Bob Cropf

Posts Tagged ‘Paul Krugman’

Who was Milton Friedman?

In economics, Free-market on February 9, 2009 at 12:49 PM

The New York Review of Books published this article in 2007, a year after Friedman went to the Great Free Market in the sky. Not only does the author, Nobel Prize-winning economist, Paul Krugman, do a good job in summarizing Friedman’s contribution to economics, he also does a nice job in recapping the history of post-war US economic policy. Read this and go back and watch the Charlie Rose interview of Friedman.

Krugman makes the point that Friedman was the anti-Keynes in his fervent belief in the power of the free market, free from government intervention. He also notes that Friedman, the economist, was a formidable force. He, for example, predicted the effects of stagflation before they actually occurred. However, according to Krugman, the man was also a polemicist for capitalism and monetarism. The latter, Krugman says, is a highly technocratic, apolitical form of government intervention in the economy. On the other hand, fiscal policy which actually requires political debate and decisionmaking, and is, therefore, inherently more democratic, is viewed by monetarists as an inferior type of intervention. Friedman was deeply skeptical of government’s role in the economy, going so far as to say in an 1976 interview, “the elementary truth is that the Great Depression was produced by government mismanagement.” In truth, the government under-managed the economy into a catastrophic depression.

Krugman’s final observations regarding Friedman are telling:

In the long run, great men are remembered for their strengths, not their weaknesses, and Milton Friedman was a very great man indeed—a man of intellectual courage who was one of the most important economic thinkers of all time, and possibly the most brilliant communicator of economic ideas to the general public that ever lived. But there’s a good case for arguing that Friedmanism, in the end, went too far, both as a doctrine and in its practical applications. When Friedman was beginning his career as a public intellectual, the times were ripe for a counterreformation against Keynesianism and all that went with it. But what the world needs now, I’d argue, is a counter-counterreformation.

–BC

The social power of “stuff”

In class stuff, economics, stimulus on February 7, 2009 at 1:37 PM

The recent posts have been on the stimulus plan (on its way to passage in the Senate, see WSJ article here) or corporate executive pay. However, as the NY Times Magazine article from last Sunday suggests, the roots of the problem actually go much deeper than the recent economic downturn and poor corporate judgment. David Leonhardt talks about the importance of social norms and how they are frequently (always?) ignored by economists and policymakers in general. Perhaps the biggest social norm regarding the economy is growth and what fuels it, namely consumer spending. This idea is so firmly entrenched that neither Republicans and Democrats are willing to challenge it. So both sides are arguing over what is the best way to accomplish the same thing: Get consumers spending again to drive up aggregate demand, which in turn will lead to producers producing and creating new jobs, etc. The downside to all this is the overemphasis on consumerism as the engine of economic growth. That leads to the type of rumination found in this essay by the famed computer programmer, Paul Graham (inventor of anti-spam software). The idea that we don’t own stuff, stuff owns us is as old as Thoreau’s Walden and probably goes back to the New Testament. But, in light of our current economic crisis and long-term sustainability, it is useful to reflect on the wisdom of consumerism as the only way to keep our economy humming. The other alternative, as suggested by Galbraith and Krugman, is shifting capital into social investments such as improving our education and health care systems and rebuilding our nation’s infrastructure.