It is a short and sweet piece addressing the Pinochet regime, the Chicago boys, and Naomi Klein’s “Shock Doctrine” myth. Stephens suggests that the implementation of Friedman’s economic ideas in Chile led to better building codes and fewer fatalities than January’s 7.0 Haitian earthquake:

In “The Shock Doctrine,” Ms. Klein titles one of her sub-chapters “The Myth of the Chilean Miracle.” In her reading, the only thing Friedman and the Chicago Boys accomplished was to “hoover wealth up to the top and shock much of the middle class out of existence.” Actual Chileans of all classes—living in the aftermath of an actual shock—may take a different view of Friedman, who helped give them the wherewithal first to survive the quake, and now to build their lives anew.

If you’re in the Chicago area, don’t forget to visit the Milton Friedman Institute website for event updates, including the upcoming workshop on Ronald Coase!

Heckman [MFI supporter] also approached what should probably be called the Friedman myth, for instance as articulated by Amit and Rothenberg [MFI detractors]. This is the myth that Friedman was an authoritarian liberal. Sahlins made a classic anthropological observation that symbols are indeed false — and that their falsehood is irrelevant. So the Friedman myth may be a myth, a false story, but it is still subjectively true for the people who believe it.

The post goes on to discuss Friedman’s legacy as relates to his association with authoritarian regimes, noting that:

Assuming for the sake of argument that Friedman was not culpable as an abettor of oppressive government, what is the response to the symbolic-mythical argument? The latter argument is that inasmuch as Friedman is a symbol of authoritarian liberalism, and this has bad associations for many, many people in the world, is this itself a strong or decisive argument for not naming the Institute after him? It seems to me that the answer is No: If there is a myth that you think is wrong, and you (i.e. the University) do not have yourself to fear repercussions of opposing that myth, then you should oppose that myth. By taking the name of the Milton Friedman Institute, the University can say, we do not support the further propagation of this basically wrong story about one of our highly acclaimed scholars.

Check it out here.

And what happened? Did the Republican administration summon up the spirit of Milton Friedman and cut government spending? Did it deregulate and privatise?

No.

It did what governments actually do in a crisis – it seized new powers over the economy.

Obama’s plan to do the same thing, his shiny new stimulus plan, was discussed by University of Chicago economists last month . The video is available here.  It’s a fascinating and occasionally humorous look at the real economics of the stimulus plan, and in particular our audience may be interested in Robert Lucas’s mentions of Milton Friedman at approx. 33:00 and 37:30.

He goes on to say that no one is standing up for the promise and proven track record of capitalism. We had Milton Friedman to do that until a couple of years ago, but now it seems that no one has his ability to disarm his intellectual opponents by challenging their most basic assumptions about greed, incentives and bureaucracy.

Speaking of greed, check out the video below in which Dr. Friedman answers Donahue’s question on the human tendency for greed that is unleashed (and put to productive use) under free market capitalism.

Donahue later says that capitalism seems to reward the ability of people to manipulate the system.

Friedman asks another question: “Who rewards virtue?” Do presidents, commissars or kings reward virtue?

“Where in the world,” Friedman asks, “do you find these angels who are going to organize society for us?”

Goals of MFI:

The Milton Friedman Institute will serve two important functions. First, it will preserve and indeed significantly enhance Chicago’s economics programs by supporting the research of some of its best faculty and help us to compete in recruiting top scholars of various vintages. Second, the Friedman Institute will encourage interaction across some of the best and most exciting areas of research related to economics.

On naming the institute after Friedman:

Milton Friedman joined the Economics faculty in 1946 and remained closely associated with the University throughout his life. He received every honor an economist can be awarded…. There was no point in his career when he was not regarded as one of a handful of scientific leaders in his field. To portray him as anything else misses completely his intellectual stature among economists, including economists like Paul Samuelson who differed with him on various issues. Describing Friedman’s contributions as merely “technical” completely misses their ambition and influence on the discipline of economics. It is most appropriate that Friedman be honored by the University.

Why should markets be a concentration at the MFI?

Market economies are pervasive. As a consequence, economics as a discipline studies the role of markets in the allocation of resources and uses markets as an analytical tool. In assessing empirical and policy implications, we develop and use models that typically, but not always, include markets; and we consider the incentives of individuals, groups and institutions as they interact. …

Dismissing our research ambitions as the naïve and uncritical embracement of free market ideology misses the point, and it reflects simplistic and uninformed criticism of economic research that is currently done on campus. We are proud of our openness and are only too happy to compare it to that of other departments and disciplines on campus.

I encourage you to read the entire statement (PDF).

Violent autocrats of the free-market persuasion, though there have been many, have not soiled Friedman’s name in the way that Stalin soiled Marx; somehow, the misdeeds of a Pinochet or a Suharto or a Yeltsin are attributed to these men as individuals—to their lust for power, their greed, their drinking. But Klein holds capitalism guilty of all their sins. Friedman’s followers must no longer get away with shaking their heads when their advisees start killing people, she believes. They should feel themselves dupes, fellow-travellers, accessories: they should acknowledge their willed ignorance and complicity, as her grandparents and the Communists of their generation were forced to do.

The article continues:

The left has been held accountable for the crimes committed in the name of its extreme ideologies, and I believe that’s been a very healthy process. . . . When you start issuing policy prescriptions, when you start advising heads of state, you no longer have the luxury of only being judged on how you think your ideas will affect the world. You begin having to contend with how they actually affect the world, even when that reality contradicts all of your utopian theories.”

I’m sorry, but I don’t blame Karl Marx for the millions of deaths carried out in the name of communism and national socialism–I blame Stalin, Hitler, Mao, Lenin, Khrushchev, et al. And don’t tell me that Marx didn’t intend for his Manifesto to be read by policy-makers and, hopefully, implemented into law. Why else would he have written a number of policy prescriptions for achieving communism?

Were we to traipse down that path we might blame Plato, Aristotle and Confucius for the failure of their ideas as applied in society and politics throughout human history!

Contrary to Klein, free market or laissez-faire capitalism is the only socio-economic system based on the recognition of property rights, in which the only function of government is to protect individual rights. One cannot implement a system of free market capitalism by turning their back on its primary tenet: That government is there only to protect a person from the use of force by another.

Thus, the actions of people like Pinochet, Deng, Yeltsin, et al. were in no conceivable way completed in the spirit of the principles of free market capitalism. Nor is free market capitalism a utopian theory–take a glance at my earlier riff on that claim here.

It shouldn’t come as any surprise that policy makers and pundits are now falling right into the trappings of the belief that “if only the government were to [fill in the blank].”

catallaxia recently sent me an article from Bloomberg.com, which discusses the Chicago School’s reaction to the recent spurt in government intervention in the economy. It’s worth a read in its entirety, but I want to highlight a particular section that demonstrates a small degree of the “fatal conceit:”

Robert Lucas, a Chicago economist who won a Nobel in 1995 for a theory that argued against governments trying to fine-tune consumer demand, says deregulation may have gone too far.

Depression-era laws that separated commercial and investment banks helped depositors decide if they wanted secure accounts or riskier investments. Today, without these distinctions, people can’t be sure if their investments, or those of their customers, are safe.

“I’m changing my views on bank regulation every week,” Lucas, 71, says. “It was an area I saw as under control. Now I don’t believe that.” 

Far be it for me to criticize a Nobel laureate, however, I would love to ask Mr. Lucas what kind of investments he believes are “safe.” Just how can government go about ensuring (and insuring) “safe” investments? A CD is relatively safe, but the depositor is taking a risk whenever he or she invests money anywhere–it’s how the game is played.

An investment will always be a risk–you have to take a risk to succeed, and sometimes you fail. That’s exactly what’s NOT being allowed to happen now with banks, financial firms, automobile manufacturers and even steel mills and artists. 

And as to Lucas’s comment that he believed that regulation was “under control” I’ll only say that a vibrant, wealth-creating economy should never be “under control.” It should always be changing, evolving and recreating itself. Again, the cycle of never-ending bailouts appear to be perpetuating the bad at the expense of the good that we may never know.

(To read up regulation and the myth of deregulation in the past few years, take a look at John Stossel’s piece here.)

Although his thesis appeals to some scholars and media outlets, it is as false as any claim can be.  To say that we have been living in a laissez-faire system, as Sanders claims, is to ignore everything relevant about our current regulatory system.  Today Cato Unbound published economics professor Lawrence H. White’s discussion of “What really happened.” An excerpt:

The actual causes of our financial troubles were unusual monetary policy moves and novel federal regulatory interventions. Regulatory distortions intensified in the 1990s. Poorly chosen public policies distorted interest rates and asset prices, diverted loanable funds into the wrong investments, and twisted normally robust financial institutions into unsustainable positions.

We can group most of the unfortunate policies under two main headings: (1) Federal Reserve credit expansion that provided the means for unsustainable mortgage financing, and (2) mandates and subsidies to write riskier mortgages. The enumeration of regrettable policies here is by no means exhaustive.

Professor White’s article is a summary of a more thorough briefing paper on the economic crisis, which we encourage everyone to read before believing Sanders’ bilge wholesale.

*It should also be noted that Sanders holds a BS in a non-economic field and does not hold a higher degree in that area (or any other area).