Monthly Archives: November 2006

Friedman and Utility

Tyler Cowen blogs about the Friedman-Savage utility function:

The Friedman-Savage piece starts with an obvious puzzle: why do people both buy lottery tickets and insurance against losses? That would seem to make them both risk-loving and risk-averse at the same time. The proffered answer is simple: part of the utility function is concave, and part is convex. Across the lower range we wish to play it safe, but above a certain margina we are willing to take gambles.

Just another example of how Friedman was ahead of his time.

I wrote about the Friedman-Savage utility function as it relates to NBC’s “Deal or No Deal” here.

Classic Friedman

More Praise for Friedman

Thomas Sowell, a great economist in his own right, reflects on Milton Friedman:

Milton Friedman was one of the very few intellectuals with both genius and common sense. He could express himself at the highest analytical levels to his fellow economists in academic publications and still write popular books such as “Capitalism and Freedom” and “Free to Choose” that could be understood by people who knew nothing about economics. Indeed, his television series, “Free to Choose,” was readily understandable even by people who don’t read books.

Milton Friedman may well have been the most important economist of the 20th century, even if John Maynard Keynes was the most famous. No small part of Friedman’s achievement was rescuing economics from the pervasive and virtually unquestioned Keynesian orthodoxy that reigned in many places

Read the whole thing.

Milton Friedman, 1912 – 2006

Economist Milton Friedman has passed away at the age of 94.  Words cannot describe Milton Friedman’s impact as an economist and author.  May he rest in peace and may we never forget the tremendous accomplishments of this great man.

Milton Friedman was very much my economic hero. I never had the privilege of meeting the man, but I will be forever indebted to his writing for helping to shape my beliefs — both in economics and politics. Friedman was confident, intelligent, witty, and clearly ahead of his time.

I am proud to have showcased Friedman’s PBS series “Free to Choose” on this blog each week and I hope that those who took the time to watch them learned as much from Friedman as I have.

Thoughts from fellow economists:

Austan Goolsbee:

Mr. Friedman’s legacy might mean laissez-faire politics to the outside world, but to economists — and especially Chicago economists — it is more about trying to understand how the world works and engaging in a debate about it.

When we heard the news at the University of Chicago that he had died, we actually stopped arguing and were quiet for a moment. It was a most extraordinary event for Chicago economists. Each of us seemed to contemplate Mr. Friedman’s legacy for ourselves. After that bit of calm, the argument resumed. It was, perhaps, just what the old man would have wanted.

Don Luskin:

In more recent years I ended up meeting him several times at Cato events. I got his name right — but I was as giddy about meeting him as I would have been decades earlier. Perhaps the best compliment I can pay to him is to report that he didn’t disappoint me — his intellect and sparkling wit lived up to my highest expectations (and believe me, they were high).

Ben Bernanke:

Among economic scholars, Milton Friedman had no peer. The direct and indirect influences of his thinking on contemporary monetary economics would be difficult to overstate. Just as important, in his humane and engaging way, Milton conveyed to millions an understanding of the economic benefits of free, competitive markets, as well as the close connection that economic freedoms bear to other types of liberty. He will be sorely missed.

Steven Levitt:

He was truly a revolutionary thinker. People do not realize how revolutionary because so many of his ideas that were thought to be crazy when he suggested them eventually came to be seen as obvious: school choice, a volunteer army, etc.

The least of his accomplishments, but the one that gave me the opportunity to interact with him on a regular basis, was to serve on the Board of Directors of the Becker Center which I direct at the University of Chicago.

Even at the age of 94 he would teach me something about economics whenever we talked.

Greg Mankiw:

Friedman’s politics may have generated public controversy, but his scientific contributions yielded a consensus of admiration among his professional colleagues. When students today are taught about the determinants of consumer spending, the history of monetary policy, or the relationship between inflation and unemployment, they owe much to the intellectual legacy of Milton Friedman.

Arnold Kling:

Hearing of the death of Milton Friedman, I turned to this biography. What struck me was that Friedman won the Clark Medal, given to the economist under 40 with the most achievements, in 1951. At that time, he had published none of the works for which he is famous, either inside our outside the economics profession. Well, maybe one–the Friedman-Savage utility function (1948). He received the most prestigious award that the profession offers, and in hindsight he had not even gotten started.

Alex Tabarrok:

Great economist by day and crusading public intellectual by night, Milton Friedman was my hero. Friedman’s contributions to economics are profound, the permanent income hypothesis, the resurrection of the quantity theory of money, and his magnum opus with Anna Schwartz, A Monetary History of the United States, 1867-1960, all stand as great achievements.

But Friedman did not restrict his genius to the academy, he used economics to forcefully argue for a better world. Friedman was a key player in ending the draft, he championed school choice and drug legalization. He not only wrote about floating exchange rates he helped to bring them into being. The end of welfare as we know it? Friedman’s negative income tax was an inspiration.

Tyler Cowen:

When I think of Milton Friedman, I often think first of — oddly enough — his essay on a commodity reserve currency. This not-quite-famous piece of 1951 does not bear on current policy debates, and it did not much influence the world. The idea of backing a money with a commodity bundle wasn’t going to happen anyway.

But it shows one of the sides of Milton I most admire, namely his razor-sharp logic and his ability to get to the core of an idea and pick it apart. It is a model of understanding and argumentation. I read this piece and quake with fear that I might someday disagree with Milton and be disassembled in a quick debate, if the word debate could even be said to apply.

Ralph Kinney Bennett:

That night, as I lay in bed, I thought back to how adroitly this spindly-legged “egghead” had controlled that tennis match. He had carefully gauged my strengths and weaknesses, yes, but that was only part of it. He was completely at peace with his own strengths and weaknesses and he had a seamless confidence born of being so honest about himself.

And withal, not a hint of swagger or superiority.

Many times in the ensuing years, when I saw Milton Friedman in discussion or debate, or had the rare occasion to converse with him, I thought of the qualities he had displayed in that tennis match. I always marveled at the precision of his thinking, the seriousness (not solemnity) with which he regarded those he engaged, and the absolute intellectual honesty with which he defended and advocated the overarching principle of his life – individual liberty.

The Problem with Price Controls

Greg Mankiw on why negotiating drug prices is a bad thing:

My interpretation: The Dems will likely give us lower drug prices and less research into new drugs. Good news if you plan to be sick soon. Bad news if you plan to be sick in the more distant future.