Paul "Kettle" Krugman

Occasionally, I will use this forum to dabble in intellectualism (I use “intellectual” in the weakest sense). This post is my first attempt. I will always attempt not to overestimate the true value of my opinions or the interest of others to hear them. Here goes.

In February, Paul Krugman wrote this article on Milton Friedman in the New York Review of Books. Since then it has made its rounds through the econblogosphere. Today, after prompting from a friend, I took the time to read it in its entirety. The timing is appropriate because Friedman is a personal hero of mine (and likely to be a recurring figure in my posts) and this weekend marks the one-year anniversary of his death. I recommend this video for short background on Milton and his impact.

The article is well written and any student of economics and public policy will find it interesting. However, I also find it to be a bit disturbing. I am no expert on monetary theory, but from what I understand and in reading the responses to Krugman, the article seems to have several factual inaccuracies. Even ignoring these, it is clear Krugman has cherry-picked the evidence he reveals to his relatively ignorant audience. In doing so, he tries to paint the world as black and white and blatantly engages in the same intellectual dishonesty he so readily convicts Milton of.

The bottom line is that no one would argue that strict monetarism or strict government intervention is the sole solution to economic woes. Arguing either case is akin to claiming that a vaccination guarantees immunity. It just can’t be true. The question is what treatment will, on average, be most effective.

Milton Friedman’s insight was that the most well-intentioned government is vulnerable to human imperfection and is likely to fall into the hands of less-well-intentioned individuals. Harnessing the power of individual freedom and self-interest in the marketplace is Milton’s antidote and, historically, the only system that has achieved longevity. This intuition and some technical analysis leads to the conclusion that we will best avoid large economic jolts by essentially automating monetary policy. The metaphor is your typical family roadtrip. No one wants to sit in a car as the driver jerks the wheel back and forth; overreacting and overcorrecting for each turn and bump in the road. We'd be better to turn on the cruise control.

You can disagree with this conclusion. Krugman certainly does. But you can’t claim Milton is being intellectually dishonest. The evidence is messy and isn’t overwhelming on one side or the other. Krugman tries to discredit Milton by pointing to the Fed’s success under Volcker and Greenspan in recovering from the high inflation of the early 80’s and easing the hit the economy took in 2001. But recent monetary policy has been successful precisely because of Friedman’s advice. Greenspan’s inflation-targeting is far more mechanical than strategic.

The irony here is that Krugman has become the caricature of an academic who has sacrificed intellectual principles and objectivity for a voice in the political debate. Perhaps Milton Friedman was as a bit too much of an ideologue…but if that’s true, we’ve got a kettle to match the pot.