Exploring The Ideas Of Milton Friedman

[benwm]

I am on a journey. I want to explore the ideas of Milton Friedman, and whether his ideas throw any light on the current economic woes in the West.

I can't stand the idea of Governments bailing out corporations, as they did during the recent financial crisis. Or the mushrooming debt burden and the inevitability of higher taxes in our lifetimes. Is it just me, or are taxes not already too high?!

When I hear Nobel laureates such as Paul Krugman and Joseph Stiglitz proposing that the solution involves MORE fiscal spending...or Ben Bernanke suggesting dropping money from helicopters... and even a trading legend and former hero of mine such as George Soros supporting a financial transaction tax I am left dazed and bewildered...

Are we willing to lay down and accept the continued march towards state corporatism, an endlessly growing government sector as a proportion of our economies and the vested interests this entails, more and more onerous regulation on businesses, less competition, and higher and higher taxes to pay for other people's spending? Do I have an reason to complain about this state of affairs?

When you put yourself in the shoes of a politician or central banker, can you honestly say you would allow AIG, Fannie or Freddie to fail? Hank Paulsen did that with Lehman and it was widely regarded by so called experts as a policy mistake, never to be repeated. And so the moral hazard within the system becomes greater than ever...

I don't have all the answers, mostly questions...but I am hoping that Friedman will put me on the path to answering these.

 

[Scataphagos]

Quote from benwm:

"... I don't have all the answers, mostly questions...but I am hoping that Friedman will put me on the path to answering these.

25-30 years ago Friedman said, "... Dissolve the Fed. Replace it with a computer which increases the money supply correspondent to the increase in the population [about 2%/yr], and let capitalism be capitalism."

All of these bail-outs, subsidies, money-pump bubblenomics, social program expansions, ever-increasing deficits and debts... are all part of the plan to bring down the financial system in the US and eventually enslave us all.

I've seen it coming for the last 10 years... but was just hoping it would take another 40 years for the system to collapse. That way if I were still alive, I'd likely have Alzheimer's and wouldn't know "come here" from "sick 'em".

 

[benwm]

My starting point for this journey is to watch a series of free PBS videos from 1980, called "Free to Choose: Power of the Market"

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Where the program starts to become really interesting is at 28:40 when the debate begins between Friedman and other intellectuals of the day. Many of the topics discussed are the same we face today - capitalism, the role of the state, even Medicare...

I urge others to watch and follow me on this journey of discovery! There is no such thing as a stupid question in this thread (except mine!)

http://video.google.com/videoplay?docid=-5538021588734490153#docid=2024617864923164175

 

[benwm]

I believe it was Karl Popper who said that to defeat an argument, rather than focusing on weaknesses in the opposing viewpoint and attacking these, you should instead understand the strengths of the opposing argument and defeat these. Then you will leave your opponent floundering.

Equally, and whilst I instinctively feel Friedman may have the answers to today's economy, we must also put Friedman's ideas under serious scrutiny. For if his arguments do not hold up against our own interrogation, they will not stand up against attacks from the likes of skilled debaters such as Paul Krugman. In today's world it seems that free marketers do not have the ear of the public, many associating today's problems with capitalism and bankers, rather than governments. So we must do better to understand and present our own arguments in favour of capitalism and free market ideology.

I am uncomfortable with the notion of expanding the monetary base threefold or more...but I suppose Bernanke supporters would point out that broader money such as M2 money is growing at less than 5%, whilst M3 money is actually shrinking. (Source: Shadow Stats)
http://www.shadowstats.com/alternate_data/money-supply-charts

Is Bernanke actually pursuing Friedman's own ideas by keeping M2 relatively steady? Or is Friedman turning in his grave at the prospect of hyperinflation further down the road?

 

[Random.Capital]

Quote from benwm:

I don't have all the answers, mostly questions...but I am hoping that Friedman will put me on the path to answering these.

Prepare for disappointment.

Especially as it doesn't sound like you're looking for knowledge, you're looking for someone to justify your preconceptions.

 

[Scataphagos]

Quote from benwm:

"... if his [Friedman's] arguments do not hold up against our own interrogation, they will not stand up against attacks from the likes of skilled debaters such as Paul Krugman.

Krugman? He's a partisan Leftist radical. Wouldn't acknowledge the truth if it big him in the ass.

 

[jem]

Krugman's arguments would have been exposed as childish by this guy in a debate.

he can even argue for greed against phil donohue


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[trefoil]

Hyman Minsky, the anti-Friedman, describes the events of 2008. Keep in mind he was already dead when it happened:

Each new type of money that is introduced or an old one that is used to a greater extent results in the financing of either some additional demand for capital and financial assets or of more investment...Financial innovation therefore tends to induce capital gains, increase investment, and increase profits: the economy will try to expand beyond any tranquil full-employment state.
The financing of investment demand by means of new techniques means the generation of demand in excess of that allowed for by the existing tranquil state...Full employment is a transitory state because speculation upon and experimentation with liability structures and novel financial assets will lead the economy to an investment boom. An investment boom leads to inflation, an inflationary boom leads to a financial structure that is conducive to financial crises.
Therefore, in a capitalist economy that is hospitable to financial innovations, full employment with stable prices cannot be sustained, for within any full-employment situation there are endogenous disequilabrating forces at work that assure the disruption of tranquility.

Friedman is in the same camp as that other fabulist, Eugene Fama of the Efficient Market Hypothesis. To quote Buffett (from an email I got today from Wilmott): "Investing in a market where people believe in efficiency is like playing bridge with someone who has been told it doesn't do any good to look at the cards."
Friedman & Fama know squat about how finance actually works, which is why they can say the wildly fantastical things they say (or said, in Friedman's case) with a perfectly straight face.

 

[benwm]

Quote from Random.Capital:


Especially as it doesn't sound like you're looking for knowledge, you're looking for someone to justify your preconceptions.

You're probably right in some sense, at this stage I tend to view Friedman as being "more right" than Krugman, based on my own experiences, observations and biases.

Having said that, there is uncertainty on my part too, which is why I want to explore his ideas in greater detail. I am open to changing my mind if other arguments are sufficiently persuasive. Life is shades of grey, not black and white, of course.

Perhaps you have your own preconceptions too, but that is no bad thing if you can contribute to the discussion. Whilst we all tend to start with preconceptions (How can we not?), it is unlikely that we will gain true understanding without challenging these.

 

[Random.Capital]

Quote from benwm:

You're probably right in some sense, at this stage I tend to view Friedman as being "more right" than Krugman, based on my own experiences, observations and biases.

I may have come across harsher than intended - it wasn't meant as a criticism - we all have prebuilt biases. What I was attempting to communicate was a Popperism - when looking at these things, make sure there's a way to prove the existing beliefs wrong - otherwise it's not an exercise in logic, it's an exercise in religion.

And the flipside, of course, is that Godel and Turing taught us that not all true statements can be proven, and not all false statements can be disproven, and not all numbers can be calculated -- so maybe it's all just bullshit in the end anyway.