Friday, November 17, 2006

Professor Friedman is dead

So many great things have been written about Milton Friedman on other blogs.

I am very sad. Apart from anything else I wanted to interview him. He was regarded as the devil incarnate while I was studying economics at Flinders University in the last half of the seventies, but with time and age I warmed to his wisdom and intellect, just as I have warmed to Gary Becker, who I also want to interview before he dies.

Jerry Courvisanos and Alex Millmow of the University of Ballarat have written this great paper about the way he changed things in Australia entitled How Milton Friedman Came to Australia.

My 500 word contribution to tomorrow morning's Canberra Times is below the fold. I wish I had had more words.

Milton Friedman died yesterday of a heart failure in San Francisco, aged 94.

He is one of only two 20th century economists to have a movement named after them. At the height of his fame (and infamy) during the 1970’s economists in Australian universities were known either as Keynesians or ‘Friedmanites’.

The idea for which he was most famous, that it is important to kill inflation rather than allowing it to grow as a means containing unemployment, is now mainstream – it lies behind the Reserve Bank’s monthly interest rate decisions.

But it wasn’t mainstream then. The century’s other great economist Maynard Keynes had persuaded governments worldwide that there was a tradeoff between inflation and unemployment. If there weren’t enough jobs governments should print or borrow money and allow the economy to grow.

So unwelcome and so harsh were seen to be his ideas that when he came to Australia in 1975 the office of the Labor Treasurer Jim Cairns is said to have tried to prepare a dirt file on him.

According to Professor Bob Gregory of the ANU, Cairns’ private secretary Junie Morosi is alleged to have asked her office: “Who is this guy, and what can we get on him?” “And so someone from Cairns’ office started ringing up economists saying: ‘Who is this guy, and what can we get on him’,” he said.

Friedman appeared at the National Press Club and dazzled the nation when he debated a panel of Australian economists on the ABC’s Monday Conference, so much so that the program was repeated six weeks later.

His ideas were right for the times. He had predicted stagflation – unemployment and inflation together, something Keynesians had said wasn’t possible - and it had arrived in Australia. Within days of his visit the larrikin Coalition MP Bert Kelly stirred things along in Parliament by asking Cairns “If printing money is a good solution, why not print more of the stuff and get rid of the unemployment problem altogether?’

Many of Friedman’s ideas were ahead of his time. In 1955 he outlined a scheme for financing university studies similar in principle to Australia’s HECS which was developed independently 40 years later by Australia’s Bruce Chapman for the Hawke government.

“Friedman basically said college students in the US won’t be able to borrow because there’s no collateral for a bank so you need government intervention and then he suggested what is now called a graduate tax”, said Professor Chapman of the ANU.

According to Professor Gregory: “In the 1950’s he was regarded as very right wing. He believed in small government, he believed that markets should be subject to minimum regulations, he believed that central banks should be independent and control money supply, he believed governments shouldn’t run deficits. Now those ideas are mainly mainstream. Milton didn’t move, but the middle moved towards him.”

The Prime Minister John Howard yesterday paid tribute to Milton Friedman saying that the stable monetary and fiscal policy frameworks that are the hallmarks of successful western economies were in part a legacy of his work