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What Would Milton Friedman Do?

November 16, 2010

This post from Steve Waldman’s economics blog, Interfluidity, interests me in the way that it links economic theory and policy with morality and the way it acknowledges how we Americans tend to link the ups and downs of our economy to our collective relationship with God. In brief, Waldman is pointing out how the long-held American concensus that politically neutral technocrats are best at steering the economy has been largely subverted by the current economic crisis (which, of course, has come about despite, or maybe because of, the economic policies of technocrats).  Waldman is particularly taking aim at the The New York Times columnist, economist, and moralizer Paul Krugman. Here’s the Waldman quotes that got me thinking:

Paul Krugman laments that we have been “mugged by the moralizers” and admonishes us that “economics is not a morality play“.

But the thing is, human affairs are a morality play, and economics, if it is to be useful at all, must be an account of human affairs… It should be no surprise that human collectives do not choose policies that grow GDP and employment when they deem those policies to be wrong or unjust… Political choice combines diffuse personal costs with powerful moral signifiers. We should expect politics, including the politics that determines economic policy, to be dripping with moralism. And sure enough, it is! This doesn’t mean that policy outcomes are actually moral. …But exhortations to policy that cannot survive in terms of moral framing are nullities…

The market itself is a famously amoral creature, yet the outcomes it imposes have become widely regarded as legitimate. That’s all true! …Our deference both to market outcomes and central bank management did not derive from some overwhelming scientific consensus to which the common man wisely deferred. They were the result of an immensely successful ideological campaign that conflated markets with liberty and democracy, and claimed central banks would deliver fair outcomes by virtue of predictably valued money. There is a reason why people are asking What Would Milton Friedman Do? in the same way a Christian might ask what Jesus would do. The technocratic interlude… was built upon scripture that Milton Friedman both penned and evangelized.

We are in a period of Reformation now, with all the turmoil that suggests, and the outcome is not predetermined. Simply assuming the parishioners will remain faithful, or lamenting that they ought to remain faithful, is no way to win the argument…

Krugman is the oddest technocrat, because he is also one of America’s great moralists. On so many subjects, his voice booms like thunder from astride the New York Times. When Krugman is at his best, and he is often at his best, no one mixes authority, moral outrage, and smart argument as effectively. But on the core economic questions of the moment — fiscal and monetary policy, national investment policy, employment — Krugman explicitly cedes recognizable morality to the other side, and in doing so, he cedes the argument. To be fair, moralizing Krugman’s positions might not be easy. Krugman’s views are inconsistent with some common moral frames. It is easy, in the context of prevailing norms, to argue that governments should be prudent in the same way as households, or that debtors have a sacred duty to repay creditors, or that good times must be paid for with bad. The most obvious moral counterplays, appeals to altruism in the face of misery, are vulnerable to vilification of the “undeserving poor” — people whose lack of diligence left them without “skills”, deadbeats who partied on debt they cannot now repay. These accusations are often inaccurate, hypocritical. and self-serving. But they are effective. The landscape of morality plays is challenging for someone with Krugman’s views.

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