Friedman's Criticism of Keynes

Long after the death of Lord John Maynard Keynes in 1946, Professor Milton Friedman, Robert Lucas and Edmund Phelps used a strawman to attack Keynes. The strawman is the so called Phillips Curve which promised 3.5% to 4.5% unemployment to a society willing to tolerate 4 to 5 percent inflation. When the stagflation of the 1970's happened, Friedman, Phelps & Lucas used the Phillips Curve analysis to attack Keynes. Please remember, the Phillips Curve was not Keynes' thesis, nor was Keynes alive when the Phillips Curve thesis was propounded. Nevertheless, the inability of the Phillips Curve analysis to explain stagflation is used by Friedman groupies to attack Keynes as regularly as rain. One can only assume what Keynes would have recommended to deal with stagflation. Would he have chosen to lower unemployment or inflation as his first priority? As a European, one can assume he would have made lowering inflation his top priority. In fact, the European Central Bank (ECB) and all independent central banks of Europe before the ECB have the control of inflation as their only priority. The ECB does not have a dual mandate, as does the Federal Reserve in America. Therefore, as a European, we may assume Keynes would have sought to control inflation using the same tools as Paul Volker did in 1978.

Category:

News & Politics

Tags:

• john
• maynard
• Keynes
• milton
• friedman
• robert
• lukas
• edmund
• phelps
• phillips

[sirellyn]

I'm curious as to what your definition of "wealth" is. That is, how would one or more people off in the middle of no where create "wealth".

[radiohogan]

@sirellyn

It would depend on where "no where" is. In America savings rates have always been low (> 5%). In the 1980's & 90's there were periods of negative savings (borrowing more then saving).

In Asia folks routinely save 15% to 30% of their income.

Wealth is a function of ones ability to generate income and save. There is no income (i.e no good jobs) in the middle of "no where" in America. One is lucky to merely survive.

See my video: The Attack On Labor, based on a book The Big Squeeze.

[sirellyn]

@radiohogan So wealth is both one's savings and the ability to create more income?

Would that mean that someone who was rich beyond measure (more savings than they could spend in their life) but was unable to generate more, would not be considered wealthy?

[radiohogan]

@sirellyn

Wealth is your assets, minus your liabilities - plain and simple. It has nothing to do with ones prospects.

However, your original question was about how to increase wealth in an area where prospects for increasing income are low. Certainly, anywhere in Post Modern America the increasing ones prospects for creating wealth are limited.

Wealth is static - assets minus liabilities.

[orbenn]

I'm not saying whether the Philips curve actually rebutts Keynes or not, but saying that the Philips curve is a straw man because Keynes wasn't alive to respond to it, is like saying that Quantum Theory is a straw man rebuttle to classical physics because Isaac newton wasn't alive to respond to Einstein. Please repost this video using an argument that actually addresses the theories.

[radiohogan]

@orbenn

I am simply saying it would be interesting to hear Keynes rebuttal.

[cjanne9]

Thank you a lot for the advice about Mr Keen´s book.And sorry if i am sounded rude,about "schools".It wasn´t my intention.I think it´s good you have a open mind.

[zsylvana]

Dear Mike.I read the comments below and see that some in your audience don´t

have spent time to see your video.Neither do they read my short comment that

Philips Curve is a creation that not have anything to do with Keynes.It´s in the Neo-classical tradition,and first version was from work of Irving Fischer before Keynes

General Theory,and after that by a australian Neo-Classical economist

named Alban Philips,and later adopted by Neo-classical syntesis of Solow and Samuelson 1960.

[Salvysahagun]

@radiohogan

Cut taxes, increase spending, expand money supply for depression.

Cut spending, Raise taxes, Raise Interest rates for inflation.

Translates to-

Cure depression with inflation

Cure inflation with depression.

[KoWgeKKo]

orbenn is absolutely right. Yes, Keynes may not have been around but there are quite a few formidable Keynesians. Keynesians who Friedman, Hayek, Rothbard, and the like, have had to contend with.

[Robbob9933]

First you need to understand that the Great Depression was well on the mend prior to Government intervention and that the massive unemployment was casued by this intervention. Second is that Keynes only applies the business cycle to govenment. Third, since gonernments never retract as times get good, the Keynesian model must be tossed.

[DamnYourReallyUgly]

@bonfirejovi I Work with My Hands...I Labor in Work, I enjoy it. I HATE TAXES.

Workers should Acquire things with their labor not be taxed on their work.

Can people equate Americas same situation comparatively- If currency did not exist.

Americas situation today is equal to- a tormented king and his henchmen, taking the last bushels of wheat from family's, and telling businesses to leave.

[DamnYourReallyUgly]

silver spoon liberal crap...

The System today encourages global enslavement or neglect...

The only competition that Corporations have today is - What country will work for the cheapest...

The System has re rigged itself so much that is almost purely consumption based, Leaving Unbalance. Little production, and great demand...keeps prices high too.

FREE MARKET, FREE CURRENCY, FREE COUNTRY.

Free to work, free not to. No Entitlements, except God given constitutional Birth Rights.

[DamnYourReallyUgly]

@66chevyo GOLD and Silver.

[DamnYourReallyUgly]

FIAT CURRENCY FAILS.

[66chevyo]

Capital is generated from savings. First you must live below your means and save. Then you invest, consume, lend, leverage debt etc.... Say someone wanted to store their savings in a vault instead of investing in the banking sector (via savings account). What form of "money" do you suppose would succeed at protecting savings best?? Can you please explain?? Thank you

[Warzoooooo]

So you are saying that just because ppl don't have a degree in keynes economics they would not be able to understand economics? There is no magic behind how the economy works. It's simple laws of nature. If you over spend there will be less to spend in the future, and if you save you will be better of when things turn for the worse.

What strike me most is that in the begining of 2008, most keynesianists did not see all the problems that were so easily spotted in the market at that time allready.

[ebeatworld]

Well, I disagree with you. But it was a good video.