What would Milton Friedman do?

Milton Friedman (AP)

The question is frequently asked what economist Milton Friedman would recommend regarding the economy if he were alive today. There can be little question that, were he alive, Friedman would endorse the policies he did throughout his career: less government spending, less government regulation, less government taxation, flexible international exchange rates and a stable monetary policy.

Friedman was not opposed to action by government in principle, and he was not opposed to extraordinary action in extraordinary times. He probably would have supported most of the expansionary policies of the Federal Reserve to this point as a result of the decline in monetary velocity in recent years. Ben Bernanke is a great admirer of Friedman. Had the Fed not printed so much money, there could have been another Great Depression, and not merely Great Recession, as prices actually could have fallen.

Concerning President Obama’s stimulus package, Friedman would have been aghast. By way of contrast he would have supported Mitt Romney’s approach of cutting government spending. Friedman emphasized that few things are more important than reducing the size of government, which is accomplished through spending less on government.

Moreover, if fiscal stimulus is to be provided, he argued that it is better to reduce taxes than to increase spending. For this reason, too, he would have favored Gov. Romney’s approach of cutting taxes to stimulate the economy rather than increasing spending.  The increased spending merely goes to favored special interest groups, in particular public employee unions at this time.

However, it is not necessarily the case that Friedman would have advocated merely reductions of top marginal personal income tax rates. He recognized that Social Security and Medicare were as much taxes as the personal income tax, and he would have advocated their reduction as well. In general, he supported any tax cut any time for any reason. He would have supported expansion of the Earned Income Tax Credit--this was a legislative descendant of his proposed negative income tax.

He would have considered ObamaCare to be a disaster. Government intervention is almost always detrimental--and it is always wasteful--he believed. With respect to health care policy, he thought that, if medical savings accounts and high-deductible catastrophic insurance replaced existing employer, Medicare and Medicaid health coverage, health care costs could be cut in half.

The great issue with which Friedman was concerned during the last decades of his life was school choice. He had much success in this field--charter schools and more open transfer policies in public school systems can in part be considered a legacy of his proposal for educational vouchers.

There is much more school choice than there was 50 years ago, and the credit for much of this can go to Friedman as much as to anyone else. He was a great educational reformer. As a result of his fervent belief that educational decisions are best made as close to children as possible, preferably by their parents, he would have opposed national curriculum standards or guidelines.

Concerning the international economy, Friedman would have looked with pleasure on the economic performance of much of the world outside of the European-United States-Japan block. Growth continues in Latin America, parts of Africa and most of Asia--particularly east Asia. He believed that non-inflationary policies, deregulation of markets, and denationalization of government-owned enterprises is the best way forward for developing nations.

Great growth continues to characterize the world as a whole. In many respects, formerly developing nations have freer economies than now characterizes the formerly developed nations and it shows in the differential growth rates between the two. Particularly regulation is a problem in the older developed economies at this time.

Energy is crucial to the world and national economy. For this reason, Friedman no doubt would have held it to be a complete working out of the market order that--in response to the sharp increases in the price of energy in recent years--new sources of energy are being developed and there is greater conservation of energy.

He would have been in favor of Gov. Romney’s call for increased production of domestic energy supplies, particularly oil and gas. In general, he was opposed to American military expeditions abroad, and he certainly would have held that it is better to develop energy at home than to send soldiers around the world in defense of energy supplies.  

Circumstances change, but good policies remain. Though he no doubt would have tailored his practical proposals to the present, Milton Friedman would continue today to support the free market policies which he advocated throughout his life.  
 
Lanny Ebenstein is editor of "The Indispensable Milton Friedman" and author of "Milton Friedman: A Biography."