Milton Friedman died today at age 94. I have a personal remembrance and some thoughts on the impact of his ideas.
Personal remembrance:I met Milton Friedman in the early 1980s, when we were both living in San Francisco. My first recollection of him was in a seminar at which a young economist was presenting a research paper. In passing, the fellow mentioned a “pop economics” concept then getting some play in the newspapers. Professor Friedman interrupted the young economist to point out the fallacy in the common thought. The young man said something vague, like, “Well, there could be some cases in which it’s true,” then went on to the main theme of his paper. But Friedman interrupted. He was not going to let the economist off the hook. They argued back and forth a few minutes, with Friedman never letting up. As an economist whose diploma still had damp ink, I felt for my young colleague making the presentation. But I also respected Professor Friedman for not tolerating sloppy or casual economics.
A month or two later, I was chatting with Friedman at a reception. He, another economist and I were discussing an issue which I had been studying in some depth. Friedman made a generalization, and I jumped in and said, “Yes, that’s generally true, but there’s an exception that is especially relevant today.” I was about half-way through my economic argument when I remembered the previous month’s seminar. As I was finishing my statement, I thought about how Friedman had relentlessly grilled the young economist. I stumbled to my conclusion, went a little weak in the knees, and gulped. Friedman turned to me, paused . . . and I was ready to find a hole to crawl into. Then he simply said “True” and went on to another aspect of the topic. I’ve never been so relieved by a one-word response.
Impacts: In the last 20 years, the United States has endured two recessions and an average inflation rate of three percent. Our worst inflation experience of recent years was 4.7 percent. However, two decades ago, in 1986, the story would have been much worse. In the two preceding decades, the economy had gone through four recessions, including the worst of the post-World War II era. Our inflation memories included 14% inflation in the early 1980s. Why has our economic performance in the last two decades been so much better? There were significant developments in economics that led to the improved performance.
Monetary policy plays a major role in American business cycles. When I picked up my first econ textbook in 1970, the idea that the quantity of money was a key factor in business cycles was presented as a fringe theory. Today, the importance of monetary policy is mainstream economics.
Back when I was first learning about inflation, the idea of a tradeoff between inflation and unemployment was commonplace. Today we understand that there is no long-run tradeoff between inflation and unemployment, and that efforts to reduce unemployment by tolerating higher inflation are doomed to fail.
These two dramatic reversals in economic thinking owe their success largely to Milton Friedman. Friedman worked in many other areas. His early research on consumer spending still drives a good deal of forecasting activity. His criticism of the draft was a key element in our shift to an all-volunteer military. His idea of school vouchers was novel when first presented in the 1960s, and is today a major topic of discussion.
Friedman's twin goals were good economics and a free world. The world is richer in both prosperity and freedom for his work.