Krugman on Friedman

The February 15 edition of the New York Review of Books has an (extensive) intellectual obituary of Milton Friedman by Paul Krugman (Who Was Milton Friedman?). I’m impressed the Krugman does not really pull his punches much. He is very critical of Friedman the public intellectual after some kinder words about Friedman the economist’s economist.

One comment

  • Progressive assessments of Friedman tend criticize him as a public intellectual, but pay tribute to him as an academic economist. Specifically, Krugman identifies the “permanent income hypothesis” and challenges to the Phillips Curve as Friedman’s most notable contributions to the discipline.

    I see Krugman’s point that Friedman’s critique of the Phillips Curve was reasonable and did not go off the deep end of “rational expectations”. However, I am less convinced by claims for the “permanent income hypothesis”.

    First, Krugman’s sharp distinction between academic work and advocacy does not fully apply. The transparent political message of the hypothesis is that governments should not use (temporary) fiscal policy to manage aggregate demand.

    Second, for all of Friedman’s talk about “positive economics”, it is not clear that “permanent income” is a good predictor of real-world outcomes. On the contrary, the “relative income hypothesis”, which was articulated a decade earlier and emphasizes income distribution, is a better predictor of savings rates.

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