Milton Friedman (1912- ) Leader of the market-oriented “Chicago School” of economists Defender...

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Milton Friedman (1912- ) Leader of the market- oriented “Chicago School” of economists Defender of theories based on “unrealistic” assumptions―a good theory “abstracts from reality in a useful way,” and generates strong hypotheses. Won 1976 Nobel prize in economics

Transcript of Milton Friedman (1912- ) Leader of the market-oriented “Chicago School” of economists Defender...

Page 1: Milton Friedman (1912- ) Leader of the market-oriented “Chicago School” of economists Defender of theories based on “unrealistic” assumptions ― a good.

Milton Friedman (1912- )

Leader of the market-oriented “Chicago School” of economists

Defender of theories based on “unrealistic” assumptions―a good theory “abstracts from reality in a useful way,” and generates strong hypotheses.

Won 1976 Nobel prize in economics

Page 2: Milton Friedman (1912- ) Leader of the market-oriented “Chicago School” of economists Defender of theories based on “unrealistic” assumptions ― a good.

The Problems?

Inflation Poverty Ineffective Schools Drug Crime and Addiction

Page 3: Milton Friedman (1912- ) Leader of the market-oriented “Chicago School” of economists Defender of theories based on “unrealistic” assumptions ― a good.

Inflation: Analysis

“Inflation is always and everywhere a monetary phenomenon.”

Milton Friedman, Studies in the Quantity Theory of Money, 1956

Page 4: Milton Friedman (1912- ) Leader of the market-oriented “Chicago School” of economists Defender of theories based on “unrealistic” assumptions ― a good.

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Consumer Price Inflation Rate(3-year moving average, lagged 1 year)

U.S. Money Growth and Inflation, 1951-2001

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Ghana Money Growth and Inflation, 1967-2001

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Argentine Money Growth and Inflation, 1961-2001

Page 7: Milton Friedman (1912- ) Leader of the market-oriented “Chicago School” of economists Defender of theories based on “unrealistic” assumptions ― a good.

Inflation: Solution

Maintain slow, steady growth of the stock of money – don’t try to “fine tune” the economy.

Page 8: Milton Friedman (1912- ) Leader of the market-oriented “Chicago School” of economists Defender of theories based on “unrealistic” assumptions ― a good.

Poverty: Analysis

“Most of the present welfare programs

should never have been enacted. If they had not been, many of the people now dependent on them would have become self-reliant individuals instead of wards of the state.” Milton and Rose Friedman, Free to Choose, 1979

Page 9: Milton Friedman (1912- ) Leader of the market-oriented “Chicago School” of economists Defender of theories based on “unrealistic” assumptions ― a good.

Poverty: Solution

Replace existing programs with a “negative income tax” – cash benefits that decline slowly as a person earns income, providing a strong incentive to work.

Milton and Rose Friedman, Free to Choose, 1979

Page 10: Milton Friedman (1912- ) Leader of the market-oriented “Chicago School” of economists Defender of theories based on “unrealistic” assumptions ― a good.

Ineffective Schools: Analysis

Public school systems are bureaucratic and monopolistic, so they have little competitive pressure to operate efficiently and provide a high-quality product. Monopoly power reduces the incentive of the individual to act in the public interest.

Page 11: Milton Friedman (1912- ) Leader of the market-oriented “Chicago School” of economists Defender of theories based on “unrealistic” assumptions ― a good.

Ineffective Schools: Solution

School Choice Program: Allow families (especially those with children in low-performing schools) to select their own schools in an open “marketplace,” paying with publicly-funded vouchers.

Milton and Rose Friedman, Free to Choose, 1979

Page 12: Milton Friedman (1912- ) Leader of the market-oriented “Chicago School” of economists Defender of theories based on “unrealistic” assumptions ― a good.

Drug Crime: Analysis Our system of drug laws and controls, like the attempted

Prohibition of alcohol, isn’t solving the drug problem, but it is “destroying our poorer neighborhoods in city after city, creating a climate that is destructive to the people who live there.”

This is an example of “the philosophical disagreement between Plato's view that it is right for some of us ("philosopher kings") to tell others of us what they must do because it is good for them, and the doctrine of John Stuart Mill that the role of government is simply to prevent people from doing harm to others…”

Milton Friedman, “The War We Are Losing,” 1991

Page 13: Milton Friedman (1912- ) Leader of the market-oriented “Chicago School” of economists Defender of theories based on “unrealistic” assumptions ― a good.
Page 14: Milton Friedman (1912- ) Leader of the market-oriented “Chicago School” of economists Defender of theories based on “unrealistic” assumptions ― a good.

Drug Crime: Wrong Solution

“We could … eliminate drugs if we were willing to … cut off the hands of a drug offender; if we were willing to impose capital punishment on drug dealers… Those are cures that are clearly worse than the disease.”

Milton Friedman, “The War We Are Losing,” 1991

Page 15: Milton Friedman (1912- ) Leader of the market-oriented “Chicago School” of economists Defender of theories based on “unrealistic” assumptions ― a good.

Drug Crime: Friedman’s Solution

Decriminalize drug use for people over 18 years old. Drug use would increase, Friedman concedes, unless prevention becomes effective, but associated drug crime and use of dangerous street drugs would decline.

Milton Friedman, “The War We Are Losing,” 1991