Milton Friedman - Why Economists Disagree

citizen I guess I'm ashamed to tell you they have very little knowledge of the economy or the economy of the United States well I just go by what I read in the magazines and what I see in the media I mean whatever they say I have to go by I have no thought of it on my own economists could be very effective if they didn't let their job get involved in politics I think if they could keep politics separate from economy and economists can make a big difference I would like the security of someone on top telling me what to do and yet the adult in me is saying when they do come at them on top to say what we're going to do it's the little guy who has no money who has no power to get front on a lot of promises are made to all kinds of horrible ways and I find a difficulty step to practicing patent so I really have no confidence I'm marina Whitman and tonight on this economically speaking special we look at the state of economics with two of its most eminent practitioners Walter Heller is Regents professor of economics at the University of Minnesota he served as chairman of the Council of Economic Advisers under President Kennedy and acted as adviser to President Johnson a widely published author professor Heller contributes regularly to both the wall street journal and Time magazine Milton Friedman is professor of economics at the University of Chicago and a senior research fellow at the Hoover Institution at Stanford University he was awarded the Nobel Prize in Economics in 1976 professor Friedman is the author of more than 20 books and writes a regular column in Newsweek although he has never accepted a full-time government position he has served as an advisor to many political figures including Richard Nixon and Ronald Regan and before we get into a discussion of why you two particular economists disagree let's take a look at what one young student has to say about the two schools of thought and what the nature of the disagreements are Africa knowledge is the measurement and fictive the other half is the abilities and the values involved in economics which I feel is the most important part everyone places different values on unemployment on inflation on recession some of the monitors may say that you may have better off to go through assessment a lot of unemployment you don't have go through a lot of inflation where is the changing they say no that's not sure you should know you have to go to a better assessment for five years and for twenty million people out of work - or you know get rid of inflation well is that a fair statement about what you disagree about Milton no I don't believe it's a fair statement about what we disagree about at all I think it's an understandable statement I would see that many people would get that impression but I don't believe it's I don't believe it's a correct statement because I believe the difference in values that is important in that particular issue is not a difference between unemployment and inflation it's partly a difference of time perspective whether you look a long time ahead or whether you look only in the immediate future and it's partly a difference of scientific judgment those of us like myself who believe that it is urgent to follow policies which will slow down inflation even though a side effect of those policies will be a higher level of unemployment temporarily believe that if you don't follow that policy the end result will be even worse we'll get more unemployment we believe and again maybe we're wrong but this is a factual judgment a scientific judgment not a value judgment we believe that the only choice this country faces at the moment given the past mistakes is between having higher unemployment while slowing down inflation or having still higher unemployment while increasing inflation that unfortunately there isn't a good choice ahead that once you've gotten a economy sick there's no way you can immediately emerge into a healthy state and I would say that the major differences among those of us who argue for a steady policy of restraint not a sudden shock but a steady policy of restraint and those who argue for continued stimulation is either in the time perspective or in the scientific judgment about the consequences but not in the values Walter well how do you feel about that differently of course I let me say two things first of all I noticed the young man on the screen a moment ago tended to identify monetarism with conservatism that isn't unnecessary no relation and so the fact that the Chicago Twins of monetarism and less a fair happened to be born together was a sort of an historical accident but I don't want to accept the view that laissez faire is conservatism additions it's liberalism in the true sense of believing in freedom oh wow the token service today are people like yourself were back in the New Deal it's nice to be called a conservative now then but the you know you could be a monetarist and believe that the Federal Reserve should be pulling the levers all the time and let's use a different term the question is of being an activist into sin in fine tuning monetary and fiscal policy Orion if you don't like that word an activist in the discretionary use of an operation versus a pacifist well not pacifist isn't the right thing it's a question of whether your emphasis is on the day-to-day activities that you engage in on pushing the monetary button a little harder now in the fiscal button by you you having the government I mean the government or governmental officials or whether your policy is one of trying to set forth a set of rules and operating according to rules rather than Authority now I think that's a much more fundamental that isn't that is a fundamental distinction and you've always been a little distrustful of human beings it seems to me in positions of authority I've been very trustful of them I've known exactly what I could count on them do mess things up that's shall we trust not lack of trust that's your definition but the and there are those distinctions I think we ought to recognize them very now namely that you may differ on theory and analysis you may differ on facts you may differ on interpretation you may differ in values and it is true that noting Friedman unlike myself feels that you ought to set things going in effect automatically not accept feedback information which I believe you should if the economy and if your analysis if the facts provide some indications that you ought to change course because of some external events whether it's jump in the OPEC oil price or whether it's because suddenly people have a surge of consumer spending or maybe because business gets its animal spirits up and that's in a lot of investment my feeling is that it's the better part of valor better part of common sense and better for the economy if there is someone at the command post of monetary policy and fiscal policy who says oh yes I'll take that information into account and I'll change signals because the economy has changed isn't there a particular problem in economics or maybe not can you have such a thing as value free economic analysis you cannot I doubt very much that there are any value for the economist but that doesn't mean that there cannot be value free economics whatever my values are before I as an economist want to see something done I would like to know what the results are and the question of what will be the effect of doing such and such is a factual question and I may not get the right answer and I may be biased in my interpretation of the answer by my values but in principle that question is a scientific question which has no values in it although it's awfully hard to comb all values even out of our scientific judgments and analyses because you know you're starting with a certain framework let's say a market system that itself expresses the value but I think one thing the economists or our audiences and our students and those whom we advise is a sharp differentiation between where we're talking science where we really are saying well now we think at this point we and try to reduce unemployment for example inflation accelerates versus which might be called set of a pivot point versus saying yeah I don't want to settle for that as my goal my goal is value charged I think that we ought to get to a much lower level of unemployment and I think that we don't do that very well we often in the if not in the heat of battle but even in teaching and so forth we don't sharply enough differentiate where we're charging a particular statement with values and where we are making a centrally scientific judgment we try but time it again I think we slip a little out we don't we don't always make it back at the beginning of this discussion Milton you made quite a specific statement you said that we have only only two choices we can either restrain the economy and get inflation down and tolerate more employ unemployment temporarily or we can try to stimulate the economy and in the end get both more inflation and more unemployment now Walter I know there are many occasions at least on which you disagree with Milton I guess this may be one of them you would say I gather and I don't want to put words into your mouth that no we can stimulate the economy and thereby reduce unemployment without down the road getting both more inflation and and more unemployment now that is a question of fact assumably this kind of disagreement between you two and there are many others of this sort should be amenable to resolution by observation and testing and something that scientists would call proof is it or isn't it and if it is how come you're still disagreeing well yeah let's try to let's try to disentangle that I think empirical and a as a matter of fact we can show that in the recovery from the deepest recession since the Great Depression they move the 73 to April 75 recession we had stimulus from tax cuts and relatively easy money and so forth that translated not into higher prices but into higher production and more jobs and so forth the record of the past of the three years from April 75 to april 78 pretty well shows that the inflation rate stayed pretty steady the rate of employment rose dramatically and so on then there's the next question and this goes more to the heart of what milton was saying a while ago what about the use of restrictive monetary and fiscal policy to try to squeeze inflation out of the economy now there we've had no but you're going to stop before you get to that is let's keep the discussion orderly because your your chart you are saying well I'm going to take the first effect of the policy and not look at later effects there is no quarrel or dispute between you and me or between those who analyze things different ways but the initial effects of a more expensive policy will be felt an out but not in inflation the problem is of what you are now dealing with is a hangover from precisely those expensive policies the argument the the scientific proposition that underlies the view I said is that there's a difference in the time lag between the the difference in the time which it takes for expensive monetary or fiscal policy to affect output and the time which it takes to affect inflation within the history of the United States and if countries like the United States it has taken something like six to nine months from a more expansionary policy in 1975 it was even less than that it's taken between six and nine months on the average before a more expansionary policy effects output it increases incomes and to begin with that certainly does take the form of more out burn more employment but that's a first effect we have to carry it all the way through in at the same time it sets in motion forces which later will come out in inflation so that the evidence from history for the United States and countries like that is that it takes another 18 months before it comes out in front so if we take those three years inflation actually came down during the first year and a half of the expansion but it came down as a result of what had happened two years earlier the very monetary restraints that had produced the severe recession had it carry over and they enabled you for an interim period of a year-and-a-half to have both increasing employment and reduced inflation but then beginning in the fall of 76 December 76 you started to get the delayed effects of the more expansion era policies now again if we turn to the other side which you were going to have using restrained policy you will agree that you also have those different effects well this is a place marina where we really do read the evidence differently and I think our audience should be very much aware of it what has happened in these three years actually from 75 to 78 was that we still had a policy with a great deal of slack in it a lot of unemployment a lot of unused means economy with a lot of CEQA yeah that's right and inflation got stuck inflation got stuck right around didn't get stuck at all level inflation I'll draw up Milton just just a darn minute as the expression goes in 1974-75 we had ferocious double-digit inflation touched off by a 400% jump in the oil price and a forty percent jump in food prices in two and a half years you can't explain inflation why a rise in prices inflation is a rise in prices non-food and non fuel commodity prices up a hundred percent that we took off wage and price control so we had a pop up effect after the controls came off and we had a devaluation of the dollar of about 20 percent which raised import prices now almost all of those forces that led to the double-digit inflation of that period are outside the a central control or realm or influence of fiscal policy and monetary policy you can say well if you didn't have the quantity of money to validate those price increases you wouldn't have had the price increases no but you would have had a depression I you know I really think this discussion so far has established a couple of things and one is that two leading economists really do interpret the evidence differently and second is that there is no general and commonly agreed theory of what causes inflation oh I don't believe that's right go slowly we do interpret the evidence differently but there is an accepted agreement about what ultimately causes inflation there's no there's no gross the word ultimate right we really ought to we really ought to look at that a little more closely because that is rather fundamental to the whole question of what you use by way of instruments to try to cure inflation but go go to that question there is no disagreement among economists about this proposition I think where Walter will agree that you cannot get a long-continued inflation without a rapid growth in the quantity of money without a let me not say rapid without a correspondingly roughly corresponding he not precise but a roughly correspondingly rapid growth in the quantity of money yeah then you have to move to the question of but you would agree with that yeah I agree I agree the doctrine of original sin this is not the knowledge we can go back to the garden this is not the doubt and of original sin because the fact is that a very large fraction of non economists do not believe in it do not understand it and that while economists always Express agreement with it when it comes to actual policy conclusions they often act as if they didn't but Milton the reason that the layman does not accept it and does not agree with it is a perfectly good one because in the real world that's not the way things work what happens is you build you have certain institutional changes things get into the wharf and wolf of the economy let's take the wage price or price wage spiral let's take OPEC oil prices that's you know that cartel which is lasted far longer and open Friedman thought it would is is a fact of life now you can say well but we'll just slow down the rate of increase in the money supply and those things will all take care of themselves in the long run but here I am a Keynesian in the long run we are all dead so what things are really extreme so what you're saying I get there is that you would agree with milton statement as he made it but you would also argue and i think this is the big difference between you here that you can get causes of inflation initially which are something other than printing too much that there's not only causes of higher prices well and let's not know let's just to lay it out this way it causes that monetary policy simply can't ignore when there are two or three bad crop years there isn't really very much that the Federal Reserve can do about the weather and the Great Plain I know we have not exhausted this argument but I would like to move on because I didn't want people to have the idea that there's only disagreements among economists and talk a little bit about the areas in which economists do agree which is also very important and I think I'd like to have from the two of you what you think the important areas or the nature of the important agreement among economists of course milk and I have both dealt with this question and we agree that surprisingly enough given our discussion up to this point that there are more areas of agreement and disagreement Milton and I were encounter about a decade ago debate in New York at the Salomon Brothers lecture New York University and I recall so vividly and I think it's being somewhat duplicated tonight I recall so vividly Milton when we were in front of that large audience that at NYU and talking about monitoring fiscal policy about unemployment about inflation about growth we were you know we were at sorts points we were at each other's throats those are the great questions of what we in our jargon called macroeconomics and then afterwards we repaired to the 21 club with a small percentage of the audience I guess we had 60 or 70 people it was just a question and answer session and almost all the questions we're about such things as well the structural or what we are micro economic questions questions in the marketplace like what do you think about antitrust policy what about protectionism what about negative income taxes what about tax exemption of municipal securities and in almost every case one or the other of us said so and so and then the other one would say I agree much to the puzzlement and amazement of our audience at the end of the evening I remember note you turned to me and he said well Walter tonight we showed them that economics as a discipline after all well I say that by way of saying that on questions of government regulation on questions of antitrust on questions of tariffs and so forth is a tremendously wide area of agreement even on some of these questions that we've been seemingly disagreeing on on in the macro end of the field we do have a certain disciplinary base that on which we agree and even in these areas I could agree my experience more generally has always been that if you put three or four economists together with a group of other people I don't care whether they're sociologists or political scientists or they're physicists and take the economists from those widely dispersed views in economics as you can get into any discussion even of inflation or monetary and fiscal policy and within 15 minutes the economist will all be one group against everything I guess does that really cover the whole profession that is aren't there some people in profession who really would reject the whole analytical apparatus that all three of us share in common what sort of argue that we're looking through the wrong end of the telescope if you like there undoubtedly are these are very small numbers of radicals in the one hand the more of the extreme Marxists and the other of course I say extreme Marxist because as Marx accepted most of this discipline in fact in the area of monetary Theory he was on my side rather than Wohlers he was a strict quantity that's why I'm not a Marxian well neither am i but you know as I was saying before we got a recognized science wherever science is and mustn't let it be determined by who says it I was involved in a an interdisciplinary discussion the other day and finally a good friend of mine who turned to me and said an absolute exasperation the trouble with economist marina is you insist on assuming that people always behave rationally and everybody knows that's nonsense what about that is we don't insist on people that people always behave rationally what we insist on is it it's not really you're not very you're not able to predict random irrational behavior and therefore the only kind of behavior that you can hope to predict is behavior that has some regularity and one individual may behave any way at all but we're not really concerned with individual behavior that's the role of the psychologist or of the physician we're concerned with group behavior and if I take a lot of people many of them may behave in all sorts of crazy ways but the group as a whole the common tendency the thing that's going to come out of it is something which will be as if it were rational behavior hiving bones a little bit overstated our case we have an awful lot or a great deal more difficulty isolating the impact of a particular move private or public on the course of the economy the physicist is in a little better position than we are to do so the method is scientific the material we're working with as witness the difference between us on interpreting certain economic events the material we're working with is a lot more difficult but I think that's important too well I think that may well be I as I said to say that something is a science doesn't mean that you know the answers no no they're very different and there are many things in which we do not we're not able to make very good predictions but on the question that marina raised we can only hope to have some successive predictions insofar as we are able to find a systematic pattern expressed in the average behavior of groups of people each of whom separately may be --have in a very erratic and unpredictable yeah we are saved by the law of large there's no question the public has lost some of its faith in economists in recent years but there are some very useful things that economists can do let's see what Wall Street economists Larry Kudlow has to say about that economists have in the past decade or so promised too much and thus the higher the expectation the more the greater the disappointment when we can't deliver on premises that oughtn't have been made in the first place but I do think economists can play a very useful role in first of all decomposing problems into specific areas that can be understood and second of all we can predict trends in markets whether it's labor markets or product markets or financial markets we can predict trends and third of all I think we can offer government policymakers a useful framework of analysis with some accompanying prescription to deal with problems yes I think there's a terrific contribution that can be made in this area would you Milton and Walter agree with that particular list of the useful functions economists can perform well I'd say first of all was rather limited but basically if he says that economists are useful in explaining options in explaining the costs and benefits of different options of quantifying for the policymaker in business or in government what's involved in a particular change in policy yes I would agree with that the problem of policy is twofold one is what do you want to accomplish and the second is how do you accomplish it economists have very little to say about what you want to accomplish that is the question of values that's where the philosopher or the anybody everybody is an expert but it's a job for the much-maligned political process in a democracy isn't it to decide what it is you want to accomplish it certainly is but we're economists can make a special contribution is not in telling you what you want to accomplish but how to accomplish it or how not to accomplish it there was no doubt the vehicle excuse me Milton but sure were a point on which again I think you and I agree for example if the body politic feels as you're one of your mentors henry simons put it but the present distribution of income is distinctly evil and unlovely that's another judgment we should make but if they tell us it's distinctly evil and unlovely they want to correct it presumably the economists can help them can help the policymaker find a way out let's take a very much simpler matter if you want to know how to solve the problems of shortages and lack of availability of oil and gas we can sure tell them that the way to do it is not to have a set of price ceilings and arbitrary allocations not to set up a ten thousand man Department of Energy now you may still want to set it up for other reasons but it won't achieve that objective we can't say you shouldn't set up the Department of Energy what we can say is if you insist on holding down the prices fixing the prices of all kinds of gasoline unleaded leaded whatnot you are going to get yourselves into trouble you're going to have a certain predictable effects as long as we're on examples of sake and even simpler well let's take the minimum wage the minimum wage is an excellent you know I might feel it's terrible to pay somebody less than two dollars and ninety cents an hour you know but as an economist and I don't want to say economists aren't human beings but I but as an economist I would have to say and then I would agree that if you increase the minimum wage from 265 to 290 this will cause so on so much inflation so maybe you know 0.2 0.3 on the cost of living and so and so much unemployment to more important so much unemployed so you're saying I think the two of the the economists can certainly do two things one they can help define the issues or break down a problem into parts which can be managed analytically and they can define the trade-offs what the economist sometimes called the opportunity costs and they can set up the options you know we've been talking about what economists can do but let's get to the bottom line do you think that say over the past decade or any time period you want to pick what economists have done and what economists have advised and the advice that's been carried out has helped or hurt the the American economy only problem with that is the difficulty of distinguishing between what David Wiley advised and what has in fact been done I think one of them there are two main problems as I see it in this one is that I think economists we have over promised we have professed to be able to do more than we could by we I don't mean each individual one among us but the economics profession as a whole has given the public the impression that the problem of employment of stability and so on had been solved that we had fine delicate tools by which we could push this button and push that button and we could keep the economy on a steady keel and I think that we are now reaping the harvest of that in the form of the extraordinarily difficult inflationary problem we follow in the form of the reduced rate of real growth in the economy real productivity growth I think we have done a great deal of harm as a profession by over promises but on the other hand we don't deserve all the blame we've gotten because of the fact that's so often political considerations have overridden economic advice so so you're really saying I think that the attempts if you like to fine-tune the economy actually made the relationship among inflation and growth and unemployment deteriorate over the last 10 or 20 years I met those are fighting words to Walter and what do you say about first of all fine tune there's a fighting word very much misinterpreted in the mid-60s as being fine tuners maybe we are by Milton Stephanie said you were fine looters what are you kidding yourselves no the the concept that you know we were sitting at a console where we felt we could control every little movement in the economy is quite wrong no one ever had that conception all you have to do is read you the reports of the Council of Economic Advisers to see that that was exactly the conception which you had not every man where is that date we just have to agree to this disagree on that mill let me just pursue one sort of point that you've been stressing we should take the long perspective not just the short one all right let's take the long perspective let's look at the pre-war and post-war period pre-war period the world in the 30s very much in chaos nineteen nineteen percent average unemployment in the United States for a ten-year period a post-war period vastly lower levels of unemployment rapidly much more rapid growth in other words a world that operated at much more that a much higher percentage of its potential now among the major variables was that before the war we had very little of a what should we say modern economic management and after the war there the role of the economists was much greater in that long-run perspective the combination of activism which is the word you want to use Keynesianism perhaps that I want to work use and the role of that in governmental policy has a the correlation is unquestioned I was Walter you said in your Friedman Heller debate if I can call it that of ten years ago that there is a strong correlation historically between the use of active activist monetary and fiscal policy and a high employment and relatively stable economy do you still after all that's happened between 68 and 78 used to agree with that or would you modify it in any way first of all let's start with 48 to 78 of course I have to agree now when we talk about the instabilities of the 70s I'm not about to fold my tent and say economists are responsible for that instability and economists know nothing about how to cope with it not at all do economists there's some responsibility do economists have an easy answer well the answer to the first is yes in the answer to the second is no we don't have a nice answers I've got to obtain easy answers any easy answers are just wrong but I'm going to object to the whole historical picture that Walter painted because it's wrong the fact is that the 1920s and 30s were a period of a highly activist policy the the in the United States the key thing was the enactment of the Federal Reserve Act in 1913 which is signed to the monetary authorities responsibility for monetary policy and they were a very activist group you read what they were saying in the 1920s and it sounds like the reports of the Council of Economic Advisers in the 1960s about the capacity of the Federal Reserve with its new Tila tools of monetary controls to keep the economy on an even keel in my opinion the Great Depression of the 1930s and this is not an opinion which I come to lightly and I'm not willing to document was caused precisely by the mistakes which the Federal Reserve made so far from the 1930s being an evidence of the need for activism it's about as strong evidence as you can find for how much Harnam discretionary authorities can do when they have in their hand so powerful a weapon that's controlled of the money supply when they produced a decline in the quantity of money of one-third from 1929 to 1933 if you really want to get a period of comparing activism with non activism you have to have an even longer historical perspective you have to take the period before 1913 and the period since 1913 and they're you know I hate to have to stop this because I think we could go on for quite a while talking about the new ideas in the profession but we have an audience in the studio with us today including both economist and non economists and they've been waiting very patiently during our discussion but now we'd like to give them a chance to ask some questions yes I'm Laura Tyson from the Department of Economics at Berkeley professor Friedman stated in his discussion that there is a consensus view and many economists about the causes of inflation and I would like to ask both professor Friedman professor Heather if they think there's a consensus view and when economists about the causes of unemployment and also are there developing any new theories of unemployment these days and that passing applications might these new theories have well that's a very big question and I'm not sure I'm going to be able to give any kind of an answer because I believe almost all economists would agree that it's very misleading to talk about unemployment as a single magnitude unfortunately the public at large tends to look at one number the percentage unemployed as if somehow they correspond it to something it doesn't it makes an enormous amount of difference whether the person who was regarded as unemployed is a college student was trying to get a part-time job in Karen Canada where as a head of a family in which he's a main breadwinner talking about the unemployment numbers I think it's worth another moment to recognize that in some ways the present unemployment the official unemployment statistic may overstate unemployment in other ways it drastically understate it doesn't include the people who have dropped out of the labor market the dropouts the discouraged workers who are simply not counted it doesn't include the 3.5 million part-time workers who are looking for full-time work in other words it does not define the whole reservoir of unemployed labor and looked at just as an economic concept but of course when you get down to proximate policy is what do you do about unemployment what do you do about inflation there no matter what our basic analysis may be in terms of say the long-run underlying supply of money and so forth I think you'd find some rather substantial differences than our answers yes I have a concern that relates to employment and I'm sure all of us know that unemployment among minorities is very high and given the fact that the barky decision has had a great deal of influence on the educational opportunities and today I heard further that it's spilling over into employment I'm wondering what do you see as the possibility of our society making an effort to find a way that minorities can better participate in the economic structure of this society well I would be very glad to answer that because I believe that the major handicap to minorities are the governmental measures that are enacted in the name of helping the minorities I've often said over and over again that the most anti-negro books on the law in law the most anti-negro law on the books there's a minimum wage right the second most important source of minority problems in my opinion is a lousy schooling that is available to youngsters in the ghetto and the reason that schooling is so bad is because it's provided by the government and what minorities what we need to do to have more opportunities for minorities to have more opportunities for everybody to give minorities the same ability to control their own lives that we give to other groups I believe that if you really wanted to do something to promote the welfare of minority the most effective single thing one could do if you could get by the school teachers is a voucher system for school and that would provide minorities with an opportunity to have the same kind of control and choice over the schooling of their children as most of us are able to do that's where the fundamental problem I think starts because what happens is we give them a double whammy we first provide him with lousy schooling and then when they get out of that school all we say but you can't go to work unless you are sufficiently skilled to be worth the minimum wage that's allowed to be paid and that handicaps on doublet I could go on but I'm trying to suggest that you must look beyond the stated objectives of measures things which are enacted in the name of helping minorities often hurt the minorities and we have to look at the actual effect of those policies and not the suppose it effect well on this point I just have to agree disagree with a fundamental thrust of what Milton Friedman has just said because while you can point to some cases where government regulations may interfere with hiring of minorities particularly hiring of minorities of miserable wages on the other hand you can appoint you can point to a great deal of progress that has been made not nearly enough but an immense amount of progress that's been made in the opportunities that have opened to minorities and in the jobs that minorities now hold in terms of their as I say their job opportunities and the actual numbers you still have this incredible youth unemployment level among non-whites its what thirty four thirty five percent that's a terrible blot on the American discussion that has something to do with a minimum wage but by no means everything that you need is a full opportunity economy you need high employment that is the best solvent because the minorities by and large not entirely are the last to be hired and the first to be fired and unless we maintain even if we don't accomplish our full anti-inflation objectives unless we maintain a high level of employment and opportunity the minorities are going to suffer I I think the proof of the pudding is in the eating and I think the eating is very clear as you were quite properly saying I think you want to beware of this kind of a device so far as the minorities are concerned I don't want to make it have any misunderstanding I welcome the Bakke decision except I think it didn't go far enough I think that any program by government which specifically labels certain groups as getting preferential status is going to hurt those groups and not help them because what it means is that it established and establishes an official imprimatur on the idea that that group is inferior and need special advantages I think that what we want is not legislation for groups with legislation for individuals that every individual ought to have equal opportunity regardless of his color regardless of his religion regardless of anything else but not in terms of his group characteristics before we go on to the next question you know did you identify it as ailment before you follow up I endorse home from the College of Alameda from the College of Alameda that's an Oakland area I have one question for you dr. Friedman given the past history whereby people did not permit minorities to have a fair share in the educational structure nor the job market what makes you so sure are so certain that we've had a complete change of heart and this will happen we have not had a complete change of heart that's my whole point well how can your point is that if you haven't had a complete change of heart these same measures which are enacted in the name of helping the minorities are going to be employed by the people who haven't had a change your heart to prevent their having the effects that they claim they have and then what we need is not a situation in which you depend on majority views in favor of minorities but in which you don't prevent that minority among us who believes that people ought to be treated as people from doing what we think right from choosing the best people what I'm saying to you is do not depend on the vote of a majority to give you special privilege because that way what about you 70 flat you ought to have equal rights but equal rights is not special privilege equal rights is not the same as saying that 10% of all people hired have to be of a certain color it's not the same as saying that there should be quotas that isn't equal privilege for individuals not and tall but and the people who are going to be hurt by that most are the ablest among the minorities they are the ones that are going to be hurt human progress is invariably come from the ablest among groups being able to move up and help the rest of their fellows get up not by pushing everybody up from the bottom I I will cease by saying that I must say that I disagree with you thank you line yes rather than which resolved center for environmental conflict resolution professor Friedman you said that an economist job should not be to define society's goals but rather to tell us how those goals can be reached and that furthermore they can explain the trade-offs that are involved in those various policies but do you think that economists really can explain the trade-offs and the costs and benefits of various policies when environmental damages aesthetics civil liberties or the values of future generations might be involved well if they can't who can is there somebody else who can many of these questions do not admit of any good answer obviously there are many questions we don't have answers for but the question is is there some other discipline that can offer answers to this are these things that people can pull out of the air in some cases a care person who studies the issues will be able to tell you something about what evidence there is about such effects in many cases you may not be able to tell you anything because there's no way of knowing so the issues are no different than they are in any other let's take a specific example you say you're with the Environmental Council no it's resolved its center for nominal conflict resolution zero organization all right but take the environmental problem pollution for example what does pollution do it Dirty's the air and water it has impact on health and it occasionally causes people to die now the economists can set up the problem in such a way that the costs and benefits in terms of impact on dirt on health on Clinton that they cost of cleansing water for human consumption and so forth that can be measured against the costs of ending that pollution now when it comes to putting a value and I think this may in part lie behind your question when it comes to putting a value on human life that is kind of an infinite that's extremely difficult for for anyone but in setting up the problem what was quite right the economist has a framework for doing it there are parts of that framework which there aren't any data or which they as I say the value of the human life you don't know how to plug that in and that's where a public judgement a value judgment is going to have to be made that's well beyond the scope of anything economics can do now further as long as we're on the environmental problem for a moment one of the things the economist can do is say well there are better and worse ways of handling the problem one of the worst ways is to handle it by regulation and prohibition well some things have to be prohibited because they're just so environmentally devastating mercury DDT and so forth Milton might not I would but by and large we would both feel and I think I can speak with some confidence for both of us that you're much better off using the marketplace here and saying well you know about what you want by way of air quality or water quality and then put a tax on the emissions into the air that would provide an incentive through the private profit motive to get people to pollute less make pollution expensive make deep pollution profitable and you'll be able to do it through the market system rather than a con juries of regulations that result in essentially on economic solutions to the problem well that's one of the examples of where economists really very much agree can I add mining prices rather than regulation I add one thing to this statement of Wolters which I think all three of us agree with and I think most of our profession would too and that is you say that economists recall and I think each of us individually does from placing a value on human life but the fact is society is constantly implicitly placing values on human lives and I think one of the duties of the Economist show that's right one of the duties of the economist is at times to force people to make these valuations explicit maybe that's why we're called the dismal science because we really do in the process of setting up a framework for decision making saying okay this is the kind of valuation you have to confront however difficult you may find it because you're doing it implicitly anyway and maybe the results that you get when you do it implicitly aren't the best ones aren't the ones that society really wants to see yes my name's Sam Swift on the lawyer rather than an economist there's been I think some agreement between the two of you that the public sort of distrust see economists at the risk of putting myself in the school of the the Finnish schools that you mentioned before I might suggest that maybe it's the public who dis trusts the economy and the economists who defend it rather than distrusting the economists themselves isn't it true that the that the existence the historical experience of a cyclical crises that we've had with unemployment and inflation suggests that whether it's a question of fine-tuning the economy and trying to level out those booms and bust periods or a question of mr. Friedman would suggest of just sort of letting the economy run its course through those cycles that we that you two gentlemen would basically agree that those crises those periods of recession leading into depression and periods of boom which result in inflation or inevitable cycles of the system and not something that that either one of you think can be very much can be done about and therefore you as economists from your various schools have really very little to offer in solution to those problems I know is that right at all here's where you and I both jump on them because the problem with your discussion is to talk of those cycles of recession and inflation as if one was a duplicate of the other as if there was only one kind it makes all the difference in the world whether you have a recession or a depression like 29 1929 to 33 which is a catastrophe by anybody's name or whether you have a mild recession like that of let's say 69 to 70 or whether you have a still a more severe but still by comparison with 29 to 33 milder recession like that of 74 4 to 5 now I think it is true that there is no human activity of any kind which precedes in Street strictly steady work and I have no doubt that there will never be a possibility of having an economy or Society of any kind whoever controls it that will not have its ups and downs but we would both agree and there are questions of degree and that it would is perfectly what we would hope we may disagree right now about how to do it but we were both agree that as we understand more about the economy it should be possible to devise institutions and arrangements which would greatly reduce the amplitude of those fluctuations and get them down you see you're using the word crisis would you use the word crisis to refer to a recession like 69 to 70 well if you if you look at it in terms of the effect on real people and you guys have talked a lot about statistics unemployment you look at as a mechanism for resolving a problem was unemployed not at all cattle not at all we don't just as we look at unemployment in this context is a side effect of measures taken for very different purposes of course it's a real human being these are real problems but there's a difference in magnitude there isn't such a thing as perfection on this world you've got to go to the next world for that so that I go back to you are you going to lump into one single class a recession well I got a 69 to 70 and one like 29 to 33 oh absolutely not there's no way but then it but you're still assuming the basic continuation of those cyclical crises and the fact that there's virtually nothing that can be done about it except minor modifications in its severity you're using the word minor I do not regard it as a minor modification in severity to eliminate episodes like 29 to 33 that's not minor in the slightest whether they can firmly eliminate finally eliminate it remains to be seen well that may be maybe as I say maybe we will fail that's a different question but you're asking what is our hope and expectation and I agree that we do not believe we're going to get utopia I regard the the big recession of 73 74 actually ended in April 75 I regard that as a pretty disastrous thing and if you were one of the three million who became unemployed in that period and remember now today one percentage point of unemployment means 1 million people our labor force is a hundred million right now and if you were one of the people that were actually almost 5 million from the lowest unemployment to the highest unemployment you wouldn't consider it anything but a crisis and I think that we have rather different evaluations of what should have been done under those circumstances I think it was absolutely disastrous that we maintained a fiscal policy that was getting a budget policy that was getting tighter all year long and amidst in the face of that high unemployment that we maintained a tight money policy that we didn't recognize that the OPEC oil potentates were sucking about 30 billion dollars of purchasing power out of the economy per year I think we could have moderated that and I don't come back to some agreement with Milton I do believe that in the in the years to come economists for all their failings and limitations are going to find ways of moderating those swings which you cannot eliminate but I think they can be substantially moderated have to get my nickels worth in here on another part of your question you said something which is very often said you economist accusingly no you guys look at the statistics but what about real people well we look at the statistics because it's the best way we know about getting information about large numbers of real people because there are what 230 million Americans and we cannot be informed on each one of them individually but there is a difference let me give you an analogy of automobile accidents when one single individual dies in an automobile accident clearly that is the ultimate crisis for that person and his or her family but it's not a national crisis what may be a national crisis is when suddenly the number of people who die in automobile accidents Rises very suddenly and stays high then we think perhaps we ought to do something about it in a policy sense we are clearly not willing to institute policies that will reduce the number of deaths and automobile accidents to zero well similarly for any individual who is unemployed it is a very real crisis but the simple fact is nonetheless you can talk about whether we are having a national crisis or not depending on the size and the severity of the recession and how many millions of people are caught up in that kind of individual crisis but what you all are going on but never stating until you finally push to the wall to do it is that those cyclical periods of unemployment and then inflation in cycles are inevitable and that it's only in a moderate way that those cycles can be ameliorated but that economists of your stripe can do nothing about it can anybody else excuse me you said economists of our stripe what economists can't do anything about it but there are different social systems oh but they have the same fluctuations if you look at the tail at the records of Russia or China you have even more extreme fluctuations they don't show up in the same way but don't kid yourself in supposing that you don't have ups and downs in economic productivity and well-being in the case of Russia in the case of China just look at the convulsions through which China has gone through just look at the my goodness how do you how can you look at Russia and not recognize the millions of people who were killed in the collectivization crisis of the of the 1920s or if you look at the the agricultural failures and the number of people who starve to death or been in poor condition on account of that you are just kidding yourself if you think that somewhere in this world and there is a fluctuation free society the plain fact is that nobody of any stripe has been able to show how you get a perfectly stable steady certainty kind of a world except in two places a prison and a grave time has come to thank our audience and most particularly my guest Walter Heller and Milton Friedman for a discussion which I think has shed some light on the profession of economics and the fact that there are many questions we economist agree on and many problems we can help solve but as we've seen during this past hour there are still major issues about which economists strongly disagree disagreement perhaps the most fundamental disagreement involves the proper role of government in the economy and one crucial problem economists have still not solved is how to achieve steady growth high employment and price stability all at the same time it may be that during the optimistic period of the 1950s and early 60s the profession did promise too much the dream of prosperity for everyone has proved to be very elusive in the real world but to write off economics as a failure because it hasn't solved the problem of stagflation would be like dismissing modern medicine because it has not yet found a cure for cancer the economic shocks of the 1970s have pushed economists into the limelight they also sent the profession into a turmoil and destroyed the old consensus making room for new ideas and new approaches Fox will soon see the emergence of some new grand synthesis that will reconcile the factions now at odds with each other but given the complexities in unpredictability of human nature it seems unlikely that economists will run out of problems to wrestle with and given the important role of values in determining economic opinion it seems even more unlikely that economists will ever stop disagreeing I'm marina Whitman goodnight economically speaking was produced by wql and public communications which is solely responsible for its content you

Channel: BasicEconomics

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Keywords: liberty, Milton Friedman, Economy, Economic, Freedom, Economics (Field Of Study), Inflation, Money, Taxes, Tax, Policy, Free, Trade, Free Trade, Consumer Protection, ralph nader, Gas, Oil, Energy, Environment, Free Society, Justice, Enlightened, Iceland, Debate, Finland, Estonia, Chile, Federal Reserve, Monetary policy, fiat, money, sound, Gold, Standard, College, University, Education

Id: kG8iXMaZTXE

Length: 58min 16sec (3496 seconds)

Published: Mon May 28 2012