Throwing in the Towel on Tyler Cowen and Milton Friedman
I just sent Tyler an email saying I was dropping this, because I don’t want to be a stubborn jerk in case I’m just missing something. So I hope it was understood that by “dropping it” I meant, “After I zing you one last time on my blog.”
For the record, I have no idea how Tyler’s posts on Milton Friedman and the Great Depression are consistent (let alone correct). In his first one, he wrote:
(By the way, some libertarians like to pretend that Milton Friedman blames the Fed for “contracting” the money supply by one-third in that period but in reality Friedman blames the Fed for having let the money supply fall by one-third and not having run a bank bailout.)
Now that surprised me; I didn’t remember Friedman ever saying the government (or the Fed) should have bailed out insolvent banks during the early 1930s. Of course, everybody and his brother–possibly even San Fransisco cab drivers [.mp3]–knows that Milton Friedman thought the Fed should have acted aggressively to prevent M1 from collapsing. But Tyler obviously is above saying that libertarians are wrong for thinking he merely said that. OK, good to know. Tyler reads a lot more than I do, so he must know.
But then David R. Henderson had the gumption to call Tyler out on this point, saying that it’s not at all clear that Friedman actually favored bailing out insolvent banks (as opposed to providing a general environment of abundant credit such that the solvent but illiquid banks could slog through). You know what? Let’s quote David just to make sure I’m not seeing what I want to see:
David R. Henderson: [Tyler’s] correct that Friedman wanted the Fed to increase the money supply. I don’t think I’m pretending when I say that I don’t think Friedman advocated bailing out banks during the Depression. As I think Friedman would have, last fall I advocated an increase in the money supply while opposing a bailout. Those two, contra Cowen, are separable.
There were some other back-and-forth posts, and Tyler at some point in the comments apologized to David. (I think he was apologizing for his use of “pretend” to describe what libertarians think about Friedman’s position.) Yet today Tyler tells us:
Tyler Cowen: When I perused Friedman’s writings lately, I found that, as far as I could tell, he never discussed how to deal with widespread bank insolvency. I interpret him as believing that [lender of last resort] and loose money and the FDIC could deal with banking crises; furthermore over time his mix of this recipe became successively more libertarian and less interventionist, as David mentioned. But I also think that perhaps he, like I, hadn’t imagined that the insolvency problem would take on the breadth and depth it did.
Now this made me flip out, because here it seems Tyler is saying that Friedman’s views were precisely what the knee-jerk libertarians “pretended” they were, namely that Friedman favored easy money and credit but not actual bailouts of insolvent banks.
So I posted the very first question on the thread, saying: “So did you really mean to write [in your original post], ‘Some libertarians like to pretend that Friedman explicitly denied the efficacy of a bank bailout, when in reality he didn’t say anything about it’? :)” (Note the smiley face; we’re all in a big free market lovefest here, kids.)
Then Tyler comes back and says:
Bob, Friedman favored bank bailouts for the GD, he just didn’t consider the exact details of the current environment because he never lived to see it. He never repudiated his support for a vigorous Fed in the GD. That doesn’t *prove* any counterfactual about Friedman, if he had lived longer and seen 2007-8, but it is a piece of evidence.
I have to stop now before I go insane. Why in the world would Friedman have favored bank bailouts–and to this day I don’t think Tyler has ever shown where Friedman did so–if, per Tyler, Friedman never considered the problem of widespread bank insolvency? How could Friedman have ever written the words, “And so the Fed should have injected capital into particular banks” without a discussion of the effects of widespread insolvency?
And moreover, is Tyler saying that we did NOT have widespread bank insolvency during the early 1930s, whereas we have it today?
Is everybody taking crazy pills?!
