Well, his theories on money supply are used by no central bank in the world because they have been found not to work.

25 years of deregulation and policies that favor “free markets” have produced lower GDP growth, despite substantial innovation (PCs, then the Internet). And that’s before you discount GDP growth post 1980 for the hedonic adjustments introduced then which raise reported GDP.

We’ve had stagnant worker wages.

We’ve had many more financial crises.

We are in the process of having a crisis that may rival or exceed the Great Depression,and marks the end of the US’s reign as the dominant economic power.

If that’s what great economic thinking yields, I’ll take a dart board instead.

http://www.youtube.com/watch?v=JfdRpyfEmBE

I think DeLong’s article is fantastic. I think it has the right balance of respect for market forces and recognition that they aren’t perfect.

Importantly, I believe that DeLong explicitly expresses your primary concerns. Take your two statements…

“Unfettered markers (remember, Friedman wanted to abolish the FDA) leads to concentrations of wealth and power.”

and

“The creation of profit opportunities is all about creating market inefficiencies.”

In order for these two to be consistent, unfettered markets must allow inefficiencies to arise and these must be undesirable. I think we’d all accept those assertions without the posturing (even Freidman would accept the later, though he *might* debate the former).

To which DeLong responds,

“This critique of the market is, of course, one-sided. After all, other arrangements for allocating labor appear to involve more domination and alienation than the labor market, which offers opportunities, not constraints… Market arrangements have a larger meritocratic component than the alternatives, and they encourage positive-sum entrepreneurship, making it easier to do well by doing good.”

Consequently, for your argument to be complete, you must establish that alternatives are *better* not merely that markets are inefficient (which is where I believe Freidman would argue).

Obviously, there are well defined situations where your argument is fundamentally correct (and thus DeLong argues fairly to limit markets). For example, there are certainly inefficiencies that are artificially created (like oligopolies) and therefore should be addressed.

However… there are other situations where inefficiencies arise that are not necessarily innately unfair. An inventor has “asymetric information” but that doesn’t necessarily imply that the government has any role in altering that situation.

I believe that most laissez-faire policies are in fact consisent with these critera.

Consequently, in promoting your arguments, I challenge you to find sufficient evidence for the relative benefit of an alternative and to identify situations where inefficiences are clearly improper and not generated (in this case fairly) by individual labor, whether those of the body or mind (like those of inventors).

Do I take this as an argument that Professor DeLong wishes that (a) the Fed chairman was a “democratically elected representative,” or that (b) Congress set interest rates? Or, considering the level of “democratic” interest in Congressional elections, perhaps (c) the White House should set them?

Of course not. What Professor DeLong means is that the decisions should be taken by him and his friends. Indeed “we” have more confidence in the rule of this oligarchy than in any “democratic representatives,” ie, politicians. But I’m not sure this is saying a lot.

It’s especially amusing that people cite Friedman, whose effectiveness with the old formula pas d’ennemis a gauche, pas d’amis a droit was legendary, as some grand dragon of capitalism. Try Murray Rothbard, kids. Friedman may indeed have run out of remedies. Rothbard hasn’t even been tried. But the reckoning is coming…

Silly Yves, don’t you know? Internal consistency is for communists…

But these win/win’s are only temporary and partial, for some members of society, not others. Inefficiencies per se are by definition not good for society as a whole, in the long run, and should only be tolerated if they are necessary to achieve other societal goals that cannot be achieved without creating the inefficiencies.

Whether profit from market inefficiencies is societally necessary boils down to whether people who seek such profit when allowed to, and who are often creative, industrious, or intelligent, would contribute to society their talents and energies anyway, if not allowed to make a profit (over and above a normal compensatory wage for their work.) That is, can humans establish and enjoy a society where profit is not required to motivate some societally desired endeavors?

Ayn Rand implied in Atlas Shrugged that the answer to that question is no. There is no scientific evidence to support that conclusion, however, and little reason to believe it.

As for ‘overseas’ responses to Friedman, I believe that he generates a kind of mouth-agape speechlessness – right across the political spectrum.

Government must not interfere with business in any way whatsoever.
Business has but one responsibility: generate wealth for its owners.
Business has no social responsibility whatsoever (other than profit/wealth generation).

And, so Prof DeLong, here’s what we get (from CreditSlips):

Back on February 24, I posted the story of Erica Stevens (again, not her real name). Erica is one of the respondents of the Consumer Bankruptcy Project 2007. I described how her bank had held a check from the bankruptcy study for five days, without telling Erica, thus causing a couple of her checks to bounce—to the tune of $33 per check. In our outrage over the way Erica was treated, a couple of us who blog here on Credit Slips volunteered to contact her bank on her behalf (with no charge to Erica whatsoever). The objective was simply to attempt to get the charges reversed. When our interviewer, Denise McDaniel, called Erica with the offer, her reaction surprised us.

Erica refused our assistance—out of fear that the bank would retaliate against her. She told Denise that when she and her husband filed for bankruptcy, their attorney insisted that a couple of loans from this particular bank be included in the petition. (Which, of course, they had to be.) She said that she believes that the bank has been particularly harsh with them and has singled them out since they filed. Thus, she does not want to risk angering them with our calls. She can’t afford to make them mad.

And Erica recognizes that it might be in their best interest to change banks, but since her husband’s paycheck is automatically deposited into this bank, she’s afraid that things would get messed up in the transition and they would be hit with additional charges and fees. Which is something that this couple truly cannot afford.

In February, when I first posted Erica’s story, there were several readers of the blog who responded. Their comments strongly suggest that this type of financial mistreatment is quite common. Indeed, I would encourage you to take the time to read what they had to say. And if you are an academic looking for a new research project, well, this would make a great topic!

In sociology, we often weigh the power of individual agency against the power of social structure. In this case, it would be the power of Erica against the banking industry. Clearly, the playing field is not level. Once again, I assert that for real change to occur, government leaders need to take a stand against the banking industry, hold them accountable for their abuse of consumers, and give some power back to the people.