In Tuesday’s Maroon, and online http://www.miltonfriedmancores.org/cores/petition/, the Committee for Open Research on Economy and Society (CORES) published a new petition opposing the Milton Friedman Institute. This Wednesday there will be a meeting of all University faculty to discuss this issue. I offer the following response to the Committee, in the hope that we can guide this discussion to productive ends. (Though I am a member of the MFI faculty committee, this letter expresses my personal views only, and not those of the committee or anyone else.)

The petition closes with “We intend to… propose substantial changes.” Most of all, the University community needs to know, what are these changes? What specific actions should the University take? Unleashing a request for “substantial changes” at the last minute, in a meeting of the entire University faculty, is not a good way to conduct a productive debate.

The petition has been online for more than 2 months. And has garnered 147 faculty signatures and hundreds of signatures of students and alumni as well as from interested peolpe from outside the University.

Do you think that the University should rescind the institute? Consider all that implies: giving donors back their money, publicly disavowing the University’s connection with Milton Friedman, and censuring the administration and council of the faculty senate that created and approved this institute. If this is what you want, propose it and we can productively discuss the consequences.

The council of the senate never approved the institute, it just heard a report. The administration did approve it, and we believe that was a mistake but one that can be fixed, namely by changing the name and the charge of the institute. If donors can not accept such a process than we shouldn't be taking their money.

Perhaps you want more “oversight.” A concrete proposal along these lines might garner a lot of faculty support, including mine, if it were applied even-handedly to all institutes, centers, and perhaps even departments. We don’t want work of poor scholarly quality that represents narrow and overly-political points of view in any part of the University.

Indeed more oversight would be helpful, especially to an institute that makes policy statements in its charter. There is no other center or institute in the University that does so. Indeed even the Economics department, according to its web page, is also involved in the study socialist economy.

One charge is absolutely correct: “…the MFI will engage issues of policy and not limit itself to matters of academic theory.” Should we not ask what economic analysis -- driven by experience, made coherent by theory, and confirmed in data -- can do to improve policies? If you disagree, how would you limit this inquiry? Should similar policy or political limitations be applied to other University research activities?

We believe that an institute that will be involved in advocating policy must ensure the representation of a broader political spectrum. We do not accept the notion that economic policy is a direct consequence of theory verified by experiment, since controlled experimentation is impossible in economics. Political and ethical views affect the assumptions that go into models and even the conclusions drawn by the inspection of historical data.

Alas, most of the current petition repeats innuendo, contrary to written statements about the Institute’s activities, and false and undocumented charges about Milton Friedman’s views. It says that you “intend to raise these issues.” For example, you charge that MFI research outcomes are “predetermined,” adding:

“Presumably then, to take one example, the question of whether to privatize Social Security would be moot; the only reasonable question is how.”

If you do a quick search, rather than presume, you will find that U of C economists conduct a wide range of analyses of Social Security -- and (more importantly) the underlying economic issues needed to evaluate Social Security, such as the changes in the distribution of income across people and generations, and the incentive effects of tax and transfer policies. You will also see how Chicago economic research is driven by careful analysis, not by a desired result.

Out of respect for the academic freedom and autonomy of the Economics department we intentionally do not want to intervene or investigate the work going on there. However we understand the sentences from your report that have been quoted in our petition as meaning that policy initiatives are typically ill conceived and market solutions are typically better, hence the conclusion that social security should be privatized. Indeed Friedman was an avid advocate of doing just that. Paradoxically it appears that the scope of research of the Institute is narrower than that of the Economics department, whereas one would hope that flagship University Institutes would involve broader interdisciplinary research than individual departments.

Another example:

“The proposal ignores the….problems, including state terror, crony capitalism, declining life expectancy, food shortages, etc., that have arisen where he and his disciples implemented those views (Chile, Argentina, the post-Soviet republics, e.g.).”

As a matter of fact, Milton Friedman and others of the “Chicago School” decried “crony capitalism.” George Stigler (Citizen and the State) won the Nobel Prize for showing how regulators become “captured” by the industries they regulate, creating “cronies,” an analysis that resonates in current headlines. Friedman (Capitalism and Freedom) argued for free markets precisely as the antidote to “state terror.” His main point was that a politically free society requires economic freedom, since you cannot dissent against a government that controls your job.

Milton Friedman said many things, and like every human they were at times contradictory, the point is not to analyze the fine details of his writings. However there is no argument that his main agenda as a political activist and ideologue was the reduction of regulation, liberalization of markets, and limiting as much as possible government spending on social programs – not on defense. This is consistent with Friedman's outspoken support of Reagan and Thatcher, and with the use these leaders made of his ideas and those of his disciples. As such Milton Friedman gladly and willingly rose to become the icon of the neo-liberal agenda and the Washington Consensus that had dominated the economic policy around the world until the late nineties. To quote from the Heritage Foundation Web Page:

Today, few, if any, government officials have more economic influence than the Chairman of the Federal Reserve. The cult of Alan Greenspan that grew over the last 20 years owes more to Milton Friedman than it does—with all due respect—to Alan Greenspan. And modern U.S. economic policy, despite all the predictions of the 1950s, is based on limited government interference, monetarism, and the free market—Friedman’s then-heretical ideas.''

Of course the practical implementations of these policies lead to contradictory political results, such as the accumulation of huge amounts of wealth in a small number of hands – which is inherently inconsistent with democracy and freedom. Those with wealth inevitably have much more influence on government and there is nothing to stop them from exerting it – that is crony capitalism. This can affect the regulation process, but that is not a reason to dismantle it. After all we see in today's financial crisis the consequences of lack of regulation. The solution is not deregulation but the expansion of the democratic control of the regulation process. We wonder why aren't these political issues raised as part of the institute's domain of inquiry.

I can think of no logical connection between Milton Friedman and post-Soviet republics. Some of them (Russia) embody everything he argued against. Moreover, this sentence implies that you approve of pre-fall Soviet republics.

It is surprising that a scholar of economics fails to see the connections. Even Friedman's terminology `Shock Treatment' was the term used in restructuring the post-Soviet economies. Yeltsin's prime minister Yegor Gaidar defined himself as a Friedmanite. The effects of the radical shock treatment implemented in these societies was disastrous – the brutal reduction in government social spending with no protections in place led to a massive decrease in life expectancy in the Russia. Similar phenomena were observed in Friedman's Chilean miracle during the 70's.

Are you asking the University as a whole to endorse such a world view? What do you think about North vs. South Korea, or East vs. West Germany, the best controlled experiments we are ever likely to see in the social sciences?

My only response to this is that if these are the best controlled experiments of social science then economists in particular should avoid calling their conclusions experimentally verified theories. They should spend more time explaining to the public the limitations of their field of research and how different it is from physics, chemistry or biology, despite their growing use of mathematics.

Will we debate how well Chile is doing now?

We could. We could also discuss the repudiation of Chicago School Economics all across Latin America.

As you can see, “raising these issues” will lead us a long way from the function of the MFI and of the other research institutes, centers, and initiatives, and how to implement any constructive and realistic changes. This is not a productive way to spend an afternoon.

Sincerely,

John Cochrane

These issues have been raised in order to underline the political impact of an institute named after Friedman. After all, even an avid Friedman supporter could conceivably accept that the establishment of such an institute undermines the University's commitment to political neutrality, just as I could understand objections to the establishment of a Karl Marx Insitute for the study of Socialism, the name of my computer server notwithstanding.

Sincerely,

Yali Amit