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Brad DeLong's Grasping Reality 2019-04-04 17:36:36

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Paul Krugman (2013): Milton Friedman, Unperson: "[It] is really interesting is the way Friedman has virtually vanished from policy discourse. Keynes is very much back.... Hayek is back in some sense.... But Friedman is pretty much absent. This is hardly what you would have expected not that long ago, when Friedman’s reputation bestrode the economic world like a colossus, when Greg Mankiw declared Friedman, not Keynes, the greatest economist of the 20th century... ...Part of the answer is that at this point both of Friedman’s key contributions to macroeconomics look hard to defend.... Even if you give him a pass on the 3 percent growth in M2 thing, which was abandoned by almost everyone long ago, Friedman was still very much associated with the notion that the Fed can

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Paul Krugman (2013): Milton Friedman, Unperson: "[It] is really interesting is the way Friedman has virtually vanished from policy discourse. Keynes is very much back.... Hayek is back in some sense.... But Friedman is pretty much absent. This is hardly what you would have expected not that long ago, when Friedman’s reputation bestrode the economic world like a colossus, when Greg Mankiw declared Friedman, not Keynes, the greatest economist of the 20th century...

...Part of the answer is that at this point both of Friedman’s key contributions to macroeconomics look hard to defend....

Even if you give him a pass on the 3 percent growth in M2 thing, which was abandoned by almost everyone long ago, Friedman was still very much associated with the notion that the Fed can control the money supply, and controlling the money supply is all you need to stabilize the economy. In the wake of the 2008 crisis, this looks wrong from soup to nuts....

Friedman’s success, with Phelps, in predicting stagflation was what really pushed his influence over the top; his notion of a natural rate of unemployment, of a vertical Phillips curve in the long run, became part of every textbook exposition. But it’s now very clear that at low rates of inflation the Phillips curve isn’t vertical at all, that there’s an underlying downward nominal rigidity to wages and perhaps many prices too that makes the natural rate hypothesis a very bad guide under depression conditions. So Friedman’s economic analysis has taken a serious hit.

But that’s not the whole story behind his disappearance; after all, all those economists who have been predicting runaway inflation still have a constituency after being wrong year after year. Friedman’s larger problem, I’d argue, is that he was, when all is said and done, a man trying to straddle two competing world views—and our political environment no longer has room for that kind of straddle.... Friedman was an avid free-market advocate.... Yet he was also a macroeconomic realist, who recognized that the market definitely did not solve the problem of recessions and depressions. So he tried to wall off macroeconomics from everything else, and make it as inoffensive to laissez-faire sensibilities as possible. Yes, he in effect admitted, we do need stabilization policy—but we can minimize the government’s role by relying only on monetary policy, none of that nasty fiscal stuff, and then not even allowing the monetary authority any discretion.

At a fundamental level, however, this was an inconsistent position: if markets can go so wrong that they cause Great Depressions, how can you be a free-market true believer on everything except macro? And as American conservatism moved ever further right, it had no room for any kind of interventionism, not even the sterilized, clean-room interventionism of Friedman’s monetarism. So Friedman has vanished from the policy scene—so much so that I suspect that a few decades from now, historians of economic thought will regard him as little more than an extended footnote.


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Bradford DeLong
J. Bradford DeLong is Professor of Economics at the University of California at Berkeley and a research associate at the National Bureau of Economic Research. He was Deputy Assistant US Treasury Secretary during the Clinton Administration, where he was heavily involved in budget and trade negotiations. His role in designing the bailout of Mexico during the 1994 peso crisis placed him at the forefront of Latin America’s transformation into a region of open economies, and cemented his stature as a leading voice in economic-policy debates.

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