Thursday, November 16, 2006

Milton Friedman

I gather that Milton Friedman died earlier today.

Friedman was a great economist and will long be remembered. One of my favorite bits in his work is the discussion in his book Capitalism and Freedom of converting transfer programs into cash and effectively creating a negative income tax in lieu of the welfare system.

I didn't know him personally. He was long gone from the University of Chicago by the time I joined the law school faculty there, having exemplified the neoclassical rational actor model by moving to warmer and sunnier climes. I did get to know his son David, a very interesting and quirky thinker.

My favorite story about Friedman, told by a law prof at another institution who has an Econ Ph.D. from an earlier career, concerns Friedman's Presidential lecture at the American Economics Association, famously refuting simplistic versions of Keynesianism that were then widely accepted in the profession. A transmogrified Keynesianism has survived, but with a lot less cant and pretend certainty, and with better if still imperfect microfoundations. Keynesianism today is to some extent a behavioral economics concept, though none the worse for that. Anyway, the story goes that this individual, who had been trained in standard 1960s Keynesianism, walked out of the lecture in a daze, telling himself that everything he had thought he knew was worthless.

Okay, one should never speak ill of the dead, but I do criticize Friedman a bit in my forthcoming book for what struck me as an opportunistic (for his side in politics, not himself) Wall Street Journal op-ed stance on deficits. In the 1980s, when Democrats controlled at least one house of Congress, he was agin 'em. Fast forward to 2001, and he was full speed ahead for tax cuts, blithely stating in the face of 20 years of contrary evidence that the politically allowable deficit is fixed so the only way to cut the size of the government is by cutting taxes.

One of my points in response to this endorsement of "starve the beast" was that it was based on a simplistic misunderstanding of the size of government concept in economic substance, relying on observed gross cash flows to or from the government rather than on actual allocative and distributional effects.

I would like to think I could have persuaded Friedman to view these matters differently, had I known him and had the chance to discuss them with him. And I would certainly be curious to know what he thought about the U.S. government's budget policy as it unfolded over the last few years. To put it mildly, I rather doubt he would have been much enthralled with either the Medicare prescription drug benefit or the Bridge to Nowhere, not to mention ambitious nation-building in far-off and hostile parts of the world.

UPDATE: According to Brad DeLong's post today: "There's a story that at lunch at the White House in 2002 he told George W. Bush exactly what he thought about Bush's unpaid-for tax cuts. We will miss him."

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