DeLong, Friedman and Maximal Government

by Chidem Kurdas

The case made for minimal government by Milton and Rose Friedman in their 1979 book, Free to Choose, has been debunked,  according to Berkeley professor Brad DeLong.  Basically, he avers that the Friedman program has been tried and failed. As a commentary on Friedman, this is outrageously misleading. But Mr. DeLong  provides a revealing glimpse of the left-liberal mindset.

He makes three main points. One is that steady monetary growth does not foster macroeconomic stability, contrary to Milton Friedman’s analysis. Ben Bernanke used the Friedman script in the recent recession and yet here we are with anemic growth. That’s the evidence Mr. DeLong cites.

Freidman argued against discretionary policymaking and in favor of an automatic, consistent mechanism. Federal Reserve policy has been anything but steady and automatic in the past 20 years. The Fed opened the sluices in 1998, thereby encouraging the stock bubble. The Fed kept rates low in the early 2000s, thereby feeding the credit and property bubbles. John Taylor derived a flexible rule that would meet the Friedman criterion of consistency but showed that the Fed deviated from this rule.  The Fed bubble blowing episodes strengthen the case for steady, rule-based monetary growth, consistent with Friedman’s reasoning.

How to deal with externalities, or effects on third parties, is the second ground on which Mr. DeLong claims to rebut Friedman. He suggests the courts fail to correct externalities, in particular in the medical area. It is true that tort litigation has become a travesty with gigantic class action suits that redistribute income to lawyers. Friedman was an optimist –as he and Rose acknowledged in their memoir – and he expected certain parts of the government to work relatively well. That the courts work badly does not support Mr. DeLong’s suggestion that more regulation is the solution.

In fact almost every activity in America is increasingly handicapped by regulation. While Friedman’s optimism has not been born out, he looks more prophetic than ever in warning against pullulating regulation and working to stop this trend.

Mr. DeLong’s third point is that inequality has escalated, again contrary to Friedman’s expectation. Notwithstanding his optimistic outlook, Friedman had a solution for poverty. He favored a simple negative income tax that would automatically supply income to anyone who fell below a given level. This has not been tried—instead the US supplies an intricate mass of benefits to some and imposes myriad burdens on others, with some degree of arbitrariness.

Mr. DeLong does not get into that. He concludes that government provision of a limited safety net, courts and steady monetary growth does not achieve “a relatively equal and prosperous society with full employment and equal opportunity.” Minimal government is out of fashion. Maximal government is in.

Indeed, that is what we’re getting. This year Federal spending will soak up  24.3% of GDP, up from 20.8% four years earlier—as Glenn Hubbard argued, a level of spending that will almost certainly increase most Americans’ tax burden.  And President Obama’s new budget weighs in at $3.6 trillion.

That’s the thing about maximal government. Some intervention to reduce inequality and create safety is not enough. Why not more intervention to further reduce inequality, create more safety and do a thousand other things besides? Thus it grows and grows. Mr. DeLong might have looked around in his own state of California to see the consequences of unbounded government.

Friedman tried to ward off the danger and his patient, thoughtful work had some result. But his influence was temporary. That is our tragedy.

11 thoughts on “DeLong, Friedman and Maximal Government

  1. Delong is up there on par with Krugman in propagating ideological nonsense masquerading as science.

    Thanks for the article supporting honest discourse.

  2. DeLong insists on promoting the fiction that the US followed Friedman’s principle of small government. The evidence points to the opposite. The US ended price controls under Carter, but the state never got smaller; it grew exponentially. Regulations grew at the rate of 50,000 pages in the Federal Register per year. The depts of education and energy were added.
    Friedman’s principles didn’t fail. We never tried them.

  3. One can back 50 years to an earlier Milton Friedman book, Capitalism and Freedom. Friedman though the federal government was already too large. His model of limited government was Hong Kong not the United States.

  4. Modern economists are witch doctors. Cargo cultists. Statist jokes. Banalities.

  5. Jerry O’Driscoll–
    Thanks for reminding us of the earlier Friedman book, Capitalism and Freedom,which is his more in-depth treatment of the same themes. Free to Choose, of course, is the more popular version that went with his TV series.

  6. Jerry O’Driscoll’s piece linked above provides an excellent review of Friedman’s work and influence. Very much worth reading and thinking about.

  7. see for an obitury by De Long for Friedman which was as good as any written saying

    “His wits were smart, his perceptions acute, his arguments strong, his reasoning powers clear, coherent, and terrifyingly quick.

    You tangled with him at your peril. And you left not necessarily convinced, but well aware of the weak points in your own argument”


    “Milton Friedman’s thought is, I believe, best seen as the fusion of two strongly American currents: libertarianism and pragmatism.

    Friedman was a pragmatic libertarian. He believed that–as an empirical matter–giving individuals freedom and letting them coordinate their actions by buying and selling on markets would produce the best results.

    It was not that he thought this was natural law–that markets always worked best. It was, rather, that he believed that places where markets failed were atypical; that where markets did fail there were almost always enormous profit opportunities from entrepreneurial redesign of institutions; that the market system would create now opportunities for trade that would route around market failures; and that government failure was pervasive–that any expansion of government beyond the classical liberal state would be highly likely to cause more trouble than it could solve.

    For right-of-center American libertarian economists, Milton Friedman was a powerful leader.

    For left-of-center American liberal economists, Milton Friedman was an enlightened adversary. We are all the stronger for his work. We will miss him.”

  8. Maybe DeLong’s obit is the prototype for Bryan Caplan’s ideological Turing test.

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