According to The Economist, Milton Friedman is ‘the most influential economist of the second half of the 20th century ... possibly of all of it’.
You can blame him.
Before you get too angry, you should also know that Friedman was in some ways an admirable man, as well as an economic genius. His mathematical work at the University of Chicago was brilliant. His papers and books on consumption analysis, the complexity of stabilization policy and monetary history won him a Nobel Prize. He correctly predicted the stagflation crisis in the 1970s (where high inflation and stagnant demand in national economies blew apart the old post-war consensus). He was also an early defender of gay rights, and a forceful critic of the war on drugs.
Okay, he wasn’t universally renowned for his good nature or generosity. When he returned journalists calls, he was notorious for reversing the charges. But he was a gregarious and persuasive speaker, sharp in his observations, consistently amusing and clear, even when discussing the arcana of interest rates. He also had a neat way with aphorisms. He was the man who told the world that ‘there is no such thing as a free lunch’.
He also said: ‘The only way that has ever been discovered to have a lot of people cooperate together voluntarily is through the free market. And that’s why it’s so essential to preserving individual freedom.’ Which was a curious thing to hear from someone who had lived through World War II and helped in the worldwide non-market determined struggle to defeat the Axis powers.
Just as tellingly, he once declared: ‘I’m not in favour of fairness.’
What Friedman was in favour of was markets. He reduced everything to a zero-sum game in which consumers have all the power they need in relation to the suppliers of goods and services, because they are able to shop elsewhere if they don’t like what they are getting.
He outlines this idea at the start of the book he and his wife Rose wrote, called Free to Choose. There, he talks about the manufacture of pencils, developing on the famous trope that no one person knows how a pencil is made because the various parts like the lead, the rubber and the brass ferule involve a separate series of mining and manufacturing processes too complex and geographically widespread for any one person to master. Friedman contends that there is also a pencil market controlled by a ‘price system’.
For pages and pages he delineates the complexities of the manufacture, all the different contributions to the pencil, and the way these can vary – the way forest fires, for instance, can impact the price of wood. He also maintains that consumers are always in control of things at the end-point of the process. If prices go up, they can choose to pay more – or choose to make their pencil last longer, or perhaps buy propelling pencils instead.
It all sounds very smart – but misses the essential thing that any eight-year-old can tell you about the actual end-users of pencils. They don’t have any choice. Because they’re eight. They’re school children. They still have to do the same amount of writing no matter how much the pencil may cost. The truth is that if the price of pencils goes up, most people can’t adapt, or look elsewhere. They just suffer...
But Friedman still insists on the primacy of markets, describing them as a kind of perfect system that will correct and control themselves just so long as they are left well enough alone. He doesn’t allow for the fact that consumers don’t always have a choice. Or that sellers will often cheat those consumers.
Friedman’s thinking has led to market structures being imposed in all sorts of ways that they shouldn't. He spread the belief that competition will magically make the education sector more efficient, instead of turning a public service into another place where shareholders get to soak us. He taught that private providers should control our health systems. His followers decided power companies with confusing tariff plans and ever richer owners are somehow better than nationalised utilities. His close personal friends in the George W. Bush administration – like Secretary of Defense Donald Rumsfeld – were even convinced that private security firms like Halliburton should carry out all kinds of security and administrative work in war zones like Iraq. Which worked out just fine…
It’s terrifying to go back to the source material and see the specious nature of the writing that has had such influence on our lives. There’s plenty more where that pencil theory came from. In Free To Choose, Friedman asks in all earnest how it was that Britain managed to expand its economy even more successfully than the United State in the late nineteenth century, given that Britain didn’t have comparable land and mineral resources? He answers even more earnestly that it’s because Britain had a small government and free market economic policy. He doesn’t mention the country’s huge coal reserves. Or, even more astonishingly, the fact that it had an empire on which the sun never set. Elsewhere, he just makes things up; especially in his many extrapolations about life in the Soviet Union, for which he can’t have had reliable data. But still, millions of people bought the absurd book. It was the non-fiction bestseller in the USA in 1980 and right-wing politicians lapped it up.
And Friedman didn’t just comment on economics, he actively proselytised. He called himself a ‘warrior’, determined to eliminate ‘government interference in free enterprise, from minimum wage to social welfare programmes’. He loathed nearly all the workings of the state and said that the ‘invisible guiding hand’ of the free market should ‘hold the tiller’ instead of any government.
His advocacy bore fruit when the UK Conservative Party was elected to power in 1979. He told the Washington Post that Thatcher’s election would ‘mark the turning away from the welfare state back to the free-market economies of the nineteenth century’. Correctly.
I know all that sounds like a nightmare – unless you like your chimney cleaned by sooty six-year-olds – but Friedman loved the Victorians. He also liked to claim the lack of regulation in the nineteenth- and early-twentieth-century markets did more to improve the life of the common man than at any other time. Incorrectly.
And Friedman was soon jetting off to meet the new Prime Minister and persuade her to make things more Dickensian. She told him she would be delighted to do just that, so he wrote a Newsweek column entitled ‘Hooray For Margaret Thatcher’.
Back home in the USA he was soon serving as a member of President Reagan’s Economic Advisory Board. He persuaded Reagan that there was a ‘natural rate’ of unemployment and that having a few million people out of work was probably a good way to stop stagflation. So Reagan made sure unemployment hit record highs for years.
There was also Chile. Friedman’s acolytes from the Chicago school had been there, right alongside the military, in 11 September 1973 when Pinochet overthrew the popular government of Salvador Allende in a bloody coup. Immediately after, the ‘Chicago Boys’ put into practice the teachings of Friedman’s other famous book, Capitalism and Freedom. As Pinochet began torturing and killing tens of thousands of his people, the economists started tearing apart Chile’s industry, privatising, throwing the markets open, destroying local workers with free trade, overseeing 375 per cent rises in inflation and claiming that the problem was that their economic medicine hadn’t been strong enough.
Pinochet was soon getting a bad international reputation for rounding people up and shooting them in football stadiums – but still Friedman himself came down to help in 1975, meeting Pinochet, broadcasting lectures on national TV, asking for his usual formula of deregulation and ‘shock treatment’. He wrote in his diaries that Pinochet (although a mass murderer) was worried about the social consequences of rising unemployment. Friedman told him to cut government spending by another 25 per cent. That’s right. Where even Pinochet had qualms, Friedman had none. And so millions lost their jobs. The economy didn’t recover for almost a decade, when Pinochet at last changed course. Friedman later falsely claimed that Pinochet’s adaptation of free market policies ameliorated his rule and led to the country’s transition to democratic government in 1990… After almost twenty years of tyranny and the torture and murder of thousands. But hey! At least the invisible hand of the market determined which brand of cattle prod the police used to electrocute people.
Now you can get angry.
Pinochet is fading into bad memory. Chile is moving on. But many of Friedman’s other legacies remain with us. Closer to home, you can still blame Friedman for the privatised electricity companies and their huge bills. Blame him if you’ve heard a Republican politician talking with loathing of ‘big government’. If you’ve lamented paying so damn much to catch a privatised train service, Friedman’s at the heart of it.
On a broader level, his ideas provided ideological cover for massive capital accumulation for multinational corporations during the 1980s to 2000s and the belief that markets should be regulated as little as possible. On Friedman’s death in 2006, President George W. Bush said, ‘His work demonstrated that free markets are the great engines of economic development.’ Two years later those engines started grinding and chucking out black smoke. Friedman had missed the 2008 financial crash his ideas helped bring about – and which proved them so catastrophically wrong. Oh well.
This is an extract from Enemies Of The People. Available at all good book shops and also from Amazon. If you've enjoyed reading this, please do buy a copy.