A mildly antagonistic interview of Milton Friedman by Robert Kuttner. A few highlights:
RK: Do you think the greater degree of globalization and reliance on market forces has, on net, made the job of central bankers easier by allowing markets to self-correct more fluidly, or has it made their job more difficult by increasing the risk of systemic imbalances?MF: I believe it has made their job easier by providing a larger and more liquid market.
RK: How do you reconcile that with the need to intervene very proactively after crashes.
MF: Well, there aren’t very many crashes.
RK: Right
MF: In 1929, in the immediate aftermath of the crash ,the Federal Reserve Bank of New York did very well providing liquidity. The System’s mistake came later when it allowed the money supply to decline by one –third by 1933.The Federal Reserve in 1987 did very well in intervening, in providing liquidity. That’s never been the problem.
RK: It’s the money supply?
MF: It’s recognizing that you are responsible for inflation, for the price level, that it isn’t something that comes from outside
[...]
RK: Another question: In my own work I have argued that in most sectors of the economy markets work as advertised, but there are some sectors such as healthcare where for a variety of structural reasons, if you let the free market operate you will have socially unpleasant consequences and maybe even inefficient consequences, in that epidemics will spread and that sort of thing, and ditto maybe in the regulation of the honesty of financial markets. You and I would probably set that bar in different places in terms of how many kinds of sectors of the economy are exceptions to the rule, and what you do about it.MF: Wherever government is largely involved, inefficiencies result. Now let me ask you a question. Dentistry does not come under Medicare. Dentistry is operating well. You never had any of the problems in dentistry that you have in medicine. If markets work in dentistry why wouldn’t they work in medicine? They did work in medicine for many years. In 1945-46, total spending on medical care was about four of five percent. Now it’s gone up to 13 or 14. Something happened.
RK: Well, but part of that surely is because medicine has figured out more ways to treat people.
MF: Every other technological improvement lowers costs. What technological improvement raises costs? Government is now paying at least half the costs of medical care. Obviously, that’s why, whatever the technological improvement, it’s generating higher and higher costs.
[...]
RK: Well, let’s come back to the SEC. In general, well, what did you think of Sarbanes-Oxley? Was that overkill? Or was that a reasonable….MF: I think Sarbanes-Oxley is a terrible law.
RK: Because…?
MF: Here you say to every CEO in the country: you’ve got to swear to the accuracy of things you can’t possibly know. You’re going to make a perjurer of him. And you say to him, for God sakes whatever you do, don’t take risks.
There's much more to the interview. RTWT if you have any interest in school vouchers and environmental regulation.
One other more trivial bit that struck me...
RK: Right. But one of the paradoxes here is that the law and economics movement seems to be in favor of restricting some rights of private remedy even as its in favor of reducing regulation.MF: I’m not sure what you are referring to
RK: Well I’m referring to both the writings of some prominent law and economics people, but also the 1995 and 1998 amendments that made it harder for individual investors to bring suits claiming that they were defrauded by the representations of people selling securities and the accountants signing off on offerings, and that sort of thing.
MF: I’m not an expert on that area. I don’t know what those amendments were. You’ve got me out of my depth.
It's too rare that public figures are both humble and self-confident enough to say 'I don't know.'
Posted by Walter at January 10, 2006 11:15 AM