The main thing people know about Friedman is "inflation is always and everywhere a monetary phenomenon". You justly called it his most famous idea.
I pretty much think it's wrong.
Sure - print tons of money, don't increase supply of goods/services and you're bound to get some inflation at some point (though, the collapse in the velocity of money will work very hard against you ; so printing isn't everything - as we saw with QE. Giving money to bankers doesn't do jack shit to standard everyday prices. Asset prices otoh...)
So already we got qualifiers.
And that's before we get into things like supply shocks that can generate inflation, whatever the money supply or money printing powers do.
Also note the difference (for inflation) between the QE stuff by the Central Banks and the fiscal spending/COVID relief done by the governments. One generated at most "asset inflation", invisible by and large to the CPI or PCE while the other has gotten us an honest to God inflation crisis.
Now, you can say that the fiscal powers can only send money to people because the CB enables it by printing money but this is getting stupid/tautological. Inflation is not always and everywhere a monetary phenomenon. Indeed, it seems to be the exception rather than the norm, at least for the last 40-50 years in developed countries.
I'm skeptical of economics as a discrete branch of human thought, yet nonetheless have spent decades reading through the greats (as a lay person), from Hayek and Friedman, Adam Smith and Ricardo, Keynes and Galbraith, to Marx and neo Marxists, Lenin and Mao and MMTers.
I come to the Tolstoyian resignation that it's all so complicated, we're better off calling it God's Will, making our propitiations, keeping our heads down, and plodding on.
So I figure I should comment when I like one of your articles and say so. This analysis is more than silly spreadsheetery and humble enough to be harmless. I think grading Uncle Miltie as C-level work is fair and instructive.
Keynes of course rejected the quantity theory of money. And so does prof. Bill Mitchell, who observed that if more money is spent to increase supply (before increasing consumption) , or if supply is already adequate, ( eg excess food available, or sufficient housing stock for everyone) then demand inflation will be avoided
Also I think Friedman's "supply side" theory (in the 70's) failed to take account of the loss of 1st world manufacturing to low wage Asia., apart from the Arab oil-price shock.
Doesn't PIH hold out in the macro level considering that people do tend to overwhelmingly save during their working-age years as to not starve when they are old?
"Plus, it's likely that big structural changes make it such that the discipline has few eternal verities - what describes the economy well in 1976 might have little to do with the events of 2016."
Right! But isn't this also true of the verities professed about economic systems at all?
E.g., if you put a Marxist and free market absolutist in a small room together, would either of them ever yield to the reality that whatever they might have argued about in 1930 looked different by 2020? Globalized capitalism and technological advance together inevitably produce economic dislocations that require government intervention to prevent or assuage political upheaval, so unless you just expect to purge a chunk of your population periodically, more capitalism eventually must lead to more socialism even if the electorate/proletariat does not rule per se, there is no brotherhood of man etc.
My comment is more of a question. It is a little off-topic but still concerns the Fed and monetary policy. With rising inflation, I read complaints about how it was hurting people; with the Fed's raising interest rates to control inflation, I heard how this response was hurting people and would lead to a recession. How long and how deep is up in the air. I hear and read about complaints, but I never see or read any suggestions on controlling inflation without raising the interest rate. Anyone, even us non-economists, can look back and say this or that action was incorrect. I feel Chairman Powell is doing as good a job as can be expected, and time will show how well he responded to the problem. My question to you is, "What would you do to combat inflation?" Please keep in mind the old military dictum - any action, even if later proven to be incorrect, is better than no action at all.
And then there's Milton Friedman's innovation of the Shapiro-Crowder technique of visiting college campuses to rattle off right-wing talking points (while controlling the mic) faster than the undergrads can improvise comebacks. Like that time Friedman inspired Nick Fuentes to write off Africa's colonization on the grounds that some Africans hadn't discovered the wheel: https://www.youtube.com/watch?v=ry2cRP73h9s&t=189s
What Friedman theories were actually based on published research or books. Or did he obtain guru like status and in interviews he made a brief, often succint, answer to a question, which was taken up by his followers as the way forward. With Keynes you have a published work easily examined and marked. Friedman, perhaps not so easily done.
Hi Noah, I am a big fan of you. Can you write a post on why much of the entire consulting industry is a scam? I saw your twitter today and got interested.
I think Friedman did a lot of harm both as the results of his specific policies and with his focus on money supply. I think it was Samuelson who said, roughly, Friedman's problem is that he thinks about money supply all the time. I think about sex all the time but that isn't good economics either.
We've seen that the adoption of Friedman's way of economic thinking has slowed economic growth for the last four decades. We are still paying for the triumph of Friedman's ideas around 1980, most recently with the up and coming Federal Reserve induced recession we are about to enter. It has been easy to predict recessions since 1980. Every time economic growth starts showing up as wage growth for the bottom 20%, the Fed will slam on the brakes and return wages (inflation adjustment) to their original level. It's almost as if the Federal Reserves policy is that people are born to their station in life and it is defying the gods to expect more.
Worse in some ways, is the fixation on money supply which has encouraged the financialization of the economy at the cost of economic health and growth. Economics is supposed to be about how people get goods and services. In any useful and effective study of economics, money is seen as something that works in service of that end. Treating money as an end, an economic entity in and of itself, as Friedman does, gets one a sterile economics and sterile economy. Through a fixation on inflation, growth becomes the enemy rather than a goal.
The world would have been a better place if Friedman had never lived.
To the extent that economics ever exists as a "science" capable of explaining and predicting things, it will be as a branch of psychology -- a discipline that itself isn't really capable of explaining or predicting anything, and may never be able to do so to any useful degree.
And even if psychologists could make reasonably accurate predictions about how we are likely to think and behave, we'd need philosophers and ethicists to tell us whether we ought to think and behave as we do. And those people have never agreed on anything, and never will.
I'm going back to tend my garden. Which is probably just a simulacrum of a garden that exists only as bits of data in the quantum computing devices of some far more advanced civilization running an n-dimensional game for their own amusement.
What if the vigorous and enthusiastic application of Friedman's more political ideas - that corporations have no responsibility but to maximize returns to shareholders and that government shouldn't interfere with their doing so - has led to a concentration of wealth and power so extreme that it threatens the basic functioning of our political system and the existence of our democracy? I'd give that an F.
I do think you're a little harsh on some of these (especially floating exchange rates vs pegs and capital controls).
Ultimately, I don't think the best way to understand theories like PIH is as eternal standalone laws, but as improvements or counters to existing ideas that expect to be improved upon further. - i.e. you wouldn't give Isaac Newton an 'F' because all of his ideas have been overturned.
The reign of quantity theory extended beyond the time frame you mention for the Feds devotion to it. For my sins, I became a regular reader of the Wall Street Journal in the early 1980s. At that point, the Fed was reporting weekly money supply figures. When those figures got released they moved markets. I.e. Traders still believed Friedman's Quantity Theory.
The main thing people know about Friedman is "inflation is always and everywhere a monetary phenomenon". You justly called it his most famous idea.
I pretty much think it's wrong.
Sure - print tons of money, don't increase supply of goods/services and you're bound to get some inflation at some point (though, the collapse in the velocity of money will work very hard against you ; so printing isn't everything - as we saw with QE. Giving money to bankers doesn't do jack shit to standard everyday prices. Asset prices otoh...)
So already we got qualifiers.
And that's before we get into things like supply shocks that can generate inflation, whatever the money supply or money printing powers do.
Also note the difference (for inflation) between the QE stuff by the Central Banks and the fiscal spending/COVID relief done by the governments. One generated at most "asset inflation", invisible by and large to the CPI or PCE while the other has gotten us an honest to God inflation crisis.
Now, you can say that the fiscal powers can only send money to people because the CB enables it by printing money but this is getting stupid/tautological. Inflation is not always and everywhere a monetary phenomenon. Indeed, it seems to be the exception rather than the norm, at least for the last 40-50 years in developed countries.
I'm skeptical of economics as a discrete branch of human thought, yet nonetheless have spent decades reading through the greats (as a lay person), from Hayek and Friedman, Adam Smith and Ricardo, Keynes and Galbraith, to Marx and neo Marxists, Lenin and Mao and MMTers.
I come to the Tolstoyian resignation that it's all so complicated, we're better off calling it God's Will, making our propitiations, keeping our heads down, and plodding on.
So I figure I should comment when I like one of your articles and say so. This analysis is more than silly spreadsheetery and humble enough to be harmless. I think grading Uncle Miltie as C-level work is fair and instructive.
Wow, fantastic analysis, thank you Noah. It is a
Pleasure to be a subscriber to your Substack
Many thanks
Keynes of course rejected the quantity theory of money. And so does prof. Bill Mitchell, who observed that if more money is spent to increase supply (before increasing consumption) , or if supply is already adequate, ( eg excess food available, or sufficient housing stock for everyone) then demand inflation will be avoided
Also I think Friedman's "supply side" theory (in the 70's) failed to take account of the loss of 1st world manufacturing to low wage Asia., apart from the Arab oil-price shock.
Doesn't PIH hold out in the macro level considering that people do tend to overwhelmingly save during their working-age years as to not starve when they are old?
"Plus, it's likely that big structural changes make it such that the discipline has few eternal verities - what describes the economy well in 1976 might have little to do with the events of 2016."
Right! But isn't this also true of the verities professed about economic systems at all?
E.g., if you put a Marxist and free market absolutist in a small room together, would either of them ever yield to the reality that whatever they might have argued about in 1930 looked different by 2020? Globalized capitalism and technological advance together inevitably produce economic dislocations that require government intervention to prevent or assuage political upheaval, so unless you just expect to purge a chunk of your population periodically, more capitalism eventually must lead to more socialism even if the electorate/proletariat does not rule per se, there is no brotherhood of man etc.
My comment is more of a question. It is a little off-topic but still concerns the Fed and monetary policy. With rising inflation, I read complaints about how it was hurting people; with the Fed's raising interest rates to control inflation, I heard how this response was hurting people and would lead to a recession. How long and how deep is up in the air. I hear and read about complaints, but I never see or read any suggestions on controlling inflation without raising the interest rate. Anyone, even us non-economists, can look back and say this or that action was incorrect. I feel Chairman Powell is doing as good a job as can be expected, and time will show how well he responded to the problem. My question to you is, "What would you do to combat inflation?" Please keep in mind the old military dictum - any action, even if later proven to be incorrect, is better than no action at all.
And then there's Milton Friedman's innovation of the Shapiro-Crowder technique of visiting college campuses to rattle off right-wing talking points (while controlling the mic) faster than the undergrads can improvise comebacks. Like that time Friedman inspired Nick Fuentes to write off Africa's colonization on the grounds that some Africans hadn't discovered the wheel: https://www.youtube.com/watch?v=ry2cRP73h9s&t=189s
What Friedman theories were actually based on published research or books. Or did he obtain guru like status and in interviews he made a brief, often succint, answer to a question, which was taken up by his followers as the way forward. With Keynes you have a published work easily examined and marked. Friedman, perhaps not so easily done.
Hi Noah, I am a big fan of you. Can you write a post on why much of the entire consulting industry is a scam? I saw your twitter today and got interested.
I think Friedman did a lot of harm both as the results of his specific policies and with his focus on money supply. I think it was Samuelson who said, roughly, Friedman's problem is that he thinks about money supply all the time. I think about sex all the time but that isn't good economics either.
We've seen that the adoption of Friedman's way of economic thinking has slowed economic growth for the last four decades. We are still paying for the triumph of Friedman's ideas around 1980, most recently with the up and coming Federal Reserve induced recession we are about to enter. It has been easy to predict recessions since 1980. Every time economic growth starts showing up as wage growth for the bottom 20%, the Fed will slam on the brakes and return wages (inflation adjustment) to their original level. It's almost as if the Federal Reserves policy is that people are born to their station in life and it is defying the gods to expect more.
Worse in some ways, is the fixation on money supply which has encouraged the financialization of the economy at the cost of economic health and growth. Economics is supposed to be about how people get goods and services. In any useful and effective study of economics, money is seen as something that works in service of that end. Treating money as an end, an economic entity in and of itself, as Friedman does, gets one a sterile economics and sterile economy. Through a fixation on inflation, growth becomes the enemy rather than a goal.
The world would have been a better place if Friedman had never lived.
To the extent that economics ever exists as a "science" capable of explaining and predicting things, it will be as a branch of psychology -- a discipline that itself isn't really capable of explaining or predicting anything, and may never be able to do so to any useful degree.
And even if psychologists could make reasonably accurate predictions about how we are likely to think and behave, we'd need philosophers and ethicists to tell us whether we ought to think and behave as we do. And those people have never agreed on anything, and never will.
I'm going back to tend my garden. Which is probably just a simulacrum of a garden that exists only as bits of data in the quantum computing devices of some far more advanced civilization running an n-dimensional game for their own amusement.
Would Friedman be for or against a grading curve?
What if the vigorous and enthusiastic application of Friedman's more political ideas - that corporations have no responsibility but to maximize returns to shareholders and that government shouldn't interfere with their doing so - has led to a concentration of wealth and power so extreme that it threatens the basic functioning of our political system and the existence of our democracy? I'd give that an F.
Didn't realise he had so many!
I do think you're a little harsh on some of these (especially floating exchange rates vs pegs and capital controls).
Ultimately, I don't think the best way to understand theories like PIH is as eternal standalone laws, but as improvements or counters to existing ideas that expect to be improved upon further. - i.e. you wouldn't give Isaac Newton an 'F' because all of his ideas have been overturned.
The reign of quantity theory extended beyond the time frame you mention for the Feds devotion to it. For my sins, I became a regular reader of the Wall Street Journal in the early 1980s. At that point, the Fed was reporting weekly money supply figures. When those figures got released they moved markets. I.e. Traders still believed Friedman's Quantity Theory.