17 November 2006

In Defense of the Late Milton Friedman

Milton Friedman has died. Many on the left don't like him. While I don't agree with everything he did, or proposed, I think that his ideas have brought insight to both right and left wing political discourse, and had many positive impacts.

Some of his accomplishments I'll steal liberally from a heated Daily Kos discussion of his life work (a couple of the quoted comments are mine, the rest come from others).

Milton Friedman was one of the stanchest critics of the so-called "war on drugs." He once commented that the whole thing amounted to a government subsidy for organized crime, which is what drug laws have essentially become.

He favored an all volunteer Army.

He forwarded the idea of the negative income tax to help the working poor. This is what we now call the "Earned Income Tax Credit." He pushed the idea as a way to replace the old welfare system that incentivized not working. When the EITC came to vote, he opposed it because it did not replace the old system but instead supplanted it.

I agree both that the negative income tax is a good concept, and that the EITC is a poor implementation of the concept that makes it harder for the working poor to break out of poverty and is unduly complex.

He had sensible ideas on the mechanics of collecting taxes.

[H]e created the income tax withholding while he was an economist at the Treasury Department during WWII.

He improved our understanding of inflation.

Friedman posited what's now known as monetarism, which is basically that the larger the supply of money circulating, the less each dollar in that supply is worth in purchasing power. That's what he got the Nobel Prize for, and it's now more or less standard economics, although some (including Friedman, in his latter years) think the true situation is more complex.

He favored vouchers for the right reasons.

Friedman didn't argue for ending government funding of education, he argued that giving that funding to families might be more empowering than the political process for poor families. He argued that poor parents weren't too dumb to choose good schools for their children.

One thing he's been criticized for is his role in advising Chile's murderous dictator on economic policy. Not all of his proposals worked as planned, something a later Socialist government corrected to some extent, but I believe that he did play a major part in the state of Chile's economy today. And, Chile's economy today is in good shape.

There is ever reason to credit Friedman for helping to develop the civil society and middle class that removed Pinochet from power and left Chile with a pretty healthy economy. Friedman didn't torture and kidnap anyone. He went to economic ministry committee meetings and tried to sell Chile on the notion that it could be something more than an authoritarian hell hole.

Was it a perfect success? No. But, Chile is more economically propserous now than Albania, Algeria, Armenia, Azerbaijan, Belarus, Belize, Boliva, Bosnia, Brazil, Bulgaria, China, Columbia, Costa Rica, Cuba, the Dominican Republic, Ecuador, El Salvador, Georgia, Guatamala, Haiti, Honduras, India, Iran, Jamaica, Jordan, Lebanon, Libya, Malaysia, Mexico, Morocco, Nicaragua, Panama, Pakistan, Paraguay, Peru, the Philippines, Romania, Russia, Serbia, Syria, Tajikistan, Thailand, Turkey, Ukraine, Uzbekistan, Venezula, Vietnam, and every country in sub-Saharan Africa but South Africa (behind which it lags only slightly). The only countries in Latin America with healthier economies are Argentia and Uruguay, neither of which are too far ahead of Chile.

Moreover, Chile's reasonably strong economy persists without the undue reliance on natural resources that provides a temporary boost to economies in places like the OPEC countries, South Africa, Niger and Nigeria, or tourism, like many Caaribbean and Pacific Island countries and European microstates, or serving as off shore banking centers building their economies on protecting tax dodgers and criminal wealth.

Chile also continues to experience healthy economic growth 5.8% in 2004), and low inflation (1.05% in 2004).

Life expectency in Chile is roughly one year lower than that in the U.S., exceptionally high for a developing country, and literacy rates are high. It doesn't have exploding population growth. Chile gets more of its energy from clean, renewable sources (mostly hydropower) than the U.S. does.

Civilian government was restored in 1989, Pinochet's immunity from prosecution from stripped from him (albeit too late to make much of a difference for the old man).

I imagine Friedman was pretty proud of how Chile turned out, even if there were real disappointments.

Friedman was basically a theorist. A bit stronger attention to empirical evidence on issues like the minimum wage, which he opposed, would have improved his insights. But, his theories were powerful and need to be considered seriously by policymakers so that when they choose to differ from them, they have good reasons for doing so.

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