Free to Choose Part 3: Anatomy of a Crisis (Featuring Milton Friedman)

[mwebful]

this makes me realize how bad t.v. has gotten. these men are actually listening and seriously considering all the theories and statements etc. they don't agree but seem to be sincerely looking for the truth. if this kinda of thing was on today, be fox or msnbc it would just be people yelling and insulting each other, or just trying to make the other person look stupid (which usually back fires).

[Veganomante]

Damn. The fat guy with the white hair is a moron xD

[chris951159]

I like when they said Big govt = big capital = big labor = big failure... sound familiar?

[TheManiacalSatanist6]

And thus, at the beginning of the film, we see that Milton Friedman wasn't as Free-Market as we're led to believe. The Great Depression was indeed a failure of the Federal Reserve, without a doubt. But, the Great Depression came about not because Bank of the United States closed it's doors, Bank of the United States closed it's doors because the bankers who were saying 3 years prior to 1929 that all is well finally saw the writing on the wall. The economy was about as unsound as it could get.

[soapbxprod]

@MDderDoktor True, true! BRAVO!

[soapbxprod]

Facts will set us free, Bravo.

[39sumer3939]

Ron Paul 2012

[EriPages]

THE MODERATOR SHOULD HAVE WAITED UNTIL MILTON FRIEDMAN FINISHED WHAT HE WAS SAYING

Milton Friedman was about to DESTROY the other guy's socialist leaning argument by exposing it's fundamental flaw of the means used to reach the agreed upon objective.

[nrekk]

am I the only one who thought that that only 25 minutes was too short for that debate? Totally enjoyed it

[ThePoisonBiscuit]

In the the first episode, Friedman described any system that depended upon a having the right guy in charge as a bad system. Here he regards Keynes death as a tragedy which could have prevented deficit spending from going too far. Is it just me or do he his opinions here seem to contradict everything he's said thus far?

[nrekk]

@ThePoisonBiscuit no, I don't think so. Keynes was one of the most influential people of his time. It would have made much bigger difference if Keynes himself said that the policies he argued for should not be implemented in "normal" times. Keynes was not happy with what his followers were doing in post-war time and for sure his words about his ideas would be much more effective in preventing mess they resulted in.

[soapbxprod]

@nrekk And Friedman agreed with him!

[mrthink777]

@ThePoisonBiscuit He stated that John M. Keynes was waking up to the monster he had created and could have been the perfect guy to change that trend...

[soapbxprod]

@ThePoisonBiscuit That's because everyone believed that Keynes was the RIGHT guy...

[ThePoisonBiscuit]

This is strange. In the last episode Friedman advocated non-intervention from the government, yet here he seems to take the opposite stance. Why should the banks be protected any more than any other industry? If the governments manage to make a mess of everything they come into contact with, why should this field be any different. As Friedman himself expressed before, inefficient enterprises should not be supported, they should be allowed to fail.

[Mackberserk]

@ThePoisonBiscuit B/c if a big enough bank fails, it creates a chain reaction that could plunge not just the U.S. but the entire international community into a financial collapse. That's why all the European countries are so adamant about not allowing Greece to fail. Many of the banks in their countries that are loaded up on insurance for Greek bonds will all go bust if Greece goes bust. They also share the same currency...

[soapbxprod]

@ThePoisonBiscuit Only because the system was in existence to begin with...

[mbuel]

Its amazing that after repeated failures from the Utopian tyrants, they continue to smash the drum of humanity against the rock of slavery. Results don't matter only the objective.

[MrVanxarp]

Its Sad that Milton Friedman died two years before 2008 crisis.

[TheManiacalSatanist6]

@MrVanxarp Friedman would've eaten his words if he were alive, because Friedman was saying the entire time before the crash up until his death that the Fed had everything under control.

[AnonymanForeverlol]

@TheManiacalSatanist6 You are mistaken. You fail to realise that the economy was sustained by sunlight that was reflected off Milton Friedman's head and focused into lasers through his glasses. When he died it was only a matter of time before things went sour.

[oblonsky]

@TheManiacalSatanist6 the crisis of '08, friedman would argue, was caused precisely by too much involvement by the federal government and too much manipulation of interest rates by the federal reserve. he believed the federal reserve was a deeply flawed system and, even in this video, supported abolishing it entirely and replacing it with something that could not be gamed by the likes of greenspan or bernanke.

[CSK225]

The gentleman @ 35:25 makes a very valid point regarding a system with some detached central "brain" that controls this economy without human imput. An economic super computer, if you will. Where Friedman's ideas become inherent in this idea is that real brains operate on neural learning networks as opposed to central "programs". The mass of individuals operating in seperately will always produce a more stable economy. The analogy couldn't be better.

[theAbeElement]

It's funny how milton didn't just spell it out here... that the fed caused the depression by restricting money flow, capitalizing on low gold prices in the process. ps.. the fed is NOT a govmt entity - it is the puppeteer of the govmt

[Illyrien]

Funny, in the scenario mentioned at about 12:00 the very point of the FED is fraudulent, in that it is supposed to conceal that the bank is being an investment bank rather then a deposit bank.

[mcufre]

Too much talk about government intervention but what about the banking system meddling with interest rates when using a debt based currency? I'd blame them for the booms and busts.

[RiotSoldier]

@mcufre My only question is who would you suggest "meddle" with interest rates? Government? We all know from experience that the government is neither smart enough or efficient enough to do it. Therefore that's why he talks about government intervention, because a number people believe that the government can do it, but it CANNOT.

[mcufre]

@RiotSoldier Well it must be some democratically elected body accountable to the people, not some private group of banks who send your money secretly abroad for their own agendas and also bail out their own buddies with it and is totally unaccountable to anyone. These people are the culprits of your current situation, and we in Europe have our own similar scenario. Money is a means of exchange to serve the people, not a means for banks to become the owners of the world.

[arseneremy]

A successful system will work despite who's working it. 

[RoboSlater]

Robert Lekachman just called himself a socialist. That doesn't appear in his Wkikipedia entry.

[RoboSlater]

Robert Lekachman (1920-1989) was a Keynesian and strong advocate of state intervention. Thinks govt acts intelligently.

[LiViDaChI]

Why do they always cut Friedman off..

[SkepticThink]

I guess the Fed has decayed since then, because now it changes interest rates wildly, prints wildly, and gives trillions of dollars away to other central banks, essentially by taxing the poor.

[Silversong88]

actually his view on the Fed didn't change that much. Initially he wanted the fed as a safety net to supply money to banks in desperate times (e.g. stop a depression). But of course that didn't happen as the Fed changed even more by becoming more secretive and printing much more money than needed. So it was only natural Friedman concluded it is better to do away with the Fed...

[supadudeism]

The right man, pulling the right levers, at the right time? Sounds like a job for RonPaul2012.

Or are we going to look back 10 years from now and regret electing some half-wit PR Stuntman...again!

Get voting America.

[SARKEK]

@supadudeism Curious, your profile says that you are from the UK. What do you mean "we"?

I will vote for Ron Paul if he alters his foreign policy, I don't like the idea of leaving our allies high and dry in the case of a war that's not ours i.e. beginning of WWI and WWII.

[supadudeism]

@SARKEK Semantics?

Any way, I'm pretty sure US policy has a massive effect on global politics so I'm counting myself as a beneficiary of US policy.

I think Ron Paul's foreign policy isn't going to preclude the Congress being allowed to vote and declare war wherever it sees fit, and allow alliances such as the UN and NATO to continue when voted by Congress. Rather than being taken to war without any democratic over-sight. In my mind this is a good thing. A very good thing.

[heavym3tal]

I think its interesting how my teachers in school revised history such that I never heard this.

[tektheater88]

I wonder of if Mr. Freedman's opinion of the Federal Reserve would have changed today in light of the gross overprinting of the Money over the last decade.

[suprachiasmaticnucl1]

@tektheater88

I'm only 1 minute into the episode so I don't know his stance on the Fed at the time this was filmed, but do know that he advocated abolishing the Fed in his later years.

[SFConifer]

George Bailey saved the Building and Loan; Mr. Potter stole the rest

[Consrvatev]

i'm sooooo happy these are all up now :)

[Atreus21]

That dude has some enormous ears.

[poorperson]

Lol cue cards

[seppsters]

lol they've cut his answer in half. Where can you see the raw fotage ?

[TheThejoseph]

i dont really agree with milton at all on this one.... the fed has caused more trouble than any single government entity and most likely caused the great depression

[UnconformistSheep]

@TheThejoseph Friedman also blamed the depression on the Federal Reserve, and wanted to replace it with a simple "blackbox", so you'll have to be more specific in your disagreement. ;-)

[mikeyboy236]

@TheThejoseph In all fairness however, his view of the fed greatly changed towards his later years.

[ashkaji]

@TheThejoseph But you must remember, even here Milton says "The reason goverment fails is because we have a system in which you need the perfect person to oversee each function of goverment" He desires a system in which no one person is neccesary., where the idea of ''the invisible hand'' would be a superior solution. Example: No one man should set prices, because they will never have enuff forsight to set prices perfectly. Alternativly, free markets and consumers demands will set prices.

[987steel]

what he was saying is the fed was there to fix deflation, but to watch out... because to much interference would create inflation or even stagflation which is where we are today.

[kshoren05]

You need to re-watch, he argued that the Fed should have bought govt bonds to stabilize the money supply and mitigate the runs on banks. Guess what, Friedman is & was right! 

[MNgeneralfinance]

Milton Friedman is a great author also. He wrote a great book along with thise series with each episode being a chapter. I like to read and watch this mans works. He is genius at explaining how the economy works and who benefits.

[sluv2600]

@MNgeneralfinance

Why should they have cooperated to save the Bank of US? This goes against his theory of non-intervention - the stronger survive in free markets... Probably the Bank of US was not efficient enough.

[sluv2600]

@MNgeneralfinance

Why should they have cooperated to save the Bank of US? This goes against his theory of non-intervention - the stronger survive in free markets... Probably the Bank of US was not efficient enough.

[Frenchyification]

That could be a great thing. But how do you decide when the government needs to fire everybody hired during the Depression? Plus the deficits to be paid for won't allow the federal government to pay for the military and the police, especially if there is no income tax or strong national sales tax. Flaws when you combine Keynesian and Austrian economics.

[AndrewLLFrazier]

This isn't Milton Friedman, it's his alter ego Sir Meynard Dumbhead! It's so bizarre how such a brilliant person could get it so wrong He doesn't mention the moral hazard of having a lender of last resort and how that very moral hazard precipitate crisis it claims to prevent. He doesn't mention that the crisis in 1929 was created largely due to easy monetary policies leading up to Black Thursday.

His analysis is incomplete, Rothbard is right.

[AndrewLLFrazier]

@AndrewLLFrazier He says that 1/3 banks went bust. As if that was some horrible thing. I suppose it is horrible, but it was only necessitated by the needless expansion of banks in the first place. That is the disaster wasn't that these banks went bust but that they were created when people didn't need them. It's the Federal Reserve system during periods of easy monetary policy that necessitate these needless banks to be created in the first place. Malinvestment, that is the disaster.

[shaqdaddy11]

@AndrewLLFrazier Why do Rothbard fans often try to knock Milton? I personally dont agree 100 % with Milton or 100% with Rothbard. Yet i consider them both to be great economic minds. So why do some rothbard fans feel the need to knock Milton when he says something they dont agree with.

[AndrewLLFrazier]

@shaqdaddy11 Its not that we are trying to knock Milton, it's that he is clearly wrong on this crucial point, and it is very important that the people championing the cause for freedom - as I believe I do - that we be absolutely consistent and comprehensive in our philosophy. The point is that, he never acknologes the idea that the Great depression was the result of the excesses during the preceeding boom period. Without this analysis, you might come to the wrong conclusion.

[AndrewLLFrazier]

@shaqdaddy11 Our current situation is the culmination of justifying the idea of a lender of last resort. In my town there are more banks than fast food resturuants, despite the fact that the demand for bank tellers is a small fraction of the demand for fast food. Having banks fail is the solution to the problem of having too many banks - yet this problem is never identified by Friedman. The waste of human an financial capital on unproductive institutions which serve no purpose to society.

[AndrewLLFrazier]

@shaqdaddy11 To the extent to which you bail out banks is the extent to which you set up an even larger crisis in the future. In the eyes of Friedman, the bank bailouts are justified, and are the course of action that should have been undertaken during the Great Depression, we are seeing now that this is no better, that the deleterious effects of having such a monumental moral hazard lead to disasters far greater than the disaster "lender of last resorts" are intended to prevent.

[shaqdaddy11]

@AndrewLLFrazier No, i dont believe friedman is supporting bank bailout. What i do believe he is was pointing out was that the fed had the oppertunity to prevent the depression, yet they did nothing. I also think its unfair to look at this series and say "well Milton didnt go indepth here n there". This series was not designed for economics grad students. It was for your average man who has not the basic understanding of economics.

[shaqdaddy11]

@AndrewLLFrazier You cant judge Milton the economist from this series, you got to look at his whole lifes work. Like any good economist his views changed with facts and i believe towards the end he was fully in favor of abolishing the fed.

[AndrewLLFrazier]

@shaqdaddy11

Arguments aren't right or wrong based upon how complexly they are worded, they aren't right because the person who made the argument has a PHD, they are right or wrong on their own intrinsic merit. And so it is not the economist I am judging, it is the argument - that lenders of last resort provide a valuable function to an economy. My argument is that lenders of last resort create greater disfunction than the crisis they are supposed to prevent.

[shaqdaddy11]

@AndrewLLFrazier yeah i can see your point. I was also a bit disappointed in how Milton viewed keynes theory. If the theory is so flawed, why hype it up and the economist who presented it. That just dosnt make sense to me. But to be honest on the whole subject of the great depression, i simply havent studied it well enough at the moment to give an agree or disagree on the argument.

[madscientistify]

@AndrewLLFrazier neither does he insinuate support for the fed and political admin policies of that time.again, milton is not business, he is for free trade and markets, among people without any means or forces of coercion

[AndrewLLFrazier]

@madscientistify inflation (bank bailouts) are a means of coercion because it takes purchasing power away from the savers. If you double the money supply in order to bail out banks, the purchasing power in identical economic conditions is reduced to 1/2 it is equivalent to stealing 1/2 of the savers money. That is coercion. That is why I find this argument to be entirely inconsistent with his other positions. It's beyond belief.

[madscientistify]

@AndrewLLFrazier there will always exist inflation, as long as people prefer buying goods cheaply and selling them at a more expensive price.the question of inflation is how much is too much.the bank bailouts were needed at the time, i'm assuming ur distress is veered towards what the obama administration did in 2008, capitalism is not a perfect system, what milton propagates is not a perfect system, but one which can allow the greatest form of prosperity to the largest number of people

[AndrewLLFrazier]

@madscientistify Inflation does not always exist. Under a gold standard it would not. Unless gold can be synthetically produced without much effort, inflation would not exist. What money printing is is compensation without effort - to those who introduce it into the economy. It has yet to be demonstrated that you can print money and introduce it into the economy without creating a contagion of moral hazard. I think a proper definition of inflation would be moral hazard in it's purest form.

[AndrewLLFrazier]

@madscientistify Do not confuse inflation with capitalism, they are not synonymous - nor is inflation an aspect of capitalism. Inflation is a deadly parasite to capitalism. It is the thing that will completely destroy capitalism in whatever country it inhabits. Inflation is moral hazard in its purest form.

[madscientistify]

@AndrewLLFrazier the dictionary meaning of inflation is the phenomenon of a rise in prices.there is desirable inflation and undesirable inflation, know how to distinguish between the different forms.

[AndrewLLFrazier]

@madscientistify it's a shame that's the case, just six years ago the dictionary had the proper definition of inflation which is the increase in the money supply. that is the definition I choose to use.

Desirable inflation is when you have an elastic money supply, money supply contacts in times of recession and expands during the good times. But it has yet to be demonstrated that you can increase the money supply without generating a contagion of moral hazard.

[madscientistify]

@AndrewLLFrazier there is no dictionary that has ever defined inflation as an increase in the money supply.that is pseudo economics.its without a doubt that a higher money supply leads to higher inflation, but listen to this, a growing economy needs additional money o keep growing.what's really ur argument,what's ths abt moral hazards?and i would dissuade you from making faulty assumptions based on pseudo economics

[AndrewLLFrazier]

@madscientistify Websters defined inflation as an increase in the money supply up until 2004 (I believe). I have the 1991 edition it says

in-fla-tion (econ) a sharp increase in the amount of paper money put in circulation

even this is not a good definition because it doesn't matter if the money is paper or digital - also it doesn't have to be money, in some instances inflation can also be an expansion of credit.

[madscientistify]

@AndrewLLFrazier first of all ur factually wrong on the founding of the fed, the fed was founded in 1913 as a result of the bank runs that were characterizing the united states in the late 1800s. it was meant to control the banks that were lending in excess more than what they could put up, second, the theory of elastic moneuy supply came after keynes discovered the relation between it and its effects on interest rates and therefore national output as a whole.

[madscientistify]

@AndrewLLFrazier inflation is not only a capitaism thing, its a socialist, liberal whatever u may choose to define it thing.it appears in all societies regardless of economic policy.

[AndrewLLFrazier]

@madscientistify I agree inflation is not capatilism, it is indeed socialist or liberal. and it does appear in societies regardless of economic policies. But with a gold standard inflation is nearly impossible. The money supply can only increase to the extent new gold is found. Yet that in itself is not inflation in the sense that extracting gold is a very labor intensive process, it's not like printing money where the money printer does not exert the productive effort that currency represents.

[AndrewLLFrazier]

@madscientistify desirable inflation is a term I meant to define. I did not want you to think that I believe that expanding the money supply is ever desirable for the economy. I should have been more clear. I was referring to the term based on economic theories which were the basis of the feds founding. The founding charter of the federal reserve dictates that it has an elastic money supply. I personally don't understand why having a stable money supply is such a bad thing.

[madscientistify]

@AndrewLLFrazier good inflation is necessary for freemarket economics, there is an invariable relationship between the rate of inflation and unemployment in the short term.

[AndrewLLFrazier]

@madscientistify the problem with this idea is that the economist who believes in good inflation does not address the problem of how to safely increase the money supply without generating moral hazards or economic booms.

[madscientistify]

@AndrewLLFrazier oh they do try to address the issue of money suppy, milton has written tons of essays on ths subject, theres a whole section and course in universities dedicated to teaching ths concept,people such as keynes are reputable for their theories based on trying to explainthe money supply equilibrium

[AndrewLLFrazier]

@madscientistify What is missed by Keynes is the immense danger the precedent of lender of last resorts create. There is no analysis than can be done which can accurately estimate the true cost of this moral hazard. This cost is borne on lives wasted, in the bankers speculators and government employees who spend their lives in mediocrity producing little to no benefit to society. It is up to the imagination to conjure the vast variety of ways these people could be more productively employed.

[madscientistify]

@AndrewLLFrazier i'm still trying to understand your argument.are u against having a fed as a lendr of last resort?

[AndrewLLFrazier]

@madscientistify absolutely I'm against having a lender of last resort - or rather a lender of last resort with unlimited monetary resources. FDIC, capital infusions, purchases of bonds, open market operations - with each inflationary program the economy becomes more and more dependent on the flow of cash and credit coming out of the federal reserve. These infusions are raising rages and displacing real goods producing jobs for unproductive or counterproductive jobs.

[madscientistify]

@AndrewLLFrazier that totally cannot be blamed on the fed. a lender of last resort works to infuse much needd liquidity to a failing bank system..the other alternative of not having one is much perilous. but i do accept your frustrations at turning an economy from a tangible productive nation to a paper shuffling one.though i don't understand the correlation/causation btwn that and having a lender of last resort all i know is, that is to be blamed on govt officials nd banking lobyists.

[AndrewLLFrazier]

@madscientistify the Fed are feeding all the parasites. Without the fed, without an expanding money supply, the military industrial complex, the corrupt banking system, the out of control federal government would not and could not exist. The federal reserve has been corrupted, they are financing perpetual and expanding debt on insolvent and unproductive institution.

[AndrewLLFrazier]

@madscientistify Where does your bank loan money to? Do you know? Probably not. Why not? Because no one cares what banks do with their money, as long as their money is insured, as long as they know they are protected by a lender of last resort, the people don't care what the bank does with it's money. What the FDIC does is try to remove risk from the equation. What it does to the economy is finance a lot of bad investments that should never see the light of day.

[AndrewLLFrazier]

@madscientistify The largest factor contributing to the housing boom was the moral hazard created by the FDIC. Because the loans were inferred to not have risk, no one was holding the banks accountable for what banks were doing with their money. People were able to buy homes with no money down and no job. Just think about how insane that is.

[MclovinIrishRnB]

more people need to watch this

[AndrewLLFrazier]

@MclovinIrishRnB Why do you want to humiliate Milton Friedman? He's a great economist.