2011-01-26 | Filed Under SteveG's Posts |
In a discussion with faithful reader RichardH, I was complaining about the legacy of Mlton Friedman as an example of the poor record of the Nobel Prize in Economics.
After I clearly stated my view, I decided to do a little research. Isn’t that the way all intellectual discussions should unfold?
I first read the WikiPeida entry on Milton Friedman. The preceding link focuses on the criticism section, but I actually read more of the entry than just that. In typical WikiPedia fashion it says on the one hand you have this opinion and on the other hand you have the opposite.
In following the references, I came across the Paul Krugman article Who Was Milton Friedman? in The New York Review of Books. I think this was written in early 2007.
I believe that even Krugman’s piece gives too much credit to the value of the Friedman hypothesis as it applies to the period of stagflation in the 1970s and early 1980s. In later sections, on other topics Krugman warns that things are more complicated than Krugman’s brief analysis. He should have given the same warning about his analysis of stagflation.
I think that the contribution of Krugman’s article is that it reminds us that economic theories that were developed to explain behavior under a certain set of conditions will fail badly when applied to situations that do not match the conditions specified in the theory. For instance Kenyes proposed a theory of the failure of monetarism in periods of depression/exceedingly low interest rates. The fact that these theories weren’t applicable during periods of high inflation and high interest rates is not a problem of the theory. It was a problem of applying the theory meant to explain one situation to a situation that it was never meant to explain.
Likewise, Friedman’s monetarist theories apply in a definable range of situations. Unlike others who applied Keynes’ prescriptions to the wrong maladies, it was Friedman himself that applied his own prescriptions to the wrong maladies.
Do you give credit and award prizes to a stopped watch because it is correct two times a day?