Open Forum: August 1, 2015

Posted in Open Forum | 1,175 Comments

It’s Milton Friedman’s birthday

In honour of the occasion the ATA have organised a panel discussion. My contribution is below.

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Milton Friedman – A man of his time; a man for our times

 

Today marks Milton Friedman’s 103 birthday. Sadly he isn’t here to celebrate with us, having passed away on November 16, 2006 at a mere 94 years old. Despite his short physical stature he was a giant intellect who has framed our understanding of many of the policy issues we still face.

While we are here tonight to celebrate Milton Friedman, I would also like to draw your attention to Rose Friedman (nee Director). She passed away aged 98 in 2009. A woman of her time, she abandoned her PhD thesis (having completed the course work) after she and Milton married in 1938. As she writes in their joint memoirs her primary career would be as a mother, “the economist would come second”. I have no doubt that her choice is our loss, and it proves the point that behind every great man is an even greater woman.

Milton Friedman is known to us today as a great libertarian (if you are a libertarian) or as an advisor to Pinochet (if you are left-wing in orientation). Both of these labels are somewhat misleading and even unfair. The fact is Milton Friedman spoke to anyone and everyone who would listen to him.

During his lifetime Friedman saw himself primarily as an academic economist. He is mostly associated with the University of Chicago having taught there for 30 years from 1947 – 1977. Together with George Stigler he is considered one of the founders of the so-called Chicago School. This school is known for using economics as a tool to enquire about the real world and then to say something intelligent about the real world, rather than to display mathematical ingenuity in estimating how many angels can dance on the head of a pin. Or these days how the imposition of a tax can resolve an apparent “market failure”. Unfortunately the Chicago approach is increasingly out of fashion.

To avoid “excessive specialisation” – a strange attitude for an economist to hold – Friedman liked to teach in an area other than his research area. So for many years he taught Price Theory – the introductory economics subject in the Chicago PhD. He was a proponent of what we now call continual assessment – grading students on both their final exam and in semester homework problems. He did this recognising that some (good) students don’t perform well under examination conditions, whereas some poorer students do. Later some of his students consolidated their lecture notes and a textbook was published (in two versions – first a “provisional text” and second just titled “Price Theory”). I own both versions of the book (as I do every University of Chicago text titled “Price Theory”). The text by itself is uninspiring – but I suspect the text being taught by Friedman would be awesome. A lesson to be learned there – it takes a gifted teacher to bring material to life.

In 1953 he began teaching Monetary Theory (his research specialisation) and introduced the now-famous Workshop in Money and Banking. This workshop was for post-graduate students who had to work together and prepare and present papers to each other. Today this would be called “flipping the classroom”.

The merit of Friedman’s academic work is seen in the 1976 award of the economics Nobel. He had previously won the John Bates Clark Medal. In 1967 he was president of the American Economic Association. There can be no doubting Friedman’s ability as a technical economist. He is the founder of the Monetarism school. Ironically the one Friedman article that almost every serious economist would have read was on economic methodology and not on monetary theory. Like most economists he decided that enjoyed doing economics more than talking about doing economics and never wrote again on that topic, nor did he engage with any of the fierce debate that article generated.

Over his long career he wrote or edited over 20 books and hundreds of academic papers – many of them published in what we would now call A* and A journals. Mind you Friedman would never have approved of a government certified quality program that Australian academics have meekly, if not willingly, accepted.

I agree with Mark Skousen that Milton Friedman destroyed Keynesian economics. To be clear what that means – Friedman undermined the economic theory popularised and advocated by Lord Keynes and his supporters following the publication of the General Theory. The vulgar Keynesianism that we see today is more a series of political folk understandings (or misunderstanding) of economics than a serious research paradigm. I also agree with many of Friedman’s critics that he did so by adopting Keynesian language and ideas. That, however, should not detract from Friedman’s phenomenal intellectual achievement.

Friedman, however, is not going to be remembered for his technical academic work. Rather he is remembered for his relentless advocacy of freedom through the application of liberal (enlightenment) values and basic economic theory. He was a founding member of the Mont Pelerin Society in 1947. Friedman writes that he was strongly influenced by Friedrich von Hayek’s The Road to Serfdom. He didn’t attend a second meeting until 1957, however, and when president of the Society in 1971 tried to have it closed down. In 1962 he published the first of his great books aimed at a lay audience, Capitalism and Freedom. It espoused some very unfashionable ideas and was largely ignored by the intelligentsia – since then it has sold over half a million copies in English and been translated into over 18 other languages. In 1966 Friedman began writing a column for Newsweek and continued to do so until 1984. Many of these columns have been subsequently collected into books and adorn the book shelves of his many fans.

Rose Friedman describes how Friedman had initially been reluctant to take on the project thinking that he might run out of things to say. In retrospect that is a strange thing to have thought. As it turns out many of the problems and issues that Freidman wrote about over that 18 year period are still topical issues today.

To my mind, however, it is his Free to Choose that is his greatest legacy. The television series and the book introduced Friedman to a very wide audience. It is also how I discovered Friedman. In 1980 I was 12 years old and my parents allowed me to stay up past my bedtime to watch television shows that they thought were of educational value. A young modern audience might find this idea to be quite quaint, but those were the days before video recorders were common household items. Quite frankly the series couldn’t have had too much of an impact on me, as I recall being somewhat underwhelmed a few years later as an undergraduate when I read the book.

The thing is this; Friedman himself was suspicious of people who immediately agreed with him. It takes time for ideas to percolate into young minds. So too with Friedman – his ideas were radical. They still are. Familiarity breeds contempt; so people now familiar with Friedman’s ideas may think they are “old hat”. Well, no. His ideas remain radical. In his popular writing he touched on topics such as free speech, corporate social responsibility, foreign aid, corruption, welfare, drugs, free v fair, and so on. Things that are still heatedly discussed today.

So what is Friedman’s legacy? He destroyed economic Keynesianism. He was very instrumental in ending conscription in the US. He argued the case for floating exchange rates. In these areas he enjoyed practical policy successes. He promoted the case for economic freedom. In this sense he added to the intellectual climate that saw the end of communism. Australia’s Higher Education Contribution Scheme is based on Friedmanite thinking around education vouchers.

But he wasn’t always right. Milton Friedman is the man who invented withholding tax. To be fair it was a necessary measure to finance the Second World War, but as I often say, “The taxpayers lost the war” and that is one of the reasons that government has grown so massive over the last 70 years.

Friedman was also soft on open borders – arguing later in his life that open borders were inconsistent with a welfare state. This is true – but the Friedman that I thought I knew would have viewed that as a feature and not a bug.

Then there are areas where Friedman’s views actually stifle market innovation. Friedman popularised the idea of education vouchers in a 1955 article. At the time – and still in some quarters – this was considered a very radical idea and many libertarians remain committed to the idea. But why? Why have vouchers when you can have means-tested fees?

But let’s not end off on a bad note: Given that our host tonight is the Australian Taxpayers’ Alliance, here is Friedman on taxation:

I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it’s possible.

And the people said, Amen.

Posted in Economics and economy | 55 Comments

Around the town, July 31, sites of interest

Around the town. Hendo and the media watchdog [Updated on Friday afternoon]. The Australian Institute for Progress, (AIP) “because the future does not look after itself”. IPA HEY. The Sydney Institute. Australian Taxpayers Alliance, Quadrant on line, Mannkal Foundation, Centre for Independent Studies.

Don Aitkin. Jim Rose, feral and utopian! Jo Nova, climate realist par excellence. Sean Gabb’s site.

Sites of interest. Spiked on line . Richard Hammer, Free Nation Foundation. Aust NZ libertarian students. Powerline. The British libertarian alliance.

Education, accuracy in academia.

Posted in Rafe | 3 Comments

Rafe’s Roundup 31 July

Voice of sanity. The Black Steam Train.

Views like mine, that are contrary to the representations being made by the rabid, name-calling media, are ignored or rejected by all those who simply want to brand every incident or comment with an ‘ism’, because the object of their outrage is never to stimulate an educated debate or a discussion, but rather they wish to simply stand on their given podium and recite their narcissistic lecture, a pointless exercise for them to reinforce their followers that they alone are a bastion of cultural relevance, understanding and compassion.

Abuse of power by the NSW ICAC? What was driving Megan Latham in her pursuit of Margaret Cunneen, based on an unsourced allegation. WTF? I this the USSR? Run that past me again!

AT the very least, Margaret Cunneen, SC, is owed a public apology from ICAC commissioner Megan Latham. Cunneen, her son Stephen and his girlfriend Sophia Tilley, have emerged unscathed from ICAC’s unaccountable and secretive star chamber.
But only after a tortuous year in which they had their homes raided, their phones seized, were dragged before secret hearings and threatened with jail. And only because Cunnen had the legal nous to fight back.

Climate and weather. Alan Moran’s roundup. Greenland melting? Substandard reporting in the mainstream media. Is gun crime climate-related?

Economic policy. How New Zealand turned around. For $2 on kindle “Under the leadership of two politicians from opposing parties, Sir Roger Douglas and Ruth Richardson, economic reality was embraced and tough political decisions were made. This case study tells their story.” Taxing and spending policy in Estonia. “Back in the early 1990s, it was the first post-communist nation to adopt a flat tax. More recently, it showed that genuine spending cuts were the right way to respond to the 2008 crisis (notwithstanding Paul Krugman’s bizarre attempt to imply that the 2008 recession was somehow caused by 2009 spending cuts).”

Lifestyle. Music for working and concentration and the one video you need to lift your productivity. (Hint, don’t do anything else while you are watching it).

Culture. Southern discomfort, the literature of the American south. The Spectator Culture House. The New York Review of Books, see the Phelps piece on the culture of productivity that has been lost. Gun crime, a tale of two cities, in case you missed it in the climate section, possibly related to concealed carry laws. The London Review of Books.

For nerds. Melvyn Bragg’s radio program. Stephen Hicks, always interesting for nerds. See his paper on what business ethics can learn from entrepreneurship.

Entrepreneurship is increasingly studied as a fundamental and foundational economic phenomenon. It has, however, received less attention as an ethical phenomenon. Much contemporary business ethics assumes its core application purposes to be (1) to stop predatory business practices and (2) to encourage philanthropy and charity by business. Certainly predation is immoral and charity has a place in ethics, neither should be the first concerns of ethics. Instead, business ethics should make fundamental the values and virtues of entrepreneurs – i.e., those self-responsible and productive individuals who create value and trade with others to win-win advantage.

Biography of Geoffrey Leeper, soil scientist. Geoff Leeper was a link in the chain of people who connected me to the works of Karl Popper. Clarrie Palmer, a meteorologist, carried the word from New Zealand to Geoff Leeper in Melbourne circa 1946. In the 1950s Geoff Leeper taught Keith Barley at the Uni of Melbourne and in the campus Rationalist Association Leeper introduced Keith to The Open Society and its Enemies. And in the 1960s I went from Tasmania to study with Keith in Adelaide.

Problems of productivity and the limitations of conventional economic theories. Check out the culture factor in productivity. On that theme, revisit David McClelland’s epic work from the 1960s on the cultural and psychological factors underling achievement, entrepreneurship and economic development.

He examined the motivation for achievement as a psychological factor that shapes economic development. Refuting arguments based on race, climate, or population growth, the book instead argues for cultural customs and motivations – especially the motivation for achievement – as the major catalysts of economic growth. Considering the Protestant Reformation, the rise of capitalism, parents’ influences on sons, and folklore and children’s stories as shaping cultural motivations for achievement, the book hypothesizes that a high level of achievement motivation precedes economic growth. This is supported through qualitative analysis of the achievement motive, as well as of other psychological factors – including entrepreneurial behavior and characteristics, and available sources of achievement in past and present highly achieving societies. It is the achievement motive – and not merely the profit motive or the desire for material gain – that has advanced societies economically. Consequently, individuals are not merely products of their environment, as many social scientists have asserted, but also creators of the environment, as they manipulate it in various ways in the search for achievement. Finally, a plan is hypothesized to accelerate economic growth in developing countries, by encouraging and supplementing their achievement motives through mobilizing the greater achievement resources of developed countries. The conclusion is not just that motivations shape economic progress, but that current influences on future people’s motivations and values will determine economic growth in the long run. Thus, it is most beneficial for a society to concentrate its resources on creating an environment conducive to entrepreneurship and a strong ideological base for achievement.

(CJC)

Posted in Rafe, Rafe's Roundups | 4 Comments

Aren’t you glad Obama is president?

Meanwhile, while we agonise over Cecil, there is this to distract your attention. From Drudge:

IRAN: Obama Admin Lying About Nuke Deal for ‘Domestic Consumption’…
ARMS RACE: Saudis Want More Missiles…
Top French Official Contradicts Kerry Claims…
TEHRAN SAYS US EXPERTS BANNED FROM UN INSPECTIONS…
Rulers urge baby boom to double population…

But look on the bright side. There is also this:

Japan unveils ‘Death Star’ laser weapon…
Most powerful in world…

Oh, and I almost forgot:

China, Russia to hold military drills…

The future is shaping up so well.

UPDATE: The video above is of John Kerry and Energy Secretary Ernest Moni emphatically stating that they have not read the side deals with Iran. Nothing is any longer a scandal. But nothing also makes sense any more either.

Posted in American politics, International | 20 Comments

The worst recovery since World War II

I realise that Cecil the Lion and such things are more important, but this bit about the American “recovery” being the worst since World War II is perhaps worth a passing glance:

The economic expansion—already the worst on record since World War II—is weaker than previously thought, according to newly revised data.

From 2012 through 2014, the economy grew at an all-too-familiar rate of 2% annually, according to three years of revised figures the Commerce Department released Thursday. That’s a 0.3 percentage point downgrade from prior estimates.

The revisions were released concurrently with the government’s first estimate of second-quarter output.

Since the recession ended in June 2009, the economy has advanced at a 2.2% annual pace through the end of last year. That’s more than a half-percentage point worse than the next-weakest expansion of the past 70 years, the one from 2001 through 2007. While there have been highs and lows in individual quarters, overall the economy has failed to break out of its roughly 2% pattern for six years.

Meanwhile things are not so great here either and for similar reasons. Three more years of Labor ought to fix things.

Posted in Economics and economy | 14 Comments

Henry Spearman, the Sherlock Holmes of economics

Seeing Milton and Rose at the top of the masthead made me think of the Marshall Jevons crime fiction series:

Marshall Jevons is a fictitious crime writer invented and used by William L. Breit and Kenneth G. Elzinga, professors of economics at Trinity University, San Antonio and the University of Virginia, respectively.

It was Breit’s notion to write a mystery novel in which an amateur detective uses economic theory to solve crimes. Elzinga was enthusiastic about his colleague’s idea and not only encouraged him to proceed but also decided to take an active role in writing the book. Over the next twenty years, on top of their academic schedules, Breit and Elzinga co-authored three mystery books featuring Harvard economist-sleuth Henry Spearman. The first Henry Spearman Mystery, Murder at the Margin, came out in 1978, and was followed by The Fatal Equilibrium (1985), A Deadly Indifference (1995) and The Mystery of the Invisible Hand (2014).

Ken Elzinga was at Freedomfest, attesting to his fine economic credentials, and gave a presentation on how he came to write the series with his partner who has unfortunately passed away. But the one thing that I learned that has helped bring the books alive – I am reading the third one right now – is that the main character, Henry Spearman, is designed after Milton Friedman, Professor of Economics at Harvard though he may fictionally be. And the one problem they had in writing the series was that Rose Friedman did not see herself mirrored by Pidge Spearman, and for reasons I cannot see doesn’t like the way Henry’s wife is depicted. The books are fun to read, but are better if you are an economist, although it is not an essential. A large part of their sales, it turns out, are as assigned texts as part of an economics course.

Posted in Cultural Issues | 5 Comments

Hard. Very hard.

The mother of the 13-year old that Adam Goodes had identified as being the face of Australian racism has spoken out.

I do think people shouldn’t boo him at the football, they should be trying to encourage him to be a better person than what he is.

Fair comment.

As we commented at the time (here and here and here) the incident was disgraceful. Particularly so as Victoria Police subsequently bragged about how the child had a police “grilling” for two hours after the event. Somewhat ironically, I think, the then Victorian police chief Ken Lay is now on a national advisory panel looking at family violence.

Posted in Hypocrisy of progressives, Politics | 112 Comments

Wednesday Forum: July 29, 2015

Posted in Open Forum | 2,365 Comments

CO2 as plant food

A handy 4.5 minute lesson from the founder of Greenpeace, slaying the dragon of CO2.

RIP “carbon pollution”.

Posted in Global warming and climate change policy, Rafe | 31 Comments