Defenestrating Thoughts from the Bivouac

Today is Milton Friedman Day, honoring the great economist who was “the most influential economist of the second half of the 20th century, possibly of all of it (from The Economist, subscription required).” While at the time (post WWII) his support of the free market was considered radical and fringe, his views are now mainstream. In addition to changing the policies of US and UK governments, his ideas were studied underground in Soviet Russia and have played an important role in transforming the economies of countries like China and India.

He argued that if economic freedom is introduced in countries, political freedom will tend to result. A great example of this is Chile, which went from being ruled by Pinochet to peacefully adopting democracy.

In addition to having significant impact on the economies of the world, he pushed for very important domestic changes. His proposal to eliminate the draft in favor of a volunteer army was derided originally and now is nearly gospel. Any politician that wants to bring back the draft for the Iraq war is instantly derided as a nutcase.

He is also created the Permanent income hypothesis, which basically states that consumers’ consumption patterns are not determined by current income, but by their longer-term income expectations. The key conclusion being that transitory changes in income don’t change long run spending. It seems obvious now, but this idea came at a time where economists felt that people were immensely stupid consumers and needed the government to tell them what to buy and when.

PBS will be airing a documentary about the life and ideas of Friedman this week. I’ve set my “Tivo” and am looking forward to watching it. :-)