The Defunct Professor Friedman?
‘Practical men who believe themselves to be quite exempt from any intellectual influences are usually the slaves of some defunct economist’. Practical men, say, like Bob Diamond. You can’t get much more practical than a man of limited intellect who takes from his place of work £17m a year, less a bit for having led a banking operation now officially recognized for its lack of ‘skill, care and diligence’, not to mention its apparently criminal fixing of international money markets. Bob, himself, admitted his favourite economist is none other than Milton Friedman of the Austro-Chicago school of laissez faire, free marketeers.
Friedman’s influence still dominates government, finance and business, not just billionaire bankers. When he first came to the fore it was as a monetarist. The way to small government and light touch regulation was to grant maximum freedom within a tightly controlled framework: the quantity of money in circulation. According to Friedman ‘too much money chasing too few goods’ would inevitably cause inflation. With Thatcher and Reagan, that simple aphorism replaced the Keynesian economics that had ruled since the second world war. But it didn’t work. There were too many unknowns about the quantity of money and the velocity of its circulation, and that rendered monetarist policy ineffective. Friedman himself expressed his disappointment at the ineffectiveness of monetarist policy.
Undeterred in his pursuit of laissez faire, Friedman advocated minimised flat rates of income tax. These, he argued, would actually be quite lucrative for government since if rates were sufficiently low the wealthy would no longer find it worth their while to pursue elaborate tax avoidance and evasion strategies. He later had to admit that he had been wrong about that as well.
Friedman’s most important guidance to ‘practical men’ was to assert that ‘Few trends could so thoroughly undermine the very foundations of our free society than the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible.’ That advice from the great man has had massive effect. It led business executives to subjugating all other stakeholder interests, including those of local community and the environment, on the altar of shareholder value. It justified the financial sector extracting value from the real economy rather than investing further in it. It has contributed to most of the elements of unsustainability we confront today. The damage done to our economy and culture is incalculable.
The fixing of markets by dominant and potentially criminal companies such as Glencore (see http://www.gordonpearson.co.uk/08/the-criminal-company/#more-1144) has become normalised under laissez faire deregulation. The current revelations re Barclay Capital, under Bob Diamond’s leadership, fixing UK and international money markets, looks like the tip of the iceberg with the full extent yet to be revealed, in a repeat of the Murdoch phone hacking saga. The excesses of greed by bankers, financial intermediaries and top executives throughout business are essential to Friedman’s money making culture. As are the essentially deceptive and dishonest practices of corporates and wealthy individuals in evading and avoiding intended taxation. In 2003, when interviewed for Bakan’s documentary film, The Corporation, Friedman agreed that company executives did, after all, have moral responsibilities which they should exercise in relation to their work.
Despite his many U-turns and admitted errors, Friedman has remained the most influential economist of our age. Until now. Perhaps Bob Diamond’s endorsement might at last help relegate him to defunct status.