Wednesday, August 01, 2012

On Yglesias on Friedman

Matthew Yglesias notes that, while Milton Friedman is highly praised, few consider him a guide out of our present predicament.

I comment

I knew I shouldn't have read this post. It is true that in the UK at least "monetarism" is used as an English translation of laissez Faire but I don't think that has anything to do with limited support for monetary stimulus on the left. It is also used as a synonym for tight money, just the opposite of what Friedman advocated for eg Japan (he advocated QE).

I think the reason that the US left (except for you) is lukewarm about monetary stimulus is that it has been tried and tried and has failed. Of course you et al can argue that the huge unprecedented efforts weren't the right efforts because words speak louder than actions. But the focus on fiscal policy was definitely a pragmatic choice based on the evidence. The ARRA wasn't accompanied by the most radically expansionary monetary policy in US history (by far). The standard line among Keynesian economists is that monetary stabilization policy is usually preferable to fiscal stabilization policy, but, at the moment we need both. Hostility to Friedman is, as far as I can tell, not a factor at all.

I think the reason that Friedman has few followers now is that the data have proven that he was totally utterly completely wrong about money (I think the natural rate hypothesis and the permanent income hypothesis are similarly proven wrong but others disagree -- no one who has any respect for data defends Friedman's monetarism because it is wildly spectacularly inconsistent with the data.

Similarly Newton is highly respected. But this doesn't mean that physicists at CERN ignore special relativity. Notably there isn't a Sumner/Yglesias wing of the Physics profession.

1 comment:

rsj said...

IIRC, the Federal Reserve doesn't believe it can control the money supply. Nor does it believe that monetary aggregates are useful predictors of inflation.

"In 2000, when the Humphrey-Hawkins legislation requiring the Fed to set target ranges for money supply growth expired, the Fed announced that it was no longer setting such targets, because money supply growth does not provide a useful benchmark for the conduct of monetary policy. "

I have a hard time understanding where M.Y. is getting his intuition.