Economics, as a branch of the more general theory of human action, deals with all human action, i.e., with mans purposive aiming at the attainment of ends chosen, whatever these ends may be.--Ludwig von Mises
Showing posts with label Milton Friedman. Show all posts
Showing posts with label Milton Friedman. Show all posts
"I, Pencil" is a typical Leonard Read product: imaginative, simple yet
subtle, breathing the love of freedom that imbued everything Leonard
wrote or did. As in the rest of his work, he was not trying to tell
people what to do or how to conduct themselves. He was simply trying to
enhance individuals' understanding of themselves and of the system they
live in.
I.6
That was his basic credo and one that he stuck to consistently during
his long period of service to the public—not public service in the sense
of government service. Whatever the pressure, he stuck to his guns,
refusing to compromise his principles. That was why he was so effective
in keeping alive, in the early days, and then spreading the basic idea
that human freedom required private property, free competition, and
severely limited government.
There are two kinds of thinking: simplistic and subtle. Simplistic
thinkers cannot understand how complex and useful social orders arise
from any source other than conscious planning by a purposeful mind.
Subtle thinkers, in contrast, understand that individual actions often
occur within settings that encourage individuals to coordinate their
actions with one another independent of any overarching plan. F. A.
Hayek called such unplanned but harmonious coordination "spontaneous
order."...
For its sheer power to display in just a few pages the astounding fact
that free markets successfully coordinate the actions of literally
millions of people from around the world into a productive whole,
nothing else written in economics compares to Leonard Read's celebrated
essay, "I, Pencil." This essay's power derives from Read's drawing from
such a prosaic item an undeniable, profound, and spectacular conclusion:
it takes the knowledge of countless people to produce a single pencil.
No newcomer to economics who reads "I, Pencil" can fail to have a
simplistic belief in the superiority of central planning or regulation
deeply shaken. If I could choose one essay or book that everyone in the
world would read, I would unhesitatingly choose "I, Pencil." Among
these readers, simplistic notions about the economy would be permanently
transformed into a new and vastly more subtle—and
correct—understanding.
I, Pencil remains relevant today.
Read and Friedman use the pencil to show the folly of central
planning: Nobody can possibly know enough to manage the production
of pencils. And indeed, history has proven that when governments
create Pencil Ministries (metaphorically speaking), they fail –
inevitably and spectactularly. source
How can you tell if a person truly advocates a free market economy? Simple. He prefers Rothbard to Friedman.
Here are a few excerpts from a recent exchange sparked by this article. Missing Milton Friedman.
Tim Lee writes:
If only the free-market right still had such a powerfully persuasive "technician advising the state how to be more efficient", our economy might now be slightly less screwed. Maybe it would help were "advising the state to be more efficient" less widely considered "evil work".
We need less efficient government. Friedman never grasped this. Rothbard did. The few Establishment economists and columnists who have read Rothbard have never forgiven him for this...
Friedman was the main apologist for fiat money in the free market camp. He believed in free market liberty, but not where it is really important: education (vouchers based on state-confiscated money) and money itself (central banking based on a grant of state power: a monopoly). Murray Rothbard challenged both ideas. He therefore remains a pariah to the Establishment.
George Selgin and Donald Boudreaux have also weighed in. Robert Wenzel details most of the debate here.
Eighteen months after President Barack Obama administered a massive dose of spending increases and tax cuts to a weak economy, a brawl has broken out among economists and politicians about whether fiscal-stimulus medicine is curing the illness or making it worse...
One side says Mr. Obama's $862 billion fiscal stimulus prevented an even graver recession. Cutting the deficit right now, this side insists, would send the economy into a tailspin. The other side questions the benefits of the stimulus and argues addressing long-term deficits now is crucial to avoid higher interest rates and even bigger economic problems down the road.
And then there is a camp in the middle—defending last year's stimulus, but urging a deficit-cutting plan now...
"Too many are searching for answers in the discredited economic playbook of borrow-and-spend Keynesian policies," Rep. Paul Ryan, a Wisconsin Republican who is pushing a long-run deficit cutting plan, said this month. "I reject the false premise that only forceful and sustained government intervention in the economy can secure this country's renewed prosperity."...
Richard Trumka, president of the AFL-CIO union alliance, says if the government starts cutting deficits now, "We'll slip back into recession and possibly depression."...
But today, neither side can say with certainty whether the latest stimulus worked, because nobody knows what would have happened in its absence.
Fed Chairman Ben Bernanke backed fiscal stimulus in early 2009. Now he says the economy still needs fiscal stimulus, but says it must be accompanied with a credible plan to reduce future deficits. Like the Obama administration, he doesn't think that plan should be implemented until the economy is on more solid footing...
The case that government deficit spending can be vital at times of recessions dates to John Maynard Keynes, the British economist whose teachings dominated economics for decades after the Great Depression. "Pyramid-building, earthquakes, even wars may serve to increase wealth," Mr. Keynes said in his 1936 classic, "The General Theory of Employment, Interest and Money."
A counter-revolution led by Milton Friedman, of the University of Chicago, de-emphasized the role of government and gave rise to Ronald Reagan and Britain's Margaret Thatcher. Keynes lost favor during the stagflation of the late 1970s and early 1980s. The Fed and its manipulation of interest rates came to be seen as the best way for governments to manage the short-term ups and downs of the economy...
The Obama administration is stocked with heirs of Mr. Keynes, including academics Christina Romer and Mr. Summers. Ms. Romer famously projected in January 2009 that without government support, the unemployment rate would reach 9%, but with support the government could keep it under 8%. It's 9.5% today...
Underlying the debate is a long-running argument about how much of a lift the government gets from spending more or taxing less. Keynesians argue that when the economy is distressed, a dollar spent by the government multiplies in value. It gives a worker income the private sector has failed to produce, which he spends, creating demand for goods and services.
Ms. Romer argued last year that this "multiplier" for government meant every dollar spent created about $1.50 worth of demand...
Robert Barro, a Harvard economist, found even smaller multipliers: A government dollar spent creates about 80 cents worth of growth, or possibly less, he says. Government spending, he says, crowds out private sector spending that would otherwise be taking place...
Carmen Reinhart, a University of Maryland economist who has studied the fiscal aftermath of financial crises, says more stimulus could be counterproductive because it could lead the public to expect even higher taxes in the future...
"We are not in an easy position," she says. "Credibility is going to be difficult to achieve."
My thoughts: Central planning does not work. It does not matter if the method of central planning is fiscal policy or monetary policy. Politicians do not understand how economies work. A recession is better understood as a "market correction". When a cluster of errors occurs from artificially low interest rates, this generates an unsustainable boom. Once the boom occurs the bust is inevitable. The Fed created the boom. Ben Bernanke will eventually be known as the worst Fed chairman ever. The Creature from Jekyll Island hopefully will die a quicker death due to the incompetence of Bernanke.
Keynesian economics never truly died, it was merely displaced by the monetarist economics of Milton Friedman and the Chicago School. Mainstream economic thought came to believe that monetary policy was most effective and that Keynesian solutions should be reserved for when monetray policy could not produce the desired effects.
Both Keynesians and monetarists do not truly understand how economies work. For the Keynesians, you can't spend yourself into prosperity. Pyramid-building, earthquakes, and wars are the solution to economic problems. Pyramid-building (also known as public works) is an unnecessary function of government that only serves to put the nation into deeper debt. Earthquakes and wars kill people and destroy capital, which is the opposite of what is needed for economic growth. For the monetarist, attempting to paper over a bubble that was originally created by easy money policy is insane. You don't solve problems by doing the same thing that caused the problem to begin with.
The University of Chicago, in a move officials said will build on the school's longtime strength in economics, said it plans to spend $200 million to create the Milton Friedman Institute.U. of C.
President Robert Zimmer said the goal of the institute "is to build on the university's existing leadership position and make the Milton Friedman Institute a primary intellectual destination for economics," by creating a forum where faculty and students can engage with scholars and policymakers from around the world.
Most of the funds will be raised in donations from alumni and the business community, the university said. Friedman, who died in 2006, was a longtime faculty member at the University of Chicago and was awarded a Nobel Prize in economics for his work.
He is considered a key member of what has become known as the Chicago school of economic theory.
