Friedman and policy

Of the many obituaries for Milton Friedman, Samuel Brittan's elegant essay in the Financial Times is well worth reading. Also worth reading are two deliberately polemical comments by Richard Adams of The Guardian on the newspaper's Comment is Free site. Adams argues:

The death of Milton Friedman has provoked an outpouring of tributes to one of the modern era's most controversial economists. But given how little success he had in translating his ideas into practice, it is worth asking just what his legacy is. Thanks to his status as a hate figure for the left, many assume that Friedman's agenda was cemented by the Reagan and Thatcher regimes of the 1980s - especially his famous view that inflation is solely influenced by changes in money supply. But few of his most cherished proposals were ever put to the test. Of those that where, such as monetarism, almost all dissolved into failure.

He follows this comment with another post:

Yesterday I posted a blog entry Milton Friedman: a study in failure attempting to assess the direct impact of Milton Friedman on public policy, who died this week. The post sparked a string of interesting debates on the great man's life and works (and whether he was a great man at all). It was fascinating to read the responses to my original piece, which I originally wrote to head off the left-wing bloggers who would surely spring forward to denounce the (in their eyes) malign influence of Friedman. Instead, I argued that his impact didn't really amount to as much as some people thought it did.

Adams is of course not disputing Friedman's intellectual importance or achievements. He is commenting specifically on Friedman's importance for public policymaking. That limited question, and not the content of Friedman's technical work, is the topic of this post too. In my view, Adams has a fair point, but also misses an important point.

While associated with the Reagan and Thatcher 'revolutions', Friedman's influence on public policymaking was concentrated in a particular period - roughly 1979-83 - and was indirect. The most visible aspects of President Reagan's early economic policies were fiscal: cuts in taxes and cuts in spending (except in defence). But the most enduring shift in policy at this time was in monetary policy. This was of course the preserve of the Federal Reserve, under Paul Volcker, rather than the President; under Volcker, policy was deliberately shifted in 1979 to stress stability and countering inflation. Friedman believed that policy still retained too much of a discretionary element, and he was by no means of direct influence in this important political development. John W. Sloan, in his excellent study The Reagan Effect: Economics and Presidential Leadership (1999, p. 241), notes: "The success of Volcker's pragmatic, discretionary monetary policy, as opposed to Friedman's automatic monetary policy, played an indispensable role in supporting Reagan's presidency."

But there is another, and more fundamental respect, in which Friedman influenced public policy. This relates to his discussion of the proper scope of policy, rather than to particular policies that he advocated, and goes back to his influential Essays in Positive Economics, 1953. Friedman argued for the importance of positive economics - questions of what is, rather than value judgements about what ought to be. Value judgements are ultimately irreconciliable, but many policy issues depend on predictions about their effects. Friedman argued that differences over policy (minimum wage laws, for example, or other issues concerning state intervention or regulation) could be narrowed by the study of positive economics. He wrote (p. 5): "I venture the judgment that curently in the Western world ... differences about economic policy among disinterested citizens derive predominantly from different predictions about the economic consequences of taking action ... rather than from fundamental differences in basic values, about which men can ultimately only fight."

Friedman's approach was thus one of scientific method and empirical inquiry, to narrow the ground and reduce the number of issues on which agreement will be impossible. That critical approach is fundamental to the principles of a liberal order. Even for those who do not share Friedman's conservative (or in the American sense, libertarian) political ideals - as I do not - the great economist was thereby an important and intellectually distinguished defender of a free society.