Saturday, November 18, 2006

One man dies (about Milton Friedman)... (Part one)

Milton Friedman: Free Market Thinker
BBC News)
The American economist, Professor Milton Friedman, who was awarded the Nobel Prize for Economics in 1976, has been called the high priest of monetarism.

His death marks the passing of a giant in the world of economics whose approach to deregulation and free markets have become the centrepiece of economic policy across the world.
He was a major influence on the economic thinking of the governments of both Mrs Thatcher and President Reagan, and has influenced the thinking of most central banks today. (Read on...)

My comments:

Hi friends,

Although my knowledge of economics is fairly rudimentary, I know that Friedman is best known for his advocacy of monetarist policies.

He was a leading exponent of the "Chicago school" which held that the supply of money was the key factor in determining economic growth and the rate of inflation and was critical of governments who try to control unemployment by spending more money. To him, excessive government (fiscal) spending to create demand, leads to inflation which would undo the effects that this spending sought out to achieve.

Economic growth , he argued, is best guided by the control of interest rates and other levers at the disposal of governments and central banks.

This brings him in direct conflict with another giant, John Maynard Keynes who is best known for advocating government intervention (fiscal policy) in the economy .

Friedman's greatest admirers included Ronald Reagan and Margaret Thatcher.
( Remember Reaganomics and Thatcherism?)

Unbeknownst to most, Friedman says that his proudest accomplistment was not in economics but that he played a role in the abolition of the draft .

For the uninitiated, this draft is the same as Singapore's National Service.

This talented social commentator who mesmerised many with his broadcasts on social issues (Free to Choose) also campaigned for the decriminalization of marijuana.

Links : 1.http://a-singapore-economist.blogspot.com/2006/08/milton-friedman-tv-series-available-on.html The videos here are must-sees for budding economists.
2.http://en.wikipedia.org/wiki/Milton_Friedman

Watch the videos if you have the time. It is good.

Cheers,

Dr.Huang Shoou Chyuan
Link: Holland village voice (Fabian Lua)

13 comments:

Anonymous said...

If Milton Friedman were a Singaporean living in Singapore, he would have been "FRIED" literally (pardon the pun, no disrespect intended).

All that talk about abolishing draft and giving commentary counter to government policies would have landed him bankrupt and/or in jail.

nofearSingapore said...

Hi anon
How is it that US can have so many thinkers and movers, and our so called excellent school just comes out with elites who collect big bucks from the tax that all of us pay ( I almost thought poor don't pay tax, but suddenly remembered GST- haha)?
If we really want to be like Paris or NY, there must be room for creative chaos and respect of differing opinions.
Ironically, Friedman came to S'pore and create a ruckus about the dominating state role in S'pore's economy.
How do we get the TLC's to let go and encourage HK-like entreneurship?
I think it starts within the minds of each one of us ( esply those in the ruling elite).
I am going to watch Friedman's videos again to source for ideas.
Dr.Huang

Rowen said...

Milton Friedman regards with the free market and the opening out of markets from government control seems to also affect our own government.

With the freeing up of transport companies, the privatisation of companies and GIC, the government "seems" to follow his theory to have minimum control of the "free" market.

However, the way in which our government implements these are not true to Friedman's ideals as even in companies like SIA, Singtel, DBS, the govenment would put in PAP or PAP related personnel in high positions. Hence, there is actually no free market.

Friedman's theory also caused the freeing up of security measures in Thacter's UK military which in turn caused the embarrasing security breach of a military base due to negilance of the sub contracted security guards and company.

I am not a supporter of Friedman's theory of the free market. As in such free markets the only ones who would benefit are the rich and the distribution of the wealth will be even more unequal.

Just my 2 cents worth.

Whispers from the heart said...

Dr Huang,

The only thing I understand about Economics is the concept of equilibrium ... the way I interpret it ;)

which is quite similar to certain ancient chinese philosophy of having an optimum balance in life.

Very chim stuff that my hubby excels in. Ultimately, extreme actions will receive extreme reactions - somewhat like Newton's law?

Mankind should exercise wisdom to find that optimum which I believe would be the secret to eternal happiness. Very elusive for those without clear sight and conscience, the third eye so to speak.

Pardon if I don't make any sense to you.

nofearSingapore said...

Hi
rowen: a free economy with theoretical completely perfect competition is supposed to be beneficial to the consumer as he(or she) will get the best price for any product (supply/demand forces). Eg USA.
When there is no free competition, eg Singtel in the old days, they abuse their monopolistic powers to get us to pay astronomical prices for their services. Trunk call, cost $10 or more for few minutes and they became complacent ( fat cats) and took us for granted.
With deregulation ( or privatisation) and more competition ( M1/starhub etc), singtel has to be competitive or die! Now with Skype and VOIP internet telephony, calling overseas is free or cheap. That is the power of the free market.
The electorate can get the same benefit also if S'pore not just practise free market in economy but also in politics. We will get even better empathy and responsiveness from the govt to our needs.

Whispers: Econs is just how the consumer also tries to maximise the benefits from whatever he has ( microeconomics) and how a state is able to use govt spending (fiscal policy) and control of interest rates ( monetary policy) to get good economic growth which will put $ into the pockets of the public (macroeconomics). It is not some subject to be worried about and I strongly feel that in modern S'pore, every student should have basic concepts of economics taught in the school. It helps us to understand our own lives and the forces that influence them.
I am also learning about all these even at my age.

Dr.Huang

waterchild said...

Hi, Dr Huang,

I think the difference between US and Singapore is that Singaporeans take their leaders very seriously. And our leaders take themselves very seriously too.

All must sing the same tune, was what PM said in his Nat'l Day Rally.

nofearSingapore said...

Hi waterchild,
I don't know if we are still talking about the same thing.
If US does not take the govt seriously but still produce geniuses like Friedman and many other movers and shakers but we take our leaders seriously but only produce expensive technocrats, I don't mind the US model.

In fact Friedman argues for the govt to take a back seat, not be involved in bizness which should be the job of the marketplace as a free market is liable to be more efficient than any gigantor monster like our TLC's. Only when the govt leave the market can local entreprenuers ever become successful transnational corporations. But the govt has so enjoyed exercising their monopolies and now will not ever leave the market. S'pore will not get any substantial entreprenuer for long time. The conditions are not there.
DrHuang

fabianlua said...

Hi Doc
I read a few of your letters to the ST, but didn't know you keep a blog.

Anyway, I don't know if you remember that you wrote in arguing that the A*Star 3.8GPA requirement causes all Singapore scholars to choose safe courses and not have a social life. My reply was published and basically I agreed with doing away with the GPA requirement but disagreed that all scholars are like that. Mainly because I'm a scholar and I chose my courses out of interest not level of difficulty. If anything, I chose to take harder courses and don't neglect my social life. I'm in university to learn and good grades should come about if I'm interested.

So yes, back to the topic of Friedman - I was very fortunate to have been taught intro finance by one of Friedman's "colleague" Prof Jeremy Siegel (but probably Friedman was more of a mentor to him). That has somewhat leaned my views towards libertarianism, and I agree that the government should step back and instead VC/private activity should take over. You seem very interested in the success of US and what Singapore can learn from it. I'm no expert, but from what I can see, there are two reasons for entrepreneurs in the states 1. many of them become millionaires, and success stories are encouraging. 2. many of them just felt free to choose their paths. Relating back to the A*Star letter you wrote, I was glad to read it because you pointed out how singular our (singaporean's) idea of success is.

I believe governments should be kept small, so that is a concern of mine related to the GST hike.

And it's perhaps an interesting coincidence that Friedman suggested the NIT (Negative Income Tax). I think the NIT is a progressive tax that encourages people to work without involving the bureaucracy of GST. I wrote a post about GST here.

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As for regulation/deregulation, it is not necessary that all deregulated industries perform better than if they were regulated. Usually countries have anti-trust agencies etc to investigate consumer benefits under different market structures.

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I don't think Singaporeans have the stomach for the unsavory side of New York even if we want the positive aspects of that city. That said, I personally love New York City, pigeons and all and think that media in Singapore should be "deregulated." Oh, aren't we glad we are helping that process, kinda?

nofearSingapore said...

Hi fabian,
Thanks for dropping by.
Yes I got the feeling that my name was appearing too often on the forum pages and I don't wanna sound like an attention seeker. I will only write to forum page whenever it interests majority of newspaper readers.
But blogs are different. I can spoil myself by catering to my esoteric taste of politics, social concerns,humanity and even economics ( as here)!
Glad you thought the A*Star piece was relevant to you although someone from AStar itself was "deeply troubled" by my concerns about iron rice bowls ( ha ha ha ha)!
Of course I never meant that all our smart people are narrow minded bookworms who can only ace exams, but all of us know they are overrepresentated in our elite places ( schools/govt employments)..
My intuition tells me that if I had a chance to do something other than medicine, it would be in some fields like economics/business-finance but my accountant and bank would never believe you knowing my net asset worth is certainly not much to shout about!
I will certainly be reading your blogs and will link your post here.
Dr.Huang

quitter-in-waiting said...

Dr H wrote: The electorate can get the same benefit also if S'pore not just practise free market in economy but also in politics. We will get even better empathy and responsiveness from the govt to our needs.

Hehehheh, gotta agree with you there ;-)

Casper said...

Hi Dr Huang,

It is indeed a lost to the world that Friedman passed on (but it is nevertheless a natural course of a human life).

There are two camp if political/economic philosophy as you have stated - small government or government knows best.

Small government relies on each individual/element of the societies each acting independently and hope to achieve a good outcome for self and for all. This in theory is a more chaotic model. It is like all the chemical molecues that moved randomly to form the first life.

Interventionist policies assumed that government knows best. But the problem is that they don't (PAP made numerous mistakes). Moreoever, in many cases, power corrupt and the policy makers do not act in the best selfless intention and will also line up their pocket when redistributing billions in their coffers.

As to Rowen - indeed a 100% free wheeling free market will give those who are in the priviledge positions (already rich) an unbeatable advantage compare to the mass. But remember that in friedman/liberalism /conservative framework, the government has a role to enforce law and order. In this case, abuse of such priviledge positions are achieved via anti anti-competitive and anti-trust laws etc.

The best model remained a economic and political system that is powered by a benevolent dictator (or all knowing, never to make an error God) who would do nothing but those that will enhance the citizen's life.
Unfortunately, such a person does not exist. So, we are back to free market..
--

casper @ www.e-malaysian.org

fabianlua said...

Hi Doc, thanks for the link.

Haha, I'm just the reverse - I went through secondary school and JC aspiring to be a doctor, and even when I chose not to pursue medicine, I started my undergrad as a biology major.

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Post midterm elections, with Democrats regaining power, there's quite a bit of debate in the US about how to narrow the income gap. One of the issues is taxing the rich more, and mirroring the discussions in Singapore, people are disagreeing on what's the best way to keep the economy growing while helping the poor. A well-written article was published in the Wall Street Journal today, thought you might be interested.

Casper said...

And oh... the only problem about negative income tax is that it is extremely difficult to administer.

Search the net about Tax Credit and you will see how much a disaster it was in the UK. Over £1 - 2bn was wasted / incorrectly paid annually (whici wll soon make Temeask-Shin corp waste like a child play).

The problem is that people's income changes frequently, and NIT can't track that properly.

A opportunity based solution is better than NIT. In chinese we say "Hang Hang Chu Zhuang Yuan" (you can excel in every field), by channeling money to create employment opportunity will be a better solution than NIT. This would of course amounted to governmental intervention which I don't particular like, but this is probably better than NIT which is impossible to administered properly.