David Laidler goes meta on "What would Milton have said?"

I tried to persuade David Laidler to join us in the econoblogosphere, especially given recent arguments about Milton Friedman. I have not yet succeeded, but David did say I could use these two paragraphs from his email:

 "However - re. the "what Milton would have said" debate  - When I was just getting started in the UK, I got thoroughly fed up with being told "what Maynard [Keynes] would have said" -- always apparently that the arguments of people like me were nonsense and therefore didn't have to be addressed in substance. I took a vow then never to channel the ghosts of dead economists as a substitute for analysis, and still regard it as binding!

MF was a big supporter of QE for Japan at the end of the '90s. I know that, because one of his clearest expressions of the view was in response to a question I put to him on a video link at a BofC conference. But so was Allan Meltzer at that time, and he is now  (a) virulently opposed to QE for the US and (b) on the record (New York Times, Nov. 4th 2010 "Milton Friedman vs. the Fed.")  as being sure that Milton would have agreed with him. In my personal view (a) demonstrates that even as wise an economist as Meltzer can sometimes give dangerous policy advice, and (b) shows that he knows how to deploy pure speculation to make a rhetorical splash when he does so. Who could possibly know what Milton would have said?  He isn't here."

David Laidler is probably the person best qualified to answer the question "What would Milton have said?", and that's his answer.

Comments

[Scott Sumner]

Good observations by David. I think it's fair to say the following:

If we use the actual analysis embedded in Milton Friedman's actual public comments on the Japanese situation, and don't try to guess what he would have said today if he were nearly 100 years old, it's fair to say that his actual analysis strongly suggests that monetary stimulus is to be preferred to fiscal stimulus, and that monetary stimulus is highly effective at the zero bound, and that ultra-low rates are a sign that money has been tight.

The one thing we do not know is whether he would have thought any sort of stimulus was necessary, monetary or fiscal.

But we do know the following:

1. Friedman tended to shift from money targeting to inflation targeting later in his life.
2. Inflation has run well under 2% over the past 5 years.
3. During recession periods Friedman usually thought money had been too tight.
4. We are now in the midst of a long recession period combined with below target inflation.

So I think we can say that Friedmanite analysis circa year 2000 strongly implies that money has been too tight in recent years. The question of whether he would have actually held those views had he lived is much less important that the implications of his actual views when he was alive.

[FR Woolley]

David, excellent comments, thank you (and Nick) for sharing them.

This is before my time, but wasn't it Friedman who debated with Galbraith on the impacts of the 1973 oil shock, with Friedman arguing essentially that relative prices could and would adjust and thus inflation would be avoided, and Galbraith arguing that the oil price shock was necessarily inflationary? From which some might conclude that Friedman figured that the economy generally operates at close to the LR supply curve and the potential scope of monetary policy is limited?

At the same time, I think you nail this potential objection when you say: "Who could possibly know what Milton would have said" - maybe he would figure the US is operating at close to the LR supply curve right now, maybe he wouldn't.

[Lars Christensen]

Nick,

David is amazing. His knowledge of monetary theory, monetary history and the history of economic thought is matched by nobody.

I fully agree that at least judging from Friedman's view on Japan he would have supported QE.

However, more importantly maybe is that David share the Market Monetarist analysis of the crisis in the sense that he believes that monetary policy remains to tight both in the US and in the euro zone. I would, however, also stress that overly easy monetary policy to a large extent contributing to a bubble building. Scott, would of course disagree while I personally have some sympathy for this view. Furthermore, David is rather critical of NGDP targeting for numerous reasons.

If I was on the Nobel Committee I would suggest we gave David Laidler a call. He is brilliant!

[JP Koning]

"I tried to persuade David Laidler to join us in the econoblogosphere."

It sure would be neat if David took up the keyboard and joined the blogging community.

Here is his latest which I am enjoying so far: http://economics.uwo.ca/epri/workingpapers_docs/wp2013/Laidler_04.pdf

[Ralph Musgrave]

It’s always tempting to cite a few famous authors: Keynes, Friedman, etc. and ignore others who often have better ideas. I do it myself. That temptation reaches its most absurd form in the case of religious folk who think that all you need to know is to be found in some religious book written a thousand or more years ago.

[Steve]

Thanks for this Nick, and good luck trying to convince David. I agree with Scott except for one thing ... what Milton Friedman would have said today if he were 101 years and a few days old.