22 Jun Zachary D. Carter’s Hatchet Job on Milton Friedman
The new consensus on Friedman’s work among economists has essentially reversed Summers’s verdict from 2006. “Almost nothing remains of his intellectual legacy,” according to Columbia University economist Jeffrey Sachs. “It has proven to be a disastrous misdirection for the world’s economies.”
This is from Zachary D. Carter, “The End of Friedmanomics,” The New Republic, June 17, 2021.
The article makes a case against Friedman’s contributions and his character.
This won’t be a comprehensive treatment of Carter’s case, but I do want to point out some major errors and a major misunderstanding of Friedman–who he was and how his mind worked.
When he at last won his Ph.D. from Columbia in 1946, Friedman shipped out to Chicago to join a fringe right-wing intellectual movement calling itself “neoliberalism.” Despite their chosen moniker, the neoliberals loathed the politics of the New Deal, seeking instead to revive the most conservative strands of Enlightenment-era economic thought, so-called classical liberalism, for the twenty-first century.
Twice in that paragraph Carter claims that the people at Chicago called themselves neoliberals. I’m guessing that I’ve read way more of Frank Knight, way more of Milton Friedman, and more of Henry Simons than Carter has and I don’t recall any of them ever claiming that they were neoliberals. What I do recall is Friedman and others frequently identifying themselves as “classical liberals.”
Carter doesn’t do nuance. So, for example, when he wants to point out how Friedman thought a free market would deal with racism and discrimination, he writes:
Friedman wrote: “The man who objects to buying from or working alongside a Negro, for example, thereby limits his range of choice. He will generally have to pay a higher price for what he buys or receive a lower return for his work. Or, put the other way, those of us who regard color of skin or religion as irrelevant can buy some things more cheaply as a result.” The relentless logic of the market would drive such inefficiency from public life.
Notice that Carter’s summing up Friedman’s thinking in the last sentence of the above gets it wrong. Friedman was not so naive as to believe that the free market would drive out racist discrimination. What he maintained, Gary Becker maintained, and many economists maintain is that the free market would make those who acted on their racist beliefs pay a price and that this price would limit, but not eliminate, racism.
I got the sense that Carter is not very familiar with economic thinking, whether of Friedman or of economists in general. This came across in the following passage:
But it was a 1946 pamphlet on housing policy co-written with fellow Chicagoan George Stigler that transformed Friedman from an obscure ex-bureaucrat into an academic sensation. Titled “Roofs or Ceilings? The Current Housing Problem,” Friedman and Stigler’s paper argued that California’s rent regulations ultimately ended up raising the price of housing, hurting the very low-income people politicians sought to help. The argument was simple: By artificially depressing the price of housing, regulators deprived potential homebuilders of an incentive—higher profits—to build more homes, which would in time bring down housing costs.
The blunt unsophistication of the pamphlet was an intellectual call to arms. Friedman and Stigler weren’t really writing about housing at all—they were writing about economics itself, calling for a return to the simple nineteenth-century analyses that Friedman would later credit for producing the “free market” and “the greatest expansion of human freedom the world had ever seen.” The reaction was furious. Writing in The Washington Post, economist Robert Bangs decried the “drivel” in Friedman’s “insidious little pamphlet,” and denounced him for publishing it through a “propaganda front for reactionary interests” (which was true—“Roofs or Ceilings?” was released by the Foundation for Economic Education, one of a handful of specialty right-wing organizations that sprang up in the postwar world aiming to unwind the New Deal).
Ignore his implicit claim that the comment of one economist named Robert Bangs is a sufficient statistic for knowing that “The reaction was furious.” (If he wants “furious,” he should have seen Ayn Rand’s reaction.) The two key things to focus on are his claim that the pamphlet was unsophisticated and that it “wasn’t about housing at all.”
His claim about lack of sophistication caused me to reread the article/pamphlet. I recommend that you do too. You can download it here. It turns out to be quite sophisticated. I think Carter conflates clear writing with lack of sophistication.
And in rereading it after all these years, I concluded that it really is about housing. If Carter meant to say that once one accepts their reasoning, one can easily conclude that absence of price controls more generally is a good idea, then he would be right. But Carter doesn’t make clear whether he means that or something else.
It’s also interesting that Carter would highlight this article. If you ask an economist who doesn’t live in a rent-controlled apartment whether he favors rent controls, the probability that he will say no and that he will make arguments very similar to those of Friedman and Stigler exceeds 0.9. That’s why I say that I’m not sure Carter understands how economists think.
He certainly doesn’t understand how Friedman thought. In discussing Friedman’s contributions to macroeconomics and monetary economics, Carter writes:
Constructing a 93-year account of fluctuations in the money supply is a curious endeavor to assume for its own sake. But of course Friedman had an intellectual motivation, which he detailed in a famous 1967 speech before the American Economic Association: He hoped to dethrone the ghost of John Maynard Keynes.
Maybe, but unlikely. Friedman really did pursue truth and the facts wherever they led. In my review of his and Rose Friedman’s autobiography, Two Lucky People, I wrote:
Even more strikingly, Milton doesn’t talk much about how his views evolved during graduate school or after he completed his Ph.D. Yet evolve they did. Most notably, his views on the causes of inflation changed dramatically. The Milton Friedman that most of us know about is the one who said, in a famous 1968 debate with Keynesian economist Walter Heller, “the state of the budget by itself has no significant effect on…inflation” and who wrote in 1963, “Inflation is always and everywhere a monetary phenomenon.” By contrast, here’s what Friedman says about testimony he gave as a Treasury economist in 1942: “The most striking feature of this [testimony] is how thoroughly Keynesian it is. I did not even mention `money’ or `monetary policy’! The only `methods of avoiding inflation’ I mentioned in addition to taxation were `price control and rationing, control of consumers’ credit, reduction in governmental spending, and war bond campaigns.’”
What happened between 1942 and the early 1950s that changed Friedman’s mind? Maybe the explanation is simply that he gathered data that persuaded him of the power of monetary policy. But in most intellectual autobiographies I have read, there’s one event, piece of evidence, story, conversation, or argument that starts the process of change. Friedman mentions no such epiphany.
A few months after that review appeared in Reason, I ran into Milton at a Hoover dinner. After the quick niceties, he said, “I know that that disappointed you, but my change in views was so gradual that I can’t point to anything like a ‘Saul on the road to Damascus’ epiphany. Sorry.”
What can I say? I believe him. Which means I can’t believe Carter. In Carter’s view, Friedman is a schemer who has a political goal and does his intellectual work to achieve that goal. I think the opposite is closer to the truth. Friedman pursued knowledge and that knowledge led him to political goals that differed a lot from those he started with.
Elsewhere in his long piece, Carter errs badly in seeing Friedman’s advocacy of school vouchers as a way of responding to the Supreme Court’s finding in Brown v. Board of Education. Historian Phil Magness of the American Institute of Economic Research has unearthed a letter by Friedman that completely undercuts Carter’s claim and has sent a request for a correction to the editor(s) of The New Republic. But I don’t want to steal Phil’s thunder and I don’t have permission to quote it here.
Now back to Carter’s quote from economist Jeffrey Sachs, with which I opened in this post. I have no reason to think that Carter misquoted Sachs and so I can’t say that he erred. What I do know is that Sachs erred badly. Co-blogger Scott Sumner has done some very nice blog posts recently (here and here) showing just how intact Friedman’s contributions to macro and monetary theory have been.
Note: The picture at the top is of Icelandic economist Hannes Gissurarson, Milton Friedman, and me sometime in the 1990s.
Read the Full Article here: >Econlib