The 2024 election was hardly just about inflation (which started under Trump and the CARES act and the massive printing of dollars) it had to do with open borders chaos, far left gender ideology, politicization of the Justice Dept with shocking law fare as well as the Ukraine and Middle Eastern wars and global instability as well as wage stagnation and importing cheap labor.
Milton Friedman is, of course, required text, but it is a date even on the conservative side of the field. And Milton Friedman was also a political propagandist who made significant errors.
I'm not sure propagandist is the appropriate title rather he functioned as a partisan public intellectual. I also recommended that people check out his work on monetary history not necessarily the polemical works.
We mention Friedman in this discussion because he made perhaps the best economic prediction in the history of the field (i.e. the breaking of the Philips Curve).
Additionally, Friedman's historical role is quite similar to Keynes, who also got several things wrong. If ones in the field of macroeconomics, they're going to get things wrong.
I also think history will be kind to Friedman. Academics like Jennifer Burns and Tyler Cowen have made memorializing efforts very recently. There is also existing Fed policy which is still based on Friedman's ideas.
I don't want to put you on the spot, but could you unpack this?
The Phillips curve is the proposed relationship between the inflation rate and unemployment rate. Friedman argued that it only represented a short-term trade-off between inflation and unemployment and that in the long run, there is no permanent trade-off. Subsequently, inflationary policies cannot consistently reduce unemployment below the "natural rate of unemployment" due to people adjusting their inflation expectations. This turned out to be empirically correct when stagflation (high inflation and high unemployment) was observed in the 70s.
The CBO has working papers on the "natural rate of unemployment" (https://www.cbo.gov/sites/default/files/110th-congress-2007-2008/workingpaper/2007-06_0.pdf), and it appears to be a largely accepted idea in mainstream economics. It seems the existing critiques concerns the fact that it can't be observed/modeled (i.e. it is just an assumption about the labor market based supply/demand fundamentals) and there may be other phenomena actually going on that explain this relationship.
Based on all available information, Friedman's explanation is the most parsimonious. Price dynamics have to signal something if a market is working to some degree (doesn't have to be perfect) and people will adjust to artificial adjustments to prices that are not correlated with what they underlying value they're interested in.
The reason the Phillips curve fell apart was that energy, when it was created, was domestic. By the time it fell apart, it was imported and therefore went through a different mechanism. Even fracking goes through that same mechanism because it is a trade-off between the costs of importation. Robert Mundell's in 1999.
The cost of a worker depends directly on the energy cost to maintain them.
But remember the Phillips curve was never a direct result of anything it is just something that happened to work, and its resulting fall was inevitable because when something magically works that means that there is a reason that may be hidden but will also be withdrawn at some point.
I don't see why gesturing to a supply shock (e.g. the 70s oil crisis) is a critique of Friedman's prediction/explanation of Phillips curve failings though? Energy is merely one input on the cost of labor (and one that an employer doesn't entirely take on via employment either), and the source of the inflation is immaterial to the claim that the short-run and long-run tradeoffs are different due to the changing expectations of economic actors.
And it isn’t just a supply shock: the Phillips curve had been disintegrating from late 69 until December 82. That’s 12 years of liberal solutions which did not work. The solution was to shift over from oil to other things on the industrial front and to install information technology rather than fly people around. This led to 10 years of growth and another 10 years after a recession in the information technology space.
Because the supply shock disturbed the relationship of the Phillips curve to the means of its sustainment. If there’s too much energy to imply a worker then the worker does not get employed. If this happens a great deal then lots of workers don’t get employed.
No propagandist is about correct for some. of the. material he puts out, which is separate from the economics papers. This duality applies to economists left and right. JKG did both. As does Krugman.
I guess, but I generally see the quality of Friedman's public output as more defensible and empirically supported than many of the political claims made by Krugman or Galbraith. Part of this has to do with Krugman's and Galbraith's public communications were a significant departure from their actual academic output. I think the obvious test for this is that Friedman's theoretical work and political advising has had a much more durable effect on economic policy.
The 2024 election was hardly just about inflation (which started under Trump and the CARES act and the massive printing of dollars) it had to do with open borders chaos, far left gender ideology, politicization of the Justice Dept with shocking law fare as well as the Ukraine and Middle Eastern wars and global instability as well as wage stagnation and importing cheap labor.
Milton Friedman is, of course, required text, but it is a date even on the conservative side of the field. And Milton Friedman was also a political propagandist who made significant errors.
I'm not sure propagandist is the appropriate title rather he functioned as a partisan public intellectual. I also recommended that people check out his work on monetary history not necessarily the polemical works.
We mention Friedman in this discussion because he made perhaps the best economic prediction in the history of the field (i.e. the breaking of the Philips Curve).
Additionally, Friedman's historical role is quite similar to Keynes, who also got several things wrong. If ones in the field of macroeconomics, they're going to get things wrong.
I also think history will be kind to Friedman. Academics like Jennifer Burns and Tyler Cowen have made memorializing efforts very recently. There is also existing Fed policy which is still based on Friedman's ideas.
And at the Phillips curve was incorrect but not for the reasons that Friedman Senior pointed out.
I don't want to put you on the spot, but could you unpack this?
The Phillips curve is the proposed relationship between the inflation rate and unemployment rate. Friedman argued that it only represented a short-term trade-off between inflation and unemployment and that in the long run, there is no permanent trade-off. Subsequently, inflationary policies cannot consistently reduce unemployment below the "natural rate of unemployment" due to people adjusting their inflation expectations. This turned out to be empirically correct when stagflation (high inflation and high unemployment) was observed in the 70s.
The CBO has working papers on the "natural rate of unemployment" (https://www.cbo.gov/sites/default/files/110th-congress-2007-2008/workingpaper/2007-06_0.pdf), and it appears to be a largely accepted idea in mainstream economics. It seems the existing critiques concerns the fact that it can't be observed/modeled (i.e. it is just an assumption about the labor market based supply/demand fundamentals) and there may be other phenomena actually going on that explain this relationship.
Based on all available information, Friedman's explanation is the most parsimonious. Price dynamics have to signal something if a market is working to some degree (doesn't have to be perfect) and people will adjust to artificial adjustments to prices that are not correlated with what they underlying value they're interested in.
The reason the Phillips curve fell apart was that energy, when it was created, was domestic. By the time it fell apart, it was imported and therefore went through a different mechanism. Even fracking goes through that same mechanism because it is a trade-off between the costs of importation. Robert Mundell's in 1999.
The cost of a worker depends directly on the energy cost to maintain them.
But remember the Phillips curve was never a direct result of anything it is just something that happened to work, and its resulting fall was inevitable because when something magically works that means that there is a reason that may be hidden but will also be withdrawn at some point.
That point in this case is '79Q3.
I don't see why gesturing to a supply shock (e.g. the 70s oil crisis) is a critique of Friedman's prediction/explanation of Phillips curve failings though? Energy is merely one input on the cost of labor (and one that an employer doesn't entirely take on via employment either), and the source of the inflation is immaterial to the claim that the short-run and long-run tradeoffs are different due to the changing expectations of economic actors.
And it isn’t just a supply shock: the Phillips curve had been disintegrating from late 69 until December 82. That’s 12 years of liberal solutions which did not work. The solution was to shift over from oil to other things on the industrial front and to install information technology rather than fly people around. This led to 10 years of growth and another 10 years after a recession in the information technology space.
Because the supply shock disturbed the relationship of the Phillips curve to the means of its sustainment. If there’s too much energy to imply a worker then the worker does not get employed. If this happens a great deal then lots of workers don’t get employed.
1/
https://fred.stlouisfed.org/series/UNRATE/
No propagandist is about correct for some. of the. material he puts out, which is separate from the economics papers. This duality applies to economists left and right. JKG did both. As does Krugman.
I guess, but I generally see the quality of Friedman's public output as more defensible and empirically supported than many of the political claims made by Krugman or Galbraith. Part of this has to do with Krugman's and Galbraith's public communications were a significant departure from their actual academic output. I think the obvious test for this is that Friedman's theoretical work and political advising has had a much more durable effect on economic policy.