Milton Friedman has long been a lion of economic theory.
One need not be an acolyte of Friedman’s free-market economics to see that his ideas are as much a part of Chicago’s history as the stockyards and steel mills.
Before Friedman, the University of Chicago’s economics department was a well-regarded academy. But after he developed his groundbreaking economic theories there, it became the home of the “Chicago school” of economic thought.
The U. of C.’s celebration of Friedman’s 90th birthday Friday was a founder’s day of sorts. The fun of it was watching many of the school’s post-Friedman Nobel Prize winners parse their precedessor’s theories and test them against today’s economic events.
Jim Heckman moderated a panel on the impact of governmental economic incentives. Robert Lucas discussed economic depression and recovery. Gary Becker examined public policy through the prism of Friedman’s economic philosophy.
And just what is Friedman’s Chicago school of economics?
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It holds that free markets have supreme wisdom in allocating scarce resources. That the money supply is key to managing the economy, not government spending. That government regulation causes more problems than it solves.
Pretty abstract stuff. But bring it into the world, and the impact is huge.
Friedman’s ideas gave rise to the age of Alan Greenspan, largely because both political parties have embraced large swaths of Friedman’s laissez-faire ideology.
His notions gave intellectual cover for Ronald Reagan’s supply-side economic policies, which resulted in huge budget deficits and a new kind of cold-hearted capitalism.
They demonstrated the distorting effects of rent controls, professional licensing programs and even the military draft.
On the local level, Chicago benefited when Friedman saw the impact of the breakdown of fixed rates of currency exchange. He inspired a little-known commodities trader named Leo Melamed to build the modern Chicago Mercantile Exchange.
More than any other person, Friedman is responsible for the school-voucher movement. Friedman didn’t invent the idea. He claims Thomas Paine came up with it–in the pamphlet “Common Sense.”
But Friedman was the first to build a strong economic argument for vouchers. And he continues his support by funding economic research through a foundation he formed with his wife, Rose, a noted economist.
Still, for all his brilliance, Friedman has his flaws.
The world isn’t made up strictly of homo economicus. There is homo humanis to account for–the human person, who can sometimes get hurt by a too-heavy reliance on free markets as the font of all economic policy.
Friedman once defended sweatshops, saying they offered impoverished workers a small step up the economic ladder. He still believes the minimum wage is folly.
From a purely economic perspective, Friedman can construct an argument. But it can prove to be a narrow and unrealistic point of view.
Being correct in the academy doesn’t mean Friedman is always right in the real world.
Politics intervene. So do economics.
Unequal access to information means people don’t always act as efficient-market theory would dictate. And ethical and moral considerations often disrupt pursuit of the purely Chicago-school credo.
At Friedman’s 90th birthday celebration, Harvard University economist Carolyn Hoxby delivered a stirring argument for school vouchers. But she allowed for the real-world fear that voucher programs might distort the economic and racial makeup of schools.
“You can shape a school choice program to have the segregation composition you want it to have,” Hoxby said. “Of course, this is not a free-market plan.”
Without real-world compromises, school vouchers are mostly an intriguing idea. With them, vouchers can become a reality.
It’s when Friedman’s notions move off the chalkboard and into society that they have their biggest power.
Usually for good. But sometimes not.