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June 16, 2014

June 16th Is Liberalism Day




In the old days a "liberal" was someone who believed in freedom, including free markets and minimal government. Milton Friedman defended "liberal" in its original sense in his article "Liberalism, Old Style."

At some point the left hijacked the word, at least in the United States. (I understand that in much of the rest of the world "liberal" still retains more of its original meaning.)

Maybe there's some defensible justification for hijacking a word, but most of the time it seems like a dishonest and cowardly way to win an argument by muddying up the debate.

Dan Klein and Kevin Frei are trying to reclaim the word "liberal" from the pirates of the left. As part of their effort, they have proclaimed June 16th to be "Liberalism Day."

I believe their cause is just, but I am not sure it is efficient. Time and effort are scarce, so we must pick our battles.

On the other hand, the meaning of "libertarian" has narrowed over recent decades. It used to be that most libertarians believed in minimal government; increasingly more libertarians endorse anarchism. It used to be that most libertarians believed in national defense; increasingly more libertarians endorse total isolationism.

I do believe in some minimal night-watchman state, and I do believe that sometimes there is evil in the world that must be fought. So maybe I should start calling myself a "liberal" in the original sense, what Friedman called a "classical liberal"?


#LiberalismDay





October 19, 2013

Samuelson Disputed Nephew Summers' Praise for Milton Friedman



(p. A4) [Uncle Paul Samuelson and nephew Larry Summers] clashed over the fate of struggling mortgage giants Fannie Mae and Freddie Mac, which were bolstered by a government backstop in July 2008 and later taken over completely by the U.S. Treasury.

Mr. Samuelson found "strange and harmful" his nephew's skepticism about the government backstop for the firms. Mr. Summers, a longtime critic of the two firms, wrote back that shareholders and management of Fannie and Freddie didn't deserve taxpayer support.

Friction had emerged earlier in 2006, when Mr. Summers praised the late Mr. Friedman in a New York Times column. Friedman was "the most influential economist" of the second half of the 20th century, Mr. Summers said.

"For your eyes only," Mr. Samuelson wrote to his nephew of Mr. Friedman, "I had to grade him low as a macro economist" and "stubbornly old fashioned."



For the full story, see:

JON HILSENRATH. "A Close Bond and a Shared Love for 'Dismal Science'; Correspondence Between Famously Brash Summers and His Uncle, a Nobel Economist, Reveals Flashes of Humility and Tenderness." The Wall Street Journal (Sat., September 14, 2013): A4.

(Note: bracketed words added.)

(Note: the online version of the story was updated on September 15, 2013 and has the title "Letters Show Little-Known Side of Summers; Correspondence With Uncle, a Nobel Economist, Reveals Flashes of Humility and Tenderness.")






July 12, 2012

A Firm's Social Responsibility Is to Make a Profit



(p. B1) Milton Friedman, the Nobel laureate economist, blasted the very idea of corporate social responsibility four decades ago, calling it a "fundamentally subversive doctrine." Speaking for many capitalists then and now, he said, "there is one and only one social responsibility of business--to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game."

Companies shouldn't spend profits on unrelated job creation or social causes, he said. That money should go to shareholders--the owners of the companies. Pronouncements about corporate social responsibility, he added, are the indulgence of "pontificating executives" who are "incredibly shortsighted and muddleheaded in matters that are outside their businesses." And that indulgence can lead to inefficient markets.


. . .


(p. B2) "Jobs are an input, not an output; they're a cost of doing business, not a goal of doing business," says William Frezza, a Boston-based venture capitalist and fellow at the Competitive Enterprise Institute.

"From the perspective of defending capitalism, if you accept the premise of your opponent that business has to give back to society, you've already lost," he says. "To put sack cloth and ashes on--you've delegitimized capitalism, which is the goal of the protesters. Businesses give back to society every day by pleasing their customers and employing their employees. There's nothing business owes other than selling the best product at the best price."



For the full commentary, see:

JOHN BUSSEY. "THE BUSINESS; Are Companies Responsible for Creating Jobs?." The Wall Street Journal (Fri., October 28, 2011): B1-B2.

(Note: ellipsis added.)






January 14, 2012

Diversity of Sources of What We Consume in a Free Market




Matt Ridley's wonderful riff below reminds one of Leonard Read's classic essay "I, Pencil," made even more famous by Milton Friedman's rendition of it.


(p. 35) As I write this, it is nine o'clock in the morning. In the two hours since I got out of bed I have showered in water heated by North Sea gas, shaved using an American razor running on electricity made from British coal, eaten a slice of bread made from French wheat, spread with New Zealand butter and Spanish marmalade, then brewed a cup of tea using leaves grown in Sri Lanka, dressed myself in clothes of Indian cotton and Australian wool, with shoes of Chinese leather and Malaysian rubber, and read a newspaper made from Finnish wood pulp and Chinese ink. I am now sitting at a desk typing on a Thai plastic keyboard (which perhaps began life in an Arab oil well) in order to move electrons through a Korean silicon chip and some wires of Chilean copper to display text on a computer designed and manufactured by an American firm. I have consumed goods and services from dozens of countries already this morning. Actually, I am guessing at the nationalities of some of these items, because it is almost impossible to define some of them as coming from any country, so diverse are their sources.


Source:

Ridley, Matt. The Rational Optimist: How Prosperity Evolves. New York: Harper, 2010.





October 27, 2010

Manuel "Muso" Ayau, RIP



AyauManual2010-10-23.jpg





Manuel "Muso" Ayau. Source of image: online version of the WSJ article quoted and cited below.




(p. A21) Lago Amatitlán, Guatemala

High on a hill overlooking this picturesque volcanic lake, Manuel "Muso" Ayau--arguably Latin America's most influential champion of liberty in the second half of the 20th century--was laid to rest last month.


. . .


Ayau and his colleagues read voraciously and debated vociferously. "All of us were self-taught in these subjects, which would come to absorb much of our time," he recalled. Over the next half century CEES would publish over 900 pamphlets in defense of the market. Ayau's many contributions (98) had titles like "On the Morality of Government," "Planning: Rational or Absurd," and "Robinson and Friday Invent the Common Market." In October 1978 he wrote an essay in a CEES pamphlet called "Price Controls," while Milton Friedman penned "In Defense of Dumping" in the same publication.

Those pamphlets went all over the region. Peruvian Enrique Ghersi, one of the co-authors of the 1986 best-seller "The Other Path," says that one called "Ten Lessons for Underdevelopment" was "key to awakening in me the vocation and commitment to defend liberty." CEES brought to Guatemala such intellectual giants as Ludwig von Mises (1964), Friedrich Hayek (1965) and Ludwig Erhard (1968).



For the full commentary, see:

MARY ANASTASIA O'GRADY. "Manuel Ayau: Champion of Liberty; He opened Latin America's eyes to the true source of prosperity." The Wall Street Journal (Mon., SEPTEMBER 20, 2010): A21.

(Note: italics in original; ellipsis added.)

(Note: the online version of the article is dated SEPTEMBER 19, 2010.)



IMG_2452-2.JPGOn the left is a photo autographed by Ayau and Hayek. On the right is a bust of Hayek. Source of photo: taken by Art Diamond on April 4, 2009 at the APEE meetings held at Francisco Marroquín University (UFM) in Guatemala City.





June 5, 2010

Becker Believes the Fight for Liberty Can Be Won



(p. A13) My last question involves a little story. Not long before Milton Friedman's death in 2006, I tell Mr. Becker, I had a conversation with Friedman. He had just reviewed the growth of spending that was then taking place under the Bush administration, and he was not happy. After a pause during the Reagan years, Friedman had explained, government spending had once again begun to rise. "The challenge for my generation," Friedman had told me, "was to provide an intellectual defense of liberty." Then Friedman had looked at me. "The challenge for your generation is to keep it."

What was the prospect, I asked Mr. Becker, that this generation would indeed keep its liberty? "It could go either way," he replies. "Milton was right about that."

Mr. Becker recites some figures. For years, federal spending remained level at about 20% of GDP. Now federal spending has risen to 25% of GDP. On current projections, federal spending would soon rise to 28%. "That concerns me," Mr. Becker says. "It concerns me a great deal.

"But when Milton was starting out," he continues, "people really believed a state-run economy was the most efficient way of promoting growth. Today nobody believes that, except maybe in North Korea. You go to China, India, Brazil, Argentina, Mexico, even Western Europe. Most of the economists under 50 have a free-market orientation. Now, there are differences of emphasis and opinion among them. But they're oriented toward the markets. That's a very, very important intellectual victory. Will this victory have an effect on policy? Yes. It already has. And in years to come, I believe it will have an even greater impact."

The sky outside his window has begun to darken. Mr. Becker stands, places some papers into his briefcase, then puts on a tweed jacket and cap. "When I think of my children and grandchildren," he says, "yes, they'll have to fight. Liberty can't be had on the cheap. But it's not a hopeless fight. It's not a hopeless fight by any means. I remain basically an optimist."



For the full interview, see:

PETER ROBINSON. "'Basically an Optimist'--Still; The Nobel economist says the health-care bill will cause serious damage, but that the American people can be trusted to vote for limited government in November." The Wall Street Journal (Sat., March 27, 2010): A13.

(Note: the online version of the interview is dated March 26, 2010.)





May 18, 2010

Housing Crumbles Under Portugal's Rent Control Laws



Stigler and Friedman's only co-authored paper showed the flaws in rent controls. Although excellent, the paper apparently is seldom read in Portugal (or New York City).


(p. B3) LISBON -- José Gago da Graça owns a Portuguese real estate company and has two identical apartments in the same building in the heart of Lisbon. One rents for €2,750 a month, the other for almost 40 times less, €75.

The discrepancy is a result of 100-year-old tenancy rules, which have frozen the rent of hundreds of thousands of tenants and protected them against eviction in Portugal. Mr. Gago da Graça has been in a lawsuit for a decade over the €75-a-month apartment, since his tenant died in 2000 and her son took over and refused to alter his mother's contract, which dates to the 1960s.

"We're the only country in Europe that doesn't have a free housing market and that's just amazing," Mr. Gago da Graça said.

Rules like these, which economists also blame for contributing to Portugal's private debt load, help explain why this nation of 11 million has followed Greece and Spain into investors' line of fire.


. . .


The . . . rules helped protect tenants, but also led to a chronic shortage of rental housing. This, in turn, persuaded a new generation of Portuguese to tap recently into low interest rates and buy instead -- often in new suburbs -- thereby exacerbating the country's mortgage debt and leaving Portugal with one of Europe's lowest savings rates, of 7.5 percent.

"This system of controlled rents is a major problem for the Portuguese economy, but we will probably be waiting for a generational change to have room for institutional reform," said Cristina Casalinho, chief economist of Banco BPI, a Portuguese bank. Beyond fueling housing credit, she added, the system "basically stops flexibility and mobility in the labor market because you can perhaps find a new job in another city but it will then be very difficult to rent a house there."


. . .


"Nobody has had the political courage to change something like these rental laws and I don't see the situation changing in the short term, even if I don't think the Portuguese tend to react as dramatically as the Greeks," said Salvador Posser, who runs a family-owned company renting out construction equipment.

Besides distorting pricing in the housing market, the tenancy rules have left physical scars. Portugal's historic city centers are dotted with abandoned and crumbling houses that are either subject to a court dispute or have rental income that cannot cover repair and maintenance costs.

"This economic crisis is clearly keeping our very slow courts even more occupied because of the amount of conflict that it is creating between landlords and tenants," said Menezes Leitão, a law professor and president of PLA, a property owners association.

Mr. Posser cited a recent estimate that 8 percent of the buildings in central Lisbon were deserted, in large part because of rent-related obstacles. In Porto, the second-largest city, less than 10 percent of inner-city housing is available for rent, which has helped shrink the population by a third over three decades.

"We're still losing about 30 inhabitants a day," said Rui Moreira, president of the Porto Commercial Association.




For the full story, see:

RAPHAEL MINDER. "Like Spain, Portugal Hopes to Make Cuts, but It Is Mired in Structural Weakness." The New York Times (Fri., May 14, 2010): B3.

(Note: the online version of the article is dated May 13, 2010 and has the title "Portugal Follows Spain on Austerity Cuts.")

(Note: ellipses added.)


The original source of the Friedman and Stigler article (in pamphlet form) was:

Friedman, Milton, and George J. Stigler. Roofs or Ceilings? The Current Housing Problem. Irvington-on-Hudson, New York: Foundation for Economic Education, 1946.





May 6, 2010

School Choice "Lifts the Performance of Public-School Students"



(p. A15) There is . . . clear evidence that many private schools outperform public schools academically. The first children to enter the Washington, D.C., voucher program, for example, now read more than two grade levels above students who applied for the program but didn't win the voucher lottery.

Researchers from Northwestern University will soon release a study on how competition from Florida's education tax-credit program is impacting the performance of children who remain in public schools. The preliminary evidence is that school choice lifts the performance of public-school students significantly.

Florida's scholarship program appears to be the first statewide private school choice program to reach a critical mass of funding, functionality and political support. As an ever increasing number of students in Florida take advantage of the scholarship program, other states will find it hard to resist enacting broad-based school choice.



For the full commentary, see:

ADAM B. SCHAEFFER. "Florida's Unheralded School Revolution; A scholarship program could produce a new era of choice." The Wall Street Journal (Fri., APRIL 30, 2010): A15.

(Note: ellipsis added.)





April 24, 2010

Liberal Democrat Hesburgh Condems Obama Administration's Killing School Vouchers



My Chicago professor Milton Friedman proposed educational vouchers in Capitalism and Freedom, a great book based on lectures that Friedman delivered several decades ago at Wabash College at the invitation of my first economics professor, Ben Rogge.

Friedman's belief was that parents generally care about their children, and will seek a good education for them, if provided the means to choose among credible alternatives.

Special interests are arrayed against this idea, but that does not mean that Friedman was wrong.

Another distinguished educator who supports vouchers (see below) is Father Hesburgh, who for many years was President of Notre Dame in my hometown of South Bend, Indiana.


(p. A19) If Martin Luther King Jr. told me once, he told me a hundred times that the key to solving our country's race problem is plain as day: Find decent schools for our kids. So I was especially heartened to hear Education Secretary Arne Duncan repeatedly call education the "civil rights issue of our generation." Millions of our children--disproportionately poor and minority--remain trapped in failing public schools that condemn them to lives on the fringe of the American Dream.


. . .


. . . , I was deeply disappointed when Sen. Richard Durbin (D., Ill.) successfully inserted a provision in last year's omnibus spending bill that ended one of the best efforts to give these struggling children the chance to attend a safe and decent school.

That effort is called the Opportunity Scholarship program. Since 2004 it has allowed thousands of children in Washington, D.C., to escape one of the worst public school systems in the nation by providing them with scholarships of up to $7,500.

Despite its successes, it is now closing down. On Tuesday the Senate voted against a measure introduced by Sen. Joseph Lieberman (I., Conn.) that would have extended the program. Throughout this process Mr. Duncan's Education Department and the White House raised no protest.


. . .


I know that some consider voucher programs such as the Opportunity Scholarships a right-wing affair. I do not accept that label. This program was passed with the bipartisan support of a Republican president and Democratic mayor. The children it serves are neither Republican nor Democrat, liberal or conservative. They are the future of our nation, and they deserve better from our nation's leaders.

I have devoted my life to equal opportunity for all Americans, regardless of skin color. I don't pretend that this one program is the answer to all the injustices in our education system. But it is hard to see why a program that has proved successful shouldn't have the support of our lawmakers. The end of Opportunity Scholarships represents more than the demise of a relatively small federal program. It will help write the end of more than a half-century of quality education at Catholic schools serving some of the most at-risk African-American children in the District.

I cannot believe that a Democratic administration will let this injustice stand.




For the full commentary, see:

THEODORE M. HESBURGH. "A Setback for Educational Civil Rights; I cannot believe that a Democratic administration will let this injustice of killing D.C. vouchers stand." The Wall Street Journal (Thurs., MARCH 18, 2010): A19.

(Note: ellipses added.)

(Note: the online version of the article was dated MARCH 17, 2010.)


Reference to the Friedman book mentioned above:

Friedman, Milton. Capitalism and Freedom. Chicago: The University of Chicago Press, 1962.





November 24, 2009

Support Grows for School Vouchers in D.C.



VoucherRallyDC2009-10-29.jpg "Students from Bridges Academy in Washington, D.C., at a Capitol Hill rally last month in support of the city's Opportunity Scholarship Program, which gives students from low-income families scholarships for private schools." Source of caption and photo: online version of the WSJ article quoted and cited below.


(p. A2) The District of Columbia's embattled school-voucher program, which lawmakers appeared to have killed earlier this year, looks like it could still survive.

Congress voted in March not to fund the program, which provides certificates to pay for recipients' private-school tuition, after the current school year. But after months of pro-voucher rallies, a television-advertising campaign and statements of support by local political leaders, backers say they are more confident about its prospects. Even some Democrats, many of whom have opposed voucher efforts, have been supportive.


. . .


Many parents whose children receive vouchers say they are satisfied with the private schools they attend. During the 2008-2009 school year, about 61,700 students nationwide received vouchers, up 9% from the previous school year, according to the Alliance for School Choice, a pro-voucher advocacy group.


. . .


Created as a five-year pilot project by a Republican-controlled Congress in early 2004, the Opportunity Scholarship Program is the nation's only federally funded voucher program. It is open to students who live in the long-struggling Washington school district and whose families have incomes at or below 185% of the federal poverty level -- about $40,000 for a family of four. Recipients are chosen by lottery, although preference is given to those attending traditional schools deemed to be in need of improvement under federal law.

Joe Kelley entered his oldest son, Rashawn, in the first Opportunity Scholarship Program lottery in 2004, fearful about violence at the public middle school. Rashawn, now 17, received a voucher, and so have his three sisters. All attend a small, private Christian academy where they have been earning A's and B's. "It's a lot of worry off of me," said Mr. Kelley, a retired cook and youth counselor.

In an evaluation released in March, researchers found that in reading skills, voucher recipients overall were approximately 3.1 months ahead of eligible students who didn't receive scholarships. But there was no difference in math skills, and voucher recipients from the worst-performing public schools got no boost in either subject.




For the full story, see:

ROBERT TOMSHO. "D.C. School Vouchers Have a Brighter Outlook in Congress." The Wall Street Journal (Mon., October 19, 2009): A2.

(Note: ellipses added.)





October 22, 2009

George Shultz Sceptical of War on Drugs



George Shultz has a distinguished résumé. He was Dean of the University of Chicago business school, Secretary of the Treasury under President Nixon, and Secretary of State under President Reagan. Along with the late Milton Friedman, he is sceptical about the War on Drugs, and is willing to express his scepticism:


(p. A17) He has long harbored skepticism about interdiction as a solution to drug abuse in the U.S. Those doubts were prescient.


. . .


Mr. Shultz recalls what happened shortly after he left government, when his view that interdiction is not the solution came up after a speech to a Stanford alumni group.

Then, as now, he believed that we need to look at the problem from an economic perspective and understand what happens when there is high demand for a prohibited substance. When his comment hit the press, he says he "was inundated with letters. Ninety-eight percent of them agreed with me and over half of those people said I'm glad you said it, but I wouldn't dare say it. The most poignant comment was from [a former member of the House of Representatives] who wrote and said I was glad to see your statement. I said that a few years ago and that's why I'm no longer a congressman!"



For the full commentary, see:

MARY ANASTASIA O'GRADY. "George Shultz on the Drug War; The former secretary of state has long doubted the wisdom of interdiction." The Wall Street Journal (Mon., OCTOBER 12, 2009): A17.

(Note: the online version of the article is dated Oct. 11, 2009.)

(Note: ellipsis added.)





October 4, 2009

55% of Nebraskans Favor School Vouchers



The Friedman Foundation mentioned in the passage below, was founded by Nobel Prize winning economist Milton Friedman who is often credited with creating the idea of education vouchers in his classic book Capitalism and Freedom.

Capitalism and Freedom was based on a series of lectures that Friedman delivered at Wabash College at the invitation of my much-missed mentor Ben Rogge. (Before teaching me economics in Indiana, Rogge was a native Nebraskan who earned his bachelor's degree from Hastings College.)


(p. 4B) A majority of Nebraskans are open to school-choice reforms such as school vouchers and tax­-credit scholarships, according to a survey made public Thurs­day by a national school-choice group.

"It really appears Nebraska is ready to start talking about school-choice reform options," said Paul DiPerna, director of partner services for the Fried­man Foundation for Educational Choice, which commissioned the survey.

The group partnered with the Nebraska Catholic Conference and other state and national groups to conduct the telephone survey of 1,200 likely voters.

Fifty-five percent of those sur­veyed said they favored school vouchers and supported a tax­-credit scholarship system, which would give tax credits to indi­viduals and businesses that con­tribute money to nonprofit orga­nizations that distribute private school scholarships.



For the full story, see:

Dejka, Joe. "Support for school choice tax plan seen; An Indianapolis organization says its survey shows Nebraskans would back a pending bill." Omaha World-Herald (Fri., Sept. 18, 2009): 4B.





October 3, 2009

"Stimulus" Did Not Stimulate



IncomeAndConsumptionGraph2009-09-17.gif












Source of graph: online version of the WSJ article quoted and cited below.



(p. A23) The nearby chart reviews income and consumption through July, the latest month this data is available for the U.S. economy as a whole.

Consider first the part of the chart pertaining to the spring of this year and observe that disposable personal income (DPI)--the total amount of income people have left to spend after they pay taxes and receive transfers from the government--jumped. The increase is due to the transfer and rebate payments in the 2009 stimulus package. However, as the chart also shows, there was no noticeable impact on personal consumption expenditures. Because the boost to income is temporary, at best only a very small fraction was consumed.

This is exactly what one would expect from "permanent income" or "life-cycle" theories of consumption, which argue that temporary changes in income have little effect on consumption. These theories were developed by Milton Friedman and Franco Modigliani 50 years ago, and have been empirically tested many times. They are much more accurate than simple Keynesian theories of consumption, so the lack of an impact should not be surprising.


. . .


Incoming data will reveal more in coming months, but the data available so far tell us that the government transfers and rebates have not stimulated consumption at all, and that the resilience of the private sector following the fall 2008 panic--not the fiscal stimulus program--deserves the lion's share of the credit for the impressive growth improvement from the first to the second quarter. As the economic recovery takes hold, it is important to continue assessing the role played by the stimulus package and other factors. These assessments can be a valuable guide to future policy makers in designing effective policy responses to economic downturns.



For the full commentary, see:

JOHN F. COGAN, JOHN B. TAYLOR AND VOLKER WIELAND. "The Stimulus Didn't Work; The data show government transfers and rebates have not increased consumption at all." The Wall Street Journal (Thurs., SEPTEMBER 17, 2009): A23.

(Note: ellipsis added.)





July 18, 2009

"Build a Wall Around the Welfare State"



For a long time, I've been meaning to post a pithy comment on immigration policy from the Cato Institutes's Bill Niskanen.

The comment was related to the proposal to erect a wall between the United States and Mexico, in order to reduce illegal immigration. Some libertarians favor open immigration. Others believe that so long as we have a large welfare state, open immigration would impose high costs on the taxpayer, and thereby reduce economic growth. (I believe that I read Milton Friedman supporting this latter position, in the year or two before he died in 2006.)

In this context, Niskanen's pithy comment has appeal:


"Build a wall around the welfare state, not around the country."


Source:

William A. Niskanen on 11/19/07 at the meetings of the Southern Economic Association in New Orleans.





July 15, 2009

Milton Friedman's Legacy Was the "Remarkable Progress of Mankind"



(p. W13) With each passing week that the assault against global capitalism continues in Washington, I become more nostalgic for one missing voice: Milton Friedman's. No one could slice and dice the sophistry of government market interventions better than Milton, who died at the age of 94 in 2006. Imagine what the great economist would have to say about the U.S. Treasury owning and operating several car brands or managing the health-care industry. "Why not?" I can almost hear him ask cheerfully. "After all, they've done such a wonderful job delivering the mail."


. . .


I've been thinking a lot lately of one of my last conversations with Milton, who warned that "even though socialism is a discredited economic model and capitalism is raising living standards to new heights, the left intellectuals continue to push for bigger government everywhere I look." He predicted that people would be seduced by collectivist ideas again.


. . .


A few scholars are now properly celebrating the Friedman legacy. Andrei Shleifer, a Harvard economics professor, has just published a tribute to Friedman in the Journal of Economic Literature. He describes the period 1980-2005 as "The Age of Milton Friedman," an era that "witnessed remarkable progress of mankind. As the world embraced free market policies, living standards rose sharply while life expectancy, educational attainment, and democracy improved and absolute poverty declined."



For the full commentary, see:

Moore, Stephen. "Missing Milton: Who Will Speak for Free Markets?" The Wall Street Journal (Sat., May 29, 2009): W13.

(Note: ellipses added.)

The full reference to the article by Shleifer, is:

Shleifer, Andrei. "The Age of Milton Friedman." Journal of Economic Literature 47, no. 1 (March 2009): 123-35.





May 10, 2009

Philanthro-Capitalism Is Inefficient, and Betrays Shareholders



CreativeCapitalismBK.jpg













Source of book image: online version of the WSJ review quoted and cited below.




(p. A13) One of the more interesting ideas found in this somewhat rambling book contends that "philanthropic" business activity is in fact at odds with what is best about capitalism itself and thus counterproductive.

Lawrence Summers, the former Harvard president and former Treasury secretary, states the difficulty succinctly: "It is hard in this world to do well. It is hard to do good. When I hear a claim that an institution is going to do both, I reach for my wallet. You should too." He offers as an example Fannie Mae and Freddie Mac, government-created corporations that were supposed to achieve a social goal -- affordable housing -- while operating as businesses. They did neither well, eventually leaving their catastrophic debts for taxpayers to pay.

U.S. Circuit Court Judge Richard Posner, along with other contributors, notes that companies often suffer losses when they set out to address a social problem. If they could really make a profit by doing good works, the argument goes, they would no doubt already be hard at it. But if they do good works at the expense of profit, they will become less efficient, making themselves more vulnerable to competitors. Economist Steven Landsburg suggests that companies sacrificing profit to accomplish philanthropic goals end up betraying their shareholders, who rightly expect the best return on investment. Sometimes acting philanthropically will result in an indirect business benefit, such as improving worker skills. In that case, philanthro-capitalism might be in a company's interest -- but Judge Posner and others of like mind suspect that such instances are rare.

Their skepticism echoes Milton Friedman's objections to "corporate social responsibility," expressed in a 1970 article that is usefully reprinted in the book's appendix.



For the full review, see:

LESLIE LENKOWSKY. "Bookshelf; The Do-Good Marketplace; Reducing poverty, improving lives - maybe 'philanthro-capitalism' is just another name for capitalism." Wall Street Journal (Fri., JANUARY 2, 2009): A13.



The book under review is:

Kinsley, Michael, and Conor Clarke, eds. Creative Capitalism. New York: Simon & Schuster, 2008.





March 29, 2009

Vaclav Klaus: The Czech Republic's Free Market Crusader


KlausVaclav2009-02-15.jpg "President Vaclav Klaus of the Czech Republic is known for his economic liberalism." Source of caption and photo: online version of the NYT article quoted and cited below.

(p. A6) To supporters, Mr. Klaus is a brave, lone crusader, a defender of liberty, the only European leader in the mold of the formidable Margaret Thatcher. (Aides say Mr. Klaus has a photo of the former British prime minister in his office near his desk.)


. . .


As a former finance minister and prime minister, he is credited with presiding over the peaceful 1993 split of Czechoslovakia into two states and helping to transform the Czech Republic into one of the former Soviet bloc's most successful economies.

But his ideas about governance are out of step with many of the European Union nations that his country will lead starting Jan. 1.

While even many of the world's most ardent free marketeers acknowledged the need for the recent coordinated bailout of European banks, Mr. Klaus lambasted it as irresponsible protectionism. He blamed too much -- rather than too little -- regulation for the crisis.

A fervent critic of the environmental movement, he has called global warming a dangerous "myth," arguing that the fight against climate change threatens economic growth.

. . .


Those who know Mr. Klaus say his economic liberalism is an outgrowth of his upbringing. Born in 1941, he obtained an economics degree in 1963 and was deeply influenced by free market economists like Milton Friedman.

Mr. Klaus's son and namesake, Vaclav, recalled in an interview that when he was 13, his father told him to read Aleksandr Solzhenitsyn to better understand Communism's oppressiveness.

"If you lived under communism, then you are very sensitive to forces that try to control or limit human liberty," he said in an interview.



For the full story, see:

DAN BILEFSKY. "A Fiery Czech Is Poised to Be the Face of Europe." The New York Times (Tues., November 25, 2008): A6.

(Note: ellipses added.)





March 9, 2009

"Firms that Made Wrong Decisions Should Fail"


SchwartzAnnaDrawing.jpg







Anna J. Schwartz.

Source of image: online version of the WSJ article quoted and cited below.


(p. A11) Most people now living have never seen a credit crunch like the one we are currently enduring. Ms. Schwartz, 92 years old, is one of the exceptions. She's not only old enough to remember the period from 1929 to 1933, she may know more about monetary history and banking than anyone alive. She co-authored, with Milton Friedman, "A Monetary History of the United States" (1963). It's the definitive account of how misguided monetary policy turned the stock-market crash of 1929 into the Great Depression.

. . .

These are not, Ms. Schwartz argues, the same thing. In fact, by keeping otherwise insolvent banks afloat, the Federal Reserve and the Treasury have actually prolonged the crisis. "They should not be recapitalizing firms that should be shut down."

Rather, "firms that made wrong decisions should fail," she says bluntly. "You shouldn't rescue them. And once that's established as a principle, I think the market recognizes that it makes sense. Everything works much better when wrong decisions are punished and good decisions make you rich." The trouble is, "that's not the way the world has been going in recent years."

Instead, we've been hearing for most of the past year about "systemic risk" -- the notion that allowing one firm to fail will cause a cascade that will take down otherwise healthy companies in its wake.

Ms. Schwartz doesn't buy it. "It's very easy when you're a market participant," she notes with a smile, "to claim that you shouldn't shut down a firm that's in really bad straits because everybody else who has lent to it will be injured. Well, if they lent to a firm that they knew was pretty rocky, that's their responsibility. And if they have to be denied repayment of their loans, well, they wished it on themselves. The [government] doesn't have to save them, just as it didn't save the stockholders and the employees of Bear Stearns. Why should they be worried about the creditors? Creditors are no more worthy of being rescued than ordinary people, who are really innocent of what's been going on."



For the full story, see:

BRIAN M. CARNEY. "OPINION: THE WEEKEND INTERVIEW with Anna Schwartz; Bernanke Is Fighting the Last War." The Wall Street Journal (Weds., OCTOBER 18, 2008): A10.

(Note: ellipsis added.)




January 14, 2009

Only Permanent Tax Cuts Provide Effective Stimulus


IncomeExpendituresGraph.gif








Source of graph: online version of the WSJ commentary quoted and cited below.


(p. A15) The incoming Obama administration and congressional Democrats are now considering a second fiscal stimulus package, estimated at more than $500 billion, to follow the Economic Stimulus Act of 2008. As they do, much can be learned by examining the first.

The major part of the first stimulus package was the $115 billion, temporary rebate payment program targeted to individuals and families that phased out as incomes rose. Most of the rebate checks were mailed or directly deposited during May, June and July.

The argument in favor of these temporary rebate payments was that they would increase consumption, stimulate aggregate demand, and thereby get the economy growing again. What were the results? The chart nearby reveals the answer.

The upper line shows disposable personal income through September. Disposable personal income is what households have left after paying taxes and receiving transfers from the government. The big blip is due to the rebate payments in May through July.

The lower line shows personal consumption expenditures by households. Observe that consumption shows no noticeable increase at the time of the rebate. Hence, by this simple measure, the rebate did little or nothing to stimulate consumption, overall aggregate demand, or the economy.

These results may seem surprising, but they are not. They correspond very closely to what basic economic theory tells us. According to the permanent-income theory of Milton Friedman, or the life-cycle theory of Franco Modigliani, temporary increases in income will not lead to significant increases in consumption. However, if increases are longer-term, as in the case of permanent tax cut, then consumption is increased, and by a significant amount.



For the full commentary, see:

JOHN B. TAYLOR. "Why Permanent Tax Cuts Are the Best Stimulus." Wall Street Journal (Tues., NOVEMBER 25, 2008): A15.




November 5, 2008

Boris Yeltsin's "Laissez-Faire Populism"


YeltsinBK.jpg








Source of book image: online version of the NYT review quoted and cited below.


(p. E1) Yeltsin's grievance against the Communists began before he was born, in an all-too-common history of family heartbreak that Mr. Colton pieces together with a good deal of original reporting. The Yeltsins were dispossessed for the bourgeois crime of having built a farm, mill and blacksmithing business. Yeltsin's grandfather died a broken man. His father was charged with the catch-all crime of "anti-Soviet agitation and propaganda" for grousing at his job on a construction site, and sent to a forced-labor camp for three years.

When Yeltsin joined the Communist Party, it was not out of devotion to the professed ideals but because a party card was a requirement for promotion to chief engineer in the construction industry. And when he moved into the hierarchy, he was already a man who chafed at party orthodoxy. No radical, he "nibbled at the edges of what was admissible," Mr. Colton writes, pushing for market prices in the local farm bazaars, encouraging entrepreneurial initiative in the workplace, complaining that the top-down system smothered self-reliance.



For the full review, see:

BILL KELLER. "Books of The Times; The Making of Yeltsin, His Boldness and Flaws." The New York Times (Weds., May 7, 2008): E1.


(p. 222) For Yeltsin's contemporaries, deliverance from Marxist scripture and Soviet srtuctures took many forms. For him, it was an ease with the market and recoil against the overbearing state. Mikhail Fridman, who became one of Russia's first billionaires as a banker and oilman, makes the point well:

Yeltsin as an individual who had inner freedom . . . instinctively moved toward the market as the end. That is because . . . as my namesake Milton Friedman says, "Capitalism is freedom." . . . [Yeltsin thought] it was necessary to give people freedom and they would make out well. How exactly to do that he did not know. [But he did know] that it was necessary to free people from control: We were squeezing them dry. He thought that if we let them go they could move heaven and earth. . . . This is the level on which he thought about it. . . . He took a dim view of all these [Soviet] controls. [He felt that] the controllers had long since believed in nothing.

. . .

(p. 525) Stewart, working as a photojournalist, taped Yeltsin's remarks on August 24, 1990, in Dolinsk. She calls them "laissez-faire populism."



Source:

Colton, Timothy J. Yeltsin: A Life. New York: Basic Books, 2008.

(Note: ellipses and bracked words in Fridman (sic) quote were made by Colton; other ellipses were added by me.)

(Note: the quote from p. 525 is from endnote number 38.)




November 3, 2008

"We Will Stay a Laissez-Faire Economy"


AnsipAndrusEstonianPrimeMinister.jpg








"Andrus Ansip, leader of Estonia, an ex-Soviet Republic." Source of caption and photo: online version of the NYT article quoted and cited below.

An earlier entry suggested that Estonian Prime Minister Andrus Ansip's support for Steve Forbes' flat tax, had helped Estonia achieve a high rate of growth.

Apparently there is some sentiment in Estonia to stay the course:

(p. B6) TALLINN, Estonia -- For nearly two decades, Estonia embraced capitalism with such gusto that it seemed to be channeling the laissez-faire philosophy of Milton Friedman. From its policies meant to attract foreign investors to its flat tax and freewheeling business culture, it stood out as the former Soviet republic most adept at turning post-Communist chaos into a thriving market economy.

Now Estonians, and some of their Baltic neighbors, are slogging through their first serious economic downturn since liberation from the Soviet grip in the early 1990s.

. . .

Whatever happens, government officials say there will be no betrayal of Friedman's philosophy. "We will stay a laissez-faire economy," said Juhan Parts, Estonia's minister of the economy.

. . .

"I'm an optimist," said Marje Josing, director of the Estonian Institute for Economic Research. "Fifteen years ago things looked bad, but they managed. A little real-life pressure won't hurt."

Indeed, so far the downturn has done little to discourage Estonia's ambitious entrepreneurs. If anything, it has made them look more avidly elsewhere for growth.

"Estonia may be a small country," Tarmo Prikk, chief executive of Thulema, an office furniture maker, said with a laugh. "But my ego is bigger."



For the full story, see:

CARTER DOUGHERTY. "Estonia's Let-It-Be Economy Is Rattled by Worldwide Distress." The New York Times (Fri., October 10, 2008): B6.

(Note: ellipses added.)




October 21, 2008

The Current Financial Crisis Reveals a Need for Reform


As I think about the current financial crisis, I have been struck by the uncertainty among economists about what should be done. Many economists are silent. Those who speak, have offered very diverse opinions. And even among those who express opinions, there is a lack of confidence in their opinions.

Milton Friedman used to say that economists will be listened to when there is a crisis, and that economists need to be ready, as Friedman himself was with his floating exchange rate proposal. (Milton, we need you again.)

I believe that one lesson from the current crisis is that we need reform---reform of economists' research priorities and methods. We should become more interested in policy relevance, history and institutions; and less interested in mathematical rigor.

We should avoid what Schumpeter called "the Ricardian Vice." (Highly stylized, aggregated models, based on unrealistic simplifying assumptions, that are then blindly applied to policy decisions in the actual, richly "thick" world---see McCloskey's essay on thick and thin methods in economics.)

We also should spend less time in studying cute, counter-intuitive results ("freakonomics"), and spend more time on the big issues.

We should be willing to suggest institutional reforms and experiments, and participate in experiments (natural and artificial) to see how they work. (Spontaneous order is nice when it happens, but entrepreneurial vision and initiative can improve the world too.)

Capitalism has produced huge gains in longevity and standards of living. Yet capitalism is in danger of being hobbled or destroyed.

Schumpeter warned of "the crumbling of the protecting walls." We should have been better prepared to rebuild and defend them.

Note: The "Ricardian Vice" phrase is from Schumpeter's History of Economic Analysis, p. 473; the "protecting walls" phrase is from Capitalism, Socialism and Democracy, p. 143.

The McCloskey essay mentioned is:

McCloskey, Deirdre. "Thick and Thin Methodologies in the History of Economic Thought." In The Popperian Legacy in Economics, 245-57. Cambridge, UK: Cambridge University Press, 1988.




September 26, 2008

Rent Control as a Form of "Hatred of the Bourgeois"


New York City is one of the few remaining cities that has rent control laws (aka "rent stabilization"). Economists view such laws as a version of price ceilings, and they generally argue that such laws reduce the incentives to build and maintain housing.

Libertarian philosophers would add that the laws also violate fundamental rights of property.

(p. 25) At its core, the fight involves a law allowing landlords to displace rent-stabilized tenants if the landlords will use the space as their primary residence. The Economakis family has prevailed, thus far, on the principle that the law applies even to a building this large. But the tenants continue to press the notion that given the scope of the proposed home -- which calls for seven bathrooms, a gym and a library -- the owners are just trying to clear them out so they can sell the building off to become so many market-rate condos.

Mr. Economakis insists his family would never have subjected itself to years of argument -- and tens of thousands in legal bills -- if they did not want to live there. He acknowledged that it is a lot of space, but said that having the place to themselves is also a matter of privacy. He said that the family long ago offered, as a halfway measure, to let the tenants in the five rear apartments stay, along with a couple on the first floor, and said he would happily sign a promise to turn over the profits to the existing tenants if he sold within 20 years.

"We really believe that, as owners, we have a right to live in the building," he said.

. . .

Last year, the tenants staged a rally outside the building and some 400 people showed up. Mostly, they lodge their silent protest daily on their doors. Mr. Pultz has his evil eye, while his first-floor neighbor, Laura Zambrano, has one poster giving the dictionary definition of the word hubris and another quoting Flaubert:

"Two things sustain me. Love of literature and hatred of the bourgeois."



For the full story, see:

MARC SANTORA. "Landlord's Dream Confronts Rent-Stabilized Lives." The New York Times, Section 1 (Sun., June 15, 2008): 25.

(Note: ellipsis added.)

Perhaps the most eloquent critique of rent control was penned in the only paper that Chicago Nobel Prize winners Milton Friedman and George Stigler ever wrote together (published as a pamphlet):

Friedman, Milton, and George J. Stigler. "Roofs or Ceilings? The Current Housing Problem." Irvington-on-Hudson, New York: Foundation for Economic Education, 1946.




July 26, 2008

Acclaimed Playwrite David Mamet Endorses Free Market


MametDavid.gif






Source of image: online version of the WSJ commentary quoted and cited below.

(p. A18) The American playwright David Mamet wrote a piece for the Village Voice last week titled, "Why I Am No Longer a 'Brain-Dead Liberal.'" Mr. Mamet, whose characters famously use the f-word as a rhythmic device (I think of it now as the "Mamet-word"), didn't himself mince words on his transition. He was riding with his wife one day, listening to National Public Radio: "I felt my facial muscles tightening, and the words beginning to form in my mind: 'Shut the [Mamet-word] up.'" Been known to happen.

Toward the end of the essay, he names names: "I began reading not only the economics of Thomas Sowell (our greatest contemporary philosopher) but Milton Friedman, Paul Johnson, and Shelby Steele, and a host of conservative writers, and found that I agreed with them: a free-market understanding of the world meshes more perfectly with my experience than that idealistic vision I called liberalism."


For the full commentary, see:

DANIEL HENNINGER. "WONDER LAND; David Mamet's Revision." The Wall Street Journal (Thurs., March 20, 2008): A18.




July 1, 2008

The Method of Milton Friedman's Practice Was Better Than the Method of His Essay


The method of the Chicago School is often thought to be the method outlined in Friedman's famous essay "The Methodology of Positive Economics." It can be (and has been) persuasively argued that the actual methodology practiced by Friedman is broader, and more eclectic than that advocated in his early essay.

His practice continued to exemplify a kind of empiricism, but it was a kind of empiricism that included, not only 'rigorous' econometrics, but also economic history, case studies, and 'stylized facts.'

I believe that the method of Friedman's practice is sounder than the method of his essay. So it is unfortunate that the Institute founded in Friedman's name will probably only support those who practice the formal method of the essay.

(p. B5) The University of Chicago will announce Thursday that it plans to establish a center for economics honoring the late economist Milton Friedman.

The school plans to raise an endowment of $200 million to support the Milton Friedman Institute.

. . .

. . . his approach to economics embodies what has come to be known as the Chicago School. He defined that as "an approach that insists on the empirical testing of theoretical generalizations and that rejects alike facts without theory and theory without facts."

It is that approach, and the intellectual rigor that Mr. Friedman brought to it, that the Friedman Institute is meant to advocate, rather than any ideology, says Chicago economist Gary Becker, a Nobel Prize-winning former student of Mr. Friedman's who was on the faculty committee that recommended the institute.


For the full story, see:

JUSTIN LAHART. "University Plans Institute to Honor Milton Friedman." The Wall Street Journal (Thurs., May 15, 2008): B5.

(Note: ellipses added.)


The famous Friedman method essay is:

Friedman, Milton. "The Methodology of Positive Economics." In Essays in Positive Economics, 3-43. Chicago: University of Chicago Press, 1953.




June 27, 2008

The Role of the Irish Potato Famine in the Repeal of the Corn Laws


In one of his more famous, and outrageous, essays, George Stigler argued that economists do not matter, because changes in policy do not arise from changes in ideas, but from changing circumstances and special interests.

One of the cases that he briefly mentions is the repeal of the English Corn Laws that had restricted the importation of wheat (in England "corn" is what we call "wheat) into Britain. The usual account is that the free market arguments of Cobden and Bright made the difference.

The account quoted below, might be taken as support for Stigler's position. But it might also be evidence for the more optimistic position of Stigler's buddy, Milton Friedman. Friedman held that on major issues, economists' policy proposals go ignored until some crisis occurs that sends the politicians looking for policy alternatives. (Friedman thought that this is what occurred in the case of his own proposal for floating exchange rates.)

(p. A23) THE feast of Ireland's patron saint has always been an occasion for saluting the beautiful land "where the praties grow," but it's also a time to look again at the disaster that established around the world the Irish communities that today celebrate St. Patrick's Day: the Great Potato Famine of 1845-6. In its wake, the Irish left the old country, with more than half a million settling in United States. The famine and the migrations changed Irish and American history, of course, but they drastically changed Britain too.

. . .

The first intimations of Ireland's looming calamity reached the British government in August 1845. Although Britain was responsible for the social and economic iniquities which had made Ireland so susceptible, the government of the day deserves some credit for its efforts to avert mass starvation. There were political as well as logistical difficulties.

. . .

To Peel it was obvious that the Corn Laws would have to go, but his electorate of large landowners was vehemently opposed to their abolition. The Duke of Wellington, leader of the House of Lords, complained that Ireland's "rotten potatoes have done it all -- they put Peel in his damned fright." Peel drew heavily on the news from Ireland as he urged Parliament to vote for abolition:

"Are you to hesitate in averting famine which may come, because it possibly may not come? Are you to look to and depend upon chance in such an extremity? Or, good God! are you to sit in cabinet, and consider and calculate how much diarrhea, and bloody flux, and dysentery, a people can bear before it becomes necessary for you to provide them with food?"

The bill abolishing the Corn Laws was passed in May 1846 in the House of Commons, with two-thirds of Peel's party voting against it and the entire opposition voting in favor. A month later, Peel was out of office.

. . .

. . . Ireland's famine, by ending the Corn Laws, prompted the beginning of the free trade that established the success of Britain's industrial economy.



For the full commentary, see the article referenced immediately below, or see his forthcoming book Propitious Esculent: The Potato in World History:


JOHN READER. "The Fungus That Conquered Europe." The New York Times (Mon., March 17, 2008): A23.

(Note: ellipses added.)


The Stigler essay mentioned above is:

Stigler, George J. "Do Economists Matter?" Southern Economic Journal 42, no. 3 (1976): 347-54.

(I will try to dig out a reference for the Friedman position when I have more time.)




December 14, 2007

Professor Dowling's Defense of the University Against Big-Time Spectator Sports

 

  Professor William C. Dowling.  Source of photo:  online version of the NYT article quoted and cited below.

 

(p. C15)  For more than a decade at Rutgers, Dr. Dowling has stood as an idealistic absolutist, an intellectual convinced that the thunder of big-time athletics was crumbling the ivory tower of academe.

He has been the conscience, the Cassandra, the crank, the nag, the pain, infuriating opponents and, at times, exasperating allies. Enough years of being the whistle-blower, after all, can make even a tuneful musician sound shrill.

But now, just as Rutgers’s recent triumphs in football and basketball might seem to have justified the university’s investment of tens of millions of dollars, Dr. Dowling has answered in his own subversive way. His memoir of the decade-long campaign against high-stakes athletics at Rutgers, “Confessions of a Spoilsport,” has just been published by Penn State University Press. It is his valediction, and its tone, far from mournful, is defiant.

“I wanted this book to be a monument,” Dr. Dowling, 62, said after class. “I wanted it to be a monument to the kids and the faculty who rallied around this issue. We tried to take on the monster of commercialized sports, even if it swallowed us up and passed us out the other end. Someone should know that we fought the good fight. And because I believe in literature as a form of symbolic action, I want readers to see the possibility of another way. Think about the impact of a book like ‘Uncle Tom’s Cabin’ on slavery.”

. . .  

Dartmouth . . . instilled in Dr. Dowling an appreciation for what he calls now “participatory sports” — sports without scholarships, separate dorms, team tutors, product endorsements, television contracts, reduced admissions standards, easy classes and so many other tropes of Division I-A sports.

Rutgers, in turn, provided a striking example of before and after. For more than 100 years after playing Princeton in the first intercollegiate football game in 1869, Rutgers had competed against schools like Lafayette and Colgate with which it shared academic standards. Then, in 1991, Rutgers joined the Big East Conference, making it a peer of ethically challenged football factories like Miami.

Dr. Dowling grew convinced that the shift was degrading the caliber of students, indeed the entire communal culture.  . . .   And while he enjoyed teaching many members of the track, swimming and crew teams in his courses, he vociferously resisted the notion that athletic scholarships offered opportunity to low-income, minority students.

“If you were giving the scholarship to an intellectually brilliant kid who happens to play a sport, that’s fine,” he said. “But they give it to a functional illiterate who can’t read a cereal box, and then make him spend 50 hours a week on physical skills. That’s not opportunity. If you want to give financial help to minorities, go find the ones who are at the library after school.”

 

For the full story, see: 

SAMUEL G. FREEDMAN.  "EDUCATION; To the Victors at Rutgers Also Goes the 'Spoilsport'."  The New York Times  (Weds., September 26, 2007):  C15. 

(Note:  ellipses added.)

 

Here is the description of Dowling's book that appears on Amazon

"Universities exist to transmit understanding and ideals and values to students . . . not to provide entertainment for spectators or employment for athletes. . . . When I entered a much smaller Rutgers sixty years ago, athletics were an important but strictly minor aspect of Rutgers education. I trust that today's much larger Rutgers will honor this tradition from which I benefited so much." --Milton Friedman, Rutgers '32, Nobel Prize in Economics, 1976

In 1998, Milton Friedman's statement drew national attention to Rutgers 1000, a campaign in which students, faculty, and alumni were resisting the takeover of their university by commercialized Division IA athletics. Subsequently, the movement received extensive coverage in the New York Times, the Wall Street Journal, the Chronicle of Higher Education, Sports Illustrated, and other publications.

Today, "big-time" college athletics remains a hotly debated issue at Rutgers. Why did an old eastern university that had long competed against such institutions as Colgate, Columbia, Lafayette, and Princeton, choose, by joining the Big East conference in 1994, to plunge into the world of such TV-revenue-driven extravaganzas as "March Madness" and the Tostitos Fiesta Bowl? What is the moral for universities where big-time college sports have already become the primary source of institutional identity?

Confessions of a Spoilsport is the story of an English professor who, having seen the University of New Mexico sink academically in the period of a major basketball scandal, was galvanized into action when Rutgers joined the Big East. It is also the story of the Rutgers 1000 students and alumni who set out against enormous odds to resist the decline of their university--eviscerated academic programs, cancellation of minor sports, loss of the "best and brightest" in-state students to the nearby College of New Jersey--while tens of millions of dollars were being lavished on Division IA athletics. Ultimately, however, the story of Rutgers 1000 is what the New York Times called it when Milton Friedman issued his ringing statement: a struggle for the soul of a major university.

 

The reference to Dowling's book, is: 

Dowling, William C. Confessions of a Spoilsport: My Life and Hard Times Fighting Sports Corruption at an Old Eastern University. University Park, PA: Pennsylvania State University Press, 2007.

 

  Source of book image:  http://www.amazon.com/Confessions-Spoilsport-Fighting-Corruption-University/dp/0271032936/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1196229303&sr=1-1

 




August 10, 2007

The Courage of Milton Friedman

 

The following two paragraphs are from a paper I am currently working on.

 

Milton Friedman wrote a Newsweek column many years ago that caused a firestorm of anger among his colleagues in the economics profession. Friedman’s argument was that, in general, the government is not going to do a good job of identifying the best and most productively innovative economists. In particular, he argued that economics funding by the National Science Foundation (NSF) had made the economics profession more mathematical than was appropriate.

Even his ‘Chicago’ colleagues, who were otherwise inclined to be sympathetic to his work, were appalled: Robert Lucas wrote against Friedman in the New York Times, and Zvi Griliches spoke against him before Congress. 

 

Not too long after Friedman’s article came out, I praised it during one of the sessions of a Liberty Fund colloquium held in California.  After the session, a very distinguished economist came up to me, and started talking about the Friedman article in a very irritated and animated manner.  He said that what Friedman wrote in the article, might be true, but he shouldn’t have written it in a public forum.[i]  He said that within the NSF, the physicists have always been opposed to funding economics, and that Friedman’s article gave the physicists just the ammunition they needed.  I remember distinctly that after this conversation, the distinguished economist got into his very large and very expensive car and drove off.  To the cynical, it may also be worth mentioning that this economist had received very substantial funding from the NSF.

I also remember mentioning to George Stigler my disappointment that Lucas had written contra Friedman, and Stigler gave me his cynical smile, and said that I should have expected that Lucas, and the rest of the profession, would defend NSF funding.


[i] Most of the conversation I remember in broad terms, but specifically, I remember he said something very close to:  ‘Friedman shouldn’t air the profession’s dirty laundry in public.’

 

The reference for the Friedman article, is: 

Friedman, Milton.  "An Open Letter on Grants."  Newsweek, May 18 1981, 99.




July 16, 2007

Atlanta Police Killed Innocent Elderly Woman Who Attempted to Defend Her Home

 

JohnstonKathrynShotAtlanta.jpg  "The victim, Kathryn Johnson, was described as either 88 or 92."  Source of caption and photo:  online version of the NYT article cited below. 

 

In my 11/23/06 blog entry on Kathryn Johnston's death at the hands of the Atlanta police, I thought that she was an innocent by-stander in a legal drug bust (though I criticized the drug laws).  But it turns out that the situation was even worse than I thought. 

In the article excerpted below, it appears that the police lied to get a no-knock warrant, and when no drugs were found anywhere in the home, they planted marijuana that they had obtained from a previous drug bust.

(One more bit of evidence that Milton Friedman was right that we need a serious policy discussion on the economics and ethics of the War on Drugs.)  

 

ATLANTA, April 26 — After the fatal police shooting of an elderly woman in a botched drug raid, the United States attorney here said Thursday that prosecutors were investigating a “culture of misconduct” in the Atlanta Police Department.

In court documents, prosecutors said Atlanta police officers regularly lied to obtain search warrants and fabricated documentation of drug purchases, as they had when they raided the home of the woman, Kathryn Johnston, in November, killing her in a hail of bullets.

Narcotics officers have admitted to planting marijuana in Ms. Johnston’s home after her death and submitting as evidence cocaine they falsely claimed had been bought at her house, according to the court filings.

Two of the three officers indicted in the shooting, Gregg Junnier and Jason R. Smith, pleaded guilty on Thursday to state charges including involuntary manslaughter and federal charges of conspiracy to violate Ms. Johnston’s civil rights.

. . .

The day she was killed, narcotics officers said, they arrested a drug dealer who said he could tell them where to recover a kilogram of cocaine, and pointed out Ms. Johnston’s modest green-trimmed house at 933 Neal Street.

Instead of hiring an informant to try to buy drugs at the house, the officers filed for a search warrant, claiming that drugs had been bought there from a man named Sam. Because they falsely claimed that the house was equipped with surveillance equipment, they got a no-knock warrant that allowed them to break down the front door.

First, according to court papers, they pried off the burglar bars and began to ram open the door. Ms. Johnston, who lived alone, fired a single shot from a .38-caliber revolver through the front door and the officers fired back, killing her.

After the shooting, they handcuffed her and searched the house, finding no drugs.

“She was without question an innocent civilian who was caught in the worst circumstance imaginable,” Mr. Howard, the district attorney, said at a news conference on Thursday. “When we learned of her death, all of us imagined our own mothers and our own grandmothers in her place, and the thought made us shudder.”

When no drugs were found, the cover-up began in earnest, according to court papers.

Officer Smith planted three bags of marijuana, which had been recovered earlier in the day in an unrelated search, in the basement. He called a confidential informant and instructed him to pretend he had made the drug buy described in the affidavit for the search warrant.

 

For the full story, see: 

SHAILA DEWAN and BRENDA GOODMAN.  "Officials Investigate Broad Corruption in Atlanta Police Dept."  The New York Times  (Fri., April 27, 2007):  A16.

(Note: ellipsis added.  The online title of the article was: "Prosecutors Say Corruption in Atlanta Police Dept. Is Widespread.")

 




June 2, 2007

Communist Dictator Chavez Destroys Freedom of the Press in Venezuela

 

   Supporters of freedom in Venezuela protesting communist dictator Chavez's shutting down the television network that dared to criticize him.  Source of photo:  online version of the NYT article that is quoted and cited below. 

 

My Wabash College economics professor, Ben Rogge, used to say that political freedom ultimately depended on economic freedom:  how could you depend on a socialist government to provide a printing press to those who seek to undermine socialism?

(In his article "The Case for Economic Freedom" published in his Can Capitalism Survive? Rogge gives credit for the argument to his friend Milton Friedman in his Capitalism and Freedom, which was based on lectures given at Wabash.)

Well, if there is a heaven, I can imagine Rogge there, reading the following passages, and reacting with his sad, knowing, half-smile.

 

(p. A3)  CARACAS, Venezuela, May 27 — With little more than an hour to go late Sunday until this country’s oldest television network was to be taken off the air after 53 years of broadcasting, the police dispersed thousands of protesters by firing tear gas into demonstrations against the measure.

. . .

The president has defended the RCTV decision, saying that the network supported a coup that briefly removed him from office in 2002.

RCTV’s news programs regularly deride Mr. Chávez’s Socialist-inspired transformation of Venezuelan society. “RCTV lacks respect for the Venezuelan people,” said Onán Mauricio Aristigueta, 46, a messenger at the National Assembly who showed up to support the president.

Mr. Chávez has left untouched the operations of other private broadcasters who were also critical of him at the time of the 2002 coup but who have changed editorial policies to stop criticizing his government. That has led Mr. Chávez’s critics to claim that the move to allow RCTV’s license to expire amounts to a stifling of dissent in the news media.

“The other channels don’t say anything,” said Elisa Parejo, 69, an actress who was one of RCTV’s first soap opera stars. “What we’re living in Venezuela is a monstrosity,” she said at RCTV’s headquarters on Sunday, as employees gathered for an on-air remembrance of the network’s history. “It is a dictatorship.”

 

For the full story, see: 

SIMON ROMERO.  "Dueling Protests Over Shutdown of Venezuela TV Station."  The New York Times  (Mon., May 28, 2007):  A3.

(Note: the excerpts above are from the updated online version of the article that appeared online under the title: "Venezuela Police Repel Protests Over TV Network’s Closing.")

(Note:  ellipsis added.)

 

On 5/28/07 CNN broadcast a Harris Whitbeck report on students protesting the Chavez censorship under the title "Hear No Evil, See No Evil."

 

   Monica Herrero protests Chavez closing down the television network that dared to criticize his government.  Source of photo:  screen capture from the CNN report at http://www.cnn.com/video/partners/clickability/index.html?url=/video/world/2007/05/28/whitbeck.chavez.tv.affl

 




February 21, 2007

"Remarkable Entrepreneur" Bob Chitester

 

ChitesterBob.jpg   Bob Chitester.  Source of image:  online version of the WSJ article cited below.

 

I was in the audience for the discussion portion of a couple of the episodes of the original "Free to Choose."  On January 29, PBS broadcast a sort of coda to the series entitled "The Power of Choice:  The Life and Times of Milton Friedman."

 

As much as the show is a celebration of Friedman's life and work, it also showcases the remarkable entrepreneur who made it and "Free to Choose" possible. Bob Chitester produced the original series while serving as the only public-TV station manager in the country who didn't believe in government subsidies. A tireless promoter, he raised the equivalent of $8 million today for the series -- entirely from private sources, an achievement that delighted Friedman.

Mr. Chitester came to the project with an unusual background. In 1966, he became the general manager of the PBS station in Erie, Pa., at age 29. An opponent of the Vietnam War, he handed out literature for George McGovern in 1972 and admits he knew nothing about economics. Then, in 1976, he met with economist W. Allen Wallis, who gave him a copy of Friedman's "Capitalism and Freedom." Mr. Chitester soaked it up, became a believer in markets, and immediately began pursuing Friedman to do a series that would provide a counterpoint to one by liberal economist John Kenneth Galbraith that PBS was airing.

After all these years, Mr. Chitester is still surprised by how easily Friedman's cooperation came. "I was a bearded, leather-jacketed, small-town TV executive, yet he treated me as competent and honorable, as he did everyone he met, until you proved otherwise," he recalls.

Surprisingly, Friedman insisted on not writing a script in advance of filming. The points that would be made in each scene were discussed, but his commentary was extemporaneous. This resulted in such gems as the economist sitting in a sweatshop in New York's Chinatown, where he recalled the days when his mother worked in a similar environment. "Life was hard," Friedman noted, "but opportunity was real." He then transports the audience to a junk floating in the harbor of Hong Kong, "the freest market in the world," where Friedman discusses how the then-British colony's leaders refused to collect some economic statistics because they feared they would be used as an excuse for government intervention in the booming economy.

. . .

This week's PBS special pays tribute to the many achievements of Milton Friedman. One that is often underappreciated is the extent to which he demonstrated how visual images could influence and shape public debate. As his most ardent electronic disciple, Bob Chitester deserves the free-market community's equivalent of an Oscar.

 

For the full commentary, see: 

JOHN H. FUND.  "TV's Evangelist for Capitalism."  The Wall Street Journal  (Weds., January 31, 2007):  D10.

(Note:  ellipsis added.)

 




February 10, 2007

Milton Friedman's School Vouchers Pass Utah Senate

I received an email mailing yesterday (2/9/07) from Robert Fanger, who is the Communications Director of the Milton and Rose Friedman Foundation.  He wrote:  "By a vote of 19 to 10, the Utah Senate passed the universal school voucher bill this afternoon."

On Wednesday, the Wall Street Journal ran an editorial on the issue that is excerpted below:

 

Proving that the best reforms often pass by the slimmest of margins, Utah's house voted 38-37 late last week to create a state-wide voucher program that will allow students to escape failing public schools.

Union opponents can be expected to mount a furious assault in the state senate, and then head to court. But the senate is likely to pass the reform supported by GOP Governor Jon Huntsman Jr., so Utah may soon become the first state with a universal school choice plan. It would offer students who attend private K-12 schools from $500 to $3,000 in tuition reimbursement based on family income.

Meanwhile, South Carolina could be next. Legislation is now being drafted to allow nearly 200,000 poor students to opt out of failing public schools by giving them up to $4,500 a year to spend on private school tuition. Middle class parents would be eligible for a $1,000 tax credit.

 

Reference for editorial:

"Choice Advances."  The Wall Street Journal  (Weds., February 7, 2007):  A14.

 




January 18, 2007

Becker on Friedman

 

MiltonFriedmanDay.jpg   Source of graphic:  http://www.ideachannel.com/Friedman.htm

 

David Levy has noted in an email that at the reception to preview the new Friedman documentary, Gary Becker gave a great presentation on Milton Friedman, and it was a great shame that no one recorded it.  I feel especially guilty, because I had thought of recording it, and had even brought a small camera that would have (badly) done the job.  But the room was dark and crowded, and by the time the talk started, I was in conversation a long way from where Becker started speaking. 

Levy suggests that maybe those of us who were there, should record our memories of what Becker said.  I like that idea, and will record mine here.

 

Becker started out by saying to Bob Chitester that he wasn't sure that the documentary did justice to Friedman.  (Chitester was the producer, I think, of the original Free to Choose series, and a moving force behind the new Friedman documentary, to be first shown on PBS on January 29th, 2007.)  

Becker mentioned that Friedman was a missionary.  He would talk economics to anyone--if a taxi driver made a mistaken comment about economics, Friedman would set him straight.

Becker mentioned that while Friedman liked to argue about ideas, he never saw him be mean to anyone.

Becker mentioned that a friend of his taking Friedman's price theory class (I think Becker may have said the friend was Gregory Chow?) asked Becker how he could keep asking questions in Becker's class, when Friedman would keep showing the ways in which Becker was mistaken.

Becker mentioned that he talked to Friedman a few days before his death, and that they even talked a little economics.

Becker emphasized that Friedman had been both a great economist, and had made an enormous difference in the world, in particular in making the world more free.

 

Some background:  Becker spoke about Friedman at two sessions at the Allied Social Sciences Association meetings in Chicago in early January.  One was in the afternoon (about 2:30 PM?) of January 5, 2007, and also included Robert Lucas, and Tom Sargent.  I missed that session because I wanted to attend a session featuring the research program of Robert Fogel on longevity.  The second session, at 6:00 - 7:30 PM on Sat., January 6, 2007 was at a reception sponsored by the University of Chicago to preview the new documentary on Friedman.  I attended this reception through Becker's presentation, but did not stay for the documentary preview.  My friend Luis Locay attended both sessions, and told me that some, but not all, of the stories Becker told were similar in both sessions.  Locay also mentioned that Becker appeared to get more choked-up at the session on January 5, 2007.

 




January 9, 2007

Hugely Wasteful Health-Care Spending

CureBK.jpg   Source of book image:  http://www.encounterbooks.com/books/cure/

 

Milton Friedman is gone now, but the new book reviewed below, includes a forward written by him.  Friedman can be praised for many reasons; a minor one is that he was tireless and generous in offering praise and support for others who were seeking to better understand free markets. 

 

About 10 years ago, I broke my leg playing basketball.  After I came out of surgery, with a cast stretching from my ankle to the top of my leg, an orderly asked me whether I had ever used crutches before.  I hadn't, so he showed me what to do, swinging through them from one end of the room to the other.  The whole lesson lasted about 90 seconds.  When I got my hospital bill, I saw that I had been charged $150 for "gait training on crutches."  I did what all insured Americans do:  I forwarded the bill to my insurance company.  Why should I care?  I wasn't paying for it.

One of the problems with American health care, as David Gratzer notes in "The Cure," is precisely a payment system that takes the patient out of the equation.  In the early 1960s, the average American paid out of pocket one of every two dollars that he spent on health care; today the figure is one dollar in seven.  The inevitable effect is hugely wasteful spending (and inflated hospital bills like mine).  In fact, per-patient costs have gone up almost exactly in inverse proportion to the share of spending borne by the consumer.

Dr. Gratzer cites a remarkable Rand Corp. study that tracked health-care spending by 2,000 families over eight years.  The families who got free health care spent 40% more than the families with cost-sharing arrangements.  And yet the health outcomes for the two groups were the same.  The lesson:  Market-based health insurance systems, such as health savings accounts, cut out inefficiencies and lower costs without compromising quality.

. . .

. . . :   America is clearly at a crossroads in medical care.  Within the next decade we will get either some version of Hillary-care or more free-market medicine, starting with universally available health savings accounts.  Let's hope that our nation's policy makers read "The Cure" before they decide.  They will learn that the government route flattens costs only by holding back the pace of technology, artificially controlling its price and rationing its use.  That is not a prescription for better health.

 

For the full review, see: 

STEPHEN MOORE.  "BOOKS; The Market and Its Medicine."  The Wall Street Journal  (Tues.,  By  December 5, 2006; Page D6. 

 

The reference to the book under review, is: 

Dr. David Gratzer.  The Cure: How Capitalism Can Save American Health Care.  Encounter Books, 2006.  (233 pages, $25.94)

 




November 16, 2006

Milton Friedman, Freedom's Friend, RIP

 

A week or so ago my mother and I were sharing our disappointment at the firing of Donald Rumsfeld, who we both thought was a good man.  She told me that she had thought he would have made a good President.  I told her that she was in good company, because in his memoirs, Milton Friedman had expressed the same thought (p. 391).

We were in very good company while Milton Friedman was with us, and I feel a sense of loss, both personally, and for the broader world. 

By chance, I sat behind Milton Friedman, and his wife and son, at the Rockefeller Chapel memorial service to honor Milton Friedman's good friend George Stigler.  I can't remember if Friedman spoke it at the service, or wrote it later, but I remember him saying (or writing) that the world was a darker place without Stigler in it. 

And it is darker yet, without Friedman in it.  (It is reported that he died of heart failure sometime early this morning at the age of 94.)

My first memory of meeting Milton Friedman was in the early 1970s at Wabash College.  My Wabash professor, Ben Rogge, was a friend of Friedman's.  They attended Mount Pelerin Society meetings together, and Rogge, along with his senior colleague John van Sickle, had invited Friedman to deliver a series of lectures at Wabash College, that became the basis of what remains Friedman's meatiest defense of freedom:  Capitalism and Freedom.  (Free to Choose is better known, broader, and important, but Capitalism and Freedom is more densely packed with stimulating argument, and provocative new ideas.)

The members of the small, libertarian Van Sickle Club were gathered around Friedman in a lounge at Wabash, and I remember Rogge asking Friedman:  'If there was a button sitting in front of you, that would instantly abolish the Food and Drug Administration, would you push it?'  I remember Friedman smiling his incredibly delighted smile, and saying simply, with gusto:  "yes!"

I remember attending some meetings at the University of Chicago, I think the first History of Economics Society meetings, with Rogge in attendance.  (This was in my first couple of years as a Chicago graduate student, when I was mainly doing philosophy.)  Stigler invited Rogge up for a drink, and Rogge said said 'sure' as long as Diamond could come along.  (E.G. West, the Adam Smith biographer, was also there, I think at Rogge's behest.)  The apartment had been Milton Friedman's for many years.  In fact I think he had built the several story apartment building, because he wanted convenient, comfortable living quarters close to his Chicago office.  Friedman's apartment occupied the top floor, and I vaguely recall, afforded a nice view of the campus. 

I lived for a year at International House, next to the Friedman apartment building.  I remember on Sunday morning's seeing Friedman dash into International House to buy his copy of the Sunday New York Times.  ("Dash" is too strong, but he certainly moved with more vigor than I ever have on Sunday mornings.)

When Friedman left Chicago for the Hoover Institute in California, he sold, or sublet his apartment to Stigler, who apparently used it on evenings when he did not want to drive out to his modest home in the Chicago suburb of Flossmoor.

I was stunned to be in the presence of Stigler in Milton Friedman's former abode.  (I seem to remember E.G. West seeming almost equally overwhelmed.)  I remember much of the time being spent with Stigler trying to convince Rogge to join him for golf the following day.  Rogge demurred because he was wanting to see, for the first time, I think, a newly born grandchild in the Chicago area.  (Family was extremely important to Rogge, both in theory, and in practice.)

I also remember Stigler asking Rogge about Rogge's having convinced Friedman to give a speech at a fund-raiser at Wabash.  Stigler said something to the effect that this was the level of favor that he could not ask often of Friedman, and did the cause really justify it.  (I think one of Stigler's sons had been a Wabash student while Rogge was Dean of Students at Wabash.)  Rogge seemed to appreciate Stigler's point, but seemed to believe that solidifying Wabash's endowment was a worthy enough cause.

(This, by the way, is ironic, since Rogge agreed with Adam Smith that endowments were apt to be used for purposes different from the donor's intent.  In the founding of Liberty Fund, Rogge had tried to persuade Pierre Goodrich to have the Fund spend all of its funds in some modestly finite number of years.)

After I gradually made the switch from philosophy to economics, at Chicago, I got to know Stigler fairly well, but unfortunately did not know Friedman, personally, as well.

I remember attending a reception at Chicago in honor of Friedman's winning the Nobel Prize in 1976.  (It was at that reception, that I first struck up a conversation with my good friend Luis Locay.)

I registered for Milton Friedman's price theory class the final time he taught it, I think.  It was in a large, dark tiered classroom.  At the beginning of every class, Friedman would almost bounce into the classroom, bursting with pent-up energy.  I do not smile easily, or often, but I always smiled when I saw Friedman.  There was so much good-will, joy in life, enthusiasm for ideas. 

During one of these entrances, I noticed that Friedman, well into his 60s, was wearing the counter-culture-popular 'earth shoes'; apparently he was out-front in footwear, as well as ideas.

One characteristic that came through in class, as well as in his public debates and interviews, was that he was focused on the ideas and not the personalities expressing them.  I remember seeing Friedman debating some union official on television.  He talked at one point about how he and the official had had to work hard in their youth.  Friedman seemed to like the union official; he just disagreed with some of his ideas, and wanted the union official and everyone else, to understand why.  By the end of the "debate", the union official had a warm, amused, expression on his face.

I remember once Friedman saying that more of us should speak out more often on more topics; that the bad consequences to us weren't as bad as we supposed.  Probably he was right; though he had a lot working in his favor---his quick-wittedness, his good will, his sense of humor, and probably his being so short in physical stature---it was probably hard for anyone to feel threatened by him, so they were more apt to let down their guard and listen to what he had to say.

One of the unfair hardships of some of Friedman's years at Chicago, was the constant harassment from a group of Marxist students called, I think, the Spartacus Youth League.  Whenever Friedman was scheduled to speak, they would disrupt the event, and try to prevent his speaking.

So when it was time to tape the discussion half-hours of each hour episode of the original "Free to Choose" series, the discussions were scheduled as invitation-only.  I was in the audience for two or three of the discussions.  (They were fine, but personally, I would have preferred another half hour of pure Friedman.)

 

As a poor graduate student, I counted myself extremely lucky to find an auto-repairman who was a wizard at finding creative ways to keep old cars running, at low repair cost.  He was a man of few words, put he kept the words he gave.

I ran into him and his wife in a little Lebanese restaurant that was run out of the secondary student union just down from I-House.  He invited me to sit with them, which I did.  I remember him telling me that they were gypsies, and him mentioning that people sometimes had the wrong idea about gypsies.  He told me that he had been raised never to go into debt.  He told me how cheap White Castle hamburgers used to be.  When I told him that I was studying economics, he surprised me by saying that Milton Friedman had been a customer of his, and that he really liked Milton Friedman.

This gypsy was a simple, decent, hard-working fellow.  I don't know, but I strongly guess that Friedman saw the good in this fellow, and treasured what he saw.  And the gypsy liked Milton Friedman back.

 

Whenever I saw Friedman interviewed on television, or read one of his letters, or op-ed pieces, in the Wall Street Journal, I would feel a bit more optimistic about freedom, and life.  A lot of people give up, at some point, but Friedman never did---he just kept on observing, and thinking, and speaking.  The last time I had any interaction with him was at the meetings of the Association of Private Enterprise Education (APEE) on April 4, 2005.  He was hooked up with the conference via video camera from an office in California.  He gave a brief presentation, and then spent quite some time answering questions.  (I recorded some of these in grainy, small video clips that can be viewed on my web site, or viewed on the web site of the APEE.)

I asked him a question about whether he agreed with Stigler in Stigler's memoirs that Schumpeter had something important to say about competition.  I wasn't as impressed by his answer to this question, as I was to some of his other answers.

I think that Schumpeter may be remembered as a crucial economist for our understanding of the process of capitalism:  innovative new products through creative destruction.  But if capitalist innovation prospers, part of the credit will belong to Milton Friedman.  

Friedman and Stigler were led into economics in part because of the challenge to capitalism posed by the Great Depression.  If depressions of that magnitude were an essential part of what capitalism was about, then a lot of people would prefer to have nothing to do with capitalism.  Schumpeter's response basically was to say that every once in awhile, really bad depressions will happen as part of the process of capitalism, and we just have to suck it up, and live through them. 

One of Milton Friedman's major contributions to economics, was to show that ill-advised government policies, such as a contraction of the money supply, were responsible for making the depression much deeper, and much longer than it needed to have been.  (See, e.g,  A Monetary History of the United States.)

In other words, he showed that Great Depressions are not an inescapable price we must pay if we choose to embrace the economic freedom, and the creative destruction, of capitalism.

 

When Friedman cleaned out his Chicago office to head for California, he left in the hallway for scavenging, extra copies of some of his books, and offprints of articles various academics had sent him.  So I have a Spanish copy of Capitalism and Freedom (even though I don't read Spanish), and several offprints of articles from distinguished economists who sent "best wishes" to "Milton." 

After the office was cleared out, I remember sticking my head in, and looking around the empty office, one final time, for sentiment's sake.  I was stunned to see a bright red, white and blue silk banner left hanging on the wall.  It was festooned with American flags, and said, in large letters:  "Buy American!" 

I felt anxious and confused:  was one of my heroes inconsistent on such a basic issue?  So I entered the office, and went over to the banner, and examined it more carefully.  It was then that I noticed, in small letters at the bottom of the banner:  "Made in Japan".

 

Some book references relevant to the discussion above:

Friedman, Milton. Capitalism and Freedom. Chicago: The University of Chicago Press, 1962.

Friedman, Milton, and Anna Jacobson Schwartz. A Monetary History of the United States, 1867-1960, Nber Studies in Business Cycles. Princeton: Princeton University Press, 1963.

Friedman, Milton, and Rose D. Friedman. Free to Choose: A Personal Statement. New York: Harcourt Brace Jovanovich, Inc., 1980.

Stigler, George J. Memoirs of an Unregulated Economist. New York: Basic Books, Inc., 1988.

West, E. G. Adam Smith: The Man and His Works: Arlington House, 1969.

 

 In vino veritas.  Photo from Tio Pepe Bodega, Jerez, Spain.  Photographer:  Dagny Diamond.

 

Continue reading "Milton Friedman, Freedom's Friend, RIP" »




November 4, 2006

Hong Kong's Growth Was Due to Cowperthwaite's "Positive Noninterventionism"


In Free to Choose, Milton Friedman compared Hong Kong's free market, with India's state control of the economy.  The dynamism and growth of Hong Kong was a stark contrast to the inertia and stagnation of India.  In the decades since Free to Choose, India has become more free and, alas, Hong Kong less free:   


(p. A14) . . . it was sadly unsurprising to see Hong Kong's current leader, Donald Tsang, last month declare the death of the policy on which the territory's prosperity was built.

The really amazing phenomenon is that, for half a century, his predecessors resisted the temptation to tax and meddle.  Though a colony of socialist Britain, Hong Kong followed a laissez-faire capitalist policy, thanks largely to a British civil servant, John Cowperthwaite.  Assigned to handle Hong Kong's financial affairs in 1945, he rose through the ranks to become the territory's financial secretary from 1961-71.  Cowperthwaite, who died on Jan. 21 this year, was so famously laissez-faire that he refused to collect economic statistics for fear this would only give government officials an excuse for more meddling.  His successor, Sir Philip Haddon-Cave, coined the term "positive noninterventionism" to describe Cowperthwaite's approach.

The results of his policy were remarkable.  At the end of World War II, Hong Kong was a dirt-poor island with a per-capita income about one-quarter that of Britain's.  By 1997, when sovereignty was transferred to China, its per-capita income was roughly equal to that of the departing colonial power, even though Britain had experienced sizable growth over the same period.  That was a striking demonstration of the productivity of freedom, of what people can do when they are left free to pursue their own interests.

 

For the full commentary, see: 

MILTON FRIEDMAN.  "Hong Kong Wrong."  Wall Street Journal  (Fri., October 6, 2006):  A14.

(Note:  ellipsis added.)

 






October 24, 2006

How Speculators Stablilize Gas Prices

As long ago as 1953, Milton Friedman argued that speculation normally helps to stabilize prices rather than destabilize them.

Mr. Friedman's argument was applied to currency trading, but the same reasoning works here.  If speculative trading tends to push prices higher when they are already high and lower when they are already low, then traders must be buying high and selling low.

That would mean that traders have to lose money on average -- which does not seem very likely.  To the contrary, speculative traders try to buy low and sell high, activities that by their nature tend to push prices up when they are too low and down when they are too high.

Since Mr. Friedman's 1953 article several papers have been published, both supporting and attacking this argument.  But the general principle seems quite robust.

 

For the full commentary, see: 

Hal R. Varian.  "ECONOMIC SCENE; The Rapidly Changing Signs at the Gas Station Show Markets at Work."  The New York Times  (Thurs., August 24, 2006):  C3.

 

The Milton Friedman article that Varian refers to, is: 

Friedman, Milton. "The Case for Flexible Exchange Rates." In Friedman. Essays in Positive Economics. Chicago:  University of Chicago Press, 1953.




October 20, 2006

Laptops Update Read and Friedman's "I, Pencil" Story

  Source of graphic:  scanned from p. B1 of NYT article cited below.

 

Leonard Read in his classic "I, Pencil" told the story of how the various compenents of a mere pencil came from different suppliers the world over.  People who did not know each other, and might not like each other if they met, but who were brought together in productive co-operation through the power of the market.  Milton Friedman frequently presented his own verison of this story.  The cover of my 1980 edition of Free to Choose has a picture of Friedman holding a pencil as if in the middle of this story.  And there is a short video-clip of Friedman telling the story.

A similar story could be told with many other products, and several sources have presented the raw materials in print to tell the story for laptop computers.  (By "raw materials" I mean that they list the diversity of sources of the inputs; but usually without drawing all the lessons that Reed and Friedman drew.)  One source is a chapter in Thomas Friedman's The World is Flat

Two other sources are articles that appeared within a few days of each other in The New York Times and The Wall Street Journal

The reference to The New York Times article is:

DAVID BARBOZA.  "An Unknown Giant Flexes Its Muscles; Amid Talk of Deal With I.B.M., Lenovo of China Sheds Some Obscurity."  The New York Times (Sat., December 4, 2004):  B1 & B3.

The reference to The Wall Street Journal article is:

Jason Dean and Pui-Wing Tam.  "The Laptop Trail; The Modern PC Is a Model Of Hyperefficient Production And Geopolitical Sensitivities."   The Wall Street Journal  (Thurs., June 9, 2005):  B1 & B8. 

 

  Source of graphic:  scanned from p. B1 of WSJ article cited above.

 




September 22, 2006

"Free to Choose" Turns Estonia into "Boomtown"


  Source of book image:  http://search.barnesandnoble.com/booksearch/imageviewer.asp?ean=9780156334600

 

If, like Mr. Laar, you are only going to read one book in economics, Milton Friedman's Free to Choose, is not too bad a choice:

(p. A23) Philippe Benoit du Rey is not one of those gloomy Frenchmen who frets about the threat to Gallic civilization from McDonald's and Microsoft.  He thinks international competition is good for his countrymen.  He's confident France will flourish in a global economy -- eventually.

But for now, he has left the Loire Valley for Tallinn, the capital of Estonia and the economic model for New Europe.  It's a boomtown with a beautifully preserved medieval quarter along with new skyscrapers, gleaming malls and sprawling housing developments:  Prague meets Houston, except that Houston's economy is cool by comparison.

Economists call Estonia the Baltic tiger, the sequel to the Celtic tiger as Europe's success story, and its policies are more radical than Ireland's.  On this year's State of World Liberty Index, a ranking of countries by their economic and political freedom, Estonia is in first place, just ahead of Ireland and seven places ahead of the U.S. (North Korea comes in last at 159th.)

It transformed itself from an isolated, impoverished part of the Soviet Union thanks to a former prime minister, Mart Laar, a history teacher who took office not long after Estonia was liberated.  He was 32 years old and had read just one book on economics:  ''Free to Choose,'' by Milton Friedman, which he liked especially because he knew Friedman was despised by the Soviets.

Laar was politically naïve enough to put the theories into practice.  Instead of worrying about winning trade wars, he unilaterally disarmed by abolishing almost all tariffs.  He welcomed foreign investors and privatized most government functions (with the help of a privatization czar who had formerly been the manager of the Swedish pop group Abba).  He drastically cut taxes on businesses and individuals, instituting a simple flat income tax of 26 percent.

 

For the full commentary, see:

JOHN TIERNEY.  "New Europe's Boomtown."  The New York Times  (Tues., September 5, 2006):  A23.

 




August 4, 2006

Schumpeter Not Invited to Milton Friedman's Dinner Party


FriedmanRoseMilton.jpg   Rose and Milton Friedman.  Source of image:  the online venison of the WSJ article cited below.

 

Milton Friedman is one of my heroes.  But my dinner party invitation list would include Hayek and Schumpeter in place of Marshall and Keynes.

 

If they were to throw a small dinner party . . . for Mr. Friedman's favorite economists (dead or alive), who'd be invited?  . . . he reeled off this answer:  "Dead or alive, it's clear that Adam Smith would be No. 1. Alfred Marshall would be No. 2. John Maynard Keynes would be No. 3. And George Stigler would be No. 4. George was one of our closest friends."  (Here, Mrs. Friedman, also an economist of distinction, noted sorrowfully that "it's hard to believe that George is dead.")

 

For the full interview, see: 

TUNKU VARADARAJAN. "COMMENTARY: THE WEEKEND INTERVIEW; Rose and Milton Friedman; The Romance of Economics." The Wall Street Journal  (Sat., July 22, 2006):  A10.





June 22, 2006

Precariousness: In France it is Sought and it is Feared

Coombs and VanderHam on the April 3, 2006 extreme ski run, in which they both died.  Source of caption information, and of photo:  online version of the first NYT article cited below.

 

Some seem to seek risk:

(p. A1)  ''La Grave goes from tranquil to frightening and mad, and it's so exhilarating to be in those moods,'' Mrs. Coombs said in a telephone interview last week.  Her husband, she said, ''never found anything more perfect.''

Last month, Mr. Coombs slipped off a cliff and fell 490 feet to his death.  He was 48. He was trying to rescue Chad VanderHam, his 31-year-old protégé and skiing partner from the United States.  Mr. VanderHam had gone over the same cliff moments earlier.  He also died.

Their accident, during a recreational outing, has focused attention on extreme skiing and on this remote destination, high in the Alps about 50 miles east of Grenoble.

For the full story, see:

NATHANIEL VINTON.  "Skiing Beyond Safety's Edge Once Too Often."  The New York Times (Wednesday, May 17, 2006):   A1 & C23.

 

Others seem to fear risk:

PARIS, April 8 - Standing amid the chaos of the protests here this week, Omar Sylla, 22, tried to explain why the French are so angry about what seems to many people like such a small thing: the French government's attempt to loosen labor laws a bit by allowing employers the right to fire young workers without cause during a trial period on the job.

Even after President Jacques Chirac promised to shorten the period to one year from two, the protests continued, and French students and unions have vowed to keep demonstrating until the law is repealed.

''We need less precariousness, not more,'' said Mr. Sylla, the son of immigrants from Ivory Coast, who still lives with his parents in a government-subsidized apartment in a working-class suburb of Paris.

Mr. Sylla said he had searched for years for a job before finding work about a month ago as a baggage handler at Charles de Gaulle International Airport.  Even then, he said, he only got the job because his sister works at the airport and pulled strings on his behalf.

For the full story, see:

CRAIG S. SMITH. "French Unrest Reflects Old Faith in Quasi-Socialist Ideals." The New York Times, Section 1  (Sunday, April 9, 2006):   8.

 

Economists have long puzzled at how the same person can both buy insurance and gamble in a casino.  The first seems an act of risk-aversion, and the second of risk-seeking.  (Milton Friedman, and others, have tried to explain the paradox.)

But I am puzzled by something else.  When risks are taken, why are they so often taken in arenas such as rioting in the streets, or extreme skiing, where they achieve no noble purpose?  Whatever risks one is going to take, why not take them in the arena of innovation and entrepreneurship, where the potential benefits to the innovator and to human progress, are huge?

 




May 25, 2006

Omit the Footnotes?

When I was a graduate student at Chicago, Milton Friedman was rumored to have given a presentation on how to write a doctoral dissertation in which he said something like: 

Take everything nonessential, and move it into footnotes.  Then collect all the footnotes into an appendix.  Finally, delete the appendix.

My memory is that Deirdra McCloskey, in her wonderful advice on how to write economics clearly, also advises against footnotes.  I at least attribute this advice to McCloskey (and Friedman) when I pass it on to students.

But sometimes, when I write an article, a misguided referee, or editor, insists that I omit some stuff that I think is really good.  When that happens, sometimes, if I feel strongly, I sneak some of that material back into the paper in footnotes.  Maybe no one will ever read it, but I feel better that it is still there.

And every once in awhile, it may turn out that the footnotes are what matter most: 

It was typical of Schumpeter's love for theory that he rejected Marshall's view that the reader could skip the footnotes and appendixes.  If time were short, Schumpeter advised, read them and skip the text!  (p. 7; italics in original.)

In this case, though, I suspect that Marshall was right, and Schumpeter wrong.

 

Source:

Samuelson, Paul. "Compete as an Economic Theorist." In Schumpeterian Economics, edited by Helmut Frisch, New York: Praeger Publishers, 1981, pp. 1-27.

 




March 9, 2006

Vouchers Enable Choice, Competition, and Learning

TierneyJohn.jpg
John Tierney. Source of image: online version of NYT article cited below.


The New York Times Op-Ed education columnist offers a provocative evaluation of how Milton Friedman's educational voucher proposal is working in Milwuakee:

The Journal Sentinel, which endorsed John Kerry in 2004, has parted company with the Democratic Party on the voucher issue. It backed Republican efforts this year to expand the program, which has led to the creation of dozens of new private schools in Milwaukee.

"We've seen what school choice can do," said Gregory Stanford, an editorial writer and a columnist at the paper. "It's impressive to go around to the voucher schools and see kids learning. Their parents are much more satisfied with these schools. And the fears that the public schools would be hurt have turned out to be wrong."

In fact, the students in public schools have benefited from the competition. Two studies by Harvard researchers, one by Caroline Hoxby and another by Rajashri Chakrabarti, have shown that as the voucher program expanded in Milwaukee, there was a marked improvement in test scores at the public schools most threatened by the program (the ones with large numbers of low-income students eligible for the vouchers).

The competition spurred the public system to shift power from the central administration to individual schools, allowing councils of parents and teachers to decide who should teach there, instead of forcing the schools to accept incompetent teachers just because they had seniority.

"Poor teachers used to shuffle from one school on to another in what we called the dance of the lemons," says Ken Johnson, the head of the school board. "But we couldn't let that continue once our students had the option to go somewhere else. We had to react to students' needs. We had to start seeing them as customers, not just seat-fillers."

Some of the new voucher schools have flopped — but the advantage of a voucher program is that a bad private school can be shut down a lot faster than a bad public school. And while critics complain that there still isn't definitive evidence that voucher students are doing better over all in their new schools, the results so far in Milwaukee and other cities are more than enough to declare vouchers a success.

"All the good research, including the voucher opponents' work, shows that kids who accept vouchers are doing at least as well as their public school peers," says Joseph Viteritti of Hunter College. "That's remarkable, considering how much less money is being spent on the voucher students."

In Milwaukee, where the public system spends more than $10,000 per student, private schools get less than $6,400 for each voucher student. But when you see what can be done for that money, you realize what's wrong with Democrats' favorite solution for education: more money for the public-school monopoly.

. . .

The school principal, Denise Pitchford, worked in the public schools, but she took a pay cut in exchange for less red tape. "I wanted the flexibility to give immediate personal attention to every student," she said. "To me, it represented less money but a better opportunity." Just like the whole voucher program.


For the full story, see:

JOHN TIERNEY. "City Schools That Work." The New York Times (Tues., March 7, 2006): A25.


Note: This article was reprinted under the title "Vouchers Offer Many Positives." in: Omaha World-Herald (Weds., March 8, 2006): 7B.




January 1, 2006

Free to Choose in Education

Here is the text of my brief letter-to-the-editor that was published several months ago. "OPS" stands for Omaha Public Schools.

Competing school districts within the Omaha area permit parents some freedom of choice in the education of their children.

If OPS succeeds in ending that freedom, the Legislature should restore freedom of choice by adopting Milton Friedman’s proposal to issue vouchers to parents, to be spent at the public or private school of their choice.


Art Diamond. "Try Vouchers." Omaha World-Herald (Thurs., June 16, 2005): 6B.




December 5, 2005

Never Say Die: Milton Friedman on Vouchers, Again

From an opinion-piece by Milton Friedman, at age 93, in today's Wall Street Journal:

Whatever the promise of vouchers for the education of New Orleans children, the reform will be opposed by the teachers unions and the educational administrators. They now control a monopoly school system. They are determined to preserve that control, and will go to almost any lengths to do so.

Unions to the contrary, the reform would achieve the purposes of Louisiana far better than the present system. The state's objective is the education of its children, not the construction of buildings or the running of schools. Those are means not ends. The state's objective would be better served by a competitive educational market than by a government monopoly. Producers of educational services would compete to attract students. Parents, empowered by the voucher, would have a wide range to choose from. As in other industries, such a competitive free market would lead to improvements in quality and reductions in cost.

If, by a political miracle, Louisiana could overcome the opposition of the unions and enact universal vouchers, it would not only serve itself, it would also render a service to the rest of the country by providing a large scale example of what the market can do for education when permitted to operate.

MILTON FRIEDMAN. "The Promise of Vouchers." The Wall Street Journal (Mon., December 5, 2005): A20.





October 31, 2005

Milton Friedman on the Fed

David Levy of the Minneapolis Federal Reserve Bank (not to be confused with George Mason's David Levy), interviewed Milton Friedman for the bank's The Region publication. Here is a Levy question and Friedman's answer:

Region: If you were advising the Federal Reserve, what would you say are the unsolved economic problems of the day?

Friedman: One unsolved economic problem of the day is how to get rid of the Federal Reserve.

Levy, David. "Interview with Milton Friedman." The Region (June 1992); downloaded 10/05/05 online from: http://minneapolisfed.org/pubs/region/92-06/int926.cfm




August 2, 2005

Tenure and the Market as Protectors of Free Thought



Mark Blaug as a young tutor at Queens College in New York, endorsed a student petition protesting the firing of a left-wing tenured professor for having refused to co-operate with the Un-American Activities Committee. Less than a day later, Blaug received a note from the President of Queens College, telling Blaug that his choice was either to resign or be fired. He resigned.

Fortunately, he received a grant from the Social Science Research Council to complete his dissertation, after which, again seeking employment, he obtained a job interview at Yale:


(p. 77) In the course of the interview, I felt impelled to explain how I had lost my previous teaching position at Queens College. I always remember how Fellner cut me off, saying: 'We don't want to hear about that. This is a private college and what transpired at a public university a few years ago is of no concern to us.' I never had a better demonstration of Milton Friedman's thesis that a free market, by multiplying the number of probable employers, is more likely to secure liberty for the individual than a socialist system in which the state is a monopsonist.


Source:

Blaug, Mark. "Not Only an Economist: Autobiographical Reflections of a Historian of Economic Thought." In Reflections of Eminent Economists, edited by Michael Szenberg and Lall Ramrattan, 71-94. Cheltenham, UK: Edward Elgar, 2004.






July 24, 2005

A Case For School Vouchers in Nebraska


Create a marketplace

The solution to the impasse between Omaha Public Schools and the coalition of suburban school districts is to dissolve all school districts and declare each school an independent entity. Then issue vouchers to students and let them and their parents pick the schools of their choice.

There would be another round of consolidation, just as there was with the Baby Bell telephone companies. But it would be market-driven instead of being dictated by political boundaries.

The beneficiaries would be students and parents who would be free to pick schools offering the best educational value with no restrictions due to place of residence.

That's real school choice.

Robert Ranney, Omaha



Source: Omaha-World Herald Public Pulse section, July 17, 2005.





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