Friday, December 19, 2008

Economic Steel Cage Match

At Paper Cuts, Barry Gewen writes of "the downfall of Friedmanism," and advises: "When Milton Friedman’s stock is high, John Kenneth Galbraith’s is low, and vice versa. These past few months, as the federal government has injected billions of dollars into the economy, with many billions more to come, Friedman’s free-market ideas have taken a beating. My advice: buy Galbraith."

This (and the rest of his piece, and much of writing about economics these days) confuses and/or maddens me. First, his "vice versa" formulation right off the bat establishes the notion that such swings in ideological alignment are, at best, cyclical based on conditions.

And what marked the downfall of Friedmanism?
(It) came on the day Henry Paulson and Ben Bernanke marched into the Oval Office and convinced President Bush that the financial crisis was so severe the government had no choice but to intervene, and in a massive way. Markets could not be allowed to clear, Friedman-style, without bringing the roof down on everyone’s head.
Does this remind you of anyone? Klein argues that conservatives use moments of shock to swoop down and install their Evil Programs. I don't buy that, as I've recently written. Nor do I buy that the current expansion of government into the economy is a) a brilliant dastardly plan by leftists or b) a necessarily permanent state of affairs. But reading pieces like the one written by Gewen, you'd think there was reason for triumphalism on the left at the moment.

I don't think it's a good idea to bail out the auto industry. Given the currently fragile state of the economy, it might be arguably useful to directly intervene in that way (and others), but that doesn't mean that the ideal situation is one in which the government props up failing businesses. The adverse consequences of that, as a long-term plan or guiding principle, should be evident. For the moment, we're trying to stop some bleeding. No one on the right should be crowing about a financial system that was increasingly built on imaginary money, a lack of useful regulation and oversight, and an excess of purely criminal behavior. But I don't think December 2008 is the time for Friedmanites or Galbraithians (?) to be getting too full of themselves. The free market isn't going anywhere, and the answers -- as usual -- will probably be found in moderation, not strict ideology on either side.


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