However, Friedman argues the Keynesian analysis is not sound. It presents a story that is internally consistent and would work if the world were a certain way. The extended discussion of how plausible a Keynesian analysis is indicates Friedman is willing to concede this view is logically valid. He is not content to demonstrate Keynesianism fails in only one way. In essence, he counsels people to wait and they will find the ocean will be flat again.įriedman once again makes his arguments in several ways, as he did in Chapter 1 when discussing the relation between economic and political freedom. Friedman's support of free markets arises specifically because he does believe markets are self-correcting. The direct objections he makes to Keynesian economics in Chapter 5 expose a fundamental disagreement between the adherents to Keynesianism and the version of free-market capitalism Friedman favors.īritish economist John Maynard Keynes (1883–1946) is famous for saying, "In the long run we are all dead." Keynes, and the economic thought inspired by his work, reject the assumption that markets are self-correcting. Much of Friedman's criticism of various government programs and regulations is that people fail to appreciate the long-term consequences of government activity.
He concludes this work suggests the Keynesian view is likely wrong, but people should do more of this type of work and continue investigating the issue. However, this fact has not stopped people from making policy decisions on the basis of Keynesian views.įriedman looks at real data about the effects of government spending. Friedman argues while there are extreme conditions in which this view would be true, these conditions have been and continue to remain extremely unlikely. The general idea behind Keynesianism is that every dollar of government spending creates significantly more than a dollar of increased income for private individuals and groups. Throughout the chapter Friedman discusses the specific conditions under which a Keynesian view about the effects of increased government spending would be true. In short, Friedman portrays government spending as a clumsy tool, which should rarely be used. Further, governments do not usually decrease their spending once the problems that prompted the initial spending increase are resolved. Instead, Friedman states government spending increases come into effect too slowly to fix any problems. The prevailing view Friedman rebuts is that government spending can be a responsive and accurate counterbalance to instability in a country's economy. He argues increases in government spending do not generally lead to economic growth and expansion, contrary to what the prevailing opinion was in the period after World War II (1939–45). Friedman shifts from a focus on monetary policy to fiscal policy.
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