Friedman’s Plucking

It seems to be interesting I mean what Mr Kevin Hassett says the “Butterfly at Ceiling” and reversing the depressed economy and less unemployment all that stuffs. 

He says that “I find it useful when thinking about the Friedman model to use an alternate analogy. Imagine that you are in a room with an upward sloping ceiling. There is a butterfly in the room that wants to escape, and it follows the ceiling up and up over time.

If the height of the butterfly represents gross domestic product, we can say that the economy is generally trending higher. If it happens to flutter down far away from the ceiling, that means its next movement is likely to be steeply back up. 

The hard part, of course, is figuring out whether a given decline is lasting bad news or a temporary pluck.”

Who brainwashed whom?

But Paul Samuelson very sure in centrist economics, he says in a recent column in Business world that: 

“It will be a tragedy — an avoidable tragedy — if today’s democracies permit themselves to stay mired in long slumps. 

When the public becomes too scared to spend, their shift to saving kills off investment. My generation of macro economists called this “the Paradox of Thrift”. Today’s teachers in the Ivy League got brainwashed by scholars like Milton Friedman and Friedrich Hayek to forget such realities.”

Underlying propagator………….

John Carney explains how the present financial crisis came in into exist in US. And he defends the Milton Friedman and Anna Schwartz works. 

But what is important to note here is what Anna Schwartz said "we won't have a capitalist system . . . People are responsible for the decisions they make. If they've made wrong decisions, lost money and don't have the funds to operate, well, it's time to leave the market. And that's what the Fed's responsibility is, not to shore up firms that have no reason to continue." 

The other articles are 1 2 and Anna Schwartz interview to WSJ.

Paul Samuelson Vs. Milton Friedman

Paul Samuelson Vs. Milton Friedman

Funding for Ideas

There is a book review in the American Spectator titled “Good as Goldwater” By Robert Huberty from the February 2009 issue.

The review state that: 

• “Funding Fathers is a celebration of the unheralded achievements of great donors. For instance, the names of Kansas City philanthropist William Volker (1859–1947) and his nephew Harold Luhnow (1895–1978) are forgotten. In part, that’s because they put a time limit on the life of the grant-making Volker Fund they established. Unlike a Ford Foundation or Pew Charitable Trust, which exist in perpetuity to support causes contrary to the donors who created them, the Volker Fund honored its donors’ intentions during their lifetimes. During its three decades of existence the Volker Fund achieved far more than William Volker could have imagined.  
• In a Kansas City archive Hoplin and Robinson located a scrap of paper dated May 7, 1945, on which William Volker authorized a $2,000 grant request by Friedrich Hayek to defray the travel expenses of 17 Americans to the first Mont Pelerin Society meeting in Switzerland. It was during the high tide of Keynesianism (and one day before Nazi Germany’s surrender) that Volker made it possible for American free-market economists and writers to meet their counterparts in war-torn Europe.  
• The $2,000 grant helped pay for economists Milton Friedman, Frank Knight, Ludwig von Mises, and George Stigler, writers Felix Morley, John Davenport, and Henry Hazlitt, and institution-builders Leonard Read of the Foundation for Economic Education and F. A. Harper, who would found the Institute for Humane Studies, to confer with like-minded Europeans about the fate of the postwar world. Hoplin and Robinson’s diligent research also uncovers that Volker subsequently provided teaching stipends for Hayek, Mises, Morley, and economist Murray Rothbard and sponsored lectures by Milton Friedman that would become his book Capitalism and Freedom. One wonders what grants might have a comparable impact today.  
• Funding Fathers is a timely book because it reminds conservatives that while elections come and go, good ideas prevail”.   
  

A Nobel Low: Krugman Calls Small Government Philosophies Racist

Cord Blomquist asks: 

• “How does Krugman attempt to do this?  First, he points to the G.O.P., as though Republicans are the vanguard of small government.  He claims that, “Forty years ago the G.O.P. decided, in effect, to make itself the party of racial backlash.” 
  
• Mr. Krugman knows better and is hoping that smearing the philosophy of limited governement with accusations of racism will save him the work of presenting real, honest arguments against a very powerful set of ideas. 
  
• Those powerful ideas were developed by philosophers and economists like Adam Smith, John Locke, John Stuart Mill, Friedrich Hayek, and Milton Friedman—giants of the academy. 
  
• Hayek and Friedman especially must be known to Krugman.  Both were recipients of the same prize as Mr. Krugman, the Nobel Prize in Economics. 
  
• Both were also more reasoned in their opinions than Mr. Krugman. 
  
• Rather than dismissing ideas he disagrees with as racist, Mr. Krugman ought to get back to his academic roots and engage in a little constructive dialogue.  Perhaps that would prevent him from producing the the kind of thoughtless drivel he’s been allowed to publish in the New York Times”.
  

Milton Friedman’s extempore comments at the 1989 Hawaii conference: on India

This extempore may be one of the great comments on India Economy! It is worth to note few paragraphs.

"I think you have to distinguish sharply between a redistributive state and a regulatory state.  I give you Sweden, which is a very highly redistributive state, but is not a highly regulatory state.  As I understand it, the original Constitution of India called for a redistributive state.  The ethos called for a regulatory state, and they turned out to be both very different and I would say ultimately incompatible.

That was a large part of the motivation behind some of the measures that were taken then.  Secondly, you are quite right that one of the things that India inherited was a good civil service.  I came back from India on my first trip there saying that in my experience, I had never met a class of civil servants who were as able as the Indian Civil Service.  However, they weren't in accord with the principles that were going to be followed.  Many of them, particularly Mr HM Patel, would not have gone along, I suspect he would not have been an enthusiastic participant of the Mahalanobis Plan.  I don't know….you tell me.  Am I wrong?  There were people at the time who recognized fully what the consequences were going to be, the most notable example is BR Shenoy in his dissenting view on the committee of experts examining the Second Five Year Plan.

In my opinion, the most serious problem of India in the economic sphere can be pinned down very quickly.  It has to do with the pegging of the exchange rate and the existence of change controls.  My view on this is based not only on India alone; it is based on country after country.  There is no other measure which opens itself so much to corruption than to spreading from one regulation to another.  In some ways, if you could pull that pin out, much of the rest of the superstructure would collapse.  On that particular issue, it was initially an open issue in India.

On a very different subject that you touched in your comment, I share completely with you the outrage at the picture of extraordinary ostentation in the midst of extraordinary poverty.  I venture to predict that if you ask where the money comes from that finances that ostentation, you will find in almost every single case it comes from government favour.  It is created by the present system of planning.  The idea that the present system of planning is directed at egalitarianism is, I think, an absurd idea…  I remember an incident which I think is very amusing.  I once was in Hong Kong ten years ago, and I was entertained at the home of a very wealthy Hong Kong Indian businessman.  He's the person who owns the Hilton, Hare Nina.  It was at his home.  This is a man who has 50 people to dinner every night.  One of the people who was present there was an Indian capitalist who would be an absolutely perfect image for a New Yorker cartoon of a bloated capitalist sitting on a pile of money.  He was big, fat and just looked the image.

I want to go back for a moment about two comments about T.N.'s.  One is, there are certain words which are red lights to fallacies.  One of those words is "need".  I do not know any sentence that anybody ever uses with "need" which doesn't turn out to have a fallacy embedded in it.  The word that leads me to is not need but "essential".  "Essential import".  Every economist knows that if you have adjusted your resources properly, every item you buy is essential at the margin.  It is a distinction between marginal and average.  The word "essential" is a meaningless word, and any place you see it used, you can be sure there is a fallacy.  The same thing with the word "shortage".  I noticed that when T.N. came to the word shortage, shortage of foreign exchange, he hesitated.  He said an "alleged shortage".  Economists may not know much, but there is one thing we know very well.  That is how to create shortages and surpluses.  Tell us what you want a shortage in, and we'll create it.  The only thing you have to do is set a maximum price that is below the market price, and you'll have a shortage.  If you want a surplus, we'll produce that, too.  We'll give you a case in which we'll offer a price higher than the market price.  We've got a surplus of wheat for that reason in the United States, and we've got a shortage of housing in New York for that reason.  The talk about a shortage of foreign exchange is always an evasion of a problem.  Some how or other, economists ought to get into the practice of never using the word shortage without accompanying it by at what price."

One more point and I'll be through.  You say that you want to dismantle the exchange rates over a ten year period.  I think you're wrong.  There are some things you want to do immediately overnight and some things you want to drag out.  There are two aphorisms that bring out the point.  One is: don't cut a dog's tail off by inches, and the other is haste makes waste.  They're the opposite of one another, but each is right in some occasions.  It seems to me as a generalization with respect to any price control that it should be done instantly.  You should cut the dog's tail off at once.  If you're going to abolish exchange control, it ought to be announced on a Friday or Saturday night to be done on Sunday morning.  Just as Ludwig Erhardt in the German reform announced overnight, over a weekend, he did it on Sunday because the American and British control offices were closed and so they couldn't countermand his order.  That is why he did it on a Sunday.  He did it at one full stroke, all price controls abolished.  Margaret Thatcher abolished exchange control in Britain overnight.  Exchange control, it seems to me, is one of those things you have to abolish overnight.  If you stretch it out, you will never abolish it.

I don't think we ought to get involved in words, and I don't mind if we drop the word socialism.  I would say that a system of detailed controls or whatever you call it, is a system which generates inequality.  The private ownership of property is not enough.  Some of the main beneficiaries from your controls are private enterprises and moreover as I cited in my example, they also support the system of controls and regulation.  What I say is that the combinations of controls and regulations, whatever you call it, produces inequality, and chief among them is the foreign exchange control.  If you could eliminate the foreign exchange control, you will eliminate a good bit of the harm which is currently being done by all your regulations.

If I might say, I have enormous sympathy with this view that it's the same old story.  It is!  Exactly, and that's what's distressing about it.  It's a shame that in 40 years, there been no real major change in the structural characteristics of the Indian economy.  That's the real tragedy."