Monthly Archives: August 2013

By Dan Kervick

In my recent post Escaping from the Friedman Paradigm, I noted the following remark by Paul Krugman on the way monetary policy ordinarily functions when interest rates have not fallen to the zero bound:

… people are making a tradeoff between yield and liquidity – they hold money, which offers no interest, for the liquidity but limit their holdings because they pay a price in lost earnings. So if the central bank puts more money out there, people are holding more than they want, try to offload it, and drive rates down in the process.

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By Dan Kervick

Paul Krugman made a remarkable assertion last week about the dwindling legacy of Milton Friedman:

… Friedman has vanished from the policy scene — so much so that I suspect that a few decades from now, historians of economic thought will regard him as little more than an extended footnote.

Krugman’s efforts to deliver a disparaging judgment on the Friedman legacy in macroeconomics may be appreciated, but I’m not sure his critique digs very deep.   Friedman was not just a macroeconomist; he was also an important figure in the history of American political thought who left a deep conservative impact on the minds and attitudes of people whose intellectual development occurred during the Friedman heyday.  Consequently, Friedman helped define the boundaries of the rigid neoliberalism that still seems to reign supreme among US politicians of both parties, and among elite opinion-makers in the ranks of the professional economists and technocrats. He was possibly more responsible than any other figure for converting a generation of policy makers and pundits to a more conservative, market oriented approach to political economy, an approach that goes beyond the specifics of Friedman’s own macroeconomic theorizing.   So I think Krugman overestimates the damage that has been done to Friedman’s legacy.  Aspects of Friedman’s macroeconomics might be in trouble; but Friedman’s broader paradigm for political economy is still, regrettably, too much with us.  In fact, Krugman himself doesn’t seem to have moved much outside that paradigm, as I will try to show.

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By Dan Kervick

Since the crisis of 2008, professional and academic economists have grown increasingly concerned that something is wrong with their profession.  Sometimes that anxiety springs only from the recognition that most of their colleagues failed to predict the oncoming crisis.  But sometimes a nearly opposite concern is voiced: We sometimes hear the complaint that economists are offering good advice, but none of the decision-makers are paying attention.

I am not a professional economist, so I can only speak to the way the profession looks to me from the outside.  Now, if people are not paying attention to what an expert has to say, it could be that those people are too ignorant or inexperienced to grasp the important things that the expert is trying to get across.  But it could instead be that the expert doing the saying is not offering anything relevant to the most urgent problems the listeners are attempting to grapple with in their own lives, or to the institutional and political constraints that decision-makers must grapple with in carrying out their jobs.  And it could also be that they are just not saying anything very interesting.

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