Milton Friedman on the Ignorance of Economists

Economic Fortune Telling Cartoon

Cartoon from Private Eye for the 5th-18th September 2008. The caption reads ‘I also read palms’.

I found this confession by Milton Friedman that economists simply don’t know enough to make effective decisions on economic problems in Peter Clarke’s piece, ‘The Keynsian Consensus and Its Enemies in: The Arguments over Macroeconomic Policy in Britain since the Second World’ in David Marquand’s and Anthony Seldon’s The Ideas that Shaped Post-War Britain (London: Fontana 1996), published by the New Statesman.

We simply do not know enough to be able to recognise minor disturbances when they occur or to be able to predict either what their effects will be with any precision or what monetary policy is required to offset their effects. We do not know enough to be able to achieve stated objectives by delicate, or even fairly coarse, changes in the mix of monetary and fiscal policy. (p. 86).

This follows the book’s general line that Keynsianism has fallen and is discredited. See Clarke’s previous chapter in the book, ‘The Keynesian Consensus and its Enemies: The Argument over Macroeconomic Policy in Britain since the Second World War’. I’m not convinced. I’ve been told by friends of mine that Thatcher was forced to abandon her precious Monetarism and go back to Keynsianism because, put simply, Monetarism wasn’t working. And neither have much of the British workforce since Thatcher took power, largely because of Friedman’s and Hayek’s ideas. I can also remember the Daily Mail splashing over one of its pages the announcement by Friedman that he was absolutely wrong. And then, of course, devoting another half-page to someone trying to argue that he was right.

And even when Monetarism was in fashion, not everyone was convinced of its effectiveness. The book, Keynsianism and After is an effect reformulation and defence of Keynes’ economic insights. In my view, that comment from Friedman may be a frank admission that economists and politicians can’t plan the economy, as asserted by Tory Libertarians, but more importantly, it’s an admission from one of the key free market thinkers that he didn’t have answers either. He didn’t. But the country’s still suffering from politicians, who believe he did.

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