“Milton Friedman’s latest research on the Federal Reserve challenges key assumptions of a very prominent economist: Milton Friedman.”
More than any other individual, Milton Friedman was the intellectual inspiration of the conservative counterrevolution against activist government as an engine of economic efficiency and social justice. In his scholarly work contending that government intervention invariably makes things worse, and in his popular polemics equating capitalism with human freedom, Friedman inspired conservative academic economists and movement activists alike. He is the high priest of the ideology that can be reduced to a bumper sticker: Markets work; government doesn’t. More narrowly, Friedman is famous for the economic theory known as monetarism and the corollary view that the Federal Reserve System works best when it is essentially passive, contenting itself with maintaining stable prices.
So I freely admit that this isn’t on the scale of the Pope converting to Islam, it should be seen as a big deal. This is a reversal of one the key ideological planks of neocon small government, market fundamentalism.
I do agree with Mr Friedman that markets work. The problem being that they only work when the item you are dealing with can be adequately described as a commodity. For things that can not be adequately described as such, ie National Security; or those things where there are moral, social and/or other factors that cause people to reject the commodity model (ie, how much religious tolerance can you buy for a dollar?) markets are impractical in the best of cases and absurd in others.
I have to admit that I’m more of a Karl Popper guy. While Mr Popper isn’t really an economist, his views provide amazing insight on when and why markets will fail.