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| Milton Friedman |
Economic theories are
to a great extent ethical claims. They assert that shared outcomes
will be better if we engage in certain policies of governance,
taxation and fiscal policy. The outcomes for people living under
those laws will be vastly different depending upon which theories and
which laws we adopt. Economics is asserted to be a science and in
theory we should be able to compare the theoretical claims with the
empirical data.
Milton Friedman was
one of the central figures creating the conservative Chicago school
of economics. A prime feature of this variety of economics is a
belief in largely unrestricted free markets. This can be very
effective in increasing or decreasing commodities, manufactured goods
and services in response to changes in relative demand by our
society. If there is a shortage of corn the price will rise. There
will then be more land, labor, fertilizer and machinery allocated to
corn production, satisfying the demand.
Friedman wanted an
extremely minimal government and disliked things such as permits and
licenses as a matter of almost quasi-religious belief. He was
opposed to licensing medical doctors. Of course, this would have
opened up the market for medical services to a vast variety of
medical fraud and quackery. To be fair, there are laws against fraud
and in principle Friedman would argue that these laws would limit
misbehavior.
Alan Greenspan was a
supporter of Friedman's views. He saw no problem with the
proliferation of sub prime, low documentation loans for real estate
or the slicing and dicing of bundled mortgages to finance the recent
housing bubble. This fraud was endorsed by rating agencies that
seemed willing to give AAA ratings to repackaged mortgage instruments
sold to credulous buyers. The ratings agencies were in effect bribed
by the financial institutions that were requesting the ratings. Once
again laws against fraud in theory apply. A few people have been
prosecuted under such laws but only a very tiny percentage of the
army of people who built the housing bubble that destroyed many
trillions in American assets. The fear of prosecution was almost
totally absent during the building of the housing bubble. The very
minimal current levels of prosecution suggests there would be no fear
of consequences when future markets become similarly disconnected
from reality.
