Milton Friedman by Edward S. Herman

Friedman was considered an extremist and something of a nut in the early postwar years. As Friedman has not changed, and is now comfortably ensconced at the conservative Hoover Institution, his rise to eminence (including receipt of a Nobel prize in economics), like that of the Dartmouth Review's Dinesh D'Souza, testifies to a major change in the general intellectual-political climate.

Friedman is an ideologue of the right, whose intellectual opportunism in pursuit of his political agenda has often been heavy-handed and sometimes even laughable. The numerous errors and rewritings of history in Friedman's large collection of popular writings are spelled out in admirable detail in Elton Rayack's Not So Free To Choose. His "minimal government" ideology has never extended to attacking the military-industrial complex and imperialist policies; in parallel with Reaganism and the demands of the corporate community, his assault on government "pyramid building" was confined to civil functions of government. As with the other Chicago boys, totalitarianism in Chile did not upset Friedman-its triumphs in dismantling the welfare state and disempowering mass organizations, even if by the use of torture and murder, made it a positive achiever for him.

Friedman's reputation as a professional economist rests on his monetarist ideas and historical studies, his analysis of inflation and the "natural rate of unemployment," and his theory of the consumption - income relationship (the so-called "permanent-income" hypothesis). These are modest achievements at best. His monetarist forecasts have proven to be as wrong as forecasts can be, and the popularity of monetarism has ebbed in the wake of its failures. Friedman's claim that freeing exchange rates would ease national balance of payments problems and not destabilize foreign exchange markets has also proven to be wildly off the mark. The "natural rate" of unemployment is an unverifiable ideological weapon rather than a scientific tool. His analyses of inflation and the consumption-income relation are ingenious, but neither very original nor anything but partial and special cases. They all have the conservative policy implications that Friedman's "scientific" writings invariably contain.

Friedman's methodology in attempting to prove his models have set a new standard in opportunism, manipulation, and the abuse of scientific method. Paul Diesing points out in his valuable article 'Hypothesis Testing and Data Interpretation: The Case of Milton Friedman', that Friedman "tests" hypotheses by methods that never allow their refutation. Diesing lists six "tactics" of adjustment employed by Friedman in connection with testing the permanent income (PI) hypothesis:

• 1. If raw or adjusted data are consistent with PI, he reports them as confirmation of PI
• 2. If the fit with expectations is moderate, he exaggerates the fit.
• 3. If particular data points or groups differ from the predicted regression, he invents ad hoc explanations for the divergence.
• 4. If a whole set of data disagree with predictions, adjust them until they do agree.
• 5. If no plausible adjustment suggests itself, reject the data as unreliable.
• 6. If data adjustment or rejection are not feasible, express puzzlement. 'I have not been able to construct any plausible explanation for the discrepancy'..."

In a proposed Op Ed column written in 1990, Elton Rayack pointed out the interesting fact that while Friedman's models did well in retrospective fitting to historic data, where the Friedman testing methods could be employed, they were abysmal in forecasts, where "adjustments" could not be made. Rayack reviewed eleven forecasts of price, interest rate, and output changes made by Friedman during the 1980s, as reported in the press. Only one of the eleven was on the mark, a not-so-great batting average of .092; "not enough to earn a plaque in baseball's Hall of Fame, but evidently quite adequate to qualify [Friedman] as an economic guru." The guru was, however, protected by the mainstream media; Rayack's piece was rejected by both the New York Times and Wall Street Journal. We may conclude that Friedman's truly pathbreaking innovation as an economist has been in the art of what is called "massaging the data" to arrive at preferred conclusions. This innovation has been extended further by other members of the Chicago School.

See also

• The Chicago School
• George Stigler by Edward S. Herman