Milton Friedman vs the Austrian Perspective

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So you are a good free market Chicago School guy.  You have rejected Keynesian economics in favor of the free market Chicago school.  You have read Milton Friedman’s “Right to Choose” and you are convinced that the free market is the way to go.

Well, maybe he is not such a free market guy.  He is, in fact, in favor of compulsory taxation, monopoly, price controls, and the welfare state.  Milton Friedman proposed the tyrannical payroll deduction in the United Sates during WW2 and it has stuck with us like a curse ever since.  He is against cartels in most areas except for money.  Though Chicago School has done many positive things in promoting liberty, its faults are glaring and can no longer be ignored after September 2008. The Chicago School was fundamental in popularizing the idea that almost all government regulations are actually lobbied for and constructed by the industries that are to be regulated to push out competition and raise costs for new competitors entering the sector.  This allows large firms to absorb regulatory costs while pushing out small businesses and new upstart companies.  The term popularized by many from the Chicago school is “Cui Bono” or who benefits?.  The Chicago School realized that in almost all cases, the big players in the industries being regulated are almost always the same beneficiaries of such regulations and are also the biggest pushers of regulation (just like today’s health care legislation and insurance companies.)  Chicago School has written hundreds of books on almost every industry when making their case but have somehow missed the elephant in the room, the Federal Reserve. So the largest monopoly of all escapes all scrutiny from the Chicago School.  Chicago School refuses to use this same method of “Cui Bono?” on the banking cartels that exist around the world in the form of Central Banks.  This seems absurd when considering that all the shareholders of central banks are private and have enormous leverage in setting the price for money (the interest rate).  So the Chicago School and Milton are completely inconsistent in their theories when it comes to money.  They are for free competition in all fields except for banking, where the Chicago school supports government sponsered monopoly.

When it comes to methodology, the Chicago School is as bad if not worse than the Keynesians.  The Chicago School and every other school of economic thought besides the Austrian School since the 1930s have viewed human beings as mathematical aggregates.  That is to say, human beings are simply numbers to be put in mathematical formulas.  The Austrian School completely rejects this because human beings are conscious actors that change their behaviors based on conditions. For example if you raise the income tax, some people will likely find other ways to generate income through investment or some other method.  Therefore, human behavior and concious actors will change how much revenue will be brought in.  All other schools of thought pretend that human behavior is for the most part unchanging and can be constructed as part of a mathematical formula. For example, if government action A is taken than B will be the result.  Ludwig Von Mises established in “Human Action” that human behavior cannot be predicted and observed in the same way that hard sciences make predictions. All particles in the universe act in the same predictable way when a force is applied to them. This is not true with human behavior.  When a new variable is applied to human interaction, humans will react in multiple different ways, each to achieve their own desired goals. Since economists can’t possibly know the goals and motives of every single person, it makes human beings almost impossible to predict the same way that chemists or other scientists make predictions with their respective studies.  This puts economics closer to the field of sociology rather than a hard science, i.e. physics, that mainstream economists’ fantasize about making economics into.  Human beings are conscious actors but the Chicago School’s methodology leads to many conclusions that are not logical because they often do not take this into account. Murray Rothbard gives the example of Milton Friedman’s negative income tax or guaranteed annual income.  Rothbard argues that it is precisely because the welfare bureaucracy is so inefficient that the United Sates is not more bankrupt than it is.  Friedman’s plan to make it more efficient by automatically sending out checks to anyone making below a certain income creates a hugely distorted incentive structure that is logically obvious but which Chicago School’s methodology seems unable to grasp.

Lastly if you still think that the Chicago School is free market consider this; Ben Bernanke is a student of the Chicago School, specifically Milton Friedman’s book on the Great Depression. Everything that Ben Bernanke has done has been lock step with what Milton Friedman had suggested should have been done during the Great Depression. Not one major economist from the Chicago School publicly protested against TARP or the mind boggling expansion of the money supply.  The Chicago School has completely capitulated to the Keynesian world view and have shown their true colors. The only school of thought that has not been toppled in the wake of September 2008 has been the Austrian School.

Here Gary North goes into some of the intellectual history of economics. Additionally, Gary North makes the argument that the intervention of 2008 was so massive that it was arguably taken even further than anything that Milton Friedman would have suggested thirty years ago.

Here is another lecture comparing Milton Friedman to the Keynesian paradigm.

Here is an article about how mainstream conservatives and supply siders are Keynesian.

 

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  41. Kuwait attack shows Gulf vulnerability to Islamic
    State
    By REUTERS

    Published: 17:30 GMT, 29 June 2015 | Updated:
    17:30 GMT, 29 June 2015

    e-mail

    By Angus McDowall

    KUWAIT, June 29 (Reuters) – By sending a Saudi Arabian suicide
    bomber to Kuwait and recruiting local members of a stateless
    underclass to help him attack a Shi’ite Muslim mosque, an Islamic State cell struck at the Gulf Arab monarchy’s most potent internal divisions.

    Relations have traditionally been good between the 70
    percent of Kuwait’s 1.4 million citizens who are Sunni and the Shi’ites who make up 30 percent, but regional rivalry between Sunni
    Saudi Arabia and Shi’ite Iran has opened some fissures.

    The country, home to the region’s most open Arab society, is also divided between descendents of its original townsfolk and those of
    Bedouin tribes, between Islamists and liberals and between rich and poor.

    For decades, Kuwait’s ruling Al Sabah family has played the social, religious and political groupings off against each other, say critics, while sidelining injustices
    such as the plight of over 130,000 stateless “bidoon”,
    meaning “without”.

    Islamic State is adept at exploiting vulnerabilities with its violently puritanical message and call to an Islamist utopia, a tactic it could use in other Gulf Arab
    states where despite great wealth, bitter inequalities persist.

    But while many Kuwaitis say they hope the government will respond to this challenge by addressing internal problems and maintaining its open tradition, they fret it will instead follow the authoritarian lead
    of the biggest Gulf state, Saudi Arabia.

    “Now there is a lot of fear after this action that the government will take more measures regarding more security, more limits of rights,” said Mohammed al-Dallal, a former member
    of parliament with the Muslim Brotherhood-affiliated Islamic Constitutional Movement.

    Friday’s attack, which killed 27 and injured more than 200, put Kuwait on the front line of a jihadist problem
    that has been aggravated in its neighbour Iraq by the tussle for regional dominance between Saudi Arabia and Iran.

    Kuwait is a rare island of open debate in the Gulf, with elected
    MPs who can challenge the ruling family’s appointed government and a tradition of free
    debate that allows critics to publicly question both the state and regional heavyweights.

    TRIBESMEN AND SALAFISTS

    This diversity has carried a political price, as the Al
    Sabah dynasty has often taken advantage of splits to better maintain its rule, giving or
    withholding patronage to prevent any one group from
    growing powerful enough to threaten its primacy.

    In recent years, seemingly urged on by Gulf allies, it has
    grown less tolerant of dissent, jailing citizens for tweets critical
    of the Al Sabah and changing electoral laws in ways critics
    say make it harder for the opposition to win a majority in parliament.

    What some fear is that the government will now become the last member of the Gulf
    Cooperation Council, which also includes Saudi Arabia, Qatar, Bahrain, the United Arab Emirates
    and Oman, to approve a security agreement that could
    limit rights.

    Drive up the highway west out of Kuwait City, through dowdy suburbs
    and large open areas of scrub trees intersected by electricity pylons, and you pass first the bidoon area of Sulaibiya and
    eventually the tribal district of al-Jahra.

    The houses are smaller and shabbier than in Kuwait’s inner city where the scions of
    wealthy merchants, both Sunni and Shi’ite, and the professional
    classes, make their lives.

    Many bidoon are descendents of Bedouin nomads from inside Kuwait who failed to register with the authorities when its
    borders were set 50 years ago, while others are more recent undocumented migrants from Iraq seeking
    access to its riches.

    At least two of the suspects Kuwait has detained after Friday’s attack are
    from this disenfranchised community, as was the Iraq-born father of Mohammed al-Emwazi,
    known in the West as Islamic State’s beheader of
    hostages, Jihadi John.

    “Islamic State will find some angry people because of some social issues. I think number one is the bidoon,” said Dallal, describing the issue as a
    “time bomb”.

    Kuwait’s Bedouin tribes, while much better off than the bidoon, have historically
    been looked down on by cityfolk, who often regarded them
    as unsophisticated, while they in turn often decried the cosmopolitan urbanites as irreligious.

    It was among these groups that Salafism, the ultra-strict strain of Sunni Islam native to Saudi Arabia, has thrived in Kuwait, with its sympathy for tribal traditions, its egalitarian approach to those within its fold and intolerance of Shi’ism.

    Fuhaid al-Humailan, spokesman for a Bedouin Salafi party, condemned Friday’s bombing, but then quickly turned to what he described as the terrorism perpetrated by the West and Shi’ite Iran against
    Arab Sunnis as representing Kuwait’s main threat.

    NATIONAL UNITY

    In the 1980s, the government encouraged Salafists as a counterweight to the Muslim Brotherhood and the movement has grown ever since,
    becoming a force that held many seats in the last parliament and
    has mobilised young people on the street.

    Although the Muslim Brotherhood has held fundraising events for rebels in Syria, providing cash that the
    West believes may have gone to militants, it is Salafists whose ties to jihadist groups most worry Kuwaiti liberals and Shi’ites.

    “Salafist extremism existed in Kuwait a long time ago. But the government gave us deaf ears. They didn’t listen until this tragedy happens,” said Ali al-Baghli, a liberal former oil minister at a diwaniya,
    as Kuwaitis call their nightly salons.

    As Shi’ite victims were buried on Saturday, Kuwait’s flag hung at half mast by the emir’s seafront palace and condolences were heard in the
    Sunni Grand Mosque.

    Shi’ites at the funeral, the men and women sipping thimbles of tea
    at the salon held at a liberal political society and Islamists in a Bedouin district outside Kuwait City all
    commended their ruler, Sheikh Sabah al-Ahmed al-Sabah, for visiting the bomb
    site within an hour of the attack.

    Yet despite the emotional pledges of unity and allegiance, few people said they expected meaningful changes in how the
    Al Sabah handled the grievances Islamic State exploited, and still fewer seemed to agree on what changes, if any, should be made.

    (Editing by William Maclean and Philippa Fletcher)

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