Would Milton Friedman have approved?

The Jerusalem Post
1 Dec ’10

Many of the social and economic troubles we are experiencing are due to the public’s lack of understanding of the need for economic literacy.

Filed under:

fundamentals • public policy • limiting government • public choice • world affairs

When distinguished economist Alan Meltzer recently attacked the policies of the US Federal Reserve, its chairman, Ben Bernanke, retorted that their mentor, the late Nobel economics laureate Milton Friedman, would have approved.

Friedman died four years ago, but his influence is still strong. When asked in the past whether his innovative ideas would still have an impact in the future, Friedman replied with his customary modesty: “This will be known only 50 years from now.”

Indeed it will take several decades to assess the full impact of this wise man’s ideas.

We already know that Friedman had enormous impact on crucial economic and social developments in the past century. Just think of the great economic leap forward in the past several decades, the huge increase in prosperity propelled by the stability that his anti-inflation cure made possible; of his strong support for floating exchange rates that made possible the enormous expansion of international trade; and of the dramatic effect of even the partial adoption of his freemarket policies on the spread of prosperity to poor and backward economies such as China’s, India’s and even Israel’s.

These alone prove that Friedman’s policies helped better the economic lot of billions of people who suffered poverty and oppression until his pro-market policies helped liberate them, albeit only partially for the time being.

In a world that still suffers from economic illiteracy, especially among the ruling elites, which causes laggard growth and often grave crises, it is certain that one of the Friedmans’ (Milton and his wife Rose, a great economist in her own right and his true partner) greatest contribution was educational.

Deeply committed to democracy, and treating every person with respect (even when they sharply disagreed with their views) Milton and Rose devoted much of their energy to educational endeavors. They never locked themselves in an ivory tower.

IN HIS many media appearances, in his weekly page in Newsweek magazine, and in his highly rated television series and bestselling book Free to Choose (which was coauthored with Rose), Friedman succeeded in transforming public opinion on a huge scale. His ideas became the basis of Margaret Thatcher’s reforms that saved Britain from being the dead man of Europe and helped it become one of the fastest-growing economies for several decades. His influence made the election of Ronald Reagan possible, and the policies that initiated several decades of unprecedented prosperity.

It was this prosperity that also enabled Reagan to challenge the Soviet Union with “Star Wars,” exposing the economic bankruptcy of communism and leading to its collapse. For this alone, Friedman deserves the gratitude of humanity. His ideas helped save hundreds of millions from slavery under communism and rid the world of the terrible danger it represented.

No less important than his crucial contribution to the welfare of humanity, Friedman’s efforts succeeded in making masses of people aware that every thinking person, every responsible citizen must acquire a basic knowledge of economics, and that this required study because economics is often counterintuitive, so simply relying on common sense and logic may lead to disastrous consequences.

Many of the social and economic troubles we experience are due to the public’s lack of understanding—especially among opinion molders and decision makers—of this need for economic literacy. In economics more than in other disciplines, ignorance can kill.

The terrible economic crises caused recently by governments – crises that only ignoramuses or propagandists blame on markets—proved again, if we still needed proof, that only government meddling can threaten to ruin the economy, such as the meddling by the Federal Reserve when it flooded the US economy with cheap credit and enabled two giant semi-governmental entities, Fanny Mae and Freddie Mack, to sell worthless mortgages worth trillions of dollars.

THE CRISES also teach us three more lessons: that a healthy economy is essential for social well-being, that economic literacy is a precondition for the enactment of policies that create sustained growth and that economic prosperity, and not a counterproductive “peace process,” can bring true reconciliation between peoples, as it has in Europe after centuries of bloodshed.

The panic and confusion with which governments reacted to the recent crises would not have resulted in dangerous policy initiatives if the public understood better how an economy functions. An enlightened public could have prevented the steps politicians took out of ignorance and myopia, steps that could yet lead to such ruinous consequences as runaway inflation, and which may endanger our well-being and future security.

A society cannot preserve its stability, strength and capacity to grow without economic prosperity. Friedman understood this profoundly, and devised successful solutions to most of the crucial problems that plagued our economy.

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