It’s bizarre watching intellectual fashions shift. A few years back, most public discussions of economics simply took it for granted that Keynesianism had been discredited and that Friedman was some kind of intellectual powerhouse. Now, you can see the consensus changing all around us. For instance:
After World War II, laissez-faire economists had a big intellectual problem: the Great Depression. How could you argue for dismantling the post-WW II social insurance states and returning to the small-government laissez-faire of the past when that past contained the Great Depression? Some argued that the real problem was that the laissez of the past had not been faire enough: that everyone since Lord Salisbury and William McKinley had been too pinko and too interventionist, and thus the Great Depression was in no way the fault of believers in the free-market economy. This was not terribly convincing. So advocates of a smaller government sector needed another, more convincing argument.
It was provided by Milton Friedman.
Here, Friedmanism is presented almost as a con-job, for which a couple of paragraphs serves as dismissal:
The power of Friedman’s theory was, in part, rhetorical. “Keep the money supply growing smoothly” sounds like it means to keep the presses in the Bureau of Engraving and Printing rolling at a constant pace, printing out a steady flow of pictures of George Washington. [...]
Today, we have reached the end of the line for the Chicago view of financial deregulation. Friedman thought (a) that the central bank could exercise enough influence over the money supply to effectively control it, and (b) that banks and other financial intermediaries would be regulated tightly enough that what is now happening would be impossible. But he never resolved the tension between his view that banks need controls and the Chicago view that business must be unfettered.
What’s changed? The world itself, of course. We’re in the middle of paradigm-shifting events. It would be exhilarating were it not so damn scary.