18 November 2006

RIP: Milton Friedman

Says The Independent:
Milton Friedman, the Nobel-winning monetarist economist who was an intellectual architect of the free-market policies of Republican US presidents, and an adviser to Margaret Thatcher when she was Prime Minister, died yesterday in San Francisco. He was 94.

Over half a century, Mr Friedman, the son of Hungarian Jewish immigrants, established himself as arguably the most influential economic thinker of his time. Over that post-war period, "Friedmanism" - the belief that changes in money supply dictate fluctuations in the economy - supplanted Keynesianism as the dominant economic philosophy of the industrial world.

Inflation, he believed, was caused by too much money chasing two few goods. Conversely, deflation was the result of too little money in the economy. He argued that the Depression was not a failure of capitalism, but of government, as the monetary authorities in the US and Europe reduced liquidity in the system, thus making a bad situation worse.

As Mr Friedman celebrated his 90th birthday in 2002, Ben Bernanke - then a Federal Reserve governor, now chairman of the US central bank - sought belated forgiveness for the error: "Regarding the Great Depression, you're right," Mr Bernanke acknowledged. "We did it. We're very sorry." Those monetary beliefs underpinned the 30-plus books that appeared under his name, most notably perhaps A Monetary History of the United States, 1867-1960, as well as a host of other writing including a regular column in Newsweek magazine. He urged deregulation and individual initiative as the keys to economic success - a view embraced by the US presidents Nixon, Ford and Reagan, and by Mrs Thatcher in Britain.

From gulfnews.com:
Underpinning Friedman's economic principles was a belief, shared with contemporaries such as Friedrich von Hayek, in the moral values of individual freedom. "The preservation of freedom," Friedman wrote, "requires limiting narrowly the role of government and placing primary reliance on private property, free markets and voluntary arrangements".

He believed that tax-funded government spending was appropriate only to the most limited set of "public goods", such as national defence, and spoke wistfully of the pre-1914 era when only three per cent of America's national income was in the hands of the state; on his 80th birthday in 1992, he observed that the proportion had reached 44 per cent, and that America had unwittingly become "half-socialist".

He was opposed to welfare in all its manifestations, proposing instead a system of negative income tax (partially adopted by Lyndon Johnson) to provide cash for individuals in poverty while doing away with the expensive and inefficient machinery of direct welfare provision.

He also disapproved of America's public (state) school system, arguing that, as a socialised monopoly, its product was the educational equivalent of East Germany's Trabant car.

In California, he campaigned for education vouchers as a first step towards the ideal of a private education industry competing vigorously to offer parents a choice of schools to suit different pupils.

As to business, Friedman believed that entrepreneurs would always find ways to circumvent excessive tax and regulation. "An overtaxed economy breathes through the loopholes," he said, "as grass grows through concrete". He had no time for minimum wage laws, rent controls, federal regulatory agencies, securities regulation or licensing boards for occupations and professions.

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