Tuesday, July 25, 2017

Bill Mitchell — There is nothing much that Milton Friedman got right!

“If we want to ensure more people are well-employed, central banks alone will certainly not suffice” is a quote I am happy to republish because I consider it to be 100 per cent accurate. The only problem is that the way I think about that statement and construct its implications is totally at odds with the intent of its author, who claimed it was “an important lesson of Friedman’s speech”, which “remains valid”. The quote appeared in a recent Bloomberg article (July 17, 2017) – What Milton Friedman Got Right, and Wrong, 50 Years Ago – written by journalist Ferdinando Giugliano. It celebrates the Presidential Speech that Friedman gave to the American Economic Association on December 29, 1967 at their annual conference in Washington D.C. In terms of the contest of paradigms, the speech is considered to be the starting point proper of the Monetarist era, even though it took at least another 5 or 6 years (with the onset of the OPEC oil crises) for the gospel espoused by Friedman to really gain ground. The problem is that Friedman was selling snake oil that became the popular litany of the faithful because it suited those who wanted to degrade the role of government in maintaining full employment. It was in step with the push by capital to derail the Post War social democratic consensus that had seen real wages growing in proportion with productivity, reduced income inequality, jobs for all who wanted to work and a strong sense of collective solidarity emerge in most advanced nations. This consensus was the anathema of the elites who saw it as squeezing their share of national income and giving too much power to workers to negotiate better terms and conditions in their work places. Friedman provided the smokescreen for hacking into that consensus and so began the neo-liberal era. We are still enduring its destructive consequences.

Friedman’s speech was subsequently published in the American Economic Review as ‘The Role of Monetary Policy’ in the 1968 volume 58(1) (pages 1-17). 
The Bloomberg article goes along with the view that Friedman’s speech represented a “paradigm shift” in economics....
Bill Mitchell – billy blog
There is nothing much that Milton Friedman got right!
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

1 comment:

AXEC / E.K-H said...

Forget Friedman, forget Keynes
Comment on Bill Mitchell on ‘There is nothing much that Milton Friedman got right!’

There are TWO economixes: political economics and theoretical economics. The main differences are: (i) The goal of political economics is to successfully push an agenda, the goal of theoretical economics is to successfully explain how the actual economy works. (ii) In political economics anything goes; in theoretical economics, the scientific standards of material and formal consistency are observed.

Political economics has produced NOTHING of scientific value in the past 200+ years. This is the track record: provably false
• profit theory, since 200+ years,
• Walrasian microfoundations (including equilibrium), since 140+ years,
• Keynesian macrofoundations (including I=S, IS-LM), since 80+ years.

To play Friedman against Keynes, as Bill Mitchell does, is a pointless exercise because BOTH were utterly incompetent scientists and BOTH Monetarism and Keynesianism is plain proto-scientific rubbish. If there ever were political agenda pushers = fake scientists, then Friedman and Keynes and their respective followers.

Walrasianism, Keynesianism, Marxianism, Austrianism is mutually contradictory, axiomatically false, materially/formally inconsistent and ALL approaches got profit theory, employment theory, and the theory of money wrong.

Economics is a system science. Accordingly, the correct approach is not microfoundations but macrofoundations. The elementary version of the correct (objective, systemic, behavior-free, macrofounded) employment equation is shown on Wikimedia:#1


From this systemic Phillips curve#2 curve follows:
(i) An increase of the expenditure ratio rhoE leads to higher employment L (the Greek letter rho stands for ratio).
(ii) Increasing investment expenditures I exert a positive influence on employment.
(iii) An increase of the factor cost ratio rhoF=W/PR leads to higher employment.

Item (i) and (ii) cover the familiar Keynesian arguments about aggregate demand. The factor cost ratio rhoF as defined in (iii) embodies the price mechanism. Fact is that overall employment INCREASES if the AVERAGE wage rate W INCREASES relative to average price P and productivity R. This is the OPPOSITE of what microfounded economics teaches. From the macroeconomic interdependencies follows that the market economy is an unstable system. And this, in turn, means that there is NO such thing as an equilibrium, NOT in the short run, NOT in long run, NEVER. Equilibrium is a NONENTITY.

By consequence, there is NO such thing as a NAIRU.#3 The bastard Phillips curve is a misspecification since Samuelson/Solow and has to be replaced by the macrofounded systemic Phillips curve which is entirely free of the familiar silly behavioral assumptions (constrained optimization, expectations, etc.).

The discussion between Monetarism and Keynesianism is until this day not more than brain-dead blather of scientifically incompetent agenda pushers. Policy proposals of these two political sects have NO sound scientific foundation. Time to get rid of worthless economics and failed/fake scientists who get nothing right since 200+ years.

Egmont Kakarot-Handtke

#1 For details see ‘Essentials of Constructive Heterodoxy: Employment’

#2 For details see ‘Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster’

#3 See also ‘NAIRU and the scientific incompetence of Orthodoxy and Heterodoxy’

#4 See also ‘How money emerges out of nothing ― the functional account’