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Postby mends » 17 Nov 2006, 10:15

How Milton Friedman Changed
Economics, Policy and Markets
By GREG IP and MARK WHITEHOUSE
November 17, 2006; Page A1

A half century ago, Milton Friedman's advocacy of free markets over government intervention and his prescription for inflation-fighting by central banks were treated as fringe notions by many economists. By the time the Nobel Prize-winning economist died yesterday at the age of 94, his views had helped to reshape modern capitalism.


A diminutive man known for his strong-willed and combative style, Mr. Friedman provided the intellectual foundations for the anti-inflation, tax-cutting and antigovernment policies of President Ronald Reagan and British Prime Minister Margaret Thatcher and an era of more-disciplined central banking. His ideas helped to end the military draft in the 1970s, gave birth to staple conservative causes such as school vouchers and created the groundwork for new economic views about the Great Depression, unemployment, inflation and exchange rates.

Many of his ideas remain controversial to this day, or carry less weight. Central bankers don't follow his prescriptions for how to implement monetary policy, considering them impractical. And despite his strong advocacy, publicly funded vouchers for students to attend private schools are still rare and researchers struggle to prove their effectiveness. His advocacy of the decriminalization of drugs hasn't been heeded.

But few would argue against the notion that Mr. Friedman -- with highly technical academic papers, popular books and columns, and the ear of powerful politicians -- helped to shift the center of debate in the U.S. and abroad about the proper role of government in managing a nation's economy. His influence spread far afield, from Hong Kong to Chile to Russia and Eastern Europe, and his ideas took root with reformers pushing for privatization and open markets.

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WSJ's David Wessel discusses some of Milton Friedman's contributions to common economic wisdom."Among economic scholars, Milton Friedman had no peer," Federal Reserve Chairman Ben Bernanke said yesterday. "The direct and indirect influences of his thinking on contemporary monetary economics would be difficult to overstate. Just as important, in his humane and engaging way, Milton conveyed to millions an understanding of the economic benefits of free, competitive markets, as well as the close connection that economic freedoms bear to other types of liberty."

President Bush said, "His work demonstrated that free markets are the great engines of economic development."

Critics said he inspired policies that put millions of people out of work in pursuit of low inflation and demonized almost everything the government did, no matter how beneficial or democratically chosen. "Milton Friedman didn't make a distinction between the big government of the People's Republic of China and the big government of the United States," said James Galbraith, professor of government at the University of Texas and son of the late, liberal economist John Kenneth Galbraith, who often sparred with Mr. Friedman.

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"Most Americans have no idea what the science of economics is about. Milton Friedman made economic thought more accessible to more people, and he did it in a simple, straight-forward way that avoided politics and cut to the heart of free market capitalism."
Share your thoughts about Mr. Friedman's contributions to American society.Mr. Friedman, who died of heart failure at home, is survived by his wife, Rose -- whom he met in graduate school and who co-authored many of his books -- his son and daughter.

Mr. Friedman exercised extraordinary influence through his academic work, which is viewed as among the most authoritative in the economics field in the 20th century. He went beyond the role of academic by advising politicians such as Mr. Reagan and Ms. Thatcher and by writing popular books, such as "Capitalism and Freedom" in 1962 and, with his wife, "Free to Choose" in 1979. The latter book was adapted as a television series.

Mr. Friedman was awarded the Nobel Prize for Economic Science in 1976. He was best known for explaining the role of money supply in economic and inflation fluctuations. By managing the amount of money sloshing through a financial system, Mr. Friedman theorized, central banks could control inflation without making costly mistakes.

As with many of his ideas, his prescriptions weren't immediately accepted by central bankers when he advanced them in the 1950s and 1960s. Many economists believed inflation could arise from other factors, such as the influence of unions, corporations or oil-producing countries.

These views were advanced by Mr. Friedman's early mentor and friend, Arthur Burns, Federal Reserve chairman from 1970 to 1978. Mr. Friedman was harshly critical of Mr. Burns's monetary policy, and as inflation rose and unemployment took hold, his own views grew in prominence. By the time he won his Nobel, the unemployment rate had climbed to more than 7% and was on its way to surpassing 10%. The inflation rate, too, had flirted with double-digit levels.


Along with economist Edmund Phelps, this year's Nobel Prize winner, Mr. Friedman in the 1960s also developed the theory that policy makers couldn't maintain low unemployment by permitting higher inflation. The view holds sway at major central banks today, including the Fed, and helped to defeat the inflation of the 1970s and set the stage for the low inflation and low unemployment of the 1990s and today.

It took Paul Volcker, who became Fed chairman in 1979, to put the monetarist theory into practice, adopting money-supply targets that drove interest rates to double digit levels, sent the economy into a deep recession, and ultimately brought inflation down drastically. But unemployment eventually fell as well, proving that Mr. Friedman and Mr. Phelps were right about the absence of a rigid tradeoff between unemployment and inflation.

"That was a victory among many victories," Mr. Phelps said.

While central bankers still accept that inflation is largely a result of money-supply growth, few target the money supply in practice because it is difficult to measure and its relationship to overall spending often shifts.

The Fed stopped setting target ranges for monetary-supply growth in 2000 and has stopped publishing some long-followed data series on money growth. Still, Mr. Bernanke noted in 2003 at a conference on the legacy of Milton and Rose Friedman that the professor's ideas held enormous sway in the field.

"Friedman's monetary framework has been so influential that, in its broad outlines at least, it has nearly become identical with modern monetary theory and practice," Mr. Bernanke said.

His intellectual rigor was matched by a demanding persona. When Mr. Friedman returned reporters' calls, for example, he often called collect. He was also tough on students. Gary Becker, one former student, remembers Mr. Friedman ripped into his dissertation proposal in the early 1950s. Mr. Becker, a University of Chicago professor, went on to win the Nobel himself.

Ultimately, even ideological opponents changed their views about him. "He was the devil figure in my youth," Lawrence Summers, the former Treasury Secretary and nephew of two left-leaning Nobel winners, is quoted saying about Mr. Friedman in the book "Commanding Heights." "Only with time have I come to have large amounts of grudging respect. And with time, increasingly ungrudging respect."

Mr. Friedman was born in Brooklyn, N.Y., in 1912, the fourth child of European immigrants. His mother ran a small retail store and his father "engaged in a succession of mostly unsuccessful 'jobbing' ventures," he wrote in an autobiography on the Web site for the Nobel Prize. "The family income was small and highly uncertain; financial crisis was a constant companion."

Early in his life, he planned to become an actuary. But he emerged after World War II as a strong-viewed young professor at the University of Chicago. At the time, economic thought was dominated by the theories of John Maynard Keynes, who advocated activist government spending to stimulate demand and fix the economy during troubled times, such as the Great Depression of the 1930s. (When asked in 2004 by The Wall Street Journal to name the most important economist of the 20th century besides himself, Mr. Friedman named Mr. Keynes. Read the full Q&A.)

Mr. Friedman, who had started his studies at Chicago during the Depression, challenged the Keynesian approach, espousing the idea that the government should stay out of individuals' affairs whenever possible, and that markets can solve economic problems much more efficiently than government officials can. His ideas formed the basis for what become known as the "Chicago School" of economics, a concept of free-market capitalism.

Influenced by such earlier free-market thinkers as Friedrich von Hayek, Mr. Friedman -- some of whose relatives died during the Nazi occupation of Eastern Europe -- saw economic and political freedom as inextricably linked. As he wrote in the 1962 text "Capitalism and Freedom," "a society which is socialist cannot be democratic, in the sense of guaranteeing individual freedom."


"No one in the 20th century has had the ideological influence that Milton Friedman has had in moving the economic profession from Great Depression-era do-goodism towards a friendliness toward, and appreciation of, the free market," said Paul Samuelson, a fellow Nobel laureate and frequent ideological opponent of Mr. Friedman. "We've lost a giant in economics."

Mr. Friedman's ideas weren't all laissez-faire. His concept of a "negative income tax" to eliminate poverty, for example, laid the foundation for today's Earned Income Tax Credit.

Mr. Friedman considered his best purely scientific contribution to economics to be his work on how people make spending decisions -- which was based on data he collected while working with future Nobel laureate Simon Kuznets at the National Bureau of Economic Research. Under his "permanent income" theory, people smooth their spending based on what they expect their incomes to be in the long term -- meaning that things such as unexpected tax breaks or other windfalls will have only a limited effect on spending.

He also attacked the system of fixed currency-exchange rates that emerged after World War II with encouragement from Mr. Keynes. George Shultz, a longtime friend of Mr. Friedman who served in both the Nixon and Reagan administrations, says that after Mr. Nixon was elected in 1968 but before he took office, Mr. Friedman wrote to him saying that "pressures on the tie of the dollar to gold are relentless" and that Mr. Nixon would be wise to sever the link immediately as an affirmative action, rather than be forced to. Mr. Friedman "turned out to be right," but Nixon didn't listen "until he was forced to," Mr. Schultz says.

Mr. Nixon abandoned the gold standard in 1971.

By the 1970s, his influence had become substantial. He was a member of the Commission on an All-Volunteer Armed Force, appointed by Mr. Nixon in 1969. Former Fed Chairman Alan Greenspan, who was also a member, says that at the outset, panel Chairman Thomas Gates "was very clearly unconvinced that a volunteer army would work. At the end of the commission hearings he was strongly in favor of it, and the main reason was Friedman kept dissuading him on all the concerns he had." Mr. Nixon ended the draft in 1973.

In the 1970s, Mr. Friedman courted controversy for his association with Chile's military government which, after toppling a civilian government in 1973, implemented many free-market and monetarist ideas learned by its advisers who had studied at the University of Chicago. He was widely criticized for meeting with Chilean dictator Augusto Pinochet, whose government was eventually blamed for murdering and torturing thousands. Mr. Friedman's Nobel Prize ceremony was disrupted by demonstrators.

That same year Mr. Reagan, who had just made an unsuccessful bid for the presidency, noted the demonstrations in a radio address and said, "It seems when Milton Friedman talked, someone in Chile listened. Wouldn't it be nice if just once someone in Washington would ask: 'What did he say?'" In another address, he quoted Mr. Friedman, saying, "When you start paying people to be poor, you wind up with an awful lot of poor people."

One of the paradoxes of Mr. Friedman's immense influence on policy was his low regard for policy making. He often advocated abolition of the Fed for its failures during the Great Depression and the 1970s, though he later relented and admitted Mr. Greenspan had done a remarkable job from 1987-2006. After two years in the Treasury Department during World War II, he never served in government, aside from advisory roles.

Lawrence Lindsey, who served in both Bush presidencies and on the Fed board, recalls telling Mr. Friedman in the early 1990s, "Why don't you come to Washington, we could use you here." Mr. Friedman replied, "I detest that town."

Mr. Friedman once described his refusal to leave academia as necessary to his larger mission: "For society to be at once humane and to give opportunity for great human achievements, it is necessary that a small minority of people who do not have materialistic objectives have the greatest degree of freedom."

--Jon E. Hilsenrath contributed to this article.

Write to Greg Ip at greg.ip@wsj.com and Mark Whitehouse at mark.whitehouse@wsj.com
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After all these years I'm still alive."

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Postby mends » 17 Nov 2006, 10:28

Milton Friedman: In His Own Words
November 16, 2006 2:52 p.m.
[A free economy] gives people what they want instead of what a particular group thinks they ought to want. Underlying most arguments against the free market is a lack of belief in freedom itself.

The existence of a free market does not of course eliminate the need for government. On the contrary, government is essential both as a forum for determining the "rules of the game" and as an umpire to interpret and enforce the rules decided on. What the market does is to reduce greatly the range of issues that must be decided through political means, and thereby to minimize the extent to which government need participate directly in the game. The characteristic feature of action through political channels is that it tends to require or enforce substantial conformity. The great advantage of the market, on the other hand, is that it permits wide diversity. It is, in political terms, a system of proportional representation. Each man can vote, as it were, for the color of tie he wants and get it; he does not have to see what color-the majority wants and then, if he is in the minority, submit.

It is this feature of the market that we refer to when we say that the market provides economic freedom. But this characteristic also has implications that go far beyond the narrowly economic. Political freedom means the absence of coercion of a man by his fellow men. The fundamental threat to freedom is power to coerce, be it in the hands of a monarch, a dictator, an oligarchy, or a momentary majority. The preservation of freedom requires the elimination of such concentration of power to the fullest possible extent and the dispersal and distribution of whatever power cannot be eliminated -- a system of checks and balances. By removing the organization of economic activity from the control of political authority, the market eliminates this source of coercive power. It enables economic strength to be a check to political power rather than a reinforcement.

Capitalism and Freedom 1962

* * *
The two ideas of human freedom and economic freedom working together came to their greatest fruition in the United States. Those ideas are still very much with us. We are all of us imbued with them. They are part of the very fabric of our being. But we have been straying from them. We have been forgetting the basic truth that the greatest threat to human freedom is the concentration of power, whether in the hands of government or anyone else. We have persuaded ourselves that it is safe to grant power, provided it is for good reasons…

We have persuaded ourselves that it is safe to grant power, provided it is for good reasons. Fortunately, we are waking up. We are again recognizing the dangers of an overgoverned society, coming to understand that good objectives can be perverted by bad means, that reliance on the freedom of people to control their own lives in accordance with their own values is the surest way to achieve the full potential of a great society…

When the law contradicts what most people regard as moral and proper, they will break the law -- whether the law is enacted in the name of a noble ideal ... or in the naked interest of one group at the expense of another. Only fear of punishment, not a sense of justice and morality, will lead people to obey the law. When people start to break one set of laws, the lack of respect for the law inevitably spreads to all laws, even those that everyone regards as moral and proper - laws against violence, theft, and vandalism…

Self-interest is not myopic selfishness. It is whatever it is that interests the participants, whatever they value, whatever goals they pursue. The scientist seeking to advance the frontiers of his discipline, the missionary seeking to convert infidels to the true faith, the philanthropist seeking to bring comfort to the needy -- all are pursuing their interests, as they see them, as they judge them by their own values.

From Free to Choose, book 1980, PBS series

* * *
Responding to 2004 Journal interview question about the argument that the Bush tax cuts favor the rich.

The tax cuts did favor the rich because the top 1% of taxpayers pay a disproportionate amount of taxes. You can't give tax relief to those who don't pay a lot of tax. This is not a bad thing. What in fact do the rich do with their money? They can only consume a limited amount. In practice they end up either investing it or giving it away.

Some people say that those in the middle and low tax brackets are more likely to spend any tax relief they get, giving the economy a stimulus.

Well, that's a different argument and I do not accept it. It's very dubious. The tax cut may lead people to spend more, but that is offset by those who have less to spend because they buy the bonds to finance the deficit. In my opinion, we had a mild recession not because of the tax cuts but because of the Fed. Its expansionary monetary policy is the primary reason for the shallow recession. I do not believe that fiscal policy played a big role.

My support for tax cuts is not only on the supply side. I think the real problem is government spending… Where did you get the Clinton surpluses? They were the result of less legislation and less spending. When that gridlock was broken, many items had accumulated on the agenda and were put through.

Wall Street Journal interview 2004

* * *
I have sometimes been associated with the aphorism "There's no such thing as a free lunch," which I did not invent. I wish more attention were paid to one that I did invent, and that I think is particularly appropriate in this city [Washington], "Nobody spends somebody else's money as carefully as he spends his own." But all aphorisms are half-truths. One of our favorite family pursuits on long drives is to try to find the opposite of aphorisms. For example, "History never repeats itself," but "There's nothing new under the sun." Or "look before you leap," but "He who hesitates is lost." The opposite of "There's no such thing as a free lunch" is clearly "The best things in life are free."

And in the real economic world, there is a free lunch, an extraordinary free lunch, and that free lunch is free markets and private property. Why is it that on one side of an arbitrary line there was East Germany and on the other side there was West Germany with such a different level of prosperity? It was because West Germany had a system of largely free, private markets - a free lunch. The same free lunch explains the difference between Hong Kong and mainland China, and the prosperity of the United States and Great Britain.

1993 Washington speech
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Postby mends » 17 Nov 2006, 10:29

Q&A: Friedman in Nobel Survey
November 16, 2006 1:04 p.m.
In June 2004, The Wall Street Journal surveyed all the Nobel Prize-winning economists. Here are Milton Friedman's answers.

Q: Which economy do you expect to be the biggest 75 years from now: U.S., European Union, China?

A: China


Q: Which country comes closest to getting economic policy right today?

A: Hong Kong, thanks to the legacy of the British administration.

Q: Who was the most important economist of the 20th century besides you?

A: John Maynard Keynes

Q: Who deserved the Nobel but didn't get it?

A: Joan Robinson and Peter Bauer

Q: What single breakthrough in economic thought in the past 50 years has had the most significant impact on the every day lives of people?

A: Acceptance of the idea that inflation is a monetary phenomenon. It has produced by now more than two decades of relatively low inflation in most developed countries, relatively stable economic output, a high level of employment and of well being.

Q: In what sphere of life, if any, do you think it most important to limit the influence of market forces?

A: Ownership of human beings.

Q: What do you consider the world's single greatest economic challenge today?

A: Holding down the size and scope of government

Q: Do you think the fruits of the global economy will be distributed more evenly 50 years from now, or less evenly?

A: More evenly. The major sources of income differences today are between the developed and the undeveloped countries. This inter-country difference will decline as globalization spreads and more and more countries find a way to achieve economic growth and prosperity.

--David Wessel
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Postby mends » 17 Nov 2006, 10:31

Capitalism and Friedman
November 17, 2006; Page A20
There are some public figures whose obituaries can be written years in advance. Milton Friedman was not one of them.

Arguably the greatest economist of the 20th century, he won his Nobel Prize 30 years ago. His classic "Capitalism and Freedom" was published 44 years ago. He died yesterday at the age of 94, but as the op-ed running nearby attests, he was active in writing about, thinking about and explaining how economics affects our world until the end.

In today's feature, he updates and re-examines conclusions he reached about the Great Depression in "A Monetary History of the United States, 1867-1960," a book published with Anna Schwartz 43 years ago. His thesis was that the Great Depression was not, as was once commonly presumed, a "market failure," but a failure of government policy. Contraction of the money supply in the wake of the stock-market crash of 1929 was what turned a financial event into an economic catastrophe.


This insight flowed from Professor Friedman's conviction that "money matters." As the Royal Academy of Sweden noted in announcing his 1976 Nobel, Friedman's was a lonely voice in arguing for the importance of the money supply in economics when he began writing about it in the 1950s.

By the late 1970s, stagflation -- the combination of high inflation and high unemployment -- had made it obvious that the then-dominant Keynesian model had some large holes. These included the effect of the money supply on inflation and the fact that inflation and employment did not move in lockstep as some of Keynes's disciples asserted. It was a seminal insight, creating what became known at the University of Chicago and elsewhere as the "monetarist school" and laying the intellectual basis for central bankers to break the great inflation of the 1970s.

In awarding its Nobel in 1976, the Royal Swedish Academy of Sciences cited his "achievements in the fields of consumption analysis, monetary history and theory, and for his demonstration of the complexity of stabilization policy." The citation covers a huge swath of economic thinking, and suggests both the range and the consistency of Professor Friedman's thought. In layman's terms, the Swedish Academy credited him with nothing less than shredding the Keynesian consensus.

First, he had shown that men are no fools. People spend money in accordance with their income expectations over the long-term, not in response to one-time "stimuli" from the government. This is known as the "permanent income" hypothesis, and it called into question Keynesian notions of how short-term stimulus affects the economy. In addition to his monetary insights, Mr. Friedman questioned the degree to which fiscal policy could be used to "fine-tune" the economy by adjusting spending, tax or monetary policy. Today we take for granted that all of these operate with a lag, but it was Milton Friedman who first highlighted the problem.

For all of his academic accomplishments, Professor Friedman's role as a popularizer of free-market principles was arguably more important. He wrote a column in Newsweek for 18 years starting in 1966, preaching the importance of economic freedom to a generation that had never heard such things in school. His 1980 book, "Free to Choose," was a best seller, and the videos that accompanied it were smuggled behind the Iron Curtain like seeds of revolution.

He was among the first to point to Hong Kong as a model of free-market success, a lesson that even today is remaking Communist China. And he first suggested educational vouchers to rescue failing public schools as long ago as 1955; in recent years, he established a foundation to support this idea that continues to advance despite ferocious opposition from unions and other entrenched interests.

This newspaper had the privilege of publishing Milton Friedman's articles on numerous occasions over the years. We've also disagreed with him from time to time, notably on exchange rates and drug legalization. These disputes always gave us cause to reflect, and 20 years ago amid one debate on the benefits of fixed exchange rates we noted that "being spanked by Milton Friedman is one of life's most humiliating experiences."

In truth, Professor Friedman always argued with civility and a bracing wit. One of his best barbs on the size of government: "Given our monstrous, overgrown government structure, any three letters chosen at random would probably designate an agency or part of a department that could be profitably abolished." And he popularized "There is no such thing as a free lunch."

In "Two Lucky People," written with his wife, Rose Friedman, who survives him as a distinguished economist in her own right, Mr. Friedman well described the role of a public intellectual: "We do not influence the course of events by persuading people that we are right when we make what they regard as radical proposals. Rather, we exert influence by keeping options available when something has to be done at a time of crisis."

On the death of Ronald Reagan, whom he advised, Mr. Friedman wrote on these pages that "few people in human history have contributed more to the achievement of human freedom." The same can and long will be said of Milton Friedman.
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I have been blessed with the power to survive.
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Postby mends » 17 Nov 2006, 10:32

Why Money Matters
By MILTON FRIEDMAN
November 17, 2006; Page A20

The third of three episodes in a major natural experiment in monetary policy that started more than 80 years ago is just now coming to an end. The experiment consists in observing the effect on the economy and the stock market of the monetary policies followed during, and after, three very similar periods of rapid economic growth in response to rapid technological change: to wit, the booms of the 1920s in the U.S., the '80s in Japan, and the '90s in the U.S.

The prosperous '20s in the U.S. were followed by the most severe economic contraction in its history. In our "Monetary History" (1963), Anna Schwartz and I attributed the severity of the contraction to a monetary policy that permitted the quantity of money to decline by one-third from 1929 to 1933. Since 1963, two episodes have occurred that are almost mirror images of the U.S. economy in the '20s: the '80s in Japan, and the '90s in the U.S. All three episodes were marked by a long period of rapid economic growth, sparked by rapid technological change and the emergence of new industries, and accompanied by a stock market boom that terminated in a crash. Monetary policy played a role in these booms, but only a supporting role. Technological change appears to have been the major player.


These three episodes provide the equivalent of a controlled experiment to test our hypothesis about what we termed the Great Contraction. In this experiment, the quantity of money is the counterpart of the experimenter's input. The performance of the economy and the level of the stock market are the counterpart of the experimenter's output, i.e., the variables whose relation to input the experimenter is seeking to determine. The three boom episodes all occurred in developed private enterprise market economies, involved in international finance and trade, and with similar monetary systems, including a central bank with power to control the quantity of money. This is the counterpart of the controlled conditions of the experimenter's laboratory.

The Money Supply: In addition, history has provided a close counterpart to the kind of variation in input that our hypothetical experimenter might have deliberately chosen. As Fig. 1 shows, monetary policy, as measured by the behavior of the quantity of money, was very similar in the three boom periods, and very different in the three post boom periods, with settings that might be described as low, medium, high.

To measure the quantity of money, I use M2 in the U.S. and the conceptually equivalent M2 plus certificates of deposit in Japan. To express the data for the two countries and the widely separated periods in comparable units, I use as an index of the money stock the ratio of the quantity of money to its average value for the six years prior to the cycle peak. The peak quarter of the relevant business cycle is the third quarter of 1929 (29.3) for the earlier U.S. episode; the first quarter of 1992 (92.1) for Japan; and the first quarter of 2001 (01.1) for the second U.S. episode (see Table 1). Finally, the data are plotted to align the dates at the cycle peak.

Fig. 1 shows a striking contrast between the period before the cycle peak and the period after the cycle peak. There are some differences before the peak -- money growth is slowest on the average for the earlier U.S. episode, fastest for Japan -- but the differences are small and there is reasonably steady money growth in all three episodes. The contrast with the period after the cycle peak could hardly be greater. Money supply declines sharply after the cycle peak in the first episode, goes from stable to rising mildly in the second, and rises steadily and sharply in the third. Our hypothetical experimenter planned his experiment well.

The GDP: The results of the third episode of this natural experiment are now all in. Fig. 2 shows how GDP in nominal terms (dollars or yen in current prices) behaved during the boom and post boom periods. I use nominal GDP rather than real GDP because M2 is also a nominal magnitude. How changes in nominal GDP are divided between prices and output is an important question but one that is not directly relevant to this experiment. One further preliminary comment: I believe the erratic behavior of nominal GNP during the '20s and '30s is largely a statistical artifact. The data for that period are scarce and of poor quality.

As in Fig. 1, there is a striking contrast between the boom and the post-boom periods: roughly similar growth during the booms, widely variable growth during the post-boom. Both before and after the cycle peak, nominal GDP growth paralleled monetary growth. During the boom, money and nominal GDP grew most rapidly in Japan, most slowly in the first U.S. episode, and at an intermediate rate in the second U.S. episode. Table 2 shows the ratio of the money stock at the cycle peak to its value six years earlier (the initial date in the figures) and the corresponding ratio for GDP. In the first two rows of the table, the ratios are highest for Japan, lowest for the U.S. 1920s.


After the cycle peak, money fell sharply in the first episode and so did nominal GDP; money growth stagnated in the second episode and so did GDP; money grew at a rapid rate in the third episode and, after a brief lag (corresponding to the mild 2001 recession) so did GDP. Table 3 shows the ratio of the money stock at the terminal date plotted to its value at the cyclical peak and the corresponding ratio for GDP. Both ratios are decidedly lowest for the U.S. 1920s, and decidedly highest for the U.S. 1990s.

The Stock Market: The peak of the stock market, as measured by S&P's index, coincided with the cycle peak in the first episode, both occurring in the third quarter of 1929 (29.3). However, that was not the case in the later episodes. In Japan, stock prices as measured by the Nikkei peaked in the fourth quarter of 1989 (89.4), nine quarters before the cycle peak. In the second U.S. episode, stock prices as measured by S&P 500 peaked in the third quarter of 2000 (00.3), two quarters prior to the cycle peak. Accordingly, Fig. 3 plots the data to align the series at the stock market peak.

The near identity of the three stock market series during the boom is truly remarkable. Yet even the minor deviations that exist reflect to some extent the differences in monetary growth, as Table 2 makes clear. Money growth was highest in Japan, and the Nikkei shows the largest rise in the stock market. The other two do not conform: Money rose more in the '90s than in the '20s, while stock prices rose slightly less, as shown by the ratio of peak to initial value in Table 2.

Of more interest for our purpose is what happened after the peak. For a year after, the three stock-price series fell in tandem, responding to the inner dynamics of a collapsing bubble. Then, the differences in monetary policy began to have an effect. Beginning in late 1930, the S&P index started falling away from the others under the influence of a collapsing money stock. For another year and a half, the other two indexes move in tandem. Then the much more expansive policy of the Fed in the '90s than of the Bank of Japan in the '80s takes effect and pulls the S&P 500 away from the Nikkei, which stabilizes in response to the passive monetary policy of the Bank of Japan (as shown by Table 3).

The results of this natural experiment are clear, at least for major ups and downs: What happens to the quantity of money has a determinative effect on what happens to national income and to stock prices. The results strongly support Anna Schwartz's and my 1963 conjecture about the role of monetary policy in the Great Contraction. They also support the view that monetary policy deserves much credit for the mildness of the recession that followed the collapse of the U.S. boom in late 2000.

Mr. Friedman, who died yesterday, was the 1976 Nobel Laureate in economics. He was a senior research fellow at the Hoover Institution and professor emeritus at the University of Chicago
"I used to be on an endless run.
Believe in miracles 'cause I'm one.
I have been blessed with the power to survive.
After all these years I'm still alive."

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Postby mends » 17 Nov 2006, 10:52

depois de todos esses textos, leio a cobertura brasileira, com Luiz Gonzaga Beluzzo dizendo: "ele teve lá sua importância, mas estávamos em campos opostos"...Taí Beluzzo, Prêmio Pévermeio de Conomia, realçando sua influência na vida e no pensamento na grande área que vai de Campinas a Jundiaí....
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Postby Danilo » 04 Dec 2006, 11:51

Entre janeiro de 2003 e outubro de 2006, empresas estrangeiras se desfizeram de US$ 18,9 bilhões em negócios no país.

Visto como crucial para o desenvolvimento do Brasil, o setor elétrico liderou o ranking de desinvestimento neste ano, com retiradas de US$ 1,5 bilhão até outubro -24,4% do total de US$ 6,19 bilhões do período.
Entre as operações que contribuíram para esse resultado está a transferência de propriedade da Light do grupo francês EDF para o consórcio brasileiro integrado por Cemig, Andrade Gutierrez e Pactual Energia, por US$ 320 milhões.

O segundo lugar no ranking de desinvestimento foi do setor de intermediação financeira, com saídas de US$ 1,1 bilhão entre janeiro e outubro. Quase metade desse valor -US$ 490 milhões- é resultado da venda dos ativos da American Express no Brasil para o Bradesco, fechada em março.

(texto completo em folha.uol.com.br/fsp/dinheiro)
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Postby mends » 04 Dec 2006, 12:58

Entre as operações que contribuíram para esse resultado está a transferência de propriedade da Light do grupo francês EDF para o consórcio brasileiro integrado por Cemig, Andrade Gutierrez e Pactual Energia, por US$ 320 milhões.


Não entendi onde transferência de propriedade é desinvestimento...isso me parece analfabetismo crônico.

Quase metade desse valor -US$ 490 milhões- é resultado da venda dos ativos da American Express no Brasil para o Bradesco, fechada em março.


De novo..."Não importa onde vive o acionista, importa onde é a fábrica" J.K.

em termos de valor econômico, não muda nada.
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Postby Danilo » 04 Dec 2006, 13:48

Mas, além da corrupção, o real valorizado, alta carga tributária e o baixo ritmo de crescimento assustam os investidores, não? É o que aparece solto pelo texto da Folha.
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Postby mends » 04 Dec 2006, 13:59

corrupção


provavelmente sim.

real valorizado


provavelmente não: é um problema conjuntural para o qual o mercadom financeiro tem respostas bem aceitáveis.

alta carga tributária


provavelmente não. boas empresas utilizam de maneira inteligente os recursos de elisão fiscal, paraísos e canais de remssa de lucro sofisticados.

baixo ritmo de crescimento


Depende da elasticidade das receitas da empresa em relação ao PIB, e não do PIB em si.

O que ocorre é transferência de risco. O "desinvestimento" se dá porque as percepções de risco de um estrangeiro e de um brasileiro são diferentes, então o risco sempre flui da parte menos habilitada a lidar com ele pra parte mais habilitada.
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Postby Danilo » 04 Dec 2006, 23:12

Comentei da diminuição de investimentos lá na Não à corrupção e à impunidade e responderam:

Mas a detalhes a serem lembrados que a Folha esqueceu (prefiro “imaginar” que Claudia Trevisan tenha esquecido destes detalhes ao invés de omiti-los), como por exemplo, a desaceleração econômica dos EUA, Europa e Japão, os investimentos recrudesceram a partir de 2002 em todo o mundo (e não somente no Brasil). Além disso, grande parte dos investimentos realizados no Brasil no período a partir dos anos 90 eram resultantes dos processos de privatização e a construção de base de produção para atender ao mercado brasileiro e latino-americano.

Com a queda de renda real da população brasileira desde 1999 (devido à desvalorização da nossa moeda frente ao dólar), o desastre ocorrido na Argentina e o baixo crescimento econômico da região, os investidores passaram a negligenciar a região em detrimento da Ásia (principalmente á China e seus “operários” de aproximadamente 40 centavos de dólar a hora).

Mas, agora aqui entre a gente, é engraçado defender uma política contracionista como a desvalorização da nossa moeda em detrimento de “meia-dúzia” de empresários. A própria Fiesp e Iedi apresentaram um documento denominado “Brasil na busca do crescimento econômico” no qual ressaltam que seria ideal , o dólar sendo cotado em média á R$ 2,50 para o desenvolvimento nacional (o que resulta numa cotação não muito distante da que temos hoje). Outro detalhe é que a taxa de cambio no Brasil é flutuante. Ou seja quando mais dólares circulando na economia brasileira, mais baixa será sua cotação (e assim mais valorizada nossa moeda e consequentemente o aumento do poder de compra da população).
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Postby mends » 05 Dec 2006, 08:11

Com a queda de renda real da população brasileira desde 1999 (devido à desvalorização da nossa moeda frente ao dólar), o desastre ocorrido na Argentina e o baixo crescimento econômico da região, os investidores passaram a negligenciar a região em detrimento da Ásia (principalmente á China e seus “operários” de aproximadamente 40 centavos de dólar a hora).


É verdade, mas não é tão verdade assim. O trade off não é simplesmente "China bombando com trabalho escravo e nóis si fudeno". Mesmo porque Chile, Panamá, Costa Rica, Trinidad Tobago e até a Colômbia estão recebendo bastante investimento estrangeiro direto. Crescermos pouco porque não temos mão-de-obra qualificada e temos que financiar o governo. não temos nem gente nem grana pra crescer. mas a china não chega muito longe com o seu modelo e ela sabe disso. a verdadeira potência daquela região é a índia.


Mas, agora aqui entre a gente, é engraçado defender uma política contracionista como a desvalorização da nossa moeda em detrimento de “meia-dúzia” de empresários. A própria Fiesp e Iedi apresentaram um documento denominado “Brasil na busca do crescimento econômico” no qual ressaltam que seria ideal , o dólar sendo cotado em média á R$ 2,50 para o desenvolvimento nacional (o que resulta numa cotação não muito distante da que temos hoje). Outro detalhe é que a taxa de cambio no Brasil é flutuante. Ou seja quando mais dólares circulando na economia brasileira, mais baixa será sua cotação (e assim mais valorizada nossa moeda e consequentemente o aumento do poder de compra da população).


Ainda bem que, como diz o nosso presidêntio, o câmbio flutuante flutua. Câmbio flutuante praticamente impõe controles qualitativos de política monetária e fiscal - metas de inflação e tamanho limite de déficit público. Agora, não consegui entender, pelo que o cara escrveu, se ele é contra, a favor ou muito pelo contrário...
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I have been blessed with the power to survive.
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Postby Danilo » 05 Dec 2006, 23:39

Brasil ocupa a última posição no ranking de competitividade do BRIC-M

O Brasil ocupa a última posição no ranking de competitividade do BRIC-M, grupo que reúne também Rússia, Índia, China e México. O desempenho insatisfatório, compartilhado com o México, é justificado principalmente por elevados custos fiscais, institucionais e operacionais, aponta o Painel de Competitividade 2006, levantamento da Amcham e do Movimento Brasil Competitivo divulgado nesta segunda-feira.

O Painel de Competitividade é composto por 24 variáveis. Apresentamos piora em apresentou piora em 14, entre eles Risco Soberano, Intenção de Investimentos Diretos Estrangeiros (IDE), Transparência da Política Governamental, Custo de Energia, Infra-estrutura de Escoamento de Mercadorias, e Empreendedorismo.

( matéria completa em amcham.com.br/update/2006 )
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Postby mends » 06 Dec 2006, 08:01

BRIC-M


Nunca um relatório de banco repercutiu tanto. BRIC é um acrônimo criado pelo Goldman Sachs "juntando" economias que "poderiam" estar na frente do mundo em 2050. Apenas isso. Agora virou "instituição" geopolítica.

compartilhado com o México


então a situação do México é pior: o México é investment grade. Tem um dado curioso: nas 3 últimas crises bravas que o país passou (82, 87, 99), o México afundou de dois a três anos antes.

Risco Soberano


esquisito...risco soberano é funçao das reservas internacionais, é medido pelo famigerado "risco brasil" e realmente ele está baixo.

Intenção de Investimentos Diretos Estrangeiros (IDE)


Essa informação, junto com a anterior, me faz crer que há uma forte componente de risco político "crássico".

Custo de Energia, Infra-estrutura de Escoamento de Mercadorias


esse realmente é batata.

Empreendedorismo


esse não vai mudar nunca. não é nossa cultura.
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Postby junior » 06 Dec 2006, 12:44

Fonte: http://cosmicvariance.com/

Economics vs. Physics Love-Off

Who gets more love, economists or physicists? Robin Hanson stamps his foot in frustration at the lack of respect economists receive, in a nicely self-undermining blurb (via Ezra Klein):

Consider how differently the public treats physics and economics. Physicists can say that this week they think the universe has eleven dimensions, three of which are purple, and two of which are twisted clockwise, and reporters will quote them unskeptically, saying “Isn’t that cool!” But if economists say, as they have for centuries, that a minimum wage raises unemployment, reporters treat them skeptically and feel they need to find a contrary quote to “balance” their story.


As Ezra and Kevin Drum point out, this is straightforwardly wrong on the merits: economists have a huge amount of influence over actual public policy, while admiration for physicists doesn’t get you too much beyond the “Isn’t that cool!” level, and occasional appearances on late-night radio. (It’s like conservatives complaining that most university professors are liberal, while they control the government, corporations, and the military.) Atrios and Echidne also point out that the single chosen example of economic wisdom, that the minimum wage raises unemployment, is wrong. And that physicists have quite the demonstrable track record of making statements about the universe that seem counterintuitive at first glance, but turn out to be right.

In fact, I think these three sentences point to a definite failure on the part of physicists to successfully get their message across. We physicists talk about crazy things all the time — extra dimensions, black holes, quark confinement, wavefunction collapse, conservation of momentum, the Earth moving around the Sun. Things that, on their face, seem to be incompatible with our everyday experience. But we don’t just throw these ideas out there randomly; they are hypotheses that we’re driven to by the constraints put upon us by the data. Some of these ideas may turn out to be wrong, and some may be right, and we have certain well-tested procedures for sorting them out. (In the wake of Milton Friedmann’s death, folks have been re-arguing his contention that successful predictions from an economic model are more important than correct assumptions underlying it. I would hope that both are important.) Unfortunately — and to a signficant extent this is our own fault — it’s not always clear to the person on the street which ideas are speculative and which have come to be accepted, nor is it clear that we have good reasons even for the wildest speculations.

But the idea that three dimensions are purple and two are twisted clockwise — that’s intriguing. I’ll have to look into it.

Update: Robin Hanson expands on what he meant about the minimum wage.[/url]
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