friedman: Stephen Moore Has the Facts Wrong

Leftist are being dishonest in their attacks on the legacy of Milton Friedman, but Stephen Moore just has the facts wrong when it comes to Milton Friedman and Federal Reserve monetary policy.  Friedman as late as July, 2006 had little but praise and support for Ben Bernanke, Alan Greenspan, and Federal Reserve policy in the 2000s.   By contrast, here’s Moore’s false account of Friedman’s position in the WSJ:

The myth that the stock-market collapse was due to a failure of Friedman’s principles could hardly be more easily refuted. No one was more critical of the Bush spending and debt binge than Friedman. The massive run up in money and easy credit that facilitated the housing and credit bubbles was precisely the foolishness that Friedman spent a lifetime warning against.

There is all the difference in the world between the monetary theory and trade cycle work of Friedrich Hayek and that of Milton Friedman — and these differences make a difference in our understanding of what happened in the 2000s.

Here’s Milton Friedman, July 2006:

Russ Roberts: Focusing on the central bank role, going back again to the ’70s when I was in school and shortly after your book came out, the focus was on the money supply—the quantity of money, counting it, controlling it through open market operations.

Something changed in the last 25 or 30 years. That’s not what Alan Greenspan or Ben Bernanke talk about. They talk about other things and they play with that short-term interest rate, not the so-called stock of money that you focused on so intensely in the book.

Milton Friedman: That’s what the talk about but that’s not what they do.

Russ Roberts: What do they do?

Milton Friedman: They use the short-term interest rate as a way of controlling the quantity of money. If you look at the statistics, the rate of change of the quantity of money from month to month, quarter to quarter, year to year, it has never been so low as it has been over the last 20 years.

I don’t believe there’s another 20-year period in the history of the country in which you can find so steady a rate of growth in the quantity of money and that can’t all be an accident. That’s because they use the short-term interest rate …

Russ Roberts: And I would argue, and I assume you would as well, that the relative stability of the U.S. economy over the last 20 years is a reflection of that steady growth in the money supply.

Milton Friedman: I think there’s no doubt at all.

Russ Roberts: The non-erratic path.

Milton Friedman: It’s a golden period. It’s a period in which you had declining inflation but a fairly steady rate, a steady level. You had only three recessions, all of them brief, all of them mild. I don’t believe you can find another 20-year period in American history.

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Mainstream ‘neoclassical’ economics never clearly brought out what I call the ‘guide’ or ‘signal’ function of prices. — F. A. Hayek

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