Tuesday, February 24, 2009

Surely You're Kidding, Mr. Friedman

It amazes me how people continue to view the Friedman Twins (Milton and Thomas) as gurus.  Milton's gospel of deregulation left the foxes guarding the henhouse (We tried that once, you know.  It resulted in the 1929 Crash.  And now, rewind and replay.) and resulted in our current mess.  Brilliance.

And Thomas?  Well, today's editorial is just too typical.  He condemns giving money to auto manufacturers and advocates giving it to venture capital firms that will then finance bleeding edge technology that will save the economy from its current free-fall.  Uh huh, pull the other one.

Let me make it clear that I have opposed the bailouts from the start, and I'm no fan of the Big Three.  I've always thought that, if the government wanted to throw money their way, it should take over their pension funds, thus keeping a pile of retirees off the welfare rolls and making it easier for well-managed auto companies to buy them out.  But Thomas's approach is just noodles.

First, another "New Economy" theory?  Please.  Remember 10 years ago when we were all being told that the Dot Com Boom had changed all the rules?  Turns out it hadn't.  And none of the innovations Thomas is banging the drum for now will change them either.  New tools?  Yes.  New rules?  No.

Second, just what kind of crystal balls do you think the venture capital people have, Thomas?  I remember reading one of the tech tabloids that were all around Seattle during the Dot Com Boom and looking at a cartoon of a scruffy teenager announcing that he had created a website for his cat and then watching the suits line up to dump money on him.  It was about that bad.  And of course the VC people also made the real estate bubble possible.  Let's just say they haven't proved infallible in locating long-term investments.

Third, and here's the kicker, your economy isn't even real, let alone sustainable, if all it produces is electrons and documents.  We have a textbook case in the United Arab Emirates right now: Dubai and its "New Economy" are having to be saved from ruin by Abu Dhabi and that dirty, old school dinosaur stuff it pumps.  If you want an economy that lasts more than ten years, you need to make stuff: food, tools, stuff you can touch, stuff you can pick up, and yes, stuff you can drive around in.

Problem is that the US (and the UK for that matter) has gotten pretty weak in the "making stuff" department.  You see, in order to make stuff, you need people who can make stuff.  You need pattern makers and tool-and-die operators and folks like that.  We haven't been paying attention to that, though.  While Europe and Asia were making sure of their next generation of engineers and lab technicians and skilled trades, we were making sure we'd have an endless supply of lawyers and investment bankers.  The closest anyone got to science was computer programming, which amounted to little more than retraining classes teaching people to cut and paste code someone else had written.  Everybody in the US was going to work behind a desk.  Not possible.  Not even desirable.  All those desk jobs can be moved to Mumbai with the push of a button.  Which Thomas has argued is a good thing.

And so here we are, needing to make things ourselves because we can't afford to buy them any more, and we've nearly forgotten how.  Meanwhile, Thomas drives his Lexus past the olive trees on his way to an exclusive country club outside Calcutta, oblivious to the slums he passes and to how they are reflected more and more by the spreading slums back in the US.

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At February 25, 2009 at 2:10 PM, Blogger gator80 said...

Mr. Rife,

I suppose your expertise in economics is comparable to mine in real estate law (which is to say, minimal).

Do you really believe 'deregulation' was the cause of the 1929 crash? (Do you think we can regulate our way to stable equity values?)

The United States was lightly regulated from the time of the revolution until well into the 20th century. That period of time marks the most dramatic rise in living standards in history. Not just for the wealthy but for the ordinary citizen. Compare the way people lived in the 18th century with the way even the poor in the United States live today.

As for 'Milton's gospel of deregulation,' have you actually read what Milton Friedman wrote? It's well worthwhile and a lot more reasonable than demagogues today represent.

At February 25, 2009 at 3:59 PM, Blogger Knute Rife said...

"Do you really believe 'deregulation' was the cause of the 1929 crash?"

No, but lack of regulation created a large amount of unstable and predatory securities speculation.

"That period of time marks the most dramatic rise in living standards in history."

Due to a large resource base that could be exploited cheaply, providing a competitive advantage over Europe. As the principle resource (land) dried up, wealth rapidly concentrated, and the regulations started, which is actually a fairly predictable pattern.

"I suppose your expertise in economics...."

I claim no expertise. My experience, on the other hand, comes from having run or advised a lot of businesses over the years. So I do have some idea of market functions.

"...have you actually read what Milton Friedman wrote?"



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