Comments on: Milton Friedman: The Great Conservative Partisan http://www.thomaspalley.com/?p=59 Economics for Democratic and Open Societies Thu, 23 May 2013 21:10:17 +0000 http://wordpress.org/?v=2.6 By: Gator80 http://www.thomaspalley.com/?p=59#comment-19661 Gator80 Sun, 03 Dec 2006 01:43:57 +0000 http://www.thomaspalley.com/?p=59#comment-19661 I greatly appreciate your response to my post, Dr. Palley. Not having a PhD in economics myself I confess I had to run to the dictionary to look up monopsony. I found “monopsony is a state in which demand comes from one source.” So I assume your reference to ‘employers with monopsony power’ refers to cases where certain laborers have only one option for employment. Forgive me, but I fail to see how that increases employment as a result of a minimum wage. I’m trying to visualize such an employer saying, “OK, so they’ve raised the minimum wage? Let’s add some more staff!” Perhaps someone can provide some specific examples. I understand the flexible hours example a little better I think. It’s not clear the individual workers come out ahead, though, by working fewer hours at higher wages. And isn’t that the reason more generally why unemployment increases due to minimum wages? Employers try to cut back on labor costs by having fewer workers work “at greater intensity.” (It also brings up what I regard as the interesting philosophical question about minimum wages. In cases where employers feel unable to absorb the incremental wages from a minimum wage increase they will often reduce staff to hold total expenses in line. So from the point of view of the workers which is better: 7 employees making $5 per hour or 5 employees making $7 per hour?) Lastly, your comment that Professor Friedman believed “demand adjusted to supply and…supply was independent of demand” seems so bizarre that I assume I am misreading it. Are you saying that if demand for, say, yo-yo’s increases for whatever reason, Friedman believed suppliers would not adjust and produce more yo-yo’s? I greatly appreciate your response to my post, Dr. Palley.

Not having a PhD in economics myself I confess I had to run to the dictionary to look up monopsony. I found “monopsony is a state in which demand comes from one source.” So I assume your reference to ‘employers with monopsony power’ refers to cases where certain laborers have only one option for employment. Forgive me, but I fail to see how that increases employment as a result of a minimum wage. I’m trying to visualize such an employer saying, “OK, so they’ve raised the minimum wage? Let’s add some more staff!” Perhaps someone can provide some specific examples.

I understand the flexible hours example a little better I think. It’s not clear the individual workers come out ahead, though, by working fewer hours at higher wages. And isn’t that the reason more generally why unemployment increases due to minimum wages? Employers try to cut back on labor costs by having fewer workers work “at greater intensity.”

(It also brings up what I regard as the interesting philosophical question about minimum wages. In cases where employers feel unable to absorb the incremental wages from a minimum wage increase they will often reduce staff to hold total expenses in line. So from the point of view of the workers which is better: 7 employees making $5 per hour or 5 employees making $7 per hour?)

Lastly, your comment that Professor Friedman believed “demand adjusted to supply and…supply was independent of demand” seems so bizarre that I assume I am misreading it. Are you saying that if demand for, say, yo-yo’s increases for whatever reason, Friedman believed suppliers would not adjust and produce more yo-yo’s?

]]> By: Gator80 http://www.thomaspalley.com/?p=59#comment-19532 Gator80 Fri, 01 Dec 2006 20:25:31 +0000 http://www.thomaspalley.com/?p=59#comment-19532 Political Economist: Free to Choose, Chapter 8 ("Who Protects the Worker?"). Political Economist: Free to Choose, Chapter 8 (”Who Protects the Worker?”).

]]> By: TOM PALLEY http://www.thomaspalley.com/?p=59#comment-19399 TOM PALLEY Thu, 30 Nov 2006 14:57:10 +0000 http://www.thomaspalley.com/?p=59#comment-19399 Dear Gator80, Thanks for your interesting comments. (1) Even within standard neo-classical theory (i.e. supply & demand analysis) a minimum wage can raise employment. One case is when employers have monopsony power. A second case is when firms offer jobs that are marked by flexible hours. In that case, a minimum wage raises the hourly wage and firms may then cut back on hours and substitute toward more workers working fewer hours at greater intensity. These issues are examined in two papers of mine in the Eastern Economic Journal (1995 and 2001). (2) Of course if wages are determined on non-neo-classical principles the story is even easier to tell. (3) Milton Friedman believed in a supply determined world in which demand adjusted to supply, and in which supply was independent of demand. That was a belief and nowhere does he address arguments against that belief. Good luck with your studies. Keep an open mind. Sincerely, Tom Palley Dear Gator80,

Thanks for your interesting comments.

(1) Even within standard neo-classical theory (i.e. supply & demand analysis) a minimum wage can raise employment. One case is when employers have monopsony power. A second case is when firms offer jobs that are marked by flexible hours. In that case, a minimum wage raises the hourly wage and firms may then cut back on hours and substitute toward more workers working fewer hours at greater intensity. These issues are examined in two papers of mine in the Eastern Economic Journal (1995 and 2001).

(2) Of course if wages are determined on non-neo-classical principles the story is even easier to tell.

(3) Milton Friedman believed in a supply determined world in which demand adjusted to supply, and in which supply was independent of demand. That was a belief and nowhere does he address arguments against that belief.

Good luck with your studies. Keep an open mind.

Sincerely,

Tom Palley

]]> By: political economist http://www.thomaspalley.com/?p=59#comment-19323 political economist Thu, 30 Nov 2006 04:09:09 +0000 http://www.thomaspalley.com/?p=59#comment-19323 Gator80, you must have misread Palley's comment on the minimum wage. He did not refer to the theory of minimum wage or to a theory of the minimum wage or anything like a minimum wage theory. Please re-read. You will see he was referring to what he called Friedman's "new theory" [natural rate of unemployment] and its analysis of the effect of a minimum wage. Also, I would appreciate it if you would give a citation or citations from Friedman showing that Friedman did "fully contemplate and explore all options and possibilities" concerning the possible positive effects of unions. thanks for your help Gator80, you must have misread Palley’s comment on the minimum wage. He did not refer to the theory of minimum wage or to a theory of the minimum wage or anything like a minimum wage theory. Please re-read. You will see he was referring to what he called Friedman’s “new theory” [natural rate of unemployment] and its analysis of the effect of a minimum wage.

Also, I would appreciate it if you would give a citation or citations from Friedman showing that Friedman did “fully contemplate and explore all options and possibilities” concerning the possible positive effects of unions.

thanks for your help

]]> By: Paddy Quick http://www.thomaspalley.com/?p=59#comment-19283 Paddy Quick Wed, 29 Nov 2006 22:06:56 +0000 http://www.thomaspalley.com/?p=59#comment-19283 Friedman's monetarism was based on his theoretical analysis -- a form of portfolio analysis in which Money was one of a variety of assets, including (physical) capital goods and human capital. His and Anna Schwartz's Monetary History was an attempt to prove, empirically, that the demand for Money was a more stable function than Keynes's consumption function. This strange enterprise was singularly unsuccessful, although much ink was spilled by both monetarists and Keynesians on the debate. A more interesting issue is Friedman's understanding of capital, and the anti-Marxist notion that all production must be understood as the product of capital, rather than labor. The notion of human capital, although associated primarily with Gary Becker, is a product of the Chicago school of thought. Thus human beings enter the production function merely as a form of capital. The more recent concept of "social capital" ascribes the increase in labor productivity resulting from the ways in which people organize themselves not to the people themselves but to "capital." Turning Marxism on its head, they take any flow of production and translate it into its "capital" equivalent. Friedman's other theoretical "contribution" also deserves analysis - namely his early version of Margaret Thatcher's aphorism that "there is no such thing as society." The only interactions that he considers to be "free" are those between atomized individuals, so that any collective decision-making (other than through unanimity) is a violation of freedom. His hostility to government is only the most visible form of this extremism, although it is apparent in his rejection of the notion of "corporate responsibility" (even capitalists should not coerce each other!). It reaches its most virulent form, of course, in his anti-communism, since communism is, for him, a rejection of both of his deeply held theoretical beliefs. The role of the "Chicago boys" in rushing to the aid of Pinochet shortly after the 1973 coup in Chile must always be remembered -- democracy, collective decision-making, is antithetical to Friedman's concept of "freedom." Friedman’s monetarism was based on his theoretical analysis — a form of portfolio analysis in which Money was one of a variety of assets, including (physical) capital goods and human capital. His and Anna Schwartz’s Monetary History was an attempt to prove, empirically, that the demand for Money was a more stable function than Keynes’s consumption function. This strange enterprise was singularly unsuccessful, although much ink was spilled by both monetarists and Keynesians on the debate.
A more interesting issue is Friedman’s understanding of capital, and the anti-Marxist notion that all production must be understood as the product of capital, rather than labor. The notion of human capital, although associated primarily with Gary Becker, is a product of the Chicago school of thought. Thus human beings enter the production function merely as a form of capital. The more recent concept of “social capital” ascribes the increase in labor productivity resulting from the ways in which people organize themselves not to the people themselves but to “capital.” Turning Marxism on its head, they take any flow of production and translate it into its “capital” equivalent.
Friedman’s other theoretical “contribution” also deserves analysis - namely his early version of Margaret Thatcher’s aphorism that “there is no such thing as society.” The only interactions that he considers to be “free” are those between atomized individuals, so that any collective decision-making (other than through unanimity) is a violation of freedom. His hostility to government is only the most visible form of this extremism, although it is apparent in his rejection of the notion of “corporate responsibility” (even capitalists should not coerce each other!). It reaches its most virulent form, of course, in his anti-communism, since communism is, for him, a rejection of both of his deeply held theoretical beliefs.
The role of the “Chicago boys” in rushing to the aid of Pinochet shortly after the 1973 coup in Chile must always be remembered — democracy, collective decision-making, is antithetical to Friedman’s concept of “freedom.”

]]> By: Greider and Palley bury Friedman « Relentlessly Progressive Economics http://www.thomaspalley.com/?p=59#comment-19279 Greider and Palley bury Friedman « Relentlessly Progressive Economics Wed, 29 Nov 2006 21:44:12 +0000 http://www.thomaspalley.com/?p=59#comment-19279 [...] Thomas Palley and William Greider add two (more critical) obituaries for Milton Friedman. Both make the distinction between Friedman as a professional economist and as a public intellectual: Milton Friedman: The Great Conservative Partisan [...] [...] Thomas Palley and William Greider add two (more critical) obituaries for Milton Friedman. Both make the distinction between Friedman as a professional economist and as a public intellectual: Milton Friedman: The Great Conservative Partisan [...]

]]> By: Gator80 http://www.thomaspalley.com/?p=59#comment-19216 Gator80 Wed, 29 Nov 2006 13:05:29 +0000 http://www.thomaspalley.com/?p=59#comment-19216 I must take issue with two of Mr. Palley's comments, both under his heading of 'extreme conservative agenda' (which gives away the game right there). First he refers to the 'theory' of minimum wage. That is like talking about the 'theory' of gravity. Mr. Palley, an economist, surely understands the LAW of supply and demand! When prices go up, quantity demanded declines. True for labor as much as for anything else. Perhaps someone can point out examples of other commodities where price increases do not lead to reduced consumption. Second, in referring to Mr. Friedman's view on unions, Mr. Palley says that 'No consideration is given to the possibility...' This seemingly innocuous comment is actually an outrageous and unfair attack. I presume Mr. Palley has read Mr. Friedman's work. He may or may not agree with certain conclusions but it is impossible to claim that Mr. Friedman, a true scientist, did not fully contemplate and explore all options and possibilities. Mr. Palley would be better served providing evidence in support of his claims rather than attempting to besmirch one of the greatest economists of our time. I must take issue with two of Mr. Palley’s comments, both under his heading of ‘extreme conservative agenda’ (which gives away the game right there).

First he refers to the ‘theory’ of minimum wage. That is like talking about the ‘theory’ of gravity. Mr. Palley, an economist, surely understands the LAW of supply and demand! When prices go up, quantity demanded declines. True for labor as much as for anything else. Perhaps someone can point out examples of other commodities where price increases do not lead to reduced consumption.

Second, in referring to Mr. Friedman’s view on unions, Mr. Palley says that ‘No consideration is given to the possibility…’ This seemingly innocuous comment is actually an outrageous and unfair attack. I presume Mr. Palley has read Mr. Friedman’s work. He may or may not agree with certain conclusions but it is impossible to claim that Mr. Friedman, a true scientist, did not fully contemplate and explore all options and possibilities.

Mr. Palley would be better served providing evidence in support of his claims rather than attempting to besmirch one of the greatest economists of our time.

]]> By: Don Richards http://www.thomaspalley.com/?p=59#comment-19128 Don Richards Tue, 28 Nov 2006 16:49:27 +0000 http://www.thomaspalley.com/?p=59#comment-19128 That's about the size of it, Tom. This to add, however. A couple of years ago Friedman published a column on the op-ed page of the Wall Street Journal in which he noted the comparative stability of the post-war economy, an outcome that he attributed to wise management by the Fed. This floored me! It seemed an explicit reversal of much of what he had advocated during his professional life, at least as far as discretionary monetary policy is concerned. That’s about the size of it, Tom. This to add, however. A couple of years ago Friedman published a column on the op-ed page of the Wall Street Journal in which he noted the comparative stability of the post-war economy, an outcome that he attributed to wise management by the Fed. This floored me! It seemed an explicit reversal of much of what he had advocated during his professional life, at least as far as discretionary monetary policy is concerned.

]]> By: Mike Meeropol http://www.thomaspalley.com/?p=59#comment-19116 Mike Meeropol Tue, 28 Nov 2006 15:13:30 +0000 http://www.thomaspalley.com/?p=59#comment-19116 I find it unbelievable that the main "contribution" of Friedman and Schwartz -- namely the idea that the FED caused the Great Depression -- has continued to hold sway over journalists and casual observers. Of course the depression was accompanied by a decline in the STOCK of money. However, as Peter Temin so clearly showed in DID MONETARY FORCES CAUSE THE GREAT DEPRESSION? that tells us nothing about whether causation came from the supply side (the Friedman-Schwartz position) or the demand side (a straightforward Keynesian position). The evidence is clear that the 1929 stock market crash ushered in a recession that in 1930 became a great depression in the context of a wave of bank failures. So the question is -- did restrictions on the money supply cause those failures or was there a decline in aggregate demand that caused the bank failures which destroyed a significant part of the stock of money over the next two-three years? Temin devised an ingenious test -- if the problem first was based on a shortage of supply, there should be an upward blip in interest rates BEFORE the bank failures started -- or some other form of credit rationing. Temin found NO SUCH EVIDENCE. As far as I'm concerned that should kill the Friedman-Schwartz argument but people like Bernanke keep asserting that Friedman "was right" and that the FED "caused" the depression. Amazing nonsense!! I find it unbelievable that the main “contribution” of Friedman and Schwartz — namely the idea that the FED caused the Great Depression — has continued to hold sway over journalists and casual observers. Of course the depression was accompanied by a decline in the STOCK of money. However, as Peter Temin so clearly showed in DID MONETARY FORCES CAUSE THE GREAT DEPRESSION? that tells us nothing about whether causation came from the supply side (the Friedman-Schwartz position) or the demand side (a straightforward Keynesian position).

The evidence is clear that the 1929 stock market crash ushered in a recession that in 1930 became a great depression in the context of a wave of bank failures.

So the question is — did restrictions on the money supply cause those failures or was there a decline in aggregate demand that caused the bank failures which destroyed a significant part of the stock of money over the next two-three years?

Temin devised an ingenious test — if the problem first was based on a shortage of supply, there should be an upward blip in interest rates BEFORE the bank failures started — or some other form of credit rationing.

Temin found NO SUCH EVIDENCE.

As far as I’m concerned that should kill the Friedman-Schwartz argument but people like Bernanke keep asserting that Friedman “was right” and that the FED “caused” the depression.

Amazing nonsense!!

]]> By: Friedman as Partisan at super hanc petram http://www.thomaspalley.com/?p=59#comment-19047 Friedman as Partisan at super hanc petram Mon, 27 Nov 2006 22:54:37 +0000 http://www.thomaspalley.com/?p=59#comment-19047 [...] http://economistsview.typepad.com/economistsview/2006/11/was_friedman_a_.html we have Thomas Palley on Milton Friedman: “However, whereas these Keynesian economists understood the limits of the market and the importance of government in making capitalism work for ordinary people, Friedman did not.” Search [...] [...] http://economistsview.typepad.com/economistsview/2006/11/was_friedman_a_.html we have Thomas Palley on Milton Friedman: “However, whereas these Keynesian economists understood the limits of the market and the importance of government in making capitalism work for ordinary people, Friedman did not.” Search [...]

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