Thursday, November 16, 2006

Milton the Magnificant

By Richard Vedder

The world has lost its greatest economist, Milton Friedman. Milton was a giant among men intellectually, even as he, literally, shrunk physically (always a small person, when I shook hands with him last summer I had to almost bend down). He was very important to me personally, but also to the work of CCAP.

Milton Friedman had enormous faith in people and in their judgment, and he believed that markets work --they allocate resources far better than any other alternative. In his magisterial Capitalism and Freedom Professor Friedman accepted the premise that some government support of higher education was justified because of the alleged positive external spillover effects, but he still felt that efficiency would be gained by promoting private initiative and markets in education by use of educational vouchers to consumers, rather than giving money to government schools. That is the CCAP position today.

His advocacy of vouchers was an extraordinary example of how an idea can have consequences, and defined the modern educational reform movement in primary and secondary schools. Friedman started the Friedman Foundation to continue to spread this great idea after his death.

In writing Going Broke By Degree, I corresponded with Professor Friedman, who revealed that his thinking on the efficacy of government support of higher education had changed, since he had become more aware that education can have negative as well as positive externalities. Indeed, he said a careful analysis of the subject might lead one to conclude that we should tax rather than subsidize universities. That, in turn, has led to CCAP's most important research effort, which is to, in effect, measure some of the economic externalities in higher education. To date, our research is leading us to confirm the observation in my book, namely that higher education government spending often has more negative than positive economic effects.

Milton Friedman was a kind man, a brilliant man, an optimist who loved humanity and trusted its basic judgments, a lover of freedom who did more to transform modern economics than any other human being. The world's greatest economist has died. We are fortunate to have had his rich legacy.


TC said...

Excerpt form Financial Times:

"Friedman's direct influence on Margaret Thatcher was much less than often supposed. Although they got on together at a private dinner before the 1979 election, the two did not know each other well and Friedman is only mentioned en passant in the former prime minister's memoirs. Her own inspiration, as she relates, came from Hayek.

Nevertheless, Friedman had an obvious, if indirect, effect on many of her advisers and ministers. The Medium Term Financial Strategy of the 1980s, with its target of a gradual reduction in the growth of the money supply and the abandonment of fine tuning, obviously stemmed at one remove or another from the Chicago economist.

But the master himself disowned the MTFS because the Bank of England continued to regulate the money supply through interest rates rather than via the monetary base. Moreover, he did not believe that reducing the Budget deficit would have much effect on interest rates or in any other way deserved the prominence given to it in the MTFS."

Cowboy Note:
Does this sound familiar? As in "Wall Street", the "Central Bank", et al. being too damned enamored with the practice of "tweaking" interest rates? (Although the Fed does deserve credit for buying & selling treasuries in the open market to deal with money supply.) Surely the concept of supply & demand has not been forgotten.

TC said...
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TC said...

"(Although the Fed does deserve credit for buying & selling treasuries in the open market to deal with money supply.)"

ADDENDUM: My comments on the Fed should not be construed as approval of, or in aggreement with the Fed's policy of trying to line up the effective federal funds rate with their "targeted" interest rate by manipulating the money supply in open market operations (as I cited above).

This is a backward way of trying to control inflation by looking for an ideal interest rate and imposing it by affecting the money supply. No where in the money supply equation are interest rates even found.