Jay P. Greene's Blog

(Guest post by Greg Forster)

In a recent issue, the Weekly Standard‘s Matthew Continetti vents his anger at the House Republicans who killed the first bailout bill. I was about to quit reading after the first paragraph or so – because, really, why bother? – when this line struck me: “It was the day when Lou Dobbs replaced Milton Friedman as the face of economic conservatism.”

Excuse me? Milton Friedman didn’t even approve of the existence of the Fed. Does Continetti think he would approve of having the government buy $700 billion in financial assets? Would Milton Friedman also support having government buy up people’s mortgages and “renegotiate” the terms, or any other gimmick the GOP happens to dream up in its quest for votes?

It is just barely possible that what Continetti meant, but failed to actually say, was that Friedman would have opposed the bailout in a responsible, intellectually defensible manner, while the House Republicans didn’t. But the whole tone and tenor of Continetti’s article suggest otherwise. I’m afraid it looks a lot like Continetti simply identifies respectable and responsible economic conservatism with support for the bailout, and of course Milton Friedman is the respectable and responsible economic conservative par excellence, and Continetti failed to think through the implications. I wish he were the only bailout defender who took this attitude.

The whole thing reminded me of a classic William F. Buckley column entitled “Quick! Get Milton Friedman on the Line!” and published on Oct. 22, 1987, right after the Black Monday market crash. The entire column consists of a transcript of Buckley’s phone call to Friedman after the crash. I’ve emphasized a few lines that might be of heightened interest in light of current events:

How are you, Milton?

We’re fine, how are you?

I was wondering whether you could do me a favor. I would like nine hundred words for National Review on the market breakdown. We would need it by Thursday, noon.

Nope.

Why not?

I have never written an economic analysis tailored to the market, and I’m not going to start doing that now.

Why?

Because the behavior of the market doesn’t correlate in any significant way with the behavior of the economy. It’s a mistake to imply that it does, and that would be inferred if I wrote about it.

Well, why don’t you write precisely on that theme? And it wouldn’t be cheating, would it, if you were to suggest what the investor might expect from the market, given the condition of the economy?

Yes, it would – I would be in the business of vetting the market, and I just told you, I’m not going to do that. I make my own decisions about the market, but not for public instruction. I sold all my stocks during the summer.

You did!

I did. And I’m going back into the market tomorrow.

Later, Buckley remarks that “the talk is of another 1929 depression,” to which Milton replies, “nonsense.”

Well, do you subscribe to the proposition that there are safeguards built into the system that would prevent a depression on a 1929 scale?

In 1954, I delivered a lecture in Sweden under the title, “Why the American Economy is Depression-Proof.” I have seen no reason since then, and see none now, to change that conclusion.

But your position all along has been that even the Great Depression was avoidable, correct? Even without the Federal Deposit Insurance Corp., and the SEC, and Social Security, et cetera?

Yes. The economic downturn from August 1929 to the end of 1930 was more severe than during the first year of most recessions, but if an upturn had come shortly after, the episode would have been classified as a garden-variety recession. It was converted into the Great Depression by the collapse of the financial system in successive waves. In 1931, 1932 and 1933. The stock market played no significant role in this collapse. The argument that the 1929 market crash produced the 1931 to 1933 economic contraction is a prime example of post hoc, ergo procter hoc.

You’re saying that it could all have been avoided?

Yes. The financial collapse of 1931 to 1933 need not have occurred and would have been avoided if the Fed had never been established, or if it had behaved differently. The Fed’s inept performance led to changes in the financial system that make a similar financial collapse highly unlikely.

Well, that’s good news, isn’t it?

Yes, that’s good news.

I still don’t see why you won’t write nine hundred words on just what you’ve said for National Review.

You’ve got nine hundred words in what I’ve just said.

Good point. Thanks a lot, Milton, and good night.

Good night, Bill.

The column appears in Buckley’s Happy Days Were Here Again.

As the election approaches, the Friedman Foundation’s choice of “Vote Milton in 2008” as the theme for this year’s Friedman Day feels more and more appropriate.

Coming Tomorrow: Did Milton Friedman oppose financing school choice through tax credits? Archeologists have uncovered startling new evidence! Tune in for the text of a newly discovered letter in which Milton lays out his position.