The web site Economic Principals: A WEEKLY COLUMN ABOUT ECONOMICS AND POLITICS,
FORMERLY OF THE BOSTON GLOBE, INDEPENDENT SINCE 2002 has the July 12, 2015 article The Rivals: Paul Samuelson and Milton Friedman … by David Warsh.
It is a fascinating tail about these two famous economists. I am not quite sure if I can call the following excerpt as conclusive, but it does give lots of credit to the ideas of Paul Samuelson, whom I favor, as opposed to the ideas of Milton Friedman whom I despise.
From a distance of thirty years, Robert Lucas, who had been a young econometrician at the time and who would later win a Nobel Prize, looked back at what had been the conventional wisdom then:
For the applied economist, the confident and apparently successful application of Keynesian principles to economic policy which occurred to the United States in the 1960s was an event of incomparable significance and satisfaction. These principles led to a set of simple quantitative relationships between fiscal policy and economic activity generally, the basic logic of which could be (and was) explained to the general public and which could be applied to yield improvements in economic performance benefiting everyone. It seemed an economics as free of ideological difficulties as say, applied chemistry or physics, promising a straightforward expansion of economic possibilities. One might argue as to how this windfall should be distributed, but it seemed a simple lapse of logic to oppose the windfall itself. Understandably and correctly, non-economists met this promise with skepticism at first; the smoothly growing prosperity of the Kennedy-Johnson years did much to diminish these doubts.
Nothing like a good dose of confirmation bias to help you decide what to believe. Of course I have my own explanation of how Lyndon Johnson and his conduct of the Viet Nam War ruined it all.
I didn’t read the Warsh article word for word. I read a lot of it, but did end up doing some skipping around. I just don’t understand how these brilliant economic minds could fail to see the simplicity in figuring out what makes sense and what does not.
With all the complexity of the math that I used in the software I wrote or maintained during my career, I also found it wise to compare the simulated results with my intuition or approximate calculation. If there was a disagreement between methods, it was mandatory to understand why. There could be a bug in the software, en error in the measurements, or an error in my intuition. There was only one time that I can remember where I failed to resolve the discrepancy. Every other time, the resolution resulted in finding something that needed to be fixed.
Friedman may or may not have been right that the actual cause of the depression involved mistakes by the Federal Reserve System and its monetary policy. That is still no reason to fail to understand that monetary policy had the tools to tank the economy, but those tools were worthless to undo the damage once done. I am surprised that Samuelson could fall for it himself. Friedman didn’t like math, so I can understand how he could be without the tools to analyze the difference between theory and reality.
It is the old pushing/pulling on a string analogy. You can pull on that string or rope to drag the economy into depression, but there is no amount of pushing on that string or rope that will undo the damage and push the economy back into prosperity.
I have likened this situation to that fact that there are uncountable forces acting on the economy. The vector sum of these forces is the direction the economy will go. Sometimes one force is so dominant that you can base a theory on that one force alone and it will predict the behavior of the economy pretty accurately. At other times, when other forces dominate, that original theory is useless.
When there is a tug of war between two dominant forces, you can pull on one end to get it to go in that direction, or you can lessen your pull to let it go in the other direction.
If there is no other force pulling against you, then easing up on your end, or even pushing on your end, will not force it to go in the opposite direction.
Why is this so hard for brilliant economists to fathom?