The cruel trick played by history on Milton Friedman
Paul Krugman wrote a blog post saying that Milton Friedman's influence has been largely forgotten in macro policy debates. Steve Williamson lists a number of ways in which Friedman's influence is central to modern macro. Williamson has the right of it; Friedman's ideas are deeply embedded in the macro theories we use to think about stabilization policy. Furthermore - and Williamson doesn't say this - almost all of our macro policy discussions these days center around Quantitative Easing, a tool popularized, and arguably invented, by Friedman.
Three later posts by Krugman (post 1, post 2, post 3) get it right, I think. Friedman hasn't disappeared from policy discourse; he's disappeared from right-wing policy discourse.
Friedman's ideas are pretty close to the mainstream New Keynesian idea of the macroeconomy - the kind of thing promoted by Mike Woodford, Smets and Wouters, Greg Mankiw, and Miles Kimball. New Keynesian models use consumption smoothing, monetary policy rules, and a NAIRU with a downward-sloping short-run Phillips curve - all Friedman ideas. And in New Keynesian models, monetary policy reigns supreme; only at the zero lower bound is monetary policy possibly ineffective. That's a very Friedman idea too. Furthermore, as mentioned above, the policy of Quantitative Easing - which takes us beyond the New Keynesian framework - was what Friedman explicitly suggested for Japan.
Now notice that Quantitative Easing, and the Fed in general, are reviled by the American right. Rick Perry famously threatened to do physical harm to Ben Bernanke for "printing more money". Ron and Rand Paul are famous for decrying QE and Bernanke, as are right-wing darlings like Peter Schiff. Bernanke is as devoted a Friedman disciple as exists.
http://noahpinionblog.blogspot.com/2013/08/the-cruel-trick-played-by-history-on.html?showComment=1376482098290#c8778061021848396656
= new reply since forum marked as read
