Professor Bainbridge...on law, politics, religion, culture & food

Democrats and Economic Policy

A commentator at the conference I’m attending pulled up a 2006 op-ed by Lawrence Summers opining that:

Not so long ago, we were all Keynesians. (“I am a Keynesian,” Richard Nixon famously said in 1971.) Equally, any honest Democrat will admit that we are now all Friedmanites.

The article continues with some observations with which one hopes Barack Obama and Hillary Clinton would concur:

Mr. Friedman is perhaps best known for his views on money and monetary policy. Fierce debates continue on how the Federal Reserve and other central banks should set monetary policy. But the debates take place within the context of nearly total agreement on some basics: Monetary policy can shape an economy more than budgetary policy can; extended high inflation will not lead to prosperity and can lead to lower living standards; policy makers cannot fine-tune their economies as they fluctuate.

These insights may seem self-evident — but they were won through a combination of Mr. Friedman’s powerful argument and painful experience. I know. As an undergraduate in the early 1970s, I was taught that everyone other than Milton Friedman and a few other dissidents knew that fiscal policy was of primary importance for stabilizing economies, that the Phillips curve could be exploited to increase employment if only society would tolerate some increase in inflation and that economists would soon be able to tame economic fluctuations through finely calibrated policies. When I started teaching undergraduates a decade later, Mr. Friedman’s heresies had become the orthodoxy.