Part of what made Friedman a worthy adversary for American liberals was that he had a fully formed worldview, one that started with a bedrock commitment to people, to their ability to make judgments for themselves and to decide what they like best. Out of this commitment grew an imperative to maximize individual freedom. On top of that came the judgment that free markets are almost always the silver bullet to solve all of society’s problems, as well as a powerful conviction that the facts, if honestly examined, will always be on his side. And on top of that was layered a fear and suspicion of government as an easily captured tool for the enrichment of the cynical and powerful, who grab what they can.

Friedman hated government and society sticking their nose into people’s private business. He scorned government regulation of all kinds–regulators were, he thought, inevitably captured by those they were supposed to regulate. As a result, they regulated not in the public interest but in the interest of the companies where they hoped to get jobs when they left the government. He hated big government spending. He hated budget deficits–cynical politicians could use them to pretend that the costs of government were less than they were and push into the future the raising of taxes to pay for spending into the future. He sought to inoculate citizens against such political games of three-card-monte: "Remember," he would say, "to spend is to tax."

Here's the part about Friedman's views that American liberals could identify with:

But this antipathy toward the state masks a Friedman more amenable to contemporary liberal values. For Friedman hated government–except when he didn’t. To be sure, the generation of libertarians to follow Friedman wanted to eliminate government completely. Have a dispute with your neighbor? Agree with him to pick 12 of your other neighbors to adjudicate. If the neighbor doesn’t accept the judgment? Round up a posse to deal with the situation using your unalienable rights to bear arms. Friedman never went there. He had no problem with governments that declared and enforced property rights, that adjudicated contracts, that even, in certain specified situations, imposed extra taxes to counterbalance externalities or provided social insurance where transactions costs seemed to keep the requisite markets from existing. London Mayor Ken Livingstone’s congestion tax on cars in central London is Friedman’s idea. Friedman’s negative income tax is one of the parents of what is now America’s largest anti-poverty program, the Earned Income Tax Credit. Perhaps, you could get Friedman to say, in a first-best world you wouldn’t need a negative income tax, because people would sign up when relatively young for their own wage-insurance pools. But he would call that a sterile argument, given where we are now. Moreover, a negative income tax would be administratively cheap and effective, and it would remove the intrusive and offensive nanny-state overregulation of the lives of the poor that the existing welfare system imposes. Few liberals today would disagree.

Most importantly, in Friedman’s mind, the government has a very powerful and necessary role to play in keeping the monetary and banking system working smoothly through proper control of the money supply. If there was always sufficient liquidity in the economy–enough, but not too much–then you could trust the market system to do its job. If not, you got the Great Depression, or hyperinflation. Thus, it was Friedman’s belief that the government was required to undertake relatively narrow but crucially important strategic interventions in order to stabilize the macroeconomy–to keep production, employment, and prices on an even keel.