Analyzing World

Analyzing political and economic issues

Archive for September, 2014

Milton Friedman on John Maynard Keynes commentary

Posted by picard578 on September 7, 2014

Friedman again proved he had no idea about economics (he was actually never interested in economics per se, but in ushering a new era of utter deregularization, which would be highly profitable for capitalists, regardless of consequences for the economy – his father was a capitalist, and Friedman never forgot the problems he had with workers’ unions). “Prosperity” of the 1920s is what *caused* the Great Depression, because too much wealth was accumulated in too few hands. Since economy is about flow of money, it is normal that accumulation of wealth in hands of the rich harmed the economy and caused the depression. Another cause was financial deregulation, in particular deregulation of credit and installment buying and stock markets.

Inflation is not a problem as long as it does not go out of control (that is, hyperinflation), since normal inflation rates (in single-digit and low double-digit percentages) are too low to be actually noticed by the general populace. Even high double-digit inflation rates are manageable.

Another cause of problem is when economy varies too much, since people then loose faith in the system. That is where government comes in – it has to siphon off (reduce) the economic growth and accumulate funds so as to have money avaliable with which to prop up the economy in times of the economic recession. Government is the only body which *can* do that, since individuals will act along their basic instinct and will, in times of recession, reduce spending – thus harming the economy unless additional source of economic activity can be found. That source is the Government. Likewise, individual will increase spending in times of growth, thus fuelling the growth but also increasing problems once recession hits. As it can be seen, market, if left to itself, has tendency towards increasing the amplitude (magnitude of oscillations) – which in the long run is bad for the economy. It is duty of the government to reduce that amplitude and, in doing so, reinforce faith of people in the system, which in turn promotes the economic growth.

But of course, it is entirely possible that Friedman knew all of that – it’s just that Friedman was never one to let facts stand in the way of the ideology.

Posted in Uncategorized | Tagged: , | 12 Comments »