Economics Nobel Prize winner Paul Krugman compares Economics Nobel Prize winner Milton Friedman with Economics Nobel Prize winner Paul Samuelson in an attempt to find out how free the free market can be. There is more wrong in Krugman’s analysis than you can shake a stick at. Let me list at least some of the errors. (There are too many to be explored in this opinion piece; so I'll opine more extensively in my upcoming book.
1. Yes, Milton Friedman did indeed want to divert the U.S. economy in the direction of more economic freedom. However, he was no radical libertarian; certainly not to the degree to which Krugman gives him credit. Friedman wanted to retain the Fed (albeit constrained to his 3% rule), keep anti-trust legislation (but curtail it somewhat), and uphold the welfare system (his negative income tax proposal). He bitterly rejected the gold standard; he had a television series entitled “Free to Choose.” Yet, whenever people were “free to choose,” they chose gold (and sometimes silver). He espoused the “market failure” doctrine which included externalities and public goods (his neighborhood effects). On the other hand, he was an avid supporter of laissez faire capitalism, bless him, when it came to minimum wages, unions, rent control, occupational licensure, free trade and much, much more.
Samuelson, Krugman to the contrary notwithstanding, did not support the free market at all. Rather, he favored the economic system of the then USSR. In his textbook, he infamously claimed that the economic system of that country was so superior to ours that it would eventually overtake us. That’s how free the free market can be? Well, maybe it is, Krugman style. According to the latter: “Certainly nobody told Paul Samuelson that he was engaged in a fight for capitalism’s soul.” It is good that no one did, because he was engaged in no such fight. Instead, the fight he was engaged in was on the very opposite side; promoting communism.
2. Saith Krugman: “Friedman, on the other hand, was very much a political animal; pretty much everything he did was aimed at restoring Gilded Age-style unrestrained capitalism.” What about his work on the consumption function, the permanent income hypothesis, the role of profits in the free society, his monumental work on banking. Indeed, he pretty much founded an entire school of thought, “monetarism” all on his lonesome, with numerous articles in the top research journals. “Unrestrained capitalism” and Milton Friedman? It is to laugh.
3. Here is another gem: “… it’s hard to avoid the sense that Friedman viewed his professional research, excellent though some of it was, as a sort of loss leader for his political advocacy — a way to establish his academic bona fides and hence add credibility to his free-market crusade.” It’s hard? Try harder. This is the sort of motive-mongering that Friedman opposed all throughout his career. This New York Times columnist offers not a shred of evidence in support of this wild-eyed contention of his. Just because Friedman’s (and Schwartz’s) “A Monetary History of the United States, 1867-1960” concluded that the Great Depression was caused by Fed mismanagement by no means serves as evidence that “it was also clearly intended to strike a blow against activist government.” Rather, these authors just let the chips fall where they may; they allowed the evidence to pretty much speak for itself. If economic research demonstrates that minimum wages increase unemployment for the unskilled, is the scholarship underlying it to be called into question because it has political implications? That would appear to be Krugman’s fallacious conclusion.
4. In the view of Krugman: “… a number of economists had looked closely at Friedman’s arguments about the Great Depression, and found them wanting.” This is mere name calling. I can do this as well: Samuelson was a pooh pooh head. Krugman is a foo foo. (My kids used to call each other that when they were little.)
5. “Libertarian policies (were responsible for) incidents like the California power crisis of 2000-1 and, yes, the banking crisis of 2008.” Say what? Laissez faire capitalism was our economic policy in 2000-2008? What controlled substance is Krugman utilizing?
6. “… the Biden administration’s proposals --- they’re pro-market…” Oy oy oy.
Krugman is a serious man. He is an economist. He won a Nobel prize in this discipline. He is a columnist for the prestigious New York Times. And we have just fallen down the rabbit hole. We live in a psychedelic universe, where two plus two no longer equals four.
