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Lessons Learned—and Relearned

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books and culture

Lessons Learned—and Relearned

A new book reminds us of economic principles we seem hellbent on forgetting. October 7, 2021
Economy, finance, and budgets

Samuelson Friedman: The Battle Over the Free Market, by Nicholas Wapshott (W. W. Norton, 385 pp., $28.95)

Macroeconomics has come a long way in the last century. We’ve learned a lot about the forces behind growth, productivity, and what makes for effective fiscal and monetary policy. Of course, our understanding has never been complete, and because the economy is always changing, we must often adapt or discard knowledge that no longer applies. There’s also a lot of knowledge that we’ve largely forgotten but that nevertheless remains true. Nicholas Wapshott’s latest book, Samuelson Friedman: The Battle over the Free Market, reminds us of the many lessons from the 1960s and 1970s that still apply today, even if we seem determined to forget them.

The book tells the story of the intellectual rivalry between Paul Samuelson and Milton Friedman. Samuelson favored more government intervention; Friedman, less. Wapshott is a veteran journalist, and it shows: his book is an enjoyable history of how the economics profession came to understand the best role for monetary policy and the failure of the original Philips curve, which posited a stable inverse relationship between inflation and unemployment. Today’s debates about whether our current inflation spike is transitory contain many parallels (and many of the same mistakes). Commentators often praise Jerome Powell’s Fed for caring more about unemployment instead of being “over-focused” on inflation, but Samuelson Friedman reminds us of what many of these commentators have forgotten, or perhaps never knew: that the choice between inflation or unemployment is a false one. Policy that ignores inflation in hopes of lowering unemployment merely ends up generating both, as the stagflation of the 1970s proved.

Friedman and Samuelson had much in common. They came from Jewish families, were about the same age, studied at the University of Chicago, and transformed the economic profession. They also wrote dueling Newsweek columns in the 1960s, 1970s, and 1980s. Reading this book in the age of Twitter and Substack, one can’t help but reflect on the vital role of the public intellectual. While it’s never been easier to communicate to the public, we suffer today from a notable absence of figures of the caliber of Friedman or Samuelson—perhaps because the discourse today doesn’t allow for the kind of healthy back-and-forth debates they enjoyed.

Both Friedman and Samuelson were intellectual giants in the economics profession, but both were often wrong when it came to policy. Being a great economist and being a great policymaker are two different things; the messiness of politics and unintended consequences mean that economic understanding doesn’t always translate to good policy. But that doesn’t make their contributions any less valuable. Sometimes it takes decades to absorb a new idea into workable policy.

Samuelson Friedman is a follow-up to Wapshott’s Keynes Hayek: the Clash that Defined Modern Economics. Focusing on another intellectual rivalry is a logical sequel, and the two certainly held very different ideas about how the economy worked, but, reflecting on their legacy, I find it strange to pit them against one another. Like most modern economists, I can’t overstate how much I’ve been influenced by both.

The book also doesn’t do justice to Samuelson’s legacy. By focusing on his rivalry with Friedman, Wapshott casts Samuelson in the role of a macroeconomist. Friedman is largely responsible for how economists understand monetary policy—the foundation for the best-practice, rules-based policy that central banks (half-heartedly) use today. Samuelson’s contribution to monetary policy is much more modest. This approach leaves out Samuelson’s enormous contributions to the economics profession as a whole. To name just a few: he brought rigor to all of economics, laying a foundation for each individual sub-field to evolve; his textbook made economics widely teachable to generations of undergraduates, to the point that it is now the most popular major in many universities; and he is the intellectual grandfather of financial economics. Setting Samuelson against Friedman necessarily minimizes this legacy, which may explain why the book dedicates more space to Friedman.

Wapshott’s attempt to grapple with the towering legacies of these figures is the weakest part of the book. He makes some contentious arguments about the financial crisis, including the idea that a bigger Keynesian style-stimulus would have shortened the Great Recession. He also makes the odd assertion that Friedman’s ideas paved the way for Donald Trump—and even blames Friedman, in part, for the January 6 Capitol riot. In fact, many MAGA policies would have horrified the free-market Friedman.

Nonetheless, most of Samuelson Friedman is an enjoyable, informative read. Economists and lay readers need to relearn the painful lessons of the 1960s and 1970s. Better to do so by reading Wapshott’s book than by reliving those times.

Photo: Paul Samuelson, left (Photo by Santi Visalli/Getty Images), Milton Friedman, right (Photo by George Rose/Getty Images)

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