Tuesday, November 2, 2010

What Would Milton Friedman Do? Part III

Terrence Corcoran weighs in on the discussion of what Milton Friedman would recommend if he were alive today:
A cottage industry is building around the question: What would Milton Friedman do? With the U.S. Federal Reserve on the brink of announcing a new round of quantitative easing to pump a fresh supply of money into the U.S. economy, people are looking around for economic guidance. Prof. Friedman, the Nobel-winning free-market economist who died in 2006, earned his Nobel on the basis of his monetary-policy work. He was a “monetarist” who promoted the idea that steady and stable increases in the money supply were needed to keep growth high and inflation low.
The consensus, more or less, appears to be that Prof. Friedman would endorse what Fed chairman Ben Bernanke is expected to announce tomorrow: another massive increase in bond purchases. If the Fed buys up to half a trillion dollars’ worth of bonds, pushing interest rates even lower, the theory is that such quantitative easing will drive Americans into doing something constructive with their money, activity that would push up money-supply measures.
Here is the piece that Will Ruger and I did on the topic and here is the article by David Wessel.


  1. I think the word 'consensus' is a little strong, no?

  2. Yes, probably way too strong after reading the comments on the related post over at Coordination Problem.

  3. Friedman came around to free banking later in life, right? I read that somewhere; I have no corroborating evidence. But if it is true, then I find Friedman's views hard to reconcile with anything but the quasi-monetarism. In many ways, it seems to me that quasi-monetarism is about getting central banking to emulate a free banking.

    disclaimer: my opinions on this matter (and perhaps all other matters) are hopelessly uninformed.