Milton Friedman’s passing is a time when conservatives should remember the core principles he stood for: sound money and free markets; a belief that individuals should be masters of their fate, and that government would fail in its attempts to better society by manipulating individual behavior.
And yet, there does not exist in America today a conservative political constituency for sound economic policies. This is unfortunate, and a great abrogation of responsibility.
The Federal Reserve reduced interest rates to 1% in an effort to bail out financial institutions that enabled speculation in the internet bubble. A big-government initiative if there ever was one. Conservatives, if anything, applauded.
The reduction in real interest rates was an incentive to spend and a disincentive to save—an artifice created by government to influence private behavior. The savings rate is negative as a result, and we borrow 7% of our GDP from abroad every year to finance consumer goods imports from China, and not expansion of productive capacity. A big government attempt to float the economy following a credit binge. Conservatives, if anything, applauded.
Following the dramatic drop in government-set interest rates, the government elected not to regulate the enourmous expansion of mortgage credit and real estate speculation. A laudable policy of non-intervention, were it not for the fact that tax payers will ultimately be on the hook from a resulting bailout. Given the scope of credit growth, this bailout could easily dwarf that of the 90’s S&L crisis. Marginal tax rates of 50%, set by resurgent liberals, could be the result. Yet, conservatives, if anything, applauded.
Milton Friedman will again return as an icon of conservative free market thinking. But to claim that he has been so over the past six years would be to misunderstand either what he stood for; or what economic policies have been in place during this time.
