Milton Friedman had a lot of dumb ideas. He was a specialist in marketing
simplistic answers to complex problems. His influence back then should not be
underestimated. His ideas became government policy in a number of major
economies before failing miserably and being quietly abandoned.
I read
all of his popular books back in the era when his ideas were in vogue. His
biggest and most influential ideas related to monetary policy. Monetary policy
was the entire centre of his career, and everything else was a side line. His
idea was to "simply" pin monetary expansion to track the M2 or M3 monetary
indexes at a fixed rate, which would be chosen to match the inherent underlying
natural growth rate of the economy. That's all government supposedly had to to
deliver reliable inflation free economic growth.
Real life isn't so
simple. To begin with, M2 and M3 were arbitrary artificial indexes, not
fundamental laws of nature. You can't pin the money supply to them without
affecting them in turn. The more you tried to make use of them, the more they
would be distorted by your actions. In other words, by making use of them, they
because worthless as measures. According to Friedman however, economics was an
exact science and they were as immutable as a law of physics.
And what
is the "inherent underlying natural growth rate of the economy"? Friedman would
waffle on about how to determine this, but in the end it was simply a matter of
opinion. Any new government could declare their policies had resulted in a more
efficient economy and set the number to whatever they wanted, since the number
was completely arbitrary to begin with.
This policy was tried by major
central banks, including the Bank of England. In the end, it all failed
miserably. All reputable central banks today use neo-Keynsian methods, which
basically amounts to keeping a close eye on the economy, and fiddling with
interest rates and reserve requirements based on your experience to try to hold
inflation and growth within some sort of arbitrary band.
In other
words, his macro-economic ideas on how to run an entire national economy were as
bad as his micro-economic ideas on how to run a business.
What he was
good at was marketing himself and his books. He was a good speaker and debater,
who could argue his points loudly with great confidence. When caught out on a
point he would wriggle and squirm his way out of it by appealing to lofty
principles which lacked any real substance but acted to change the subject. His
favourite tactic was to pick a policy or idea that had not worked to
expectation, and proclaim that if that idea was not a success, then his
ideas must obviously be the correct ones. The possibility that there may be
other ideas, or that perhaps there wasn't any really solution to a difficult
situation would be ignored. All who disagreed with him were fools or knaves, and
his was the one true way.
All in all, he was a consummate snake oil
salesman in a tumultuous economic time when people were looking for answers they
could understand and which offered a "once and for all" solution to life's
problems. The reality is that life isn't simple and there are no easy answers,
there are only a succession of difficult choices.
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