Milton Friedman: a "great man" or a "great mistake?"

Wednesday, November 22, 2006 at 05:36 PM

The death of Milton Freidman, economic advisor to Reagan and widely considered to be the moving force behind America's current devotion to "free markets," has led many an observer to issue glowing eulogies.  Lawrence Summers, of all people has decided that Friedman's efforts marked him "as a great man."

A "great man?"

In my book, "great" is not the same as "important."  I do not dispute that Friedman was very, very important.  But so were Idi Amin and, for a while, Milli Vanilli, the Partridge Family, and the Ohio Express.  I would not consider any of the forenamed to be "great."

Through a series of books and a series of connections to powerful politicians whose purposes were served by the concepts in the books, Friedman came to supplant Keynes and Galbraith as the pillar of thought behind the economic and trade policies of this country.

Look around this country at what those policies have wrought.  Great?

Friedman was also the moving force behind the virtually mindless privatization of state businesses in the old Soviet Bloc.  Look around the old Soviet Bloc.  Great?

Friedman was also a great advocate of the all-volunteer Army and school vouchers to provide "market choice" to parents and students.  Great?

The eulogies to him run the gamut.  Although acknowledging that "Milton Friedman and I probably never voted the same way in any election," and that "his thinking gave too little weight to considerations of social justice and was far too cynical about the capacity of collective action to make people better off,"Lawrence Summers not only calls Friedman a great man, but says:

Ask reformers in the countries behind what we used to call the Iron Curtain where they learned to contemplate alternatives to Communism and they will often tell you about reading Friedman and realizing how different their world could be

But compare that to Michael Hirsh's take in Newsweek:

When it came to promulgating American economic ideas abroad in the post-cold-war era, American policymakers had a one-size-fits-all zeitgeist. Without fully realizing it, perhaps, they ended up giving different advice abroad than they would have at home. The U.S. government didn't suddenly disassemble the welfare state in favor of rampaging markets--Reagan ran record deficits to support it, and government spending as a percentage of GDP rose during his term. But developing economies, especially newly enfranchised economies like post-Soviet Russia, provided a clean slate for rapid marketization. Clinton preached like a baby-boomer Friedman. In 1993 the president made free trade through the General Agreement on Tariffs and Trade and NAFTA the centerpiece of his economic policy agenda. His trade negotiators promoted little but open markets and free-flowing capital abroad.

Friedmanism, like most revolutions, overreached. In the flush of victory after the cold war, it went too far in trying to be a panacea for the developing world. Free-market fervor produced an infectious passion for deregulation. Under the tutelage of young free-marketers, too many nations rushed too quickly to embrace instant marketization--throwing billions of dollars into privatization, ditching old systems without a thought as to what might replace them.
Even Friedman came to understand this to some degree. Especially in the case of the former Soviet Union, his greatest ideological foe, he saw that too-rapid privatization led to "grabitization," the unfair seizure of old state assets by former Communist Party apparatchiks. And that in turn has led to out-of-control corruption. When I last interviewed him in early 2003, he conceded that the privatization revolution had gone overboard. Critics, he said, like former World Bank chief economist and Nobel Prize winner Joseph Stiglitz, were correct in urging a less-rapid move to free markets and more building of state infrastructure. "In the immediate aftermath of the fall of the Soviet Union, I kept being asked what the Russians should do. I said, `Privatize, privatize, privatize.' I was wrong. [Stiglitz] was right. What we want is privatization, and the rule of law." But the ideas that he and the Chicago School had disseminated took root around the world and for that, he said, he was "gratified."

And then there's the little matter of how Friedmanism is affecting the structure of the U.S. economy and the economic standing of working Americans.  Even David Brooks, certainly no foe of free marketism, says:

Growing evidence suggests average workers are not seeing the benefits of their productivity gains -- that the market is broken and requires heavy government correction. Friedman's heirs have been avoiding this debate. They're losing it badly and have offered no concrete remedies to address this problem, if it is one.

I love the "this problem, if it is one."  Perfect Brooksism.

But to me the opening etchings of Friedman's epitaph are written in Hirsh's Newsweek piece:

But the open-trading system also exacerbated inequalities between rich and poor nations: while finance was free to go where it wanted, labor was not. That's why globalization seemed so real to the enthusiastic elites of Wall Street and Washington, but not to those on the bottom rungs of society. "I think when historians look back at the last quarter of the 20th century," says former Federal Reserve vice chair Alan Blinder, "the shift from labor to capital, the almost unprecedented shift of money and power up the income pyramid, is going to be their No. 1 focus, along with the failure to integrate poor countries into the global system. And they will marvel at the equanimity with which it was accepted."

I think that 50 to 100 years from now Friedman will be viewed as so shortsighted, so narrow and one-sided in his vision and analysis of free market economics, that his name will be invoked almost as a profanity.  But then I've always been an optimist.