Thu, Mar 06, 2008 - Page 9 News List

Time to declare the end of the Age of Friedman

By J. Bradford DeLong

Harvard professor Dani Rodrik -- perhaps the finest political economist of my generation -- recently said on his blog that a colleague has been declaring the past three decades "the Age of Milton Friedman."

According to this view, the coming to power of former US president Ronald Reagan, former British prime minister Margaret Thatcher and former Chinese leader Deng Xiaoping (鄧小平) led to an enormous upward leap in human liberty and prosperity. I say yes -- and no -- to this proposition.

Friedman adhered throughout his life to five basic principles: strongly anti-inflationary monetary policy; a government that understood that it was the people's agent and not a dispenser of favors and benefits; a government that kept its nose out of people's economic business; a government that kept its nose out of people's private lives; and an enthusiastic and optimistic belief in what free discussion and political democracy could do to convince people to adopt principles one through four.

MEASURING UP?

Measured against these principles, Reagan failed on numbers two and four and adopted the first one only by default -- former Federal Reserve chairman Paul Volcker's anti-inflation policy in the 1980s dismayed many of Reagan's close aides. Thatcher failed on number four.

And Deng, while a vast improvement over his predecessors -- former Soviet leaders Vladimir Lenin, Joseph Stalin, Nikita Khrushchev and former Chinese leader Mao Zedong (毛澤東) -- failed on all five, with the possible exception of number three. We do not know what Deng's desired set of economic arrangements for a system of "socialism with Chinese characteristics" was, and, in all likelihood, he did not know, either.

But I say yes in part to the "Age of Friedman" proposition, because only Friedman's set of principles self-confidently proposed both to explain the world and to tell us how to change it.

Still, I would build up a counterbalancing set of principles, because I believe that Friedman's principles do not, ultimately, deliver what they promise.

My principles would start from the observation that market economies and free and democratic societies are built on a very old foundation of human sociability, communication and interdependence. That foundation had a hard enough time functioning when human societies had 60 members -- eight orders of magnitude less than today's 6 billion.

So my principles would then be developed from Karl Polanyi's old observation that the logic of market exchange puts considerable pressure on that underlying foundation. The market for labor compels people to move to where they earn the most, at the price of potentially creating strangers in strange lands. The market for consumer goods makes human status rankings the result of market forces rather than social norms and views about justice.

This critique of the market is, of course, one-sided. After all, other arrangements for allocating labor appear to involve more domination and alienation than the labor market, which offers opportunities, not constraints.

Similarly, "social norms" and "views about distributive justice" usually turn out to favor whomever has the biggest spear or can convince others that obedience to the powerful is obedience to God. Market arrangements have a larger meritocratic component than the alternatives, and they encourage positive-sum entrepreneurship, making it easier to do well by doing good.

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