How come no economist on the right is asking "Where are the Galbraiths of yesteryear?"? It's because Milton Friedman won the debate, and John Kenneth Galbraith lost. Both Friedman (on the right) and Galbraith (on the left) were once leading public intellectuals and economists. I used to read them both. I wonder how many young economists have even heard of Galbraith?
[I wrote this a couple of days back, but wasn't sure whether to post it. Today I asked a colleague in Political Science/Political Economy about Galbraith's reputation as an academic, and he said it was high - in the same ballpark as Friedman's academic reputation in economics. Then, by sheer chance, I found a Brad DeLong post, recently hoisted from his archives, saying something similar. In an alternate universe, Galbraith won and Friedman lost, and economics would be very different today. So I decided to post this, FWIW.]
I can't think of any economist living today who has had as much influence on economics and economic policy as Milton Friedman had, and still has. Neither on the right, nor on the left.
If you had a time machine, went back to (say) 1985, picked up Milton Friedman, brought him forward to 2015, and showed him the current debate over macroeconomic policy, he could immediately join right in. Is there anything important that would be really new to him?
We are all Friedman's children and grandchildren. The way that New Keynesians approach macroeconomics owes more to Friedman than to Keynes: the permanent income hypothesis; the expectations-augmented Phillips Curve; the idea that the central bank is responsible for inflation and should follow a transparent rule. The first two Friedman invented; the third pre-dates Friedman, but he persuaded us it was right. Using the nominal interest rate as the monetary policy instrument is non-Friedmanite, but the new-fangled "Quantitative Easing" is just a silly new name for Friedmanite base-control.
We easily forget how daft the 1970's really were, and some ideas were much worse than pet rocks. (Marxism was by far the worst, of course, and had a lot of support amongst university intellectuals, though not much in economics departments.) When inflation was too high, and we wanted to bring inflation down, many (most?) macroeconomists advocated direct controls on prices and wages. And governments in Canada, the US, the UK (there must have been more) actually implemented direct controls on prices and wages to bring inflation down. Milton Friedman actually had to argue against price and wage controls and against the prevailing wisdom that inflation was caused by monopoly power, monopoly unions, a grab-bag of sociological factors, and had nothing to do with monetary policy.
Imagine if I argued today: "Inflation is dangerously low. In order to increase inflation, governments should pass a law saying that all firms must raise all prices and wages by a minimum of 2% a year, unless they apply for and get special permission from the Prices and Incomes Board to raise them by less." What are the chances my policy proposal would be accepted?
Friedman had a mountain to move, and he moved it. And because he already moved it, we simply cannot have a Friedman today.
Great men like Friedman require a great job to do, or else they can't become great men. They also require an aristocracy, oligarchy, or monarchy, where only a few voices can get heard, or else they can't become one of the few voices. The internet actually makes it harder to create great public intellectuals, which is probably a good thing, simply because it's harder to stand out as great, when there's lots of competition.
The right won the economics debate; left and right are just haggling over details. The big debate is no longer about economics (sadly for me); and it won't be held on the pages of the New York Times or in the economics journals.
Kevin: That Lipsey bit is purely from my memory, as an aside Lipsey gave in a talk about methodology. But James Forder says that Lipsey, R. G. (1978) ‘The place of the Phillips curve in macroeconomic models’, in Stability and inflation eds. A. R. Bergstrom, A. Catt, M. H. Peston, and B. D. J. Silverstone. Chichester: John Wiley & Sons pp. 49-76. is where Lipsey talked about his previous writings on the Phillips curve, so it might be in there.
I remember that lovely quote from Sunny Jim, but I can't remember when he said it. Ah! Google tells me 1976, and that that part of his speech was written by Peter Jay (BBC economics reporter). But would he have said it, if Friedman had taken up engineering instead of economics?
The other quote that comes to mind is Keynes', about monetary policy by the trades unions (ch 17 IIRC, but I've left both my copies of the GT at home).
Posted by: Nick Rowe | January 23, 2015 at 11:50 AM
Nick Rowe,
Peter Jay was one of the voices of monetarism in the UK and a rare example of a left-wing monetarist, so I imagine he wouldn't have said it.
However, it's worth stressing that the key battle of the 1970s (especially in the UK) was not Keynesianism vs. monetarism, but cost-push inflation vs. monetarism.
Posted by: W. Peden | January 23, 2015 at 01:07 PM
And it's also worth stressing that in the UK "demand" was usually used to refer to RGDP or unemployment, at least in popular discussions. Even the nominal vs. real interest rate distinction was often overlooked.
Posted by: W. Peden | January 23, 2015 at 01:10 PM
W. Peden, let's see if I get this right.
How does MSI ALL apply to a CD from a bank?
Posted by: Too Much Fed | January 23, 2015 at 03:15 PM
Too Much Fed,
It depends on the substitutability of a deposit as against currency-
http://en.wikipedia.org/wiki/Divisia_monetary_aggregates_index
Current accounts, money-market fund accounts, CDs, commercial paper etc. all have some degree of substituability with currency, but not the same degree and not a constant one over time. So a Divisia-type aggregate and a similar standard aggregate may diverge because of changes in the composition of people's money holdings, e.g. a move from non-interest bearing demand deposits to money market funds or time deposits will have a negative affect on the Divisia index (as in the US in the early 1980s) while a shift from savings and time deposits into M1-type money holdings will have an expansionary effect (as in the US in the early 1990s). In such circumstances, broad money Divisia-indexes often tell a story somewhere in between narrow money and broad money.
William A. Barnett is a good person to read for the details, and I recommend his book "Getting it Wrong".
Posted by: W. Peden | January 23, 2015 at 03:42 PM