April 17, 2003

Uncle Milton

Just spent an hour and a half being interviewed for a documentary about Milton Friedman to air (hopefully) sometime in 2004...

Some after-the-fact notes:

Friedman... how great an influence on my thought? Let me think who has had more... Smith, Keynes, Summers, Shleifer... I would put Friedman fifth: only four other economist have had a greater influence on how I think...

I'm not atypical at Berkeley in finding myself moving under the influence of the intellectual field generated by Milton Friedman--at least, I don't think I am...

Friedman as a pragmatic libertarian, perhaps: believing that market failures are atypical, tending to generate profit opportunities and creating institutions to route around them, and that government failure is pervasive--that any expansion of government beyond the classical liberal state is likely to cause more troubles than it solves...

Thus a big difference with Arrow, Samuelson, Akerlof, and company: who see market failure as much more common and hard to route around, and democratic governments as much more competent...

One problem for us American liberals is certainly that Republican administrations tend to provide excellent demonstrations of Friedman's claim of governmental incompetence/capture/counterproductive behavior--massive government failure that outweighs probable estimates of market failure and creates a strong case for the shrinkage of the regulatory state. Witness Reagan, Bush II fiscal policy. Witness the Bush II farm bill, steel tariff. Witness the Bush II transformation of what is supposed to be a cyclical-stabilization program into an income-redistribution program...

Except, of course, for the banking sector. Somehow Friedman believes that in the banking sector market failures are so enormous and costly that government intervention must be massive, pervasive, intrusive, and constant--in order to keep the money supply growing at the proper rate, and in order to avoid the creation of alternative forms of liquidity that will undermine the dependence of spending on the money stock...

Friedman not a Randite: Randites see value in (market-driven) inequality. Treating unequals unequally as a matter of justice...

Is Friedman a libertarian?: Advocacy of congestion charges--Ken Livingstone, socialist former darling of Labour's Trotskyist loony left, and London's autommobile congestion charge. Negative income tax. Not libertarian ideas...

Drug liberalization...

Friedman a pragmatic libertarian, perhaps: belief that government is good at enforcing property rights and judging contract disputes, and is hopelessly inept and systematically corrupt at everything else...

Some confusion in Friedman's analysis of the Panic of 1907. Panic of 1907 resolved not by the private market but by collective action--a pick-up central bank wholly owned and operated by the New York bankers. Definitely on the "state" side of the "state/market" divide...

Watching Milton Friedman take on Guillermo Calvo over causes of the Mexican Disaster of the mid-1990s...

Failure[?] of the Monetarist Project: Friedman wrong about stability of money-income relationship. Friedman right about everything else--natural rate of unemployment, limited power of government to fix the business cycle given uncertainty, forward-looking consumption function, permanent income hypothesis, "New Keynesian" might as well be called "New Monetarist" economics...

Friedman's politics: transparency as most important goal, a need to get government's nose out of people's business (freedom--drug liberalization, et cetera) a second goal, avoidance of large redistributional programs a third (but negative income tax?), need to educate voters about the magnitude of government failure a fourth goal.

Basic desire for transparency doesn't fit with support of current Republican program to destabilize the federal budget a decade from now. Current Republican program plans on telling people in 30 years, "Oh, the decision to cut your Social Security and Medicare benefits by 1/3 was implicit in those tax cuts you voted for back in the early 2000s. You didn't realize that? Too bad." That's not "transparent"...

Joe Froomkin's story about running into Milton Friedman a few years after finishing at Chicago--and Friedman's distress that his classes were now much more Uncle Milton and the Acolytes, and that since Joe got his Ph.D. far too few students were willing to try to take him on in class...

Posted by DeLong at April 17, 2003 12:59 PM | TrackBack

Comments

Yeah, it's the acolytes who will kill you.

Interesting remarks.

Posted by: John Thullen on April 17, 2003 10:10 AM

Yeah, it's the acolytes who will kill you.

Interesting remarks.

Posted by: John Thullen on April 17, 2003 10:13 AM

"Basic desire for transparency doesn't fit with support of current Republican program to destabilize the federal budget a decade from now. Current Republican program plans on telling people in 30 years, "Oh, the decision to cut your Social Security and Medicare benefits by 1/3 was implicit in those tax cuts you voted for back in the early 2000s. You didn't realize that? Too bad."

Important comment, indeed. Where then are Milton Friedman and kin in echoing just these comments? Why are they all so intent on loving the dreadful fiscal policy of this Administation?

Posted by: anne on April 17, 2003 10:55 AM

http://www.boston.com/globe/search/stories/nobel/1991/1991f.html

what about cousine coase? who did a lot to sway the "state/market" divide and instill the neoliberal consensus we have today!

also btw, looking around i came across this awesome breathless "new economy" business 2.0 article written in 2000 about how the internet will change everything :D

http://www.business2.com/articles/mag/0,1640,8850%7C2,00.html

---
How has the Internet affected Coase's Law? Strictly speaking, the law remains as valid as ever: A firm should still expand until the cost of performing a transaction internally exceeds the cost of performing it externally. But the Internet has caused transaction costs to plunge so steeply that it has become much more useful to read Coase's Law, in effect, backwards: Nowadays firms should shrink until the cost of performing a transaction internally no longer exceeds the cost of performing it externally. Transaction costs still exist, but now they're often more onerous in corporations than in the marketplace.

Posted by: kenny on April 17, 2003 11:07 AM

Friedman really sucked up to Pinochet. He actually visited the dictator in Santiago and advised him to ignore what the world was saying about him regarding human rights and "put an end to statism."

I guess having the government secret police snatch people out of their homes at night, torturing them and disappearing them isn't an example of statism.

Posted by: Randy Paul on April 17, 2003 11:08 AM

Lots of valid insights in this post, Professor (my favorite among your work is this from your pre-blog days: http://econ161.berkeley.edu/Econ_Articles/monetarism.html )

But this is backwards:

"Basic desire for transparency doesn't fit with support of current Republican program to destabilize the federal budget a decade from now. Current Republican program plans on telling people in 30 years, "Oh, the decision to cut your Social Security and Medicare benefits by 1/3 was implicit in those tax cuts you voted for back in the early 2000s. You didn't realize that? Too bad."

Nothing could be more transparent than Friedman's "issue bonds" solution. Friedman is against gimmicks that hide the real costs of SS and Medicare. And he was quite vocal about this back in 1983 when the Greenspan Commission set us on the course. If you want to keep SS as it is, then be honest enough to fund it some other way than through income taxes.

Posted by: Patrick R. Sullivan on April 17, 2003 11:12 AM

"Where then are Milton Friedman and kin in echoing just these comments?"

http://www.reason.com/rb/rb041603.shtml

---
"Excessive secrecy has significant consequences for the national interest when, as a result, policymakers are not fully informed, government is not held accountable for its actions, and the public cannot engage in informed debate."

Posted by: kenny on April 17, 2003 11:16 AM

Your comment of Bush transforming a cyclical-stabilization program into an income redistribution program and the comment about transparency and cutting SS 30 years from now take a very cynical view of the Bush administration. I admit that you are correct about the effect of his policies, but is there not a less cynical reason for them?

I had always thought that Bush just wants to hand out favors to his friends and either doesn't know what the results will be or doesn't care. Long term consequences are the problems of future administrations. Are you suggesting that Bush and his fellow GOPs revel in the thought of reducing grandma's SS benefits and throwing her out on the street (or have to move in with her son in law)?

Posted by: bakho on April 17, 2003 11:20 AM

"I" am suggesting the compassionates believe we all had better stand on our own, and not rely on government [yuch] for such as Medicaid or Medicare or Social Security. Time for us to learn there is no free lunch, get out there and compete like men [even women], become rich rich rich [everyone can], cream will rise. Social programs simply take away our manliness [even women]. Duh.

Posted by: lise on April 17, 2003 11:44 AM

I am under (a likely false) impression that Milton Friedman (along with Gary Becker) is the intellectual father of the idea that we should always cut taxes under any circumstances and that huge deficits are a necessary evil to starve the government of revenues (one of many sources is: http://www.uncommonknowledge.org/01-02/605.html). Of course the overriding goal of this is to prevent new govt spending (and possibly cut off much of present spending). Isn't this the principle underlying the Bush administration's entire economic policy and worthy of criticism?

Posted by: Bobby on April 17, 2003 11:55 AM

>Let me think who has had more... Smith, Keynes, Summers...

Summers surpassing Milton Freidman?

Gee. If I was a cynical person, I'd say praising your ex-boss and a potential future employer that lavishly would qualify you for the suck-up of the month award! :)

Posted by: Bucky Dent on April 17, 2003 12:06 PM

Eh, Bucky

I am pretty sure Summers was one of DeLong's advisors when he was at Harvard, he also was DeLong's colleague and co-author. Now I am guessing that most economists are heavily influenced by people like co-authors and advisors and colleagues but then again I am not a cynic like you.

Posted by: achilles on April 17, 2003 12:14 PM

Randy Paul's comments are despicable. Friedman visited lots of countries and met their leaders, including Communist countries. His one visit to Chile was under the auspices of a private foundation.

BTW, as a friend of mine has pointed out elsewhere, Friedman visited Sweden at about the same time, and even accepted a medal from the King. Does this make him a monarchist and a socialist?

Posted by: Patrick R. Sullivan on April 17, 2003 12:20 PM

"Basic desire for transparency doesn't fit with support of current Republican program to destabilize the federal budget a decade from now."

It may not fit, but Friedman said that running deficits to cut spending was a good idea a while back. Guess he's on board.

http://www.opinionjournal.com/editorial/feature.html?id=110002933

Posted by: Jason McCullough on April 17, 2003 12:46 PM

I won't get into how silly it is to label statements of fact as "despicable" when their truth value is not challenged.

I believe Gustav Cassel recommended that the monetary authority increase the supply of money at a constant rate. Michel Kalecki, in his prophetic essay "Political Aspects of Full Employment", suggested that government manipulation of macroeconomic variables, including interest rates, would be destabilizing. It's probably true that Prof. DeLong and other economists get these ideas from Friedman.

Prof. DeLong and many other economists seem to accept a "natural" division between government and market. But that reflects insufficient critical norms among some economists.

Friedman was always wrong about the natural unemployment hypothesis, as James Galbraith shows. No reason exists, in theory, for the Walrasian system to grind out an unique unemployment rate. Even if it did, what's that have to do with the Phillips' curve? Finally, the natural rate hypothesis does not work empirically and has proven to be a bad guide to policy.

How else to explain stagflation? Nicky Kaldor, Richard Kahn, and Joan Robinson had a theory worked out in the late 1950s.

Friedman may be influential. But he is mostly wrong, including in areas that DeLong says otherwise.

I do think sequential statistical testing is a powerful idea, though.

Posted by: RubberDucky on April 17, 2003 01:03 PM

I'm not qualified to comment on RubberDucky's empirical claims. However, I think the stagflation comment is incorrect.

First, stagflation can occur due to an adverse supply shock, like an oil shock. This decreases the economy's productive capacity, which destroys jobs and increases unemployment. It also makes goods more scarce which increases prices. This supply shock has been incorporated into the Augmented Phillips Curve, so this is not a defect.

Even without the supply shock, it is possible for the actual unemployment rate to increase and for the inflation rate to still be really large. If unemployment increases to a level less than the natural rate inflation will not decrease and might increase and therefore inflation can remain large while unemployment increases. If unemployment increases to a level greater than the natural rate inflation decreases over time but it can still remain large for a long time while it is decreasing. Once again inflation can remain large while unemployment increases.

Also, I was under the impression that the mainstream natural rate debate is whether the long run Philips curve is vertical at low inflation rates.

Posted by: Bobby on April 17, 2003 01:31 PM

">Let me think who has had more... Smith, Keynes, Summers...

"Summers surpassing Milton Freidman?"

And surpassing his Uncle Paul as well??

"Basic desire for transparency doesn't fit with support of current Republican program to destabilize the federal budget a decade from now. Current Republican program plans on telling people in 30 years, 'Oh, the decision to cut your Social Security and Medicare benefits by 1/3 was implicit in those tax cuts you voted for back in the early 2000s. You didn't realize that?'..."

...In spite of how we Democrats were so *transparent* about our intentions to fund Social Security with income taxes all along? ;-)

This brings to mind Summers' confirmation hearing as Treasury Secretary. If anything he had a reputation for being too brashly candid for his own political good. But when Sen. Kerry (Neb.) pressed him on how the Clinton plan to shore up SS with bonds would finance the bonds and thus SS, he hemmed and hawed and fudged about until finally Sen. Moynihan intervened with, "Say 'taxes', Larry". That's how transparent the Democrats have been about their intention to fund Social Security with income taxes.

And for good reason too. FDR explicitly rejected general revenue funding for SS when he designed it, and said SS would be "out of the Treasury forever". He had reasons for that! Alan Greenspan has said the "Greenspan Commission" that re-worked SS's finances operated on a core assumption that SS would continue to be financed only through payroll taxes. It had reasons for that too. Recently Greenspan has said that he finds it remarkable how people in some quarters are simply assuming SS should be funded with income taxes in the future, which would be the biggest policy change -- reversal, in fact -- in SS since its creation, with no debate about the merits of the idea at all.

Yet we do seem to have a cadre of Democrats about who intend to look back come 2030 and say "Why, of course we always intended to fund SS with income taxes. You didn't realize that back in 2000? In spite of how transparent we all always were about it??"

Friedman, OTOH, clarifies the financing of SS in a way that makes it so transparent I've seen it startle even the proponents of "privatization" schemes, in particular by debunking the bogus "transition cost" argument -- that SS's defenders invoke so often and SS reformers strive so hard to work around -- as just another suit of political clothes of the transparent sort that Emperors are wont to wear.

http://www-hoover.stanford.edu/publications/digest/992/friedman.html

Posted by: Jim Glass on April 17, 2003 02:00 PM

Patrick Sullivan:

To my knowledge the King of Sweden was not having people tortured on his orders when Friedman visited. If you have any proof that he was, please share it.

Posted by: Randy Paul on April 17, 2003 02:05 PM

"One problem for us American liberals is certainly that Republican administrations tend to provide excellent demonstrations of Friedman's claim of governmental incompetence/capture/counterproductive behavior."

Don't tell me that Democratic administrations are the exception?!

Posted by: John B. on April 17, 2003 02:52 PM

http://www-hoover.stanford.edu/publications/digest/992/friedman.html

I may not understand Friedman correctly, but I think he is well aware that there is a “transition cost”. It seems that the only way he gets around paying “taxes” for both retirees and for “funded” accounts, is that he wants to make contributions voluntary. Under that assumption the only taxes to be paid are for the obligations accrued under the present system. And those obligations need to be financed somehow:

"How would that funded debt be paid when it comes due? By taxing, borrowing, creating money, or reducing other government spending. There are no other ways. There is no more reason to finance the repayment of this part of the funded debt by a payroll tax than any other part. Yet that is the implicit assumption of those who argue that the “costs of transition” mean there can be only partial privatization."

Not sure what he means by “funded debt”. The fact remains that “funded debt” needs to be repaid (with taxes, payroll or general) and savings for retirement accrued due to the transition. Without transition all that needed to be paid is the tax.


Posted by: Wolf on April 17, 2003 03:15 PM

I find Bobby's comments quite confusing. He writes as if he is arguing against some claim of mine. But I don't see how. Admittedly my comments are brief.

For instance, I never said one could not explain stagflation with an augmented Phillips curve. It's just that that theory is wrong, I think.

I cited James Galbraith on the failures of the NAIRU theory. So I don't see why I should care about the restictions of mainstream debates on the long-run Phillips curve.

(I fail to see how some Democratic senator (Kerrey) insisting that some nominee for Treasury should clearly state how to finance SS, and some other Democratic senator, who specialized in SS, interrupting with a clear answer, implies the Democrats prefer a lack of transparency.)

Posted by: RubberDucky on April 17, 2003 03:20 PM

Democrats and GOPs have been in agreement for some time that SS was a useful and popular program and have worked to make sure it was funded. That is why payroll taxes are currently collecting 30% more in SS taxes than is paid. That is why Gore talked lock box and Bush said that he would not spend any of the SS surplus. When the truth is out about the fuzzy math and Bush must decide between SS surplus and tax cuts, he chooses tax cuts.

The truth is that SS is adequately funded through 2038. The problem is that the money that has been borrowed from the SS trust fund will have to be repaid. This envisions a tax increase or spending reduction or more borrowing from the public in the future. Borrowing in the future will not be an option if our debt today is too high. Democrats recognize this. The GOP since Reagan has not been fiscally responsible and has had a policy of massive government deficits (intended or unintended) since 1981. Clinton budgets from 1994-2001 would have been in surplus were it not for the interest payments on the debt accumulated by Reagan and Bush.

Posted by: bakho on April 17, 2003 03:28 PM

Randy Paul writes, "Friedman really sucked up to Pinochet. He actually visited the dictator in Santiago..."

Well, I don't know about that second part, but I do know what Friedman himself has said:

http://www.sbe.csuhayward.edu/~sbesc/frlect.html

"Pinochet and the military in Chile were led to adopt freemarket principles after they took over only because they did not have any other choice. They tried for a while to have military officers run the economy. However, inflation doubled in the first eight or nine months of their regime. When rates of inflation reached 700 to 1,000% they had to do something. By accident, the only group of economists in Chile who were not tainted by a connection with the Allende socialists were the socalled Chicago boys. They were called Chicago boys because they consisted almost entirely of economists who had studied at the University of Chicago and had received their Ph.D. degrees at the University of Chicago. They were untainted because the University of Chicago was almost the only institution in the United States at the time in which the economics department had a strong group of freemarket economists. So in desperation Pinochet turned to them.

I have nothing good to say about the political regime that Pinochet imposed. It was a terrible political regime. The real miracle of Chile is not how well it has done economically; the real miracle of Chile is that a military junta was willing to go against its principles and support a freemarket regime designed by principled believers in a free market. The results were spectacular. Inflation came down sharply. After a transitory period of recession and low output that is unavoidable in the course of reversing a strong inflation, output started to expand, and ever since, the Chilean economy has performed better than any other South American economy."

How is, "I have nothing good to say about the political regime that Pinochet imposed," "sucking up" to Pinochet?

While looking for quotes from Friedman on Pinochet, I also found this interesting article:

http://www.lakota.clara.net/myths/economy.html

As an environmental engineer, who has visited Chile twice, as part of my work, I can comment on many of the assertions in the article. I'll try to do so, after I get something to eat. :-)

Posted by: Mark Bahner on April 17, 2003 03:29 PM

More on Friedman and Pinochet:

http://www.druglibrary.org/special/friedman/socialist.htm

Trebach: This question says you supported Pinochet or advised Pinochet.

Friedman: I never advised Pinochet. I never supported Pinochet.

Trebach: We'll throw that one away.

Friedman: But hold on. No, I don't want to evade the question.

Trebachi: All right.

Friedman: Chile was a case in which a military regime, headed by Pinochet, was willing to switch the organization of the economy from a top-down to a bottom-up mode. In that process, a group of people who had been trained at the University of Chicago in the Department of Economics, who came to be called the Chicago Boys, played a major role in designing and implementing the economic reforms. The real miracle in Chile was not that those economic reforms worked so well, because that's what Adam Smith said they would do. Chile is by all odds the best economic success story in Latin America today.

The real miracle is that a military junta was willing to let them do it. As I said to begin with, the principle of the military is from the top down. The principle of a market is from the bottom up. It's a real miracle that a military group was willing to let a bottom-up approach take over. I did make a trip to Chile and I gave talks in Chile. In fact, I did meet with Mr. Pinochet, but I never was an adviser to him, and I never got a penny from the Chilean government. But I will say that that process led to a situation in which you were able to get an election which ended the military junta. You now have a democratic government in Chile. There is as yet no similar example from the world of entirely socialist states.

So, I was not an adviser to Pinochet. I was not an adviser to the Chilean government, but I am more than willing to share in the credit for the extraordinary job that our students did down there.

Again, that doesn't seem like "sucking up" to me.

Posted by: Mark Bahner on April 17, 2003 03:39 PM

"Finally, the natural rate hypothesis does not work empirically and has proven to be a bad guide to policy.

How else to explain stagflation? . . . "

I don't think RubberDucky is so confused about my comments themselves as he is about their motivation. The above passage from his original post gave me the impression that indeed he was saying that the model cannot explain stagflation. I guess I misinterpreted the sentence "How else to explain stagflation." I interpreted this sentence to mean: "How else to explain stagflation but that the Phillips curve model is wrong."

The following sentence regarding Kaldor Kahn and Robinson was somewhat murky to me, and I wasn't sure how it related to the rest of his post. I see my error.

Posted by: Bobby on April 17, 2003 03:47 PM

"Finally, the natural rate hypothesis does not work empirically and has proven to be a bad guide to policy.

How else to explain stagflation? . . . "

I don't think RubberDucky is so confused about my comments themselves as he is about their motivation. The above passage from his original post gave me the impression that indeed he was saying that the model cannot explain stagflation. I guess I misinterpreted the sentence "How else to explain stagflation." I interpreted this sentence to mean: "How else to explain stagflation but that the Phillips curve model is wrong."

The following sentence regarding Kaldor Kahn and Robinson was somewhat murky to me, and I wasn't sure how it related to the rest of his post. I see my error.

Posted by: Bobby on April 17, 2003 03:47 PM

Well, if I was harsh I apologize, however, it is worth noting that Friedman made those remarks in 1991. On page 170 of the book "A Nation of Enemies: Chile Under Pinochet" by Arturo Valenzuela (Director of the Center for Latin American Studies in the Edmund A. Walsh School of Foreign Service at Georgetown University) and Pamela Constable, a Washington Post reporter, mention is made of Friedman's visit to Chile in March 1975 and a meeting with Pinochet in which Friedman advises Pinochet "to ignore his poor image abroad, focus on curing the 'disease' of statism and take sharp action against inflation." Their source is a magazine article in the Chilean magazine "Ercilla" from April 2, 1975 titled "The Counsel of the Professor" and they also state in their notes that the full text of his remarks were published in a book titled Milton Friedman en Chile: Bases para un desarollo econůmico (Milton Friedman in Chile: Basis for Economic Development). I have to consider his remarks at the time to be disturbing while acknowledging that "sucking up" was an ad hominem phrase for which I apologize.

I do wonder what the reaction would be, however, if a left-wing economist visited Castro and told him to ignore what the world was saying about him. I'd be outraged. I don't feel that Friedman was outraged by what Pinochet was doing.

Posted by: Randy Paul on April 17, 2003 04:12 PM

In his book, greg palast claims that when he was a student at U of C, Friedman wondered out loud why so many people were down on the only democracy in Africa - Rhodesia.

Not having another source to confirm this, I've taken it with a grain of salt. though, friedman seems to be being a bit dishonest about his role in Chile, though I'm happy to reserve judgment on that,too.

Chile also completely imploded in '82-'83...

Posted by: Atrios on April 17, 2003 04:29 PM

The natural rate hypothesis says that long run unemployment does not depend on inflation. The revised version says that this is true except for small levels of inflation where there is a downward sloping Phillips Curve as in the original-pre-natural rate version. Friedman's (really Phelps') theory does not claim to say what determines long run unemployment, just that, with the above exception, it does not depend on inflation. And calling that unemployment "the natural rate" is just a label, not to say that it is fixed, beyond the reach of policymakers, or stochastic.

And that's it. Though I haven't read anything he wrote, I'm not sure what Galbraith's objection is.
Here is a passage form Krugman describing the natural rate hypothesis:
http://www.pkarchive.org/new/kruge.html
Could you describe what exactly his objections are.

Posted by: Bobby on April 17, 2003 04:42 PM

not stochastic rather

Posted by: Bobby on April 17, 2003 04:44 PM

Jim, however you define the "transition cost", a fully privitized SS system would give the same rate of return as the current system. Unless you think a generation can get its retirement benefits for free.

Posted by: Jason McCullough on April 17, 2003 05:04 PM

Regarding atrios statement: "Chile also completely imploded in '82-'83...", that's because Chile made the mistake of pegging the peso to the dollar in 1981. Just in time for Paul Volker's medicine.

Otherwise Chile's "Chicago Boys" policies worked splendidly. It's the best Latin American economic policy with which I'm familiar. And it should be noted that pegging currencies is not a Friedman policy recommendation (maybe it is one of Harberger's--who was the actual mentor of the Chilean students at Chicago--I don't know). Friedman would first recommend floating exchange rates, and second a currency board.

Now that Randy Paul has calmed down, I'd suggest he pick up a copy of "Two Lucky People" and read Friedman's side of the Chile story. In Appendix A the letter he wrote to Pinochet is printed.

As for the verrrry cleverly disguised Rubber Ducky (last seen on sci.econ imitating the Iraqi Minister of Information), he seems to be somewhat confused by what is fact, and what is nasty insinuation from otherwise unremarkable fact.

Posted by: Patrick R. Sullivan on April 17, 2003 05:15 PM

Ken Livingstone, though considered loony, became popular with a huge segment of British society - not just Trotskyites, as Brad suggests - when Thatcher decided to shut down the GLC. I doubt he'd be mayor now otherwise (in other words, you're seriously misrepresenting his base). At that time, Friedman was hated in much of England for his association with Thatcher. I think his association with Pinochet would have been a better reason.

Posted by: John Isbell on April 17, 2003 05:26 PM

Patrick Sullivan,

It doesn't change the fact that he advised a military dictatorship where people were being tortured and disappeared. People on the left are excoriated for less than that. I'll take a look at the book and I'll read his letter to Pinochet, but I can't ignore his contemporary remarks in 1975. If you feel that his advising a military dictatorship that tortures people is acceptable, we'll have to agree to disagree.

Chile's greatest recent economic growth has also been post-Pinochet. It's worth noting that Pinochet never re-privatized Codelco, the state copper company that eventually resulted from Allende's nationalization of the copper industry. 10% of Codelco's earnings (not profits) go to the military. Ricardo Lagos, the leftist president of Chile wants to privatize Codelco. Sometimes the old labels and stereotypes don't stand up.

Posted by: Randy Paul on April 17, 2003 05:46 PM

Uncle Milton always struck me as a fore runner of the manner of compassionate conservatives who are shaping fiscal policy just now. Compassionate, blah blah blah. There is no sense of compassion in these conservatives or in Uncle Milton though Uncle might have had a bit to say about monetary theory. I am not impressed, and fortunately do not have to pretend to be. Uncle coulod be shaping policy for this Administration and there would be no change what so ever. Yuch.

Posted by: lise on April 17, 2003 05:48 PM

Milton Friedman is a great economist with no social conscience. Well, perhaps he was not such a great economist after all.

Posted by: bill on April 17, 2003 05:53 PM

Sorry to rain on the parade, but Mark and Patrick have been hoodwinked by the Cato institute's revisionist history of Chile.

In 1973, the year the General seized the government, Chile's unemployment rate was 4.3%. In 1983, after ten years of free-market modernisation, unemployment reached 22%. Real wages declined by 40% under military rule.
In 1970, 20% of Chile's population lived in poverty. By 1990, the year "President" Pinochet left office, the number of destitute had doubled to 40%. Quite a miracle.
Pinochet did not destroy Chile's economy all alone. It took nine years of hard work by the most brilliant minds in world academia, a gaggle of Milton Friedman's trainees, the Chicago Boys. Under the spell of their theories, the General abolished the minimum wage, outlawed trade union bargaining rights, privatised the pension system, abolished all taxes on wealth and on business profits, slashed public employment, privatised 212 state industries and 66 banks and ran a fiscal surplus.

http://www.gregpalast.com/detail.cfm?artid=16&row=1

The Pinochet policies transferred wealth from the poor to the wealthy and wrecked the economy. Trickle down does not work. Fairy Tales about micracles in Chile are no substitute for hard economic analysis.

Posted by: bakho on April 17, 2003 06:18 PM

The cat got your tongue?

THink about this. Prior to WWII the US was in a Great Depression. Many were unemployed. Productivity in the agriculture sector had increased to where many fewer workers were needed. After WWII the US was faced with a dilemma. How could an agricultural economy employ all those returning soldiers? The big answer: It could not. The GI bill was signed and the number of college graduates was placed on the exponential curve.

Rather than have the GIs return to meaningless jobs, we trained them to go to the top, reach their capacity. Since then, the US has faltered in its commitment to training the next wave. Why???

The paradigm is set. Training Americans to take advantage of the new wave of opportunities is what has built this nation. We cannot retreat without losing ground. The conservatives would have us retreat from progress by unfunding the necessary training. Downturns in the economy are the very times to commit to training for the future. It really sucks to have an administration that is blind and deaf to that reality. 2004 elections cannot come soon enough to make the needed change.

Posted by: bakho on April 17, 2003 09:42 PM

The Chicago boys
and the Chilean 'economic miracle'


Sometime in the late nineties, I got hold of income distribution data for Chile, and I found out that each one of the bottom 4 quintiles (bottom 80%) of the income distribution had LOWER real income in the 90s than in the Allende years.

That was the Pinochet miracle.

Also read:

http://www.lakota.clara.net/myths/economy.html

SUMMARY: So what was the record for the entire Pinochet regime? Between 1972 and 1987, the GNP per capita fell 6.4 percent. (13) In constant 1993 dollars, Chile's per capita GDP was over $3,600 in 1973. Even as late as 1993, however, this had recovered to only $3,170. (14) Only five Latin American countries did worse in per capita GDP during the Pinochet era (1974-1989). (15) And defenders of the Chicago plan call this an "economic miracle."

Posted by: economistaBrasileiro on April 17, 2003 10:12 PM

That may not screw Friedman as an adviser, but it sure screws his academic honesty, since we have him above talking about how well Chile did under Pinochet.
His moral reputation is already in the toilet.

Posted by: John Isbell on April 17, 2003 11:13 PM

bakho: "Rather than have the GIs return to meaningless jobs, we trained them to go to the top, reach their capacity. Since then, the US has faltered in its commitment to training the next wave. Why???"

First of all, last time I checked, government at various levels is funding education so talking about faltering is at odds with the facts. But think about the GI Bill as a one-time jump-start. Why should it continue? If education is so economically valuable, why should it receive additional support from a lethargic and wasteful government? And I want a full disclaimer if any part of your income comes from an educational institution. Let's be candid about our biases.

Posted by: JT on April 18, 2003 06:12 AM

Re: The Pinochet "miracle"

The privitization of the retirement funds was quite a failure. Between the con-men and business meltdowns, people found their retirement funds melt into nothingness.

The problem with something like this, is becaue of the long-term nature of the decision, once the damage is done, it is done. The added information about these companies do next to nothing to help consumers. (Unlike something like where a bad soda drink can encourage people to not drink another).

Such decisions rely on as much correct information one can obtain. In these cases, the information is unavailable until after the fact.

On a related note..it came to my attention that Wolfowitz Perle and Chalbi all come from U of C...any releation to Freidman's crew? Is Iraq going to be the second great Libertarian experiement?

Posted by: Glenn on April 18, 2003 06:15 AM

JT at April 18, 2003 06:12 AM wrote:

"If education is so economically valuable, why should it receive additional support from a lethargic and wasteful government? "

This is bakho:
Maybe we should hire all our high paid scientists, engineers and medical personnel from other countries and let uneducated Americans flip their burgers for minimum wage? My interest conflicts? I'm a student.

Back to Friedman. What does Uncle Milton have to say about the value and role of government in education?


Posted by: bakho on April 18, 2003 07:41 AM

bakho writes, "Sorry to rain on the parade, but Mark and Patrick have been hoodwinked by the Cato institute's revisionist history of Chile."

Have you even ever actually *been* to Chile? If so, when, and for how long?

I don't think my two weeks in Chile (circa 1997/1998) make me an expert, but I at least *have* been there. Most of my time was spent in and around Santiago...which, since it has something like 40% of the population of the entire country, gives one something of a flavor for how well off the country is.

My very first impression, as the plane landed, was "What a dump!" There was something about the arirport that was distinctly less-than-first-world. Quonset hut type stuff, as I recall. (Interestingly, by the time I left, I didn't notice it.)

In my youth, my family travelled pretty extensively through Spain, Portugal, and Italy. Until I saw the airport in Santiago, I'd forgotten how much poverty depresses me. (Obviously it's likely more depressing for the impoverished. ;-))

Overall, to try to summarize a full two weeks of experience, I thought Santiago was a pretty nice city. There are *fairly* large parts of it that are almost European looking, with multi-story apartments, with lots of flowers.

I never really saw a *very* poor section of town. When I first hit the airport, I expected to see shantytowns. I never saw that. I did see places that were definitely poor, by U.S. standards. But not shacks.

The city definitely has/had air pollution problems. But this lokota/clara/net person makes a big deal about industry...but industry is responsible for very little of Santiago's air pollution problem. The main problem is geography, just like Los Angeles. Santiago is in a river valley, surrounded by mountains. The other problems are: 1) unpaved roads...not in Santiago, but in the surrounding mountains, and 2) automobiles without catalytic converters.

The ways that Santiago attempts to address the problem most definitely are NOT free market! They have (had, anyway) a mandatory requirement that only half the cars (alternating days, even/odd license plate numbers) could drive, when ambient air pollution levels are high. That's completely stupid, since it didn't discriminate between catalytic converter cars, and non-catalytic converter cars. And they had NO emissions trading, such that companies could avoid onerous emissions testing requirements, by paying into funds that would pave roads, or add dust suppressants to roads.

"The cat got your tongue?"

No. I simply have a life. I think you're wrong (as usual). But since nothing I could ever say, or no facts I could ever give you, will likely change your mind, I'd rather spend my time doing something else.

Once again, I'd like to know if you've ever actually been to Chile, and when, and for how long?

"On a related note..it came to my attention that Wolfowitz Perle and Chalbi all come from U of C...any releation to Freidman's crew?"

No.

Glenn asks, "Is Iraq going to be the second great Libertarian experiement?"

No. (First of all, you shouldn't be capitalizing the L, because the Libertarian Party was most certainly NOT involved in Chile.)

But no one in the Bush Adminstration is a libertarian...let alone a Libertarian. So it's completely bogus to expect that Iraq might be a "Libertarian experiment." However, it *would* be good for Iraq, just like free market principles have been good for Chile. (And just like Libertarian...with a capital L...principles will be good for Costa Rica.)

Posted by: Mark Bahner on April 18, 2003 08:00 AM

Patrick Sullivan: You mean that Friedman visited China about the same time he visited Chile? Did he also tell the Chinese to ignore human rights concerns, as they took the capitalist road? Boy, THAT sure exonerates Friedman! I don't know how Randy Paulmangaes to hold his head up.

Posted by: zizka on April 18, 2003 08:07 AM

Chile, in 2000, had the second-highest Human Development Index (HDI...a measure of overall welfare, that includes literacy, life expectancy, wealth, and others) value in South America. Second only to Argentina.

So, in 2003, Chile probably has the HIGHEST HDI in South America:

http://hdr.undp.org/reports/global/2002/en/indicator/indicator.cfm?File=indic_283_1_1.html

This from the United Nations...a group no one has ever accused of being too friendly to capitalism.

Read it and weep, Stalin boys! ;-) (Hey, Patrick, I guess I'm getting as fed up as you are. ;-))

Posted by: Mark Bahner on April 18, 2003 08:11 AM

"Democrats and GOPs have been in agreement for some time that SS was a useful and popular program..."

Well, duh! EVERY Ponzi scheme is "useful and popular"...for the first generations of "investors." It's the later generations who get screwed. (Of course, in a private Ponzi scheme, the scheme then collapses. But in this case, the government forces the later generations to get screwed.)

Posted by: Mark Bahner on April 18, 2003 08:23 AM

OK. So in 1991 Friedman criticized the murderous Pinochet political regime, while praising its economic policies. In 1975, while the murders were being done, he praised the regime and recommended that Pinochet ignore world opinion. And this is supposed to make Friedman look good?

Once a policy you support is successful it's always possible to verbally disavow the messy part, but obviously this is special pleading and evasiveness. What really counts is what you say and do at the time.

Another example is the U.S. Central America policy ca. 1979-1989. Once the death squads had attained their goals, lots of people who had supported the U.S. policy (which tacitly supported the death squads) came out of the woodwork talking about how awful the death squads were.

Ca. 1980 support for U.S. Central America policy primarily consisted of playing dumb and pretending it wasn't happening. Almost nobody said "Let them keep killing people who might end up being Communists until we've won". Seymour Hersh got fired for reporting what was actually happening there.

P.S. I think that people who have never visited a place have a right to say things about it, and that people who have spent two weeks in a place should not claim expertise.

Posted by: zizka on April 18, 2003 08:24 AM

"Democrats and GOPs have been in agreement for some time that SS was a useful and popular program..."

Well, duh! EVERY Ponzi scheme is "useful and popular"...for the first generations of "investors." It's the later generations who get screwed. (Of course, in a private Ponzi scheme, the scheme then collapses. But in this case, the government forces the later generations to get screwed.)

Posted by: Mark Bahner on April 18, 2003 08:26 AM

http://hdr.undp.org/reports/global/2002/en/indicator/indicator.cfm?File=indic_283_1_1.html

Actually, I see that Chile has the second highest (likely now highest) Human Development Index value not only in South America, but also Central America and the Caribbean.

What are y'all's theories on that? Perhaps the
United Nations doesn't know how to measure human development? Whereas y'all do?

Cat got your tongue, bahko?


Posted by: Mark Bahner on April 18, 2003 08:35 AM

"I have nothing good to say about the political regime that Pinochet imposed. It was a terrible political regime. The real miracle of Chile is not how well it has done economically; the real miracle of Chile is that a military junta was willing to go against its principles and support a freemarket regime designed by principled believers in a free market. The results were spectacular. Inflation came down sharply. After a transitory period of recession and low output that is unavoidable in the course of reversing a strong inflation, output started to expand, and ever since, the Chilean economy has performed better than any other South American economy."

Why on earth is this a miracle? The military in Chile launched the coup because practically the entire large business sector in Chile had begged them to do so. Pinochet and the Junta knew that goint back to statist economic policies would destroy the support that they had obtained to end Chile's 40-year history of uninterrupted democracy. So it's not surprising that they turned towards free-market policies. The idea that Pinochet initially favored statist policies and it took Friedman to turn him around is just a myth.

As for the Chicago boys' policies, they were a disaster from beginning to end, and in fact it is no coincidence that Chile started recovering economically only after Pinochet replaced a good deal of his economic cabinet in the aftermath of the 1982-1983 disaster. bakho described the consequences quite well, though he didn't mention the policy causes. The mistakes made by the Chicago boys included: (1) allowing privatization to be financed by a huge degree of foreign credit, which not only resulted in large-scale concentration of ownership, but also in large-scale financial vulnerability which exploded when Volcker tightened the screws after 1979, (2) indexing wages in 1978 even though they were also slowing the rate of devaluation, which led to the usual inflation-faster-than-depreciation problem and a collapse in the current account, (3) failure to properly pace the liberalization of foreign trade, which resulted in a growing wave of unemployment as the old import-substitution firms collapsed from a flood of imports.

For a pro-free market but nevertheless skeptical account of Chicago Boy policies in Chile, one of the best sources is Sebastian and Alejandra Edwards, _Monetarism and Liberalization: The Chilean Experiment_. Sebastian Edwards is a former student of Friedman's, which doesn't prevent him from criticizing the policies of Friedman's students.

Posted by: andres on April 18, 2003 08:40 AM

"P.S. I think that people who have never visited a place have a right to say things about it,..."

No one ever wrote they didn't. At least not I. But the fact that y'all are getting your information from a Internet website of absolutely no reputation (as opposed to the United Nations website...who presumably know about how well off people are)...AND y'all have never even been to Chile, makes your viewpoints about the country not terribly authoritative.

"...and that people who have spent two weeks in a place should not claim expertise."

I never claimed expertise about Chile in general. I DO have considerable expertise about the air pollution problems in Chile...at least relative to anyone who is likely to post here.

I'm a degreed environmental engineer, specializing in air pollution, with over 12 years professional experience. Further, my expertise about the air pollution problems in Santiago come not only from my visiting there, but from talking with local experts, and from reading studies about Santiago's air pollution.


Posted by: Mark Bahner on April 18, 2003 08:45 AM

" It doesn't change the fact that he advised a military dictatorship where people were being tortured and disappeared. "

Randy Paul returns to being despicable with the above. Friedman gave his standard economic advice to Pinochet on how to control inflation, the same advice he also gave to Communist countries such as China and the Soviet Union. The latter two regimes being monumental tyrannies that far outstripped anything Pinochet may have been guilty of. I've not heard anyone on the political left complain about his more numerous trips to those countries.

And again, Friedman had NO connection to Pinochet's regime. His one visit to Chile was under the auspices of a bank, he gave two speeches at universities. He went out of his way to reject any medals or official honors, precisely because he didn't want to be associated with the government of Chile.

His speeches were about "the fragility of freedom", and he warned that economic freedoms could not long survive without political freedom. And I'm betting that the statements attributed to Friedman (third hand) are made up by bitter leftists.

Posted by: Patrick R. Sullivan on April 18, 2003 08:50 AM

" In 1975, while the murders were being done, he praised the regime and recommended that Pinochet ignore world opinion. And this is supposed to make Friedman look good?"

What evidence is there that Friedman ever "praised the regime"? Or that he "recommended that Pinochet ignore world opinion"?

Posted by: Patrick R. Sullivan on April 18, 2003 09:04 AM

From Friedman's Newsweek column in 1976:

" I am not now, and never have been an economic adviser to the Pinochet Chilean junta....

"...despite my sharp disagreement with the authoritarian political system in Chile, I do not regard it as evil for an economist to render technical economic advice to the Chilean government to help end the plague of inflation, any more than I would regard it as evil for a physician to give technical medical advice to the Chilean government to help end a medical plague."

And a few facts for those usual suspects who are parroting quarter century old Soviet disinformation:

Allende--elected president with less than 37% of the popular vote--immediately upon being inaugurated began to institute a communist regime like his hero Fidel Castro. When asked point blank by Georgy Ann Geyer if there would be elections in 1974, he replied that she didn't understand; that everything would be "completely different" then. Similar statements were given to other journalists.

Allende nearly destroyed the Chilean economy. He instituted tarriffs of over 100% on thousands of of imports. He fixed retail prices. He nationalized hundreds of businesses, and ran them at huge losses. He printed money to cover his deficits--there was an inflation rate approaching 1000% in 1973.

The Chilean army finally put a stop to the insanity, and freed the Chilean people from a Cuban style nightmare. In a plebiscite in 1980, Pinochet won a vote of confidence from the country. Probably because by then inflation was under control.

By the middle 1990s Chile's real per capita income was nearly triple what it had been in 1973 (Allende's last year). And Chile was again a democracy--Pinochet stepped down when he lost an election in 1988.

Posted by: Patrick R. Sullivan on April 18, 2003 09:35 AM

Friedman claimed that his development of the quantity theory of money extended an oral tradition. According to Don Patinkin and Harry Johnson, Friedman made up that oral tradition. It seems Friedman has never been reliable on his own history.

Posted by: RubberDucky on April 18, 2003 10:03 AM

>Or that he "recommended that Pinochet ignore world opinion"?

I cited that from the book "A Nation of Enemies." I'm not being despicable, just expressing my opinion. I have not accused you of being despicable, so perhaps you can afford me the same courtesy. I'm not holding my breath, however.

Posted by: Randy Paul on April 18, 2003 10:12 AM

Patrick Sullivan,

According to the Santiago Times in an interview on Chilean television a couple of years ago, retired commander of the Chilean Air Force, General Fernando Matthei acknowledged what many had suspected. The night of the plebiscite that eventually resulted in Pinochet leaving office (he didn't leave office in 1988), when it appeared the "No" vote (no to ten more years of Pinochet) was losing, Pinochet wanted to send troops into the street and stop the election. Matthei and the rest of the junta told hom that they would not allow that. Pinochet lost the plebiscite, complained publicly that there was another plebiscite in which Barabbas was chosen instead of Jesus Christ and left office after the elections in 1990.

If a leftist economist had been advising Fidel Castro and told him to ignore what was being said about him, I would be very harsh on this economist. That is perhaps the fundamental difference between the two of us.

Posted by: Randy Paul on April 18, 2003 10:30 AM

It was inevitable that a discussion of Friedman would degenerate into a discussion of the Chilean dictatorship. Whatever one thinks about Friedman, to try to defend the Pinochet government is practically to defend the indefensible.

From the Patrick R. Sullivan Ministry of Truth:

"The Chilean army finally put a stop to the insanity, and freed the Chilean people from a Cuban style nightmare. In a plebiscite in 1980, Pinochet won a vote of confidence from the country. Probably because by then inflation was under control.

By the middle 1990s Chile's real per capita income was nearly triple what it had been in 1973 (Allende's last year). And Chile was again a democracy--Pinochet stepped down when he lost an election in 1988."

In this supposedly Cuban-style nightmare in which Chile was supposedly sinking into communist tyranny, Popular Unity (Allende's coalition) improved its position in the 1973 midterm elections. Because of the deteriorating economic situation, Allende agreed to hold a plebiscite on whether he should continue as president. To prevent him from announcing this plebiscite, the Chilean army moved forward the date of the coup from Sept. 18, Chilean independence day, to September 11, 1973 (how ironic).

Pinochet won a plebiscite in 1980 in an atmosphere of fear in which many people in opposition feared that they might be disappeared or tortured if they voted no or worse, campaigned against Pinochet. A lot of the people who might have campaigned against Pinochet were either dead or in exile. As for economic policies, well in 1970 the urban poverty rate in Chile was 13%, in 1987 it was 38%. Quite a success.

And Randy Paul is correct: when he did lose a second plebiscite in 1988 (mainly because many middle class voters who had previously supported him now realized the disastrous results of Chicago-style economic policies), Pinochet was only prevented from repudiating the results in part by pressure from other members of the Junta, but more importantly by pressure from the US government, which presumably had learned its lesson from the Shah and Somoza. Good thing that Sullivan-types weren't running the State Dept. back then.

Posted by: andres on April 18, 2003 12:26 PM

Since we're impaling learned economists for supporting noxious regimes, recall that Larry Summers once proposed exporting toxins to the "under-polluted" third world. That thought crime didn't keep him out of the Clinton cabinet.

Posted by: Bucky Dent on April 18, 2003 12:39 PM

If you want to read about Chile, the Chicago Boys and the consequences of free market policies, the following website is a good intro.

http://www.spunk.org/library/otherpol/critique/sp001280.html

The site references and quotes extensively from many of the good economic and political analyses and books available on the subject. This is a contentious subject because it represents perhaps the first true test of supply side economics and it was a huge failure, although inflation did drop. Workers had far less money to buy goods and this will stop inflation (go figure).

At any rate I doubt that Friedman today would stick by his 1982 statement, "(Pinochet) has supported a fully free-market economy as a matter of principle. Chile is an economic miracle" [Newsweek, Jan, 1982].

Posted by: bakho on April 18, 2003 01:12 PM

Per capita income went up but don't ignore distribution. One consequence of Pinochet's neo-classical monetarist policies was a contraction of demand, since workers and their families could afford to purchase fewer goods. The reduction in the market further threatened the business community, which started producing more goods for export and less for local consumption. This posed yet another obstacle to economic growth and led to increased concentration of income and wealth in the hands of a small elite. [Thomas Skidmore and Peter Smith, "The Pinochet Regime", Modern Latin America, Second Edition, Oxford University Press, 1989]

It is the increased wealth of the elite that we see the true "miracle" of Chile. The elite had become massively wealthy under Pinochet. The wealth created by the relatively high economic growth Chile experienced in the mid to late 1980s did not "trickle down" to the working class (as claimed would happen by "free market" capitalist dogma) but instead accumulated in the hands of the rich.

In the last years of Pinochet's dictatorship, the richest 10 percent of the rural population saw their income rise by 90 per cent between 1987 and 1990. The share of the poorest 25 per cent fell from 11 per cent to 7 per cent. The legacy of Pinochet's social inequality could still be found in 1993, with a two-tier health care system within which infant mortality is 7 per 1000 births for the richest fifth of the population and 40 per 1000 for the poorest 20 per cent.

Per capita consumption fell by 23% from 1972-87. The proportion of the population below the poverty line (the minimum income required for basic food and housing) increased from 20% to 44.4% from 1970 to 1987. Per capita health care spending was more than halved from 1973 to 1985, setting off explosive growth in poverty-related diseases such as typhoid, diabetes and viral hepatitis. On the other hand, while consumption for the poorest 20% of the population of Santiago dropped by 30%, it rose by 15% for the richest 20%.

As with all "economic miracles" who benefits and who loses are important considerations. If you were an elite in Chile, you could have achieved great wealth and become richer still in comparison to your countrymen. However, if you were a worker, you lost income and all rights to organize and bargain for wages.

According to Sergio de Castro, the architect of the economic programme Pinochet imposed, fascism was required to introduce "economic liberty" because:

"it provided a lasting regime; it gave the authorities a degree of efficiency that it was not possible to obtain in a democratic regime; and it made possible the application of a model developed by experts and that did not depend upon the social reactions produced by its implementation."

In other words, fascism was an ideal political environment to introduce "economic liberty" because it had destroyed political liberty. Perhaps we should conclude that the denial of political liberty is both necessary and sufficient in order to create (and preserve) "free market" capitalism? And perhaps to create a police state in order to control industrial disputes, social protest, unions, political associations, and so on, is no more than to introduce the minimum force necessary to ensure that the ground rules the capitalist market requires for its operation are observed?

Of course, turning authority over to technocrats and private power does not change its nature - only who has it. Pinochet's regime saw a marked shift of governmental power away from protection of individual rights to a protection of capital and property rather than an abolition of that power altogether. As would be expected. only the wealthy benefited. The working class were subjected to attempts to create a "perfect labour market" - and only terror can turn people into the atomised commodities such a market requires.

Posted by: bakho on April 18, 2003 01:33 PM

Randy Paul apparently does not understand the concept of evidence. It is not evidence, to quote third or fourth hand statements about what someone said at a time in the past.

If Friedman made any statements about ignoring world opinion in his 45 minute meeting with Allende (conducted through interpreters), it was undoubtedly directed at Allende's concerns about the side effects of the cure for inflation and not about Allende's internal security policies.

Before slandering a man (more than once) I'd think you owe him the courtesy of actually reading his side of the story (accessible at any library). Here's what Friedman's contemporaneous notes of his conversation say:

" in a session that lasted perhaps three-quarters of an hour or so and in which we had to communicate through interpreters, it is very hard to get much of an idea of the character of the man. He was very much interested in getting our reaction to the situation in Chile. He reacted from time to time....He was sympathetically attracted to the idea of a shock treatment but was clearly distressed at the possible temporary unemployment that might be caused."

The "shock treatment" being an immediate large cut in government spending and thus elimination of the need to print money to cover deficits. Friedman was famous at the time for telling everyone that there was no painless cure for rampant inflation. Chile's situation was particularly dire (several hundred per cent per year), and Friedman did not think a gradualist approach would work.

Adding 2+2 makes me conclude that if Friedman said to "ignore world opinion", he was talking about the side effect to the cure for inflation. If so, he was correct because the Chilean economy responded pretty much as he predicted.

Contrary to the fantasies of the usual suspects here. Here's a paper that studied the Chilean economy over the forty years from 1960 to 2000:

http://www.ecomod.net/conferences/ecomod2002/papers/chumacero.pdf

In which we learn that there were three periods of prosperity in those four decades:

" we distinguished three episodes of growth. Thus it can be
instructive to evaluate the differences in growth rates of TFP among these periods.

"One can say that the growth rate of GDP in the 1975-1981 and 1985-1998 episodes
might be influenced by the recovery from the two deep recessions of the seventies
and the eighties but, in both cases, there are significant increases in TFP; feature
that is not apparent in the [1960-1971 period]".

And they add: "During the trade reform period (late seventies), the average TFP growth reached its highest value."

In the concluding remarks:

"In Looking at the evolution of GDP over the last four decades, we distinguish
three periods of continuous growth: 1960-1971, 1975-1981 and 1985-1998. The
first period corresponds to a moderately inward oriented economy; the second
is the period of the major trade liberalization and market reforms; while the
third is the period where many of the reforms from the previous decade were
consolidated."

So, I'd encourage anyone not devoured by bitterness at avoidance of the close call with Castroite socialism in Chile, to note that the Allende years of the early 1970s were NOT a period of prosperity, but the six years following the "shock treatment" recommended by Friedman were. As was the decade and a half after the Volker treatment (1985).

Chile is undoubtedly better off for having been ruled by Pinochet (and for his taking the Chicago Boys advice), because the alternative was not Switzerland, but Allende-Castro socialism.

Posted by: Patrick R. Sullivan on April 18, 2003 01:42 PM

Allende's misdeeds, odious as they were, pale next to those of the Left's hemispheric darling, Castro.

Yet no expense is spared in smearing anyone who can be associated with Allende.

The meme that all anti-Communists are monsters is very potent, even though the two greatest mass murderers of the 20th century -- Mao and Stalin -- were, of course, Communists.

Posted by: Bucky Dent on April 18, 2003 02:26 PM

"If Friedman made any statements about ignoring world opinion in his 45 minute meeting with Allende (conducted through interpreters), it was undoubtedly directed at Allende's concerns about the side effects of the cure for inflation and not about Allende's internal security policies."
I think you mean Pinochet, moron.

Posted by: John Isbell on April 18, 2003 02:31 PM

Speaking of morons, I meant Pinochet too. Serves me right for multitasking on a day off.

Posted by: Bucky Dent on April 18, 2003 03:00 PM

Yeah, the anti-Communist Hitler was nothing. Actually, he was really a Communist. And nobody can be criticized who murdered fewer people than Mao. And anyone who uses secondary sources rather than primary sources on an internet chat board is vile. Gotcha.

Posted by: zizka on April 18, 2003 06:45 PM

Yeah, the anti-Communist Hitler was nothing. Actually, he was really a Communist. And nobody can be criticized who murdered fewer people than Mao. And anyone who uses secondary sources rather than primary sources on an internet chat board is vile. Gotcha.

Posted by: zizka on April 18, 2003 06:45 PM

>the anti-Communist Hitler was nothing

The founder of "national socialism", whose pact with Stalin opened the way to WW2? That "anti-Communist"?

Posted by: Bucky Dent on April 19, 2003 07:05 AM

Indeed, I mistyped "Allende" for "Pinochet" above. Thanks for the gracious correction.

Now, did you have any substantive reply to the facts I presented?

Posted by: Patrick R. Sullivan on April 19, 2003 09:12 AM

I find it sad that in response to a post on Friedman's influence on economic thought people are arguing about how appropriate his role in Chile was.

Posted by: Wolf on April 19, 2003 10:00 AM

>I find it sad that in response to a post on Friedman's influence on economic thought people are arguing about how appropriate his role in Chile was.

There's no way for the left to attack him on substance, so they go the ad hominem route. Logical, but ugly.

Posted by: Bucky Dent on April 19, 2003 10:34 AM

I had the pleasure of speaking to Dr. Friedman the other day on the subject of how to handle Iraqi oil and other matters.

Interestintly, he advocated a model similar to the Alaskan provident fund - give the oil revenues directly to the citizens instead of the government. The government then funds itself with taxes that the people approve. He would fund this by auctioning oil rights as a way of attracting investment and avoiding the corruption that is otherwise likely if not inevitable.

A variation (not Friedman's) would be to pay retirees directly, but to use an earned income tax credit for those of working age. This would help to avoid the spectacle seen in Saudia Arabia and Kuwait where foreigners work and citizens loaf.

Finally, as was attributed to him in an earlier post, he reaffirmed his basic position that he essentially agreed with cutting taxes at every opportunity.

Posted by: Larry on April 19, 2003 12:01 PM

Bucky, as a committed "leftist" (I actually have no name for my views, but the term I guess is what people like you would call me), I have a deep respect for Friedman and even agree with him on a number of issues (e.g., floating exchange rates and the need for central bank intervention during financial crisis). i.e., Friedman is a much more intelligent and sophisticated analyst than anyone on this board, especially people like you and Sullivan. Please shove your generalizations about the left in whatever orifice would be most appropriate.

Some more rewriting of history by Patrick Sullivan:

"So, I'd encourage anyone not devoured by bitterness at avoidance of the close call with Castroite socialism in Chile, to note that the Allende years of the early 1970s were NOT a period of prosperity, but the six years following the "shock treatment" recommended by Friedman were. As was the decade and a half after the Volker treatment (1985).

Chile is undoubtedly better off for having been ruled by Pinochet (and for his taking the Chicago Boys advice), because the alternative was not Switzerland, but Allende-Castro socialism."

People like Sullivan, as well as Pinochet's supporters in Chile, have an almost pathological need to prove that Chile would have sunk into Castro-style dictatorship if Allende had been allowed to continue in power, a need which goes beyond the bounds of honesty. The actual truth is much more mundane: Allende would probably have been defeated in a 1974 referendum, and even if he had won he would certainly have lost the 1976 elections against a united Christian Democrat-Conservative coalition. In short, Chile would have returned to stable government and Allende would have gone down in history as another failed populist experiment in Latin America. The government that succeeded Allende would sooner or later have adopted free-market policies, as Mexico did. Of course, supporters of Pinochet have always stated that Allende was planning a coup, an assertion for which thirty years of investigation has provided zero evidence.

The assertion that the first six years after the Chicago Boy stabilization program brought prosperity is laughable in the same sense that someone who is maxing out their credit cards would claim he was enjoying prosperity. Chile in the years 1975-1982 was one huge financial bubble which the policies of the Chicago Boys created--Friedman could have told them that in addition to free markets they also needed rigorously enforced prudential regulations. It must have slipped their minds.

Mind you, much that the Chicago Boys did was beneficial (ie, getting rid of trade barriers and state ownership most importantly), but their belief that Chile would get prosperity once markets were left to perform for themselves (which they did get from Friedman, by the way) was naive, and was responsible for the general increase in poverty in Chile during the 1980's.

Conclusion: Chile would have been better off without the 1973 coup, and this applies even though Allende's economic policies were a complete failure. It is people like Sullivan who refuse to accept this historical verdict.


Posted by: andres on April 19, 2003 12:14 PM

>shove your generalizations about the left

Cite one.

Posted by: Bucky Dent on April 19, 2003 12:46 PM

>Allende would probably have been defeated in a 1974 referendum...

Rulers of a Castroite bent aren't known for having free and fair elections whose results are respected.

FYI.

Posted by: Bucky Dent on April 19, 2003 12:50 PM

Andres writes>
"Please shove your generalizations about the left in whatever orifice would be most appropriate."

to which Dent responds:
"Cite one."

I have no dog in this fight, but Bucky are asking Andres to cite an orifice? or a generalization?

Posted by: achilles on April 19, 2003 03:27 PM

Cute, but if you look at my post, you'll see I edited the quote tightly to eliminate ambiguity.

Posted by: Bucky Dent on April 19, 2003 04:13 PM

I know, I was just trying to inject some levity into a dreadfully serious argument.

Posted by: achilles on April 19, 2003 05:10 PM

"Rulers of a Castroite bent aren't known for having free and fair elections whose results are respected."

Can you cite any evidence of plotting by Allende and his party to do away with democracy in Chile?

Posted by: Stephen J Fromm on April 19, 2003 05:45 PM

Bucky, are you trying to be funny? I've heard of the Stalin-Hitler pact.

In Germany Hitler destroyed all of the German left-wing parties, including the Communists, and all the unions. (In 1932 the majority of Germans voted for left-wing parties). In part he did this by imprisoning and ultimately killing those of their leaders who failed to escape Germany. I would call that anti-Communist.

And after his opportunistic agreement with Stalin, he double-crossed Stalin and invaded the USSR. I would call that anti-Communist too.

When you rave that wildly people worry that you're going to bite yourself.

And watch out for the Turing test. On the Internet we have to think about things like that.

Posted by: zizka on April 19, 2003 06:14 PM

" Friedman is a much more intelligent and sophisticated analyst than anyone on this board, especially people like you and Sullivan."

Wouldn't it be fun to have Larry ask Dr. Friedman whose description of Chile he agrees with, mine or andres?

Here's a little hint from the Friedmans' autobiography:

" In August 1976, Orlando Letelier, who had served as Chilean ambassador to the United States...published an article in 'The Nation' titled 'Economic Freedom's Awful Toll.'....

" He at least was willing to present an alternative in the form of the centralized planned economy that the Allende regime had tried to create. The similar articles and editorials that appeared in Britain, France, Germany, Canada, and no doubt many other countries, had no such saving grace. What we were doing was, according to them, deliberately mean, nasty, inhuman--not stated explicitly but implied because we were said to support a fascist military junta that allegedly took delight in torturing people. It was taken for granted that there was an obvious preferable alternative that sensitive human beings could have recommended--but no writer ever spelled out what it was."

And, from a 1982 Newsweek column:

" The chaos produced by the Allende regime that precipitated the military takeover in 1973 discredited central economic control. In an attempt to rectify the situation, the military drew on a comprehensive plan fro a free-market economy that had een prepared by a group of young Chilean economists...."

Or, Friedman's notes on his speeches given in Chile at two universities:

" I...talked on the fragility of freedom, emphasizing the rareness of free societies...and the role in the destruction of a free society that was played by the emergence of the welfare state. ...that their present difficulties were due almost entirely to the forty-year trend toward collectivism, socialism, and the welfare state, that this was a course which would hurt people not help them, and that it was a course that would lead to coercion rather than freedom...."

Posted by: Patrick R. Sullivan on April 19, 2003 06:16 PM

Dear Bucky:

My posts were not to debate Friedman's role in Chile. However, there are numerous posts about economic policy in Chile under Pinochet that are just plain myths. The economy of Chile in the 1970s was very difficult to manage. But to argue as some supply siders do that Chile proves the validity of supply side economics needs to be challenged.

Friedman was right on some things, but wrong on many others.

Posted by: bakho on April 19, 2003 07:08 PM

"There's no way for the left to attack him on substance, so they go the ad hominem route. Logical, but ugly."

If this isn't a generalization, I don't know what is.

Posted by: andres on April 19, 2003 11:27 PM

" I...talked on the fragility of freedom, emphasizing the rareness of free societies...and the role in the destruction of a free society that was played by the emergence of the welfare state. ...that their present difficulties were due almost entirely to the forty-year trend toward collectivism, socialism, and the welfare state, that this was a course which would hurt people not help them, and that it was a course that would lead to coercion rather than freedom...."

This is from a speech gave in Chile -- year not given, but presumably under the Pinochet regime.

To me, the welfare states of Europe are free societies, but not to Friedman. To me, the unfree societies of the last few decades are various, and to me they include Chile where Friedman made this speech. So the lesson that Friedman had to give the Chileans was that they were lucky that they were free, unlike the pitiful Swedes? JFC!

Patrick, is someone posting under your name? You're defending Friedman with that quote?

Posted by: zizka on April 19, 2003 11:56 PM

>Hitler destroyed all of the German left-wing parties, including the Communists

Stalin and Mao often butchered their own internal competing communist power centers.

>Can you cite any evidence of plotting by Allende and his party to do away with democracy in Chile?

No, I cannot. My reply was intended cast doubt on a professorial assumption about the certainty of a clean regime change a generation ago in a chaotic nation.

Posted by: Bucky Dent on April 20, 2003 08:19 AM

Jesus Christ, Bucky. HITLER WAS NOT A COMMUNIST.

He wasn't a socialist, either. The name of his party was a deliberate and conscious fraud.

Yes, he was a statist, but ALMOST ALL HEADS OF STATE ARE STATISTS. Non-statists are people who sit around reading Ayn Rand and bitching. Reagan was a statist. Bush is. Etc.

Posted by: zizka on April 20, 2003 08:53 AM

Someone asked me earlier if I wasn't getting fed up with the nonsense being posted here; A THOUSAND TIMES, NO.

What a sheer goofball delight are statements like:

" So the lesson that Friedman had to give the Chileans was that they were lucky that they were free, unlike the pitiful Swedes?"

With straight men like this, I think I've died and gone to heaven. For the very next lines in Friedman's notes are:

" from their reaction [my argument was] obviously almost completely new to them. There was an attitude of shock that pervaded both groups of students at hearing such talk."

Posted by: Patrick R. Sullivan on April 20, 2003 09:24 AM

>HITLER WAS NOT A COMMUNIST. He wasn't a socialist, either. ... Yes, he was a statist.

Actions speak louder than words...or self-affixed labels.

Posted by: Bucky Dent on April 20, 2003 09:33 AM

Friedman gave a speech in 1968 to the AEA. He gave two definitions of the natural rate of employment. One related to the Phillips curve augmented with expectations. The Phillips curve was an empirical association, not a theory (although the so-called Keynesians of the time had a gap in their theory that the Phillips curve filled nicely.) So Friedman, smartly, realized he needed some microfoundations. So his second definition was the rate of unemployment the Walrasian system would grind out, given it was stated with the degree of competition in each market as prevailed in the actual economy, etc.

The Walrasian project has failed. There's no need to expect equilibria in the Arrow-Debreu model to be unique or stable. This is an implication of the SMD results. So it is a mistake to talk about THE rate of unemployment the Walrasian system will grind out. And the Walrasian project has failed to provide a microfoundations. Or include money. Etc.

Nicky Kaldor became a lord. So he could stand up in the upper house in Britain in the 1980s and taunt the Thatcherites with the failure of monetarism in practice.

Jamie Galbraith looks at the NAIRU during the Clinton years. It was always estimated as whatever the recent unemployment rate was. And the actual unemployment rate kept on declining without inflation breaking out. The economists would have to continually re-estimate the NAIRU downwards. It failed to provide practical guidance.

Theories building on the Harrod-Domar model provide another way of thinking. If the actual rate of growth falls under Harrod's natural rate of growth, unemployment increases. If the actual rate of growth exceeds Harrod's warranted rate of growth, inflation increases. These are two different criteria. The theory of stagflation that Kahn, Kaldor, and Robinson put forward in the late 1950s wasn't quite this. But it was in the same research tradition.

Posted by: RubberDucky on April 20, 2003 04:33 PM

Mark banner wrote:
"Actually, I see that Chile has the second highest (likely now highest) Human Development Index value not only in South America, but also Central America and the Caribbean."

Only one problem, Mark: CHILE has always been with ARGENTINA, the wealthiest Latin American country. Hence your statement only reinforces the point that one may say that PINOCHET was not bad enough to destroy CHILE to the extent of being overthrown by the likes of BOLIVIA or COLOMBIA.

Moreover, relatively to ARGENTINA, CHILE performed fantastically. But its performance is less than exciting compared to BRAZIL for instance.

Posted by: economistaBrasileiro on April 21, 2003 08:13 AM

On the "per capita income in Chile tripled under Pinochet" statement:

It is a plain LIE. It simply did not happen. Actually under PINOCHET, after 20 years of dictatorship, the bottom 4 quintiles of the income distribution were WORSE OFF than under Allende. And never mind the hundred of thousand Chilean (mostly middle class) who left the country to CANADA, ARGENTINA and BRAZIL, the killings, the high unemployment rates etc

If you have any questions, just look at stats from any economic website (World Bank, IMF).

Posted by: economistaBrasileiro on April 21, 2003 08:17 AM
Post a comment