What would Milton Friedman do now?
online.wsj.com
online.wsj.com
The "Helicopter Ben" reference comes from him quoting Friedman's term for creating money to prevent deflation: http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/200211...
He credits the Fed's failure to do what it is doing now with causing the Great Depression in this speech: http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/200211...
Friedman explains this himself in the following clip from his television series: http://www.youtube.com/watch?v=9V5OP-VmXgE
The QE arguments are an example of magical thinking. Incomes are falling, so increment some numbers in the memory of a computer and that will fix it. Never mind the realities of Human Action.
Real incomes rise when people become more productive, and that happens when they have more and better tools (capital) at their disposal and more incentive to produce. No one achieves that by printing Monopoly money.
"Each dollar the Fed prints has less oomph." Yes, they are pushing on a string, and those dollars do not impress me. To those who feast at the government trough, may you eat dollars!
Tax withholding was done during WW2 and before Friedman had changed his views considerably. But monetarism is his crowning achievement, it is what he is best known for, and where he was most influential. Friedman beat inflation and solved the mystery of the Great Depression.
You can interpret his comments on the BOJ in the article that he would support buying government bonds only as a way to provide liquidity to banks. In the current US scenario, the banks and corporations have enough capital, so I cannot see that Friedman would support QE2.
P.S. "Friedman believed in the power of money". Nonsense. He believed in the power of individual freedom.
Generally speaking, the idea expressed here matches my own understanding (though I'm more specifically familiar with Hayek and Mises). Can anyone explain why bj_nortier_hn is wrong?
Quoting wikipedia:
"[Friedman] claimed that, if the Fed had provided emergency lending to these key banks, or simply bought government bonds on the open market to provide liquidity and increase the quantity of money after the key banks fell, all the rest of the banks would not have fallen after the large ones did, and the money supply would not have fallen as far and as fast as it did. With significantly less money to go around, businessmen could not get new loans and could not even get their old loans renewed, forcing many to stop investing."
Intervening to prop up failing banks and creating money to buy bonds? Sounds a lot like... TARP.
There's a difference between propping up a failing bank (which I believe Friedman would be against) and providing liquidity to the banking system when a bank run occurs on a well-capitalised bank (which I believe he would support).
If you watch the Volume 3 "Anatomy of Crisis" about the depression, when a run on the Bank of the United States occurred despite it's being a sounds entity (when it was liquidated it paid back 92.5 cents on the dollar). It's failure created a domino effect according to Friedman. So he supported providing liquidity in that scenario.
I don't believe Friedman would support QE[2] when the banks are well capitalised. My interpretation of his ideas is that he supported a stable money supply, and Friedman was definitely against printing money in general.
That being said, the ideas I'm referencing were expressed in a time when inflation was a big problem.
I wish he were alive today, I would be very interested in his opinion.
Indeed, enough... we don't want to be remembered anymore that he would advise us to save money in good times so we can spend it when the times get bad. And we're spending it in both good and bad times.