Tuesday, November 25, 2008

Why Milton Friedman (and free-market orthodoxy) is OUT and Paul Krugman (and counter-counter reformation) is IN

Let's remember why big business hates unions, government regulations and restrictions:Yes, it's because big fish like to eat small fish, and is rather scared of any counter movement.

Well, the time has come: Milton Friedman is OUT and Paul Krugman is IN.

In Paul Krugman's own words, from before the credit crunch (2007):

Friedman's laissez-faire absolutism contributed to an intellectual climate in which faith in markets and disdain for government often trumps the evidence.

Developing countries rushed to open up their capital markets, despite warnings that this might expose them to financial crises; then, when the crises duly arrived, many observers blamed the countries' governments, not the instability of international capital flows.

Electricity deregulation proceeded despite clear warnings that monopoly power might be a problem; in fact, even as the California electricity crisis was happening, most commentators dismissed concerns about price-rigging as wild conspiracy theories. Conservatives continue to insist that the free market is the answer to the health care crisis, in the teeth of overwhelming evidence to the contrary.

What's odd about Friedman's absolutism on the virtues of markets and the vices of government is that in his work as an economist's economist he was actually a model of restraint. [...] Why didn't he exhibit the same restraint in his role as a public intellectual?

The answer, I suspect, is that he got caught up in an essentially political role. Milton Friedman the great economist could and did acknowledge ambiguity. But Milton Friedman the great champion of free markets was expected to preach the true faith, not give voice to doubts. And he ended up playing the role his followers expected. As a result, over time the refreshing iconoclasm of his early career hardened into a rigid defense of what had become the new orthodoxy.

[There's] a good case for arguing that Friedmanism, in the end, went too far, both as a doctrine and in its practical applications. When Friedman was beginning his career as a public intellectual, the times were ripe for a counterreformation against Keynesianism and all that went with it. But what the world needs now, I'd argue, is a counter-counterreformation.

- Sound economics, but bigoted opinions: "Free to choose", as long as you stay away from choosing for government regualtions and unions (and other outdated biogotry - video)
- Democracy Now! An interview with Paul Krugman (october 2007 - video) - On Bailout talks (september 2008 - video)
- Wikipedia: Paul Krugman
- Wikipedia: bigotry


travis fast said...

Unfortunately for much of the 80s and 90s Krugman was also under the anti-government spell. In fact he was a key player in the government failure school arguing that although market failures existed most often government remedies were worse.

So i am glad Krugman recovered his liberal conscious but surely that should include a little auto-critique of how he participated in stoking the flames of free-markets uber alis

travis fast said...

Also I should note that the work he won the Oscar for said that even where large market distortions existed free trade was still the best policy. Add to that his government failure hypothesis and his proze hardly marks-off a victory for the left, center left, or mild center

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