Re: Leftists knocking Friedman ?

On Sat, 16 Feb 2008 08:25:12 -0800, stuff_stuff@[EMAIL PROTECTED]
 wrote:

>On Sat, 16 Feb 2008 02:04:29 -0600, problems@[EMAIL PROTECTED]
 wrote:
>
>> After some decades [eg. the 70's stagflation] the market anticipated
>>and became immune to the state manipulations.
>
>This is nonsense.
>>
>>Rightly so, Friedman pointed out that decades of post war lack of
>> market discipline had had inevitable results, 
>
>More nonsense. it's not a matter of discipline. It was a matter of oil
>embargoes causing stagflation.

Nonsense. The oil price rise was world-wide. If it caused stagflation
it would have caused stagflation everywhere.

But there was *no* 'flation in Germany, and inflation *fell* during
the oil price rises in Japan -- as the German central bank followed
the no-inflation policy it had followed ever since the Weimar
hyperinflation, and the Japanese central bank followed a disinflation
policy it had adopted to cure an earlier inflation run-up.

This was a perfect example of significant inflation "being always and
everywhere a monetary phenomenon" as Friedman put it -- an idea
Keynesians rejected until then.

Inflation arrived in the US to create stagflation because the Fed
intentionally inflated the money supply to boost the economy to offset
the drag caused by higher oil prices.

Friedman *predicted* that policy wouldn't work, that there'd be no
boost, it would produce only the same recession experienced everywhere
else *plus* inflation as wouldn't be seen in Germany, Japan, etc, to
make things worse in the US than elsewhere.  *Prediction* is a lot
more difficult than looking backward to make up an explanation later.

Friedman was proven exactly right, and the Keynesians exactly wrong.
This is the episode that killed old-style post-WWII Keynesianism as
dead as Jacob Marley.

After this episode all surviving Keynesians became Neo-Keynesians who
adopted all of Friedman's basic monetary principles.  

To again quote the big man (ahem) among Neo-Keynesian economist
bloggers:

"All five of the planks of the New Keynesian research program listed
above had much of their development inside the twentieth-century
monetarist tradition, and all are associated with the name of Milton
Friedman....

"Thus a look back at the intellectual battle lines between
'Keynesians' and 'Monetarists' in the 1960s cannot help but be
followed by the recognition that perhaps New Keynesian economics is
misnamed ... the influence of Monetarism on how we all think about
macroeconomics today has been deep, pervasive, and subtle..."

http://www.j-bradford-delong.net/Econ_Articles/monetarism.html

The reason why inflation doesn't boost output for more than a minimal
period *is* exactly that people learn the government is trying to fool
them, and refuse to be fooled any more.

The politicians try to manipulate them by pumping out more money that
goes into their paychecks. At first people think, "great, we're
richer!" so they start spending and working more and the economy gets
a little boost.

But then prices rise via inflation to offset the wage increase, and
people realize they didn't get any real wage increase at all and go:
"WTF!?  We're back we're we started!", and they cut back -- only now a
good dose of economy-distorting inflation has been built into the
system (which in the US took double-digit interest rates and
unemployment rates to get rid of)

People aren't stupid. They learn. When the government tries to fool
them with inflationary economic policy they catch on pretty quickly.