Skip to comments.Paul Samuelson Vs. Milton Friedman (A Debate)
Posted on 02/21/2009 11:58:31 AM PST by SeekAndFind
Challenging Samuelson on Keynes, government intervention and market regulation.
"It is not enough that I should succeed," Gore Vidal once remarked. "Others must fail."
Economist Paul Samuelson evidently agrees.
A big government man from way back--in an edition of his best-selling college textbook Economics, he argued that "the remarkable fact is not how much government does to control economic activity, but how much it does not do"-- Samuelson, now 93, gave an interview not long ago. The current crisis, he claimed, validates his own economic views--and invalidates those of his longtime rival, the late free-market economist Milton Friedman.
"Today we see how utterly mistaken was the Milton Friedman notion that a market system can regulate itself," Samuelson said. " ... Everyone understands now, on the contrary, that there can be no solution without government. The Keynesian idea is once again accepted that fiscal policy and deficit spending has a major role to play in guiding a market economy. I wish Friedman were still alive so he could witness how his extremism led to the defeat of his own ideas."
An old man gloating that he has outlived an antagonist: If that were all there were to it, we could wish Samuelson well for the rest of his time here below and let the matter drop.
But Samuelson and Friedman represent two of the most influential economists in the history of the discipline. Samuelson won the Nobel Prize in Economics in 1970; Friedman in 1976. Samuelson achieved wide influence through Economics, still a popular textbook decades after he introduced it; Friedman through books such as Capitalism and Freedom, his column for Newsweek and his PBS television series, Free to Choose.
(Excerpt) Read more at forbes.com ...
Wherever the free market has failed, you find the hand of government pushing it to the abyss. The housing bubble is just the latest example.
If Fannie, Freddie and the CRA hadn’t distorted the market, home values would not have risen the way they did. End of story.
93 years old or not, if Samuelson still wants to play the game, he can still have his azz handed to him. Nice job, Peter Robinson.
The free market failed here due to fraud, lack of transparancy and non securitized lending. CRA started the mess but the lack of controls on leverage and the ability for companies to trade without adequate reserves was the real problem.
Your jumping in in the middle of the causal chain here.
If Freddie and Fannie hadn’t effectively securitized NINJA loans, mortgage companies wouldn’t have made them and the credit rating agencies would never have rated the resulting MBSs AAA. Thus they wouldn’t have been used as reserve collateral by banks and insurance companies in the first place.
Further, those loans allowed people to buy homes who otherwise would not have been able to, thus putting upward demand pressures on the real-estate market, raising prices beyond where they would have otherwise been.
Yes, there was fraud. But not as much as you might think. Angelo Mozillo was a jerk, but he was operating within a government backed bubble with lots of other jerks (Dodd and Frank being two of the biggest).
Samuelson wrote some very stupid things about the Soviet Union in the 1970s in his text book. He should be the last person to give lectures about how brilliant he is.
Karl Denninger has been all over this and has explained it inside out. This is all about fraud, unsecuritized trading and govenment officials not doing their jobs. The subprime is a problem but the Alt-A loans, Option ARMS, etc is where everything is blowing up now.
The only Keynsian policy that makes sense is for defense spending.
You currently have two problems with the Alt-A loans, one structural the other caused by government.
Ask anyone in the mortgage business and they will tell you that refi applications are through the roof. They’ve never been busier processing applications for refis. But the appraisals are a bottleneck. It is difficult, if not impossible, in the current market to appraise a house. Have we hit bottom? Or will home prices drop another 20-30%? If you can’t answer that question, you can’t loan prudently.
The second problem is that everyone is now waiting for a government bailout. Why should I be the only chump paying my mortgage when so many others are getting the government to pay for theirs?
Karl's been great... except for his endorsement of Obama during the heat of the election. He has the big view.
Another site worth checking out for more detail on Alt-A and Option ARMS with emphasis on California is http://www.doctorhousingbubble.com.
“Today we see how utterly mistaken was the Milton Friedman notion that a market system can regulate itself,” Samuelson said. “
The problem is that a market system can’t unregulate itself. The underlying cause of this mess is that banks were forced by the government make bad loans to home buyers who couldn’t afford them. This corruption of the mortgage industry is antithetical to free market economics. But I’m sure that Samuelson thought it was a great idea at the time.
So now we “need” the government to fix it. But long before this straightens itself out we’ll witness the punishment of the innocent, and distinction for the guilty. Meanwhile, Samuelson, who has probably been staying alive for this moment ever since the 70’s welfare state came crashing down on his head, can go out with a laugh.
As Clinton said after beating a perjury rap on a technicality after lying under oath about Lewinsky, “I have been vindicated”.
You might be partially correct, but, in my opinion, government intervention is by far the root cause (witness whom bullied sub prime mortgages to begin with, and then relaxed the rules to artificially survive..barney frank, chris dodd and the rest of congress should have their a$$es sued off.
He went with Obama simply due to the fact that the Repubs had done such a bad job. He was very quick point out that Obama had lied, embraced socialism and screwed up just about everything he’s touched.
The Clintons forced some bad loans no doubt but Congress did nothing to oversee the mess, lifted the leverage limits back in 2004 and did a bad job in enacting any reforms. How the hell do these business get to run bad assets off of their books for crying out loud?
I did say “Karl’s been great.” Did you check out the other link?
Scanned it but I also added the RSS Feed to my collection
If they’re honest, most big-government-loving Dems and libs would admit that their support for big government and their anti-free market ideas comes less from their purported hatred of an unfair system and more for their jealousy of people who have succeeded where they’ve failed. I’ve talked to too many Dems who have openly expressed their hatred for (in their minds) undeserving rich people. It doesn’t matter that they themselves are better off than most of the world’s denizens. They’re simply upset that someone has more than they do. And they wish to set things “right”. Now they have a president who is embarking on a socialist mission to do just that.
Were Adam Smith, Friedman, Hayek, or any other free-marketeers ever discussed in your econ class? They were never mentioned in the econ class I took in college...except negatively. I wonder if they're discussed in any college classes and how many econ profs are hard-core libs? It seems a very large percentage are.
Adam Smith was mentioned, but not any modern economists who knew what they were talking about. Instead, Samuelson's text was supplemented with a book by Galbraith. I had to discover Mises, Hayek and Friedman on my own years later.
The concept of supply/demand price-setting was mentioned; but I don't recall anything being said about prices being used as signals to regulate resource allocation in a system too complex for central planning.
I took the course during the Nixon-Ford malaise. This was a time when Keynesian economics was falling flat on its face. The professor suspected that, since Keynesianism couldn't explain what was going on, there might be something wrong with it; but he didn't know what it was. My impression was not that he opposed people like Hayek; rather, I don't think he was familiar with them. It didn't occur to him to question the Keynesian dogma that seeking the worst products and services at the highest price (i.e., government spending) was economically equivalent to seeking the best products and services at the lowest price (i.e., private spending).