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Milton Friedman

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Melanie Liu

on 10 March 2014

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Transcript of Milton Friedman

Milton
F
r
i
e
d
m
a
n

Causes and Conditions of the Economic Boom
The "Freed-men" Government
“Government has three primary functions.
It should provide for
military defense of the nation.
It should
enforce contracts between individuals.
It should
protect citizens from crimes against themselves or their property.
When government-- in
pursuit of good intentions
tries to r
earrange the economy,
legislate morality,
or
help special interests,
the cost come in inefficiency,

lack of motivation,
and
loss of freedom.

Government should be a referee, not an active player.”
– Milton Friedman
Milton's Method
Who was
Milton

Friedman
?


-Born in
New York City
in 1912,
only-son of
Jewish

immigrant family
- Moved to Rahway in his teen years,
where he showed talent for math
- He was
17
when stock market crashed
in 1928, and suffered the after effects of
the Great Depression in his adulthood.
- Gained a
degree in mathematics
at
Rutgers University.
- After graduation, he was inspired by
the dire state of the economy and
decided to pursue future studies in
economy at
University of Chicago.
What Else?
- Post WWII (1945), he became an
American economist and statistician
known for his strong belief in
free-market capitalism
.
- He was influenced by
Austrian economist
Hayek
and his support for classical liberalism.
- He
opposed
the views of
Keynesian economists
and their support for modern liberalism.
Main Causes
that led to the
post WWII boom:
-
High spending on the war effort stimulated and stabilized the economy
-
High demand for the production of weapons and raw materials resulted in a high demand for new workers. Increase in income resulted in increase in consumerism, which brought money back into circulation and brought American out of the Great Depression.
Results:
-
Expansion of industry:
the automobile industry began to produce cars, new industries in aviation and electronics began to emerge.
-
Housing boom was stimulated by easily affordable mortgages and led to the nation's gross national product rising from $200 000 million in 1940 to more than $ 500 000 million in 1960.
- The
rise in the number of births
following the war resulted in the "
baby boom" and increased the number of consumers to stimulate the economy.
Consequences
of the BOOM!
- In attempt to create a welfare state
, the American government during the post WWII boom time did not increase taxes and decrease spending during prosperous times to save money.
-
Friedman
believed that the government would eventually go
bankrupt due to deficit spending.
Friedman argued that the goals/roles of the government should be:
To
control the money supply
.
This is the central idea of
monetarism

to set business expectations and fight inflation.
To have
minimal government intervention
.
To stay out of the foreign exchange market.
To provide certain public goods that private businesses could not provide, but the production of these goods
should not

be a
legal monopoly
.
To replace existing welfare state with negative income tax.

Results or Effect of Approach
Successfully reduces
the
problem of inflation
for example, Ronald Reagan (who was heavily influenced by Friedman's theories) successfully lowered inflation rates in the
US from
14%
to
3%
, resulting in an inflationary boom
However, unemployment rates were
very high
This could be seen in both the US and the UK (under Margaret Thatcher)
The anti-inflationary policies applied during the 80's resulted in a
severe recession
Interesting Fact!
Friedman was quite a little man.
Standing at just 152cm (barely 5 feet!)
Extras!
Recipient of the Nobel Prize in Economics in 1976
Ranked the second most popular economist in the 20th century, after John Maynard Keynes in a survey
“The most influential economist of the second half of the 20th century...possibly of all of it." – The Economist on Milton Friedman
Advocated for volunteer military and successfully brought an end to U.S. conscription
Cato Institute used his name for the Milton Friedman Prize for Advancing Liberty

Milton Friedman
was a
monetarist
,
which means an economist who holds the strong belief that the
economy's performance
is determined
almost entirely by changes in the money system
.

Monetarism:

The belief that inflation is proportional to how much money the government puts into circulation.
Keep your eye on one thing and one thing only:
how much government is spending, because that’s the true tax ... If you’re not paying for it in the form of explicit taxes, you’re paying for it indirectly in the
form of inflation
or in the form of borrowing.
The thing you should keep your eye on is
what government spends
, and the real problem is to
hold down government spending as a fraction of our income,
and if you do that,
you can stop worrying about the debt.

- Milton Friedman
Thanks for Listening!
Full transcript