Milton Friedman’s Magical Thinking - Dani Rodrik - Project Syndicate

Milton Friedman’s Magical Thinking - Dani Rodrik - Project Syndicate

Again, the theme seems to return to the Delphic Optimalist concept of BALANCE...

The pendulum has swung too far to the right towards the lunatic fringe of laissez-faire free market fundamentalism over the last 30 years, and we all have been paying for it since the Great Contraction commenced -- except for, of course, the Top 1%, who have been doing not just fine [thank you very much], but exceptionally well. The pendulum needs to begin swinging the other way - and soon, lest the delicate clockwork of our democracy and capitalist institutions become utterly broken beyond repair.

Rodrick's latest contribution to Delphic Optimalist BALANCE in a thumbnail:

... But Friedman also produced a less felicitous legacy. In his zeal to promote the power of markets, he drew too sharp a distinction between the market and the state. In effect, he presented government as the enemy of the market. He therefore blinded us to the evident reality that all successful economies are, in fact, mixed. Unfortunately, the world economy is still contending with that blindness in the aftermath of a financial crisis that resulted, in no small part, from letting financial markets run too free.

The Friedmanite perspective greatly underestimates the institutional prerequisites of markets. Let the government simply enforce property rights and contracts, and – presto! – markets can work their magic. In fact, the kind of markets that modern economies need are not self-creating, self-regulating, self-stabilizing, or self-legitimizing. Governments must invest in transport and communication networks; counteract asymmetric information, externalities, and unequal bargaining power; moderate financial panics and recessions; and respond to popular demands for safety nets and social insurance.

Markets are the essence of a market economy in the same sense that lemons are the essence of lemonade. Pure lemon juice is barely drinkable. To make good lemonade, you need to mix it with water and sugar. Of course, if you put too much water in the mix, you ruin the lemonade, just as too much government meddling can make markets dysfunctional. The trick is not to discard the water and the sugar, but to get the proportions right. Hong Kong, which Friedman held up as the exemplar of a free-market society, remains the exception to the mixed-economy rule – and even there the government has played a large role in providing land for housing.