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On Mon, Sep 15, 2008 at 4:18 PM, Charles Brown
<charlesb@xxxxxxxxxxxxxxxxxxxxx> wrote:
Page 1 of 3
COMMENT
Friedman's misplaced monument
By Henry C K Liu
The University of Chicago's plans, announced in June, to establish an
economics research institute to be named after Nobel Prize-winner Milton
Friedman, a free-market monetarist professor at the university from 1946
to 1976, faces strong vocal opposition from none other than Friedman's
own colleagues in the university.
Friedman was widely regarded as the intellectual leader of the Chicago
School of monetary economics, which stresses the overwhelming importance
of the quantity of money as an instrument of government economic policy
and as a determinant
of business cycles and inflation. He was also an outspoken public
defender of free markets, which he inevitably linked with political
freedom.
Friedman was the 1976 recipient of the Nobel/Sveriges Riksbank Prize in
economics. The press release of the award cited Friedman's coining of
the term "money matters" or even "only money matters" as an arresting
slogan for monetarism. On November 17, 2006, one day after his death at
age 94, the Wall Street Journal printed an opinion piece by Friedman
entitled: Why Money Matters.
The official press release on the award explained the choice of
Friedman as follows:
This strong emphasis on the role of money should be seen in the light
of how economists - usually advocates of a narrow interpretation of
Keynesian theory - have, for a long time, almost entirely ignored the
significance of money and monetary policy when analyzing business cycles
and inflation. As far back as the beginning of the fifties, Friedman was
a pioneer in the well-founded reaction to the earlier post-Keynesian
one-sidedness. And he succeeded - mainly thanks to his independence and
brilliance - in initiating a very lively and fruitful scientific debate
which has been going on for more than a decade. In fact, the
macro-econometric models of today differ greatly from those of a couple
of decades ago as far as the monetary factors go - and this is very much
thanks to Friedman. The widespread debate on Friedman's theories also
led to a review of monetary policies pursued by central banks - in the
first place, in the United States. It is very rare for an economist to
wield such influence, directly and indirectly, not only on the direction
of scientific research but also on actual policies.
The press release was factual in some respects and outright inaccurate
in others. It is accurate that Friedman strongly emphasized the role of
money. But it is inaccurate to describe Friedman as having reversed the
"narrow interpretation" of Keynesian theory because "only money matters"
is literally a narrowing spotlight among the broad range of factors that
Keynesian theory normally considers in formulating economic policy,
including monetary factors.
It is accurate to say Friedman was an early pioneer in reaction to
post-Keynesianism, but it is not accurate to label post-Keynesianism
one-sided. In fact "only money matters" sounded definitively one-sided
to most listeners. Friedman's reaction to Keynesianism is hardly
well-founded, though it is admittedly reactionary. As the press report
noted, Friedman's emphasis of money is important to the analysis of the
business cycle and inflation. But business cycles are not the economy,
only one aspect of it. In fact, Friedman's fundamental flaw is his
fixation on the business cycle as expressed by the stock market, rather
than looking at the whole economy with a wide range of meta-finance
concerns such as agricultural economics, labor economics, population
economics, the economics of war, pollution, development, and so forth.
The list is long and interlinked and any economist ignoring any of part
of the list runs the risk of being one-sided.
The market is merely the transactional record of the economy. Students
of the market economy tend to confuse business, which is transacted in
the market, as the whole economy itself. That is the problem with
Business School economists who really should be called "busi-nomists"
rather than eco-nomists because by definition and by design they are not
concerned with eco, a Greek word oikos, meaning "house". The word
describes the complex symbiotic relationships of all living organisms in
relation to their environment in the eco-system. Business is only a
subsystem of the socio-economic ecosystem. The goal of busi-nomists is
to keep the business cycle from recurring crashes even if it means
destroying the economy in the process. To achieve this goal, central
banking was invented.
This is not to denigrate business experts. All experts, however narrow
their field, perform useful functions, and brilliant experts deserve
admiration. It is just that they should refrain from fantasizing that
they are generalists dealing with the economy. Business exists to make
profit for the businessman and there is nothing wrong with that as long
as ethical rules are observed. Unlike business, the economy exists to
enhance progress in civilization. The former is artificial, the latter
is actual. The key problem of the recent decades of Friedman monetarism
has not been that money matters but that it matters too much.
Friedman had also written extensively on public policy, always with
primary emphasis on the preservation and extension of individual
freedom, going beyond economics. His books, periodical columns, media
personal appearances and a 1980 10-part series on Public Television with
the grand title of Freedom to Choose, followed by a second three-part
series in 1984 which together commanded more air time than the 10-part
series by Kenneth Clark on Civilization, made him an influential
national opinion molder beyond economics. In time, Friedman readily
transformed himself from the role of a social scientist to that of a
globe-trotting, faith-peddling evangelist of what a disillusioned
Japanese central banker later called snake-oil economics.
In 1988, Friedman was awarded the National Medal of Science by the
National Science Foundation and the Presidential Medal of Freedom by
president Ronald Reagan. Thus encouraged, Friedman went on to publish in
2002 Capitalism and Freedom, a passionate echo of official calls for
extending individual economic freedom and limiting government action,
except in foreign affairs. Free trade, officially endorsed by
pseudo-science, has since become the central focus of US
"transformational" foreign policy to spread freedom around the world. It
is Adam Smith turned upside down.
President George W Bush has defended the free-trade agenda in
moralistic terms. "Open trade is not just an economic opportunity, it is
a moral imperative," he declared in a May 7, 2001 speech. "Trade creates
jobs for the unemployed. When we negotiate for open markets, we're
providing new hope for the world's poor. And when we promote open trade,
we are promoting political freedom." While such claims remain highly
controversial when tested by actual data, it explains why Friedman, a
free-trade economist, was awarded the Presidential Medal of Freedom.
Phyllis Schlafly, a syndicated conservative columnist, responded three
weeks later in an article "Free Trade is an Economic Issue, Not a Moral
One". In it, she notes that while conservatives should be happy to
finally have a president who adds a moral dimension to his actions:
The Bible does not instruct us on free trade and it's not one of the
Ten Commandments. Jesus did not tell us to follow Him along the road to
free trade ... Nor is there anything in the US Constitution that
requires us to support free trade and to abhor protectionism. In fact,
protectionism was the economic system believed in and practiced by the
framers of our Constitution. Protective tariffs were the principal
source of revenue for our federal government from its beginning in 1789
until the passage of the 16th Amendment, which created the federal
income tax, in 1913. Were all those public officials during those
hundred-plus years remiss in not adhering to a "moral obligation" of
free trade?
Hardly, argues Schlafly, whose views were noteworthy because US
politics was at that time enmeshed in a struggle between
strict-constructionist paleo-conservatives and moral-imperialist
neo-conservatives. Despite the ascendance of neo-imperialism in US
foreign policy, protectionism remains strong in US political culture,
particularly among conservatives and in the labor movement. And now in
2008, a new populism is rising against the US version of free trade.
Redefining humanist morality, the US asserts that world trade is a
moral imperative and as such free trade promotes democracy, political
freedom and respect for human rights in trade participating nations.
Unfortunately, income and wealth equality are not among the benefits
promoted by free trade. Even if the validity of this twisted ideological
assertion is not questioned, it clearly contradicts US practice of trade
embargo against countries the US deems undemocratic, lacking in
political freedom and deficient in respect for human rights. If trade
promotes such desirable conditions, such practice of linking trade to
freedom is tantamount to denying medicine to the sick.
Love is blind and infatuation disguises faults as virtues. As Rudyard
Kipling fell in love with the pageantry of colonialism and saw racial
exploitation as the "white man's burden", Friedman fell in love with
colonial Hong Kong, seduced by the wine-and-dine hospitality of its
colonial masters and elite compradors before China reclaimed sovereignty
of it in 1997. Friedman mistook Hong Kong's colonial economic system as
a free market, despite Hong Kong's long history of highly orchestrated
colonial command economic structure. The Hong Kong economy that Friedman
loved prospered from Cold War geopolitical tension, not free-market
principle. The Asian financial crisis that broke out in Thailand on July
2, 1997, one day after China took back Hong Kong, put monetarist market
fundamentalism in the public opinion doghouse in Asia.
Continued 1 2 3
http://www.atimes.com/atimes/Global_Economy/JI05Dj03.html
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