This is my third post in the last two days about the Friedman-Heller debate of 1968. I noted that many of the things that Keynesians and Market Monetarists debate today are very similar to what Heller and Friedman debated then-and no doubt had been going on for years before.
Michael Lind had argued that there really are far fewer really new ideas than we tend to think-he was speaking specifically of the 2016 Presidential election.
http://lastmenandovermen.blogspot.com/2015/06/michael-lind-on-lack-of-new-ideas-in.html
This is not true in the social sphere-like the recent demands for gay marriage and transgender rights are new-not that they social struggles behind them weren't present for a long time.
I also think it''s arguable that there really is a new economic idea in 2016-the Uber economy and optimal US policy in dealing with that.
http://lastmenandovermen.blogspot.com/2015/07/hillary-on-uber-economy.html
The whole monetary debate, however, on 'fiscalists vs. monetarists'-there are a lot of aspects of this debate that have been around for a long time. Like whether interest rates-as Keynesians have argued-are the best gauge of monetary policy or the money supply for Friedman or NGDP for Sumner are the best gauge.
In Heller's clear frustration with the Monetarists I recognize things that I and many other Keynesians today still say:
"In my comments today, I referred to the brilliance of the Chicago School. I should also comment on their great consistency over the years. The rest of us— responding to new analysis and evidence, observing basic changes in the economy, and conditioned (or perhaps “burned”) by experience and on-the-job training— adapt and modify our views from time to time on such key issues as (a) the role and desirability of government tax incentives for investments; (b )"
"But the Chicago school just goes rolling along. Miraculously, all the evidence— I really mean, all the admissible evidence— strengthens their conviction, held for decades, that to err is human, and to live by rules is divine. In spite of vast improvements in the promptness, breadth, and accuracy of economic statistics, in spite of important advances in forecasting techniques and performance, in spite of vast strides in public understanding and acceptance of positive economic policy, in spite of encouraging signs of greater responsiveness of executive and legislative officials to informed economic policy advice, the Chicago School still adheres to the proposition that we should put our trust in stable formulas, not in unstable men and institutions."
https://fraser.stlouisfed.org/docs/meltzer/monetary_fiscal_friedman_1969.pdf
Basically, Heller is calling Friedman and his fellow Monetarists dogmatic. Friedman has no problem copping to that:
"Let me turn more directly to the topics assigned for this session. Is fiscal policy being oversold? Is monetary policy being oversold? I want to stress that my answer is yes to both of those questions. I believe monetary policy is being oversold; I believe fiscal policy is being oversold. What I believe is that fine tuning has been oversold. And this is not a new conclusion. I am delighted to attest to the correctness of Walter’s statement that many of our views have not changed over time. It so happens that the facts haven’t been inconsistent with them, and, therefore, we haven’t had to change them over time."
Friedman then explains the difference between the 'pure fiscal and monetary position.'
"Now it’s perfectly clear that fiscal policy can change by itself without a change in monetary policy. You can have a tax cut, let us say, and finance the resulting deficit by borrowing from the market. If you do that, that will have an effect on interest rates, but the money supply need not be affected. Alternatively, the change in fiscal policy can be accompanied by a change in monetary policy. You can have a tax cut and finance the deficit by printing money. The essence of the pure fiscal position is that it doesn’t make any difference which of those you do. The essence of the monetary position that I’m presenting is that it makes an enormous difference which of those you do, that those two kinds of tax cut will have very different effects. That’s what I mean by separating the effect of fiscal policy by itself, from the effect of monetary policy by itself." (Pg. 52).
Anyway, I will get back to the book as it's some good reading. I will have more thoughts and plenty more to say-if you know me at all you don't doubt that.
UPDATE: I should add a very important point Friedman made at the start of his rebuttal.
"The key source of misunderstanding about the issue of monetary policy, in my opinion, has been the failure to distinguish clearly what it is that money matters for. What I and those who share my views have emphasized is that the quantity of money is extremely important for nominal magnitudes, for nominal income, for the level of income in dollars— important for what happens to prices. It is not important at all, or, if that’s perhaps an exaggeration, not very important, for what happens to real output over the long period."
"I have been increasingly impressed that much of the disagreement about this issue stems from the fact that an important element in the Keynesian revolution in economics was the notion that prices are an institutional datum determined outside the system. Once you take that view, once you say that prices are somehow determined elsewhere, then the distinction between nominal magnitudes and real magnitudes disappears. The distinction between magnitudes in dollars and magnitudes in terms of goods and services is no longer important."
So whether money is exogenous or endogenous is of great consequence-in the latter case the Monetarist distinction would dissolve.
Michael Lind had argued that there really are far fewer really new ideas than we tend to think-he was speaking specifically of the 2016 Presidential election.
http://lastmenandovermen.blogspot.com/2015/06/michael-lind-on-lack-of-new-ideas-in.html
This is not true in the social sphere-like the recent demands for gay marriage and transgender rights are new-not that they social struggles behind them weren't present for a long time.
I also think it''s arguable that there really is a new economic idea in 2016-the Uber economy and optimal US policy in dealing with that.
http://lastmenandovermen.blogspot.com/2015/07/hillary-on-uber-economy.html
The whole monetary debate, however, on 'fiscalists vs. monetarists'-there are a lot of aspects of this debate that have been around for a long time. Like whether interest rates-as Keynesians have argued-are the best gauge of monetary policy or the money supply for Friedman or NGDP for Sumner are the best gauge.
In Heller's clear frustration with the Monetarists I recognize things that I and many other Keynesians today still say:
"In my comments today, I referred to the brilliance of the Chicago School. I should also comment on their great consistency over the years. The rest of us— responding to new analysis and evidence, observing basic changes in the economy, and conditioned (or perhaps “burned”) by experience and on-the-job training— adapt and modify our views from time to time on such key issues as (a) the role and desirability of government tax incentives for investments; (b )"
"But the Chicago school just goes rolling along. Miraculously, all the evidence— I really mean, all the admissible evidence— strengthens their conviction, held for decades, that to err is human, and to live by rules is divine. In spite of vast improvements in the promptness, breadth, and accuracy of economic statistics, in spite of important advances in forecasting techniques and performance, in spite of vast strides in public understanding and acceptance of positive economic policy, in spite of encouraging signs of greater responsiveness of executive and legislative officials to informed economic policy advice, the Chicago School still adheres to the proposition that we should put our trust in stable formulas, not in unstable men and institutions."
https://fraser.stlouisfed.org/docs/meltzer/monetary_fiscal_friedman_1969.pdf
Basically, Heller is calling Friedman and his fellow Monetarists dogmatic. Friedman has no problem copping to that:
"Let me turn more directly to the topics assigned for this session. Is fiscal policy being oversold? Is monetary policy being oversold? I want to stress that my answer is yes to both of those questions. I believe monetary policy is being oversold; I believe fiscal policy is being oversold. What I believe is that fine tuning has been oversold. And this is not a new conclusion. I am delighted to attest to the correctness of Walter’s statement that many of our views have not changed over time. It so happens that the facts haven’t been inconsistent with them, and, therefore, we haven’t had to change them over time."
Friedman then explains the difference between the 'pure fiscal and monetary position.'
"Now it’s perfectly clear that fiscal policy can change by itself without a change in monetary policy. You can have a tax cut, let us say, and finance the resulting deficit by borrowing from the market. If you do that, that will have an effect on interest rates, but the money supply need not be affected. Alternatively, the change in fiscal policy can be accompanied by a change in monetary policy. You can have a tax cut and finance the deficit by printing money. The essence of the pure fiscal position is that it doesn’t make any difference which of those you do. The essence of the monetary position that I’m presenting is that it makes an enormous difference which of those you do, that those two kinds of tax cut will have very different effects. That’s what I mean by separating the effect of fiscal policy by itself, from the effect of monetary policy by itself." (Pg. 52).
Anyway, I will get back to the book as it's some good reading. I will have more thoughts and plenty more to say-if you know me at all you don't doubt that.
UPDATE: I should add a very important point Friedman made at the start of his rebuttal.
"The key source of misunderstanding about the issue of monetary policy, in my opinion, has been the failure to distinguish clearly what it is that money matters for. What I and those who share my views have emphasized is that the quantity of money is extremely important for nominal magnitudes, for nominal income, for the level of income in dollars— important for what happens to prices. It is not important at all, or, if that’s perhaps an exaggeration, not very important, for what happens to real output over the long period."
"I have been increasingly impressed that much of the disagreement about this issue stems from the fact that an important element in the Keynesian revolution in economics was the notion that prices are an institutional datum determined outside the system. Once you take that view, once you say that prices are somehow determined elsewhere, then the distinction between nominal magnitudes and real magnitudes disappears. The distinction between magnitudes in dollars and magnitudes in terms of goods and services is no longer important."
So whether money is exogenous or endogenous is of great consequence-in the latter case the Monetarist distinction would dissolve.
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