Looking backwards to that momentous Keynesian-Monetarist debate of 1968 how does it look to us now? Who was right? Who won?
Here in 2015 while we're still far from having The Perspective of the Last Judgment, certainly there is a whole lot of water under the bridge between that debate and 2015. How much history since then-how much has changed?
By the way I left the question of who won and who was right serious by design even if Hegel did say that The Real is Rational and the Rational is Real-one obvious interpretation of Hegel would be that what is successful is what's right. And as it said History is written by the winners. .
I'd say that looking back on Milton Friedman and Walter Heller now, it's impossible not to conclude that Friedman won hands down in the only way that really matters politically.
On the question of who was right on the other hand that's still just as contested now as it was then. So maybe looking back from 2015 doesn't give us such an advantage after all.
In my first post on this debate yesterday I had pointed out how familiar the basic contours of the debate still seem, certainly in some of the war of words between Sumner and his foot soldiers-notably Mark Sadowski-when looking back on what Friedman-Heller discussed.
"Milton has heard all of this before, and he always has an answer— flexible exchange rates. Parenthetically, I fully understand that it’s much easier to debate Milton in absentia than in person! Yet, suffice it to note that however vital they are to the workings of his money-supply peg, floating exchange rates are not just around the corner. As my heavenly reference suggested, then, in the real world, Milton and the monetarists are quite safe. Their theory and policy prescriptions won’t be put to the test of application, so there will be no chance to disprove them."
"Eighth, and finally, if the monetarists showed some small willingness to recognize the impact of fiscal policy— which has played such a large role in the policy thinking and action underlying the great expansion of the 1960’s— one might be a little more sympathetic to their views. This point is, I must admit, not so much a condition as a plea for symmetry. The “new economists,” having already given important and increasing weight to monetary factors in their policy models, are still waiting for signs that the monetarists will admit fiscal factors to theirs. The 1964 tax cut pointedly illustrates what I mean. While the "new economists” fully recognize the important role monetary policy played in facilitating the success of the tax cut, the monetarists go to elaborate lengths to "prove” that the tax cut— which came close to removing a $13 billion full-employment surplus that was overburdening and retarding the economy— had nothing to do with the 1964-65 expansion. Money-supply growth did it all. Apparently, we were just playing fiscal tiddlywinks in Washington."
http://lastmenandovermen.blogspot.com/2015/07/milton-friedman-and-walter-heller-on.html
Heller just was not at all prophetic in his asumption that the debate over a floating exchange rates were just an academic parlor debate because they'd never be tried.
On the other hand his frustration with Friedman and his followers insistence on the totallly secondary nature and importance of fiscal policy-on the question of business cycles and demand stablization-sound very much like what today's Keynesains have criticized Sumner for.
I myself have argued in this same vein much more than once:
It seems to me that the cause of balanced analysis and rational policy would be served by redirecting some of the brilliance of Friedman and his followers from (a ) singleminded devotion to the money-supply thesis and unceasing efforts to discredit fiscal policy and indeed all discretionary policy to (b ) joint efforts to develop a more complete and satisfactory model of how the real world works; ascertain why it is working far better today than it did before active and conscious fiscal-monetary policy came into play; and determine how such policy can be improved to make it work even better in the future."
"In a related asymmetry, as I’ve already suggested in passing, some Friedmanites fail to recognize that if fiscal policy actions like the 1964 tax cut can do no good, then fiscal policy actions like the big budget increases and deficits associated with Vietnam can also do no harm. Again, they should recognize that they can’t have it both ways."
https://fraser.stlouisfed.org/docs/meltzer/monetary_fiscal_friedman_1969.pdf pg,26
Understand-Monetarists always have had it both ways. The beat goes on, same as it's always done. The problem of Heller is he imagined he was having just an economics discussion. But the primary agenda of Monetarism has always been political. Which is why they clearly won-as became crystal clear in the subsequent 70s and 80s.
Here is another example of Heller being profoundly unprophetic:
"How long could Richard Nixon, for example, stand idly by and deny himself and the country the proven tonic of tax cuts, spending speedups, and easier money? Economic common sense and political sagacity— and he has both— would soon win out, I am sure, over the rigid and static rules that so ill befit an ever changing and dynamic economy. So as a practical matter, I don’t expect the country to fall into the trap of lockstep economics in the Nixon Administration or any other administration of the foreseeable future. I fully expect the new Administration to practice active discretionary fiscal and monetary policy. This may put me, I realize, in the strange position of defending the Nixon Administration against one of its own advisors. But, as the lady psychiatrist at a convention of psychiatrists said to herself when she was about to slap a male colleague sitting next to her who was taking certain liberties— “Why should I? That’s his problem!” pg, 28
No, Unfortunately for Keynesians, Heller was dead wrong-it was his problem not Uncle Milty's.
Superficially, it might seen here that Heller was right that time. Nixon certainly did not eschew discretionary fiscal or monetary policy -to say the least, with his browbeating Arthur Burns, his price controls which reversed everything he'd ever said, and his clear use of Keynesian fine tuning to juice the economy for the 1972 election.
Still, conservatives including Nixon were playing the long game. Nixon was governing at the tale end of the Keynesian era but 10 years later Keynsianism's opponents were dancing on its grave.
http://www.bostonfed.org/economic/conf/conf19/conf19d.pdf
Now on the matter of who was right well this still depends on who you ask. On some of the things he was saying back then-first and foremost the money supply rule-Friedman would prove disastrously wrong. But Friedman was never about being right but winning which answers Heller's confusion on why they spend so much time denying the usefulness of fiscal policy.
It also answers why Sumner spends so much time on this. He is very smart though-like Friedman was. He understands framing effects very well.
http://lastmenandovermen.blogspot.com/2015/06/sumner-hasnt-changed-his-mind-but-has.html
On issues of policy though like I said, the beat goes on. Friedman and Heller went back and forth on which is the true monetary gauge interest rates or the money supply; today it's shifted a little, now it's interest rates vs. the NGDP trend but the basic tenor is the same.
Here in 2015 while we're still far from having The Perspective of the Last Judgment, certainly there is a whole lot of water under the bridge between that debate and 2015. How much history since then-how much has changed?
By the way I left the question of who won and who was right serious by design even if Hegel did say that The Real is Rational and the Rational is Real-one obvious interpretation of Hegel would be that what is successful is what's right. And as it said History is written by the winners. .
I'd say that looking back on Milton Friedman and Walter Heller now, it's impossible not to conclude that Friedman won hands down in the only way that really matters politically.
On the question of who was right on the other hand that's still just as contested now as it was then. So maybe looking back from 2015 doesn't give us such an advantage after all.
In my first post on this debate yesterday I had pointed out how familiar the basic contours of the debate still seem, certainly in some of the war of words between Sumner and his foot soldiers-notably Mark Sadowski-when looking back on what Friedman-Heller discussed.
"Milton has heard all of this before, and he always has an answer— flexible exchange rates. Parenthetically, I fully understand that it’s much easier to debate Milton in absentia than in person! Yet, suffice it to note that however vital they are to the workings of his money-supply peg, floating exchange rates are not just around the corner. As my heavenly reference suggested, then, in the real world, Milton and the monetarists are quite safe. Their theory and policy prescriptions won’t be put to the test of application, so there will be no chance to disprove them."
"Eighth, and finally, if the monetarists showed some small willingness to recognize the impact of fiscal policy— which has played such a large role in the policy thinking and action underlying the great expansion of the 1960’s— one might be a little more sympathetic to their views. This point is, I must admit, not so much a condition as a plea for symmetry. The “new economists,” having already given important and increasing weight to monetary factors in their policy models, are still waiting for signs that the monetarists will admit fiscal factors to theirs. The 1964 tax cut pointedly illustrates what I mean. While the "new economists” fully recognize the important role monetary policy played in facilitating the success of the tax cut, the monetarists go to elaborate lengths to "prove” that the tax cut— which came close to removing a $13 billion full-employment surplus that was overburdening and retarding the economy— had nothing to do with the 1964-65 expansion. Money-supply growth did it all. Apparently, we were just playing fiscal tiddlywinks in Washington."
http://lastmenandovermen.blogspot.com/2015/07/milton-friedman-and-walter-heller-on.html
Heller just was not at all prophetic in his asumption that the debate over a floating exchange rates were just an academic parlor debate because they'd never be tried.
On the other hand his frustration with Friedman and his followers insistence on the totallly secondary nature and importance of fiscal policy-on the question of business cycles and demand stablization-sound very much like what today's Keynesains have criticized Sumner for.
I myself have argued in this same vein much more than once:
It seems to me that the cause of balanced analysis and rational policy would be served by redirecting some of the brilliance of Friedman and his followers from (a ) singleminded devotion to the money-supply thesis and unceasing efforts to discredit fiscal policy and indeed all discretionary policy to (b ) joint efforts to develop a more complete and satisfactory model of how the real world works; ascertain why it is working far better today than it did before active and conscious fiscal-monetary policy came into play; and determine how such policy can be improved to make it work even better in the future."
"In a related asymmetry, as I’ve already suggested in passing, some Friedmanites fail to recognize that if fiscal policy actions like the 1964 tax cut can do no good, then fiscal policy actions like the big budget increases and deficits associated with Vietnam can also do no harm. Again, they should recognize that they can’t have it both ways."
https://fraser.stlouisfed.org/docs/meltzer/monetary_fiscal_friedman_1969.pdf pg,26
Understand-Monetarists always have had it both ways. The beat goes on, same as it's always done. The problem of Heller is he imagined he was having just an economics discussion. But the primary agenda of Monetarism has always been political. Which is why they clearly won-as became crystal clear in the subsequent 70s and 80s.
Here is another example of Heller being profoundly unprophetic:
"How long could Richard Nixon, for example, stand idly by and deny himself and the country the proven tonic of tax cuts, spending speedups, and easier money? Economic common sense and political sagacity— and he has both— would soon win out, I am sure, over the rigid and static rules that so ill befit an ever changing and dynamic economy. So as a practical matter, I don’t expect the country to fall into the trap of lockstep economics in the Nixon Administration or any other administration of the foreseeable future. I fully expect the new Administration to practice active discretionary fiscal and monetary policy. This may put me, I realize, in the strange position of defending the Nixon Administration against one of its own advisors. But, as the lady psychiatrist at a convention of psychiatrists said to herself when she was about to slap a male colleague sitting next to her who was taking certain liberties— “Why should I? That’s his problem!” pg, 28
No, Unfortunately for Keynesians, Heller was dead wrong-it was his problem not Uncle Milty's.
Superficially, it might seen here that Heller was right that time. Nixon certainly did not eschew discretionary fiscal or monetary policy -to say the least, with his browbeating Arthur Burns, his price controls which reversed everything he'd ever said, and his clear use of Keynesian fine tuning to juice the economy for the 1972 election.
Still, conservatives including Nixon were playing the long game. Nixon was governing at the tale end of the Keynesian era but 10 years later Keynsianism's opponents were dancing on its grave.
http://www.bostonfed.org/economic/conf/conf19/conf19d.pdf
Now on the matter of who was right well this still depends on who you ask. On some of the things he was saying back then-first and foremost the money supply rule-Friedman would prove disastrously wrong. But Friedman was never about being right but winning which answers Heller's confusion on why they spend so much time denying the usefulness of fiscal policy.
It also answers why Sumner spends so much time on this. He is very smart though-like Friedman was. He understands framing effects very well.
http://lastmenandovermen.blogspot.com/2015/06/sumner-hasnt-changed-his-mind-but-has.html
On issues of policy though like I said, the beat goes on. Friedman and Heller went back and forth on which is the true monetary gauge interest rates or the money supply; today it's shifted a little, now it's interest rates vs. the NGDP trend but the basic tenor is the same.
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