Interests are More Powerful than Ideas?

THE BIG STORY OF SPENDING

by Mario Rizzo

There is an interesting interview with Ed Feulner, the outgoing president of the Heritage Foundation, in the weekend (Dec. 8-9) Wall Street Journal. The interview got me thinking about the progress made in the pro-economic-liberty cause, not only over the years of Heritage, but since, say, 1960.

“Modern Market” Monetarism?

by Mario Rizzo

Douglas Irwin, a very fine economist at Dartmouth College, has a very puzzling opinion piece in yesterday’s Financial Times. The root of the puzzle is that Irwin seems to accept what I consider the naïve monetarist view, yet calling it by a new name “market monetarism,” that the effectiveness of monetary policy largely revolves around portfolio adjustment effects that are induced by an increase in real balances. (Isn’t this warmed over Pigou, and 1970s monetarism?)

What seems to be new is the “Divisa monetary indexes” which weight the different components of the monetary aggregates by their monetary services. In principle, this is what Milton Friedman talked about in his course “Money: The Demand Side” in the early 1970s. He said then that he thought it would be a good idea to weight the various components of the money supply by their “degrees of moneyness.” He did wonder, as I recall, if these weights would be stable over time.

Now, by this new measure, monetary policy has been tight. In fact, the money supply is no higher today than in early 2008.

Wisconsin Policy Lab

by Chidem Kurdas

Paul Ryan is said to be influenced by Milton Friedman, Friedrich von Hayek and Ayn Rand. One might add that as the representative for Wisconsin’s first congressional district, he is from a state that has often been in the vanguard of policy thinking.

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.

M. Friedman Goes to Washington

by Chidem Kurdas

Early in his career, long before he became a Nobel prizewinner and the household name for free market economist, Milton Friedman worked for the US Treasury. The following anecdote is from his 1998 memoir with his wife Rose, Two Lucky People.  This revealing example of how public officials operate illustrates, in Friedman’s words, “the interaction between bureaucratic self-seeking and supposedly objective analysis.”  It complements my previous post on whether politicians pursue the public good.

World War II had started. For Friedman and others at the Treasury, the main mission was to figure out how to finance the war effort while avoiding inflation. 

Chicago and Vienna

by Jerry O’Driscoll

In the last two days, two prominent economists have asked me essentially the same question: what is the difference between Chicago and Austrian economics? It is interesting that both asked, particularly since one has a Ph.D from Chicago.

The second economist asked me specifically if Armen Alchian wasn’t really an Austrian. I’ll respond as I did to him. I learned most of my Austrian economics in the UCLA graduate economics program. (At that time, UCLA was known as Chicago West.) I was never an Alchian student, but one read lots of Alchian anyway. And his influence pervaded the department. It was obvious to me that Mises had influenced Alchian. Also Hayek, as is made clear in a video of Alchian interviewing Hayek.

Hayek’s classic essays on prices and information were on various reading lists at UCLA.

Friedman on Social Security Reform

by Chidem Kurdas

This may be a good time to revisit Milton Friedman’s proposal for reforming all entitlement programs and social security, in one fell swoop. His idea goes back several decades but is no less powerful in its simplicity. A serious discussion on reform may now start with the Roadmap put forth by Wisconsin Congressman Paul Ryan, the next chairman of the House Budget Committee.  

China Catch-Up and Two Freedoms

by Chidem Kurdas

China is expected to produce more than Japan this year, thereby becoming the world’s second largest economy after the US.   Chinese annual output is only $5 trillion compared to American $15 trillion and per person income is only a fraction of the US, but it is clear that China is catching up.

We’re witnesses to a gigantic experiment in political economy. Here is an authoritarian government that apparently recognizes the superiority of free markets, private property and individual enterprise in organizing an economy. It has lifted the shackles off industry and commerce, to an extent, so as to benefit from these powerful forces. Thus China is growing at phenomenal rates.

But freedom of expression and political dissent remains suppressed even as economic freedom expands. In the ever-resonant words of Milton Friedman, “Economic freedom is an essential requisite for political freedom. By enabling people to cooperate with one another without coercion or central direction, it reduces the area over which political power is exercised.”

Understanding Markets: Point/Counter-Point

by Thomas McQuade and Chidem Kurdas

Though it should be obvious to all that markets are of immense benefit to humanity, any appreciation of these institutions is almost always hedged with a perceived need to constrain and regulate—in short, to subject them to conscious outside control.  The reasoning is understandable: the unconstrained pursuit of self-interest can only lead to chaos.

But the preference for constraint through centralized direction betrays a profound misunderstanding of the way markets work.   

Can we explain that claim any better than the volumes already written on the topic?  We find that, when we discuss the issue, we agree on the basics, but differ in emphasis and details—and details matter.  Here is part of our discussion, in point/counter-point format.

Avoiding Deflation Without Bailouts

by Mario Rizzo  

I have not posted in a while since I have been on vacation. During that time an interesting dispute has arisen among friends Tyler Cowen, David Henderson, Arnold Kling, Peter Boettke, Bob Murphy, Steve Horwitz and others over whether Ben Bernanke was right to bail out specific banks. (Some of this has gotten mixed up with the issue of what Brian Boitano would have done — oops, I should say Milton Friedman.)  

I think the question could be simply stated in two parts. First, is it possible to prevent general deflation and not bail out big banks? Second, if so, what would be the effect on the economy of bringing the banks to bankruptcy court while preventing outright deflation?  

Why Not A Big Tax Cut?

Chidem Kurdas

We have an exact measure of the most recent recognition lag. This month the National Bureau of Economic Research identified the beginning of the current recession as December 2007. So the lag is about a year.  Click for NBER You’ll recall that in the 1950s Milton Friedman pointed to the time it takes economists to recognize a recession as one of the lags