Re: interesting article on Obama...

On Mon, 7 Jan 2008, John Galt wrote:

"Alvin E. Toda" <aet@xxxxxxxx> wrote in message news:Pine.BSI.4.64.0801070018560.15086@xxxxxxxxxxxxxxxxxxxx
On Sun, 6 Jan 2008, John Galt wrote:


"Islander" <nospam@xxxxxxxxxxx> wrote in message news:UKSdnQeW9JwoFxzanZ2dnUVZ_vmlnZ2d@xxxxxxxxxxxxxxxxx

Friedman is considered to be the dean of fiscal conservatives, but that is only because fiscal conservatism was corrupted by the far right. His particular claim to fame was his belief that economic growth was improved by increasing the supply of money. Not surprising then, that as Reagan's economic adviser, he allowed the debt to increase so dramatically. There are those today who still argue that the debt is not a problem.

Friedman's actual views on this were a bit more nuanced. You may find this interview interesting. Keep in mind it was done in 2000. I've tossed in a few commnents of my own for those who have the stamina.

http://www.hoover.org/multimedia/uk/3391401.html

Excerpts: Peter Robinson: Question number one: keeping the economy growing. Let me open, if I may, with a tale of two administrations. The economy expands during the administration of Ronald Reagan and during the administration of Bill Clinton. But of course they represent two quite different approaches. Reagan cuts marginal income tax rates quite dramatically. Top rate goes from about 70 percent to under 40 percent. That largely because he increases defense spending. He piles up massive--

Milton Friedman: That's not the reason.

Peter Robinson: No? Okay, correct me.

Milton Friedman: The reason you had massive deficits was because they were more successful at reducing inflation than they had anticipated. Inflation is very productive of taxes. Because at that time there was no indexing of tax brackets, and inflation pushed people up into higher and higher brackets.

Peter Robinson: So they give a larger percentage of their real income to the government?

Milton Friedman: Right. Now, after 1980, '81, when inflation came down much more sharply than anybody had predicted. If you look at the predictions at that time, they thought it would take ten or more years to wring inflation out of the economy. It took more like three or four years. And as a result, the actual tax receipts during those periods were very much lower than the estimated tax receipts, based on the higher inflation assumption. And that's the main reason we've got a deficit.

Peter Robinson: But we did get a deficit.;

Milton Friedman: Because actual spending, the increase in spending on the military, was offset by reductions in spending in the rest of the budget. Not entirely.

Peter Robinson: Not entirely.

Milton Friedman: Not entirely. But very largely.

Peter Robinson: Okay. I'm rejiggering my question as we go here, but I'll keep going. So we had Reagan cutting taxes, but with a deficit that piles up; but nevertheless the economy grows. Then we have Clinton who raises taxes early in his administration, and indeed his tax increases are on top of tax increases enacted by President Bush, but Clinton, we actually have, whether you give credit to President Clinton or Republicans in Congress, we actually have relatively moderate growth in federal spending; so that as a proportion of GDP, the federal government actually shrinks; we end up in the last couple of years in the Clinton administration with a surplus. Who's a better model for the president?

Milton Friedman: The better model is Reagan, cutting taxes. The reason you have a surplus today, in my opinion, the credit for that has to be given overwhelmingly to gridlock.

Peter Robinson: To gridlock?

Milton Friedman: If you had had a Democratic House and Senate, as well as a Democratic president, you would not have a surplus today in my opinion. They would have spent it. Similarly if you had had a Republican president as well as a Republican House and Senate, I doubt that there would have been a surplus today. Because they would either have spent it or had tax reductions.

[JG] Here's my key point having to do with political parties -- it's not enough to look at each four to eight year package, says Friedman, and determine which POTUS -- or which party -- is more fiscally responsible/has the better economic package. It's more complicated than that. Friedman notes that when you have goverment which is not divided, (and outside an inflationary anomaly as you saw during the late 70's and early 80's) you see deficits increase the fastest.

Peter Robinson: So when President Clinton steps forward to take his bows, you don't applaud at all?

Milton Friedman: Well, I applaud. He provided gridlock.

Peter Robinson: Okay, you applaud but for a different reason than the one he supposes.

Milton Friedman: The winning thing that really contributed to our successful economy over recent years is that the government has stayed out pretty much, with the White House and the Congress and the Senate haven't done much.

Peter Robinson: In this upcoming election, you'd hope for the White House and Congress to be captured by different parties? You vote for gridlock? Or what would you tell the next president about keeping the economy growing?

Milton Friedman: First of all, I don't think the president has a great deal to do with keeping the economy going.

[JG] I posted this notion, either here or elsewhere, a few weeks ago and got scorched. I remain of the opinion that we give the POTUS way too much credit in creating or breaking economies.

Peter Robinson: All right.

Milton Friedman: I think presidents have a great deal to do with keeping the economy from growing. They can follow follow-throughs which will cause contractions. But I think the economy is largely independent of the government, and what keeps it going is its own internal development. However, you can short-circuit that internal development. If you impose very high taxes, and eliminate the incentive to innovate, to improve, to take risks, and do things, you'll kill the economy. And that's what's happened over and over again in other countries around the world.

Peter Robinson: I have to remind you at this point of a story that I heard from James Buckley who served in the United States Senate. He was elected in 1972. He flew down to Washington to meet President Nixon. AS the door to the Oval Office, Nixon was concluding a meeting with John Ehrlichman, his domestic policy adviser. And as James Buckley walked into the Oval Office, the first words he heard Richard Nixon utter were: I don't care what Milton Friedman says, he's not running for reelection. So the point is, if you're suggesting that the next president say in his inaugural address, my fellow Americans, I promise not to get in the way of the economy, you're promising something that a politician finds unsatisfying. Is there any positive?

Milton Friedman: Yes. Cut taxes.

Peter Robinson: Cut taxes? Okay.

What does Milton suggest we do with the federal budget surplus? We have money piling up in the federal coffers.

Milton Friedman: And you think you have choices?

Peter Robinson: Well, we could spend it on new programs.

Milton Friedman: Don't you think if--let me ask you a question. Suppose you don't cut taxes. Do you think the surplus will last?

Peter Robinson: In other words you're asking a political question?

Milton Friedman: Absolutely.

Peter Robinson: And Congress resists the temptation to spend it?

Milton Friedman: Exactly. Exactly.

Peter Robinson: My opinion is no.

Milton Friedman: Right. Mine too. I think they cannot resist.

Peter Robinson: So this notion of paying down the debt is a nice idea, but it'll never happen.

Milton Friedman: It'll never happen. Moreover, I'd go further than that. Suppose you succeed--what may happen, what may really happen, is that because of the gridlock for two or three years you do pay down the debt. What do you suppose will happen to those saved interest payments?

Peter Robinson: Socrates, I think I see where you're going with this.

Milton Friedman: And I want to ask you another question that ties in with that. I believe, and you believe, that that saved interest payments would be spent on another government project. Would that government project do more or less harm than the payment on the current debt?

Peter Robinson: That's a good question--isn't it?

Milton Friedman: Yes, it is.

Peter Robinson: That's not obvious is it?

Milton Friedman: No, I think the answer is obvious. The marginal projects that the government would undertake would certainly do more harm. See, one of the least harmful of government expenditure projects if the payment of interest on debt. That's a transfer of money from taxpayers to taxpayers.

[JG] EARMARKS!

<snip>



The Reagan tax cuts were intended to be consistent with this economic policy, labeled as "trickle down" but by the time the politics finished with it, it was a grab-bag of favors to political supporters.

Exactly as Dr. Friedman predicted.....

JG

I would believe that the economist Paul Krugman makes more sense than Friedman in this area [of trickle down economics].

The economist Krugman has called Freidman America's greatest economist. So, I'm not sure if you're talking about the economist Krugman, or the partisan Krugman. These are two completely different people, as has been noted by quite a few observers at this point, and because the views of the latter differ so much from the papers of the former, I have a difficult time taking Krugman seriously about anything.

That's the point. Friedman in his mistrust of all govt wants to eliminate govt from affecting the economy. Krugman recognizes that the govt is very much part of the problem as well as the solution. He may not have the best political ideas, but his political ideas explain the economics. Friedman is both good in his ideas on inflation by monetary control, but wrong on his ideas of political influence. Krugman recognizes that. Krugman might do well as an advisor to the new president.

Our economy functions best that way as it has from Roosevelt and the New Deal up to Reagan at the start of the decline of the middle class.

The decline of the middle class has more to do with education and technology than goverment policy.

JG

I think that Krugman has show that Republican economic policies and political strategies are responsible for the decline in so far as they affect education, technology, etc. We shouldn't confuse the effect for the cause. It's the reason Krugman has been one of the earliest critics of the Bush administration.
.

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