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Great Stories and Weak Economics

Summary:
The two were the most important players in economics in the last half of 20th century. From the 1950s through the 1970s, Samuelson, a Keynesian, thought fiscal policy was more powerful than monetary policy as a tool to manage the economy. Throughout his career he believed in a large amount of regulation, taxation, government spending, and redistribution. Friedman believed monetary policy was more powerful than fiscal policy and believed that the United States and other countries should reduce government intervention substantially and bring all countries’ economies much closer to free markets. Although Friedman and Samuelson never agreed on the proper role of government, in the 1980s Samuelson did come around to Friedman’s view on the power of monetary policy and also to Friedman’s view

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The two were the most important players in economics in the last half of 20th century. From the 1950s through the 1970s, Samuelson, a Keynesian, thought fiscal policy was more powerful than monetary policy as a tool to manage the economy. Throughout his career he believed in a large amount of regulation, taxation, government spending, and redistribution. Friedman believed monetary policy was more powerful than fiscal policy and believed that the United States and other countries should reduce government intervention substantially and bring all countries’ economies much closer to free markets. Although Friedman and Samuelson never agreed on the proper role of government, in the 1980s Samuelson did come around to Friedman’s view on the power of monetary policy and also to Friedman’s view that there was no long‐​run tradeoff between inflation and unemployment.

Misunderstanding monetarism / Many of the stories that Wapshott tells are fascinating, but he does not understand economics well enough to explain Friedman’s views. Wapshott seems to be an unreconstructed Keynesian and so explaining Samuelson’s views comes relatively easily to him. But he never shows a solid grasp of Friedman’s monetarism and so, in explicating Friedman’s thinking, tries to do the analysis within a Keynesian framework. My criticism is not that Wapshott doesn’t agree with monetarism, although he doesn’t appear to; it’s that he doesn’t seem to understand this school of thought.

These are the opening 3 paragraphs of David R. Henderson, “Great Stories and Weak Economics,” Regulation, Winter 2021-22.

Read the parts in between to see why I chose the title I did.

One of my favorite parts:

One of the nicest parts of the book is the quotations from public statements each made about the other’s work and from highly complimentary letters that Friedman and Samuelson wrote each other from the 1960s through the early 2000s. They had known each other since the 1930s, when Friedman was a graduate student and Samuelson an undergrad at the University of Chicago.

After the announcement of Samuelson’s Nobel Prize in October 1970, Friedman wrote in Newsweek that Samuelson was “a brilliant and original mathematical economist” who was “the leader in creating a great center of economic study and research at MIT, raising a run‐​of‐​the‐​mill department to one of the premier departments in the world.” After Friedman’s Nobel was announced in October 1976, Samuelson used his Newsweek column to congratulate Friedman for “his scientific contributions and his scholarly leadership.” Then Samuelson gave a more personal appreciation, writing:

What I have failed to convey is Milton Friedman’s bounce and gaiety, his rapier intelligence, his unfailing courtesy in debate. The world admires him for his achievements. His intimates love him for himself.

Has anyone ever said it better?

David Henderson
David R. Henderson (born November 21, 1950) is a Canadian-born American economist and author who moved to the United States in 1972 and became a U.S. citizen in 1986, serving on President Ronald Reagan's Council of Economic Advisers from 1982 to 1984.[1] A research fellow at Stanford University's Hoover Institution[2] since 1990, he took a teaching position with the Naval Postgraduate School in Monterey, California in 1984, and is now a full professor of economics.[3]

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