Milton Friedman - Our Economy is Strong

I frequently argue to my associates and friends that we live in the best of times economically, historically speaking, and that the Depression was historically avoidable, had the government not acted improperly.  They look at me skeptically because they are brainwashed by the information sources they listen to (aka mainstream media, aka drive-by media), who have them convinced that the economy is persistently in the tank, and that the government has helped the economy historically.  So I was thrilled to recently read the confirming words of the world's best economist    -  Milton Friedman.  Because his comments are so eloquent, concise, and needed,  I quote excerpts at length, from a May 22, 2006 conversation with Hillsdale College President Larry Arnn.  The discussion occurred during a Hillsdale National Leadership Seminar celebrating the 25th anniversary of Milton and Rose Friedman's book, Free to Choose: a Personal Statement. 

 

Larry Arnn:  What do you think are the major factors behind the economic growth we have experienced since the publication of Free to Choose?

 

Milton Friedman:  Economic growth since that time has been phenomenal, which has very little to do with most of what we've been talking about in terms of the conflict between government and private enterprise.  It has much more to do with the technical problem of establishing sound monetary policy.  The economic situation during the past 20 years has been unprecedented in the history of the world.  You will find no other 20-year period in which prices have been as stable - relatively speaking - in which there has been as little variability in price levels, in which inflation has been so well controlled, and in which output has gone up as regularly.  You hear all this talk about economic difficulties, when the fact is we are at the absolute peak of prosperity in the history of the world.  Never before have so many people had as much as they do today.  I believe a large part of that is to be attributed to better monetary policy.  The improved policy is a result of the acceptance of the view that inflation is a monetary phenomenon, rot a real phenomenon.  We  have accepted the view that the central banks are primarily responsible for maintaining stable prices and nothing else.

 

Larry Arnn:  Do you think the Great Depression was triggered by bad monetary policy at a crucial moment?

 

Milton Friedman:  Absolutely.  Unfortunately, it is still the case that if you ask people what caused the Great Depression, nine out of ten will probably tell you it was a failure of business. But it's absolutely clear that the Depression was a failure of government and not a failure of business. 

 

Larry Arnn:  Your don't think the Smoot-Hawley tariff caused the Depression?

 

Milton Friedman:  No. I think the Smoot-Hawley tariff was a bad law.  I think it did harm. but the Smoot-Hawley tariff by itself would not have made one quarter of the labor force unemployed.  However, reducing the quantity of money by one third did make a quarter of the labor force unemployed.

 

I hope this spreads the word. 

 

Reprinted by permission from Imprimis, the national speech digest of Hillsdale College, www.hillsdale.edu.