Home > Uncategorized > On the irrelevance of Milton Friedman

On the irrelevance of Milton Friedman

from Lars Syll

In producing theories couched in terms of isolated atoms that are quite at odds with social reality, modellers are actually compelled to make substantive claims that are wildly unrealistic. And because social reality does not conform to systems of isolated atoms, there is no guarantee that event regularities of the sort pursued will occur. Indeed, they are found not to …

milton_friedman_1Friedman enters this scene arguing that all we need to do is predict successfully, that this can be done even without realistic theories, and that unrealistic theories are to be preferred to realistic ones, essentially because they can usually be more parsimonious.

The first thing to note about this response is that Friedman is attempting to turn inevitable failure into a virtue. In the context of economic modelling, the need to produce formulations in terms of systems of isolated atoms, where these are not characteristic of social reality, means that unrealistic formulations are more or less unavoidable. Arguing that they are to be preferred to realistic ones in this context belies the fact that there is not a choice.

What amazed me about the initial responses to Friedman by numerous philosophers and others is that they mostly took the form: prediction is not enough, we need explanation too. Rarely, if ever, was it pointed out that because the social world is open, we cannot have successful prediction anyway.

So my own response to Friedman’s intervention is that it was mostly an irrelevancy, but one that has been opportunistically grasped by some as a supposed defence of the profusion of unrealistic assumptions in economics. This would work if successful prediction were possible. But usually it is not.

Tony Lawson

If scientific progress in economics – as Robert Lucas and other latter days followers of Milton Friedman seem to think – lies in our ability to tell ‘better and better stories’ one would of course expect economics journal being filled with articles supporting the stories with empirical evidence confirming the predictions. However, I would argue that the journals still show a striking and embarrassing paucity of empirical studies that (try to) substantiate these predictive claims. Equally amazing is how little one has to say about the relationship between the model and real world target systems. It is as though thinking explicit discussion, argumentation and justification on the subject isn’t considered required.

If the ultimate criteria of success of a model is to what extent it predicts and coheres with (parts of) reality, modern mainstream economics seems to be a hopeless misallocation of scientific resources. To focus scientific endeavours on proving things in models, is a gross misapprehension of what an economic theory ought to be about. Deductivist models and methods disconnected from reality are not relevant to predict, explain or understand real-world economies.

the-only-function-of-economic-forecasting-is-to-make-astrology-look-respectable-quote-1A scientific theory is, in fact, the embodiment of its assumptions. There can be no theory without assumptions since it is the assumptions embodied in a theory that provide, by way of reason and logic, the implications by which the subject matter of a scientific discipline can be understood and explained. These same assumptions provide, again, by way of reason and logic, the predictions that can be compared with empirical evidence to test the validity of a theory. It is a theory’s assumptions that are the premises in the logical arguments that give a theory’s explanations meaning, and to the extent those assumptions are false, the explanations the theory provides are meaningless no matter how logically powerful or mathematically sophisticated those explanations based on false assumptions may seem to be.

George Blackford

  1. August 19, 2016 at 11:43 am

    I would respectfully disagree with the assertion that MF was an irrelevance; it really depends on what you think the purpose of his work was. Since the late 19th century a plethora of classical and orthodox theorists from the successful capitalist countries have looked around themselves at functional capitalism, found it to be good, and then sought to place it within an abstracted, nomothetic framework designed to display an objective rationale of inevitability to its inegalitarian and unbalanced tendencies.

    MF knew who his audience was at the time he was writing, a bunch of von Mises fanatics and massive corporate beneficiaries of 20th century capitalism determined to see all aspects of state intervention and welfare economics as a massive, horrible aberration and to get back to the pure, ‘free market’ economics of the 19th century. He wrote to this audience in the knowledge that they would get behind his project and that it keyed into the growing wave of resistance and roll-back to every progressive initiative that ever was.

    So, MF was a smart guy who nailed the colours of Neoliberalism to an intellectual mast and made a ton of money out of theorizing the overwhelming greed of his sponsors as somehow beneficial and inevitable. He spawned the theoretical background to unlimited greed and the rapid advance of poverty and inequality, and had the good sense to die before his whole project began to fall apart….. he was the foremost, best rewarded snake-oil salesman of the last 200 years.

  2. Theo fink
    August 21, 2016 at 2:58 am

    England,s Margaret N.Z.Roger and dear old Ronald from the U>S> of A.would have given him Titles and Honors

  3. August 22, 2016 at 6:37 pm

    There are legitimate uses for models, modelling, and modelers. None involve forecasting as prediction. They are about assessing possible futures and how to react to and prepare for these possibilities. The US Energy Information Administration’s (EIA) Annual Energy Outlook is a good example. It forecasts energy availability, prices, consumption, emissions from energy, etc. for a 20-year period. None of these are prediction. The word used by those who prepare and work with such models and their results is “projections.” Simply translated that means if the world stays as it is today, we know all the triggers that are moving things along, and can accurately assess the numeric and qualitative values for these triggers than we can “estimate” what happens for the next several years. But these are not predictions and are not used as such. They are projections used to foster discussion about production, pricing, efficiency, new energy sources, etc. The models used by economists are used for these same purposes. But Jon is correct that the models were also adopted and then manipulated by ideologues who knew the results they wanted from the models and worked very hard to assure those results were produced. Thus economic models as a whole are tainted beyond all usefulness, or even intellectual honesty. None can or should be trusted. From where I sit the only valid models that include economic actions and actors are those created and used by non-economists. For example, “Limits to Growth” by Meadows, Meadows, and Randers, or the National Energy Modeling System (NEMS) used by the EIA. And folks with a specific agenda attempt to manipulate these and their results every day. As for economic models I assume that all are junk until shown otherwise. And most of the people I work with regularly generally assume the same.

  4. Larry Motuz
    August 25, 2016 at 12:40 am

    There is nothing to be found in Milton Friedman that has any bearing on economic activity.

  5. August 25, 2016 at 7:30 am

    Friedman was an arrogant and intellectually dishonest person. He was an ideologue of the first order. A clinical psychologist’s nightmare. And he was not a scholar of any sort. Aside from his erratic defense of a freedom that amounts to what every hippie picked up by attending just one sit-in the 60s – do your own thing – Friedman really has little else that sets him apart from Ayn Rand. And Rand was simply a selfish bimbo. Friedman is especially talented at cherry picking from comments of others to make what he considers a vital point. He often quotes the part of Ronald Reagan’s first inaugural speech in which Reagan says, “… government is not the solution to our problem; government is the problem …” Problem being this misrepresents the point Reagan way trying to make. The entire paragraph is, “In this present crisis, government is not the solution to our problem; government is the problem. From time to time we’ve been tempted to believe that society has become too complex to be managed by self-rule, that government by an elite group is superior to government for, by, and of the people. Well, if no one among us is capable of governing himself, then who among us has the capacity to govern someone else? All of us together, in and out of government, must bear the burden. The solutions we seek must be equitable, with no one group singled out to pay a higher price.” Most of this paragraph would anger Friedman. I guess that’s the reason he consistently quoted only the twelve words from it I cite above. As for economics it’s my view Friedman really didn’t like the subject. His first interest was mathematics. His first vocational goal to become an actuary. Philosophers of mathematics and mathematicians have for some time argued two views on the nature of mathematics. Absolutist – mathematical truth is absolutely valid and thus infallible. Fallibilist – mathematical truth is fallible and corrigible and should never be regarded as being above revision and correction. Most mathematicians adopt the first by default since they never give the question much though. Friedman certainly did. And I believe he transferred this absolutism over to his work in economics. This I think explains in part the model of the economy he peddled and his unwillingness to even discuss compromise on basic tenets which over and over again were shown to be empirically incorrect. After all he believed in mathematics, not empirical testing. And certainly not in validation through a community of scientists. But he was smart enough to pick the right “dog” by going with the needs of the rich and powerful in his theories.

  6. José M. Sousa
    • August 30, 2016 at 6:16 am

      Excellent article. Thanks, Jose. I work with many physicists. They often begin a discussion with the following phrase, “assume a universe …” They can and do assume all kinds of universes. One story they often tell is about stars and how they work. If we assume stars create nuclear energy, what kind and how? As it turns out stars are fusion reactors. How did the fusion reactions begin? There were many conjectures. Scientists are beginning to see the relationship between stars, in fact all mass in the universe and the “cosmological constant (lambda)” and the speed of light. Seems the two feed off one another. A reduction in the speed of light or lambda changes the amount of energy in the universe (yes energy can be created and destroyed), forcing some energy into matter. Thus planets, stars, etc. Fusion is one of those conversions from energy to energy. Complex! But just think what that picture would be like if the physicists had operated per Friedman’s “science?” Stars might be pin holes in a canvas, or just the sparkles in God’s eyes, or in a less far-fetched theory a unique combination of earth, water, air and fire a la Aristotle. Science simply cannot work using the foundation Friedman’s philosophy of science provides. The ONLY guide science and scientists should follow is the object or objects they want to study and understand. Theories and logical reasoning are good so long as they advance this goal. When they do not they ought to be discarded as quickly as possible. The fact that Friedman and most mainstream economists today take just the opposite approach tells us two things, 1) they don’t really want to be scientists, and 2) they don’t really want to understand economic actions and actors. Economists are thus either grifters, wanna be academics who are good at math and virtually nothing else, or surrendered to “the lure of easy money” (Glen Frey). Whichever is the correct answer it’s scary that such people have so much influence on world affairs.

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