Posts Tagged Milton Friedman

‘Fool in the Shower’ to Give Fed a Scalding: Caroline Baum – Bloomberg

The Fool in the Shower

Learned of Milton Friedman’s evocative image, “the fool in the shower” in this article, which Mish links to. I’ve underlined the truly astonishing part, for my busy readers’ benefit (don’t mention it!). You may need to read it twice (or ten times) to check you read it correctly the first time. Talk about double-take!

What the Fed is saying, in essence, is that as the economy improves, it’s appropriate to provide as much stimulus, or support, as it did in late 2008, when the economy was contracting and the financial system was imploding.

This is a dramatic shift. Given the long and variable lags with which monetary policy operates, past Fed officials at least paid lip service to the notion of acting preemptively: withdrawing excess stimulus — a fancy way of saying they will raise interest rates — as the economy improved.

Not so the current committee, which is tilted toward doves after the annual rotation of voting members. This group seems to think it should “continue to ease as long as there is economic slack,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut. “It’s a classic, elemental mistake,” he said, one described by the late Nobel economist Milton Friedman as the “fool in the shower.”

The fool turns on the water in the shower, steps in and finds that it’s still cold. So he turns the knob all the way to hot, only to get scalded when the water heats up with a predictable lag.

via ‘Fool in the Shower’ to Give Fed a Scalding: Caroline Baum – Bloomberg.

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How not to talk to young people

Speaking of hope, or more particularly of how important it is to give people legitimate hope, here’s a good example of how not to do it. This is an exchange between Milton Friedman and a supposedly young Michael Moore. I say “supposedly” because I don’t see any resemblance, not because I don’t think he’s really young in this video. If it is Michael Moore, he was obviously a bright student and also obviously much better looking than he is now. What happened, Michael?? (One YouTube commenter wrote, “I don’t know about the gas tank blowing up but Michael Moore certainly blew up since this video was made.”)

The person who posted the video seems to think that Friedman won the exchange and “put Moore in his place”, but I think Friedman comes off as an arrogant and socially inept blunderer.

He’s technically correct, of course, but

  1.  he fails to convince either Moore or most of the student audience, and
  2. more importantly, he fails to recognize or take heed of the genuine concern for human life that Moore reveals by asking this question. He tramples all over it. Doesn’t even mention it.

This was a rather foolish thing to do. It alienated a lot of people quite unnecessarily. All he needed to do was to begin his answer by acknowledging the good-heartedness and compassion that was implied by Moore’s question. That would have been half the battle right there. But he did not. It probably did not even occur to him. 

He is right to point to essential principles, but first he should have recognized the principles that led the young man to ask his question.

Instead, he comes off as an unfeeling “economic animal”. Ha! He had a great opportunity and he blew it.

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