We should all put down our pencils and have a moment of silence for Milton Friedman today. He passed away yesterday. You may or may not have known who he was before the news mentioned his passing, but its still worthwhile to learn about him and his economic theories now.
I had Dr. Gomberg for a teacher in AP Economics in my Senior year of High School. Why was an average student like me talking AP Economics, and getting a good grade in it? Who knows, I had all my credits for graduation already, I was just talking electives at that point, and it sounded interesting. He made us read one of his books (or maybe an excerpt) that asked “How many people does it take to make a pencil?” The answer was infinite. No one can exactly calculate how many people it takes to make a pencil because of the number of materials, manufacturing processes and distribution involved. Its an example of both how job/work/process specialization by theory is good at efficiency and cost reduction and then becomes an arguement for free market economics in order to make it happen.
At the time I believed all of this. I took it hook line and sinker like you do when you’re young. (Yes! Laissez Faire for everyone!) And, there are still a lot of things I agree with within the knowledge I have about his theories. One big thing that made me believe in Trickle Down Economics was that it rang true to my family in particular. In the 80′s we had a big jump in our lifestyle level due to the boom that happened as a result of Regan’s policies. My dad’s jobs as a Project Manager Engineer got better and better, because of these changes for businesses, allowing us to go from shopping at Sears to shopping at Marshall Fields. From buying Chevrolets to buying Buicks. We didn’t go crazy with things, but it was still a huge shift in our way of life.
Then the 90′s came and the printing industry started to self-destruct mid way through the decade. My dad was on unemployment 3 times in that decade, having never had to do that before. The economy crashed, and all those short term gains were gone. The economy had to “adjust” as well did a lot of the people who worked in it. And if it weren’t for my dad’s staunch ability to save money, and the house being paid off, I would have not been able to finish college, and we would not have survived.
Both those things are contrary to Milton’s theories. There was a propensity to spend number they mentioned in class. For every dollar more someone makes (a raise) they will spend $0.60 of it. (Today it has got to be about $0.90 of it.) And that’s what they base the trickle down theory on, free up (laws taxes, and regulations) for businesses to spend and build and grow, hire more people, pay them, and they will spend more, getting the economy to grow, and more products to sell which starts the chain reaction again. Although we benefited from TDT (Trickle Down Theory) (which is a close cousin to the more democracies bring us more capitalist markets theory) in the 80′s, bucking that trend and not running with the herd by saving money is what saved us. Now in the 2000′s my dad is a CAD drafter at a very small printing machine making company making what he used to make in 1985 again, but he lives a fiscally conservative life and all the kids are out of the house so its ok.
Later as we came into the next millennium we saw these theories go from temporarily booming our economy for short term gains (notice the 30 year boom/crash cycle happens every 10 years now?) to being the argument for invading other countries for democratic/economic reasons. This has left many people with a negative feeling in regards to these theories. I don’t think that Milton would have advocated war, loss of life and the debt we have incurred for the sake of a democratic/capitalist economy in Iraq. I think the people making that happen have taken his theories and twisted them to the hilt to meet their own personal/business ambitions. Or maybe they’re just economic extremists.
Basically, I think of Milton’s theories as “good” when taken in moderation. I also learned that he had theories on a negative tax to give money back to people who didn’t make enough money to survive, which is in stark contrast to the, “pick yourself up by your bootstraps because unemployment runs out after 1 year” mentality of our current government. It seems that there was more to Milton and his theories than people remember or know about. And a little bit of information in a politician’s hands (and sometimes a CEO’s) is a dangerous thing. I wish for all the people making business/government decisions to err on the side of moderation for a while. Don’t go with most profits in least time, most growth as fast as possible, the cheapest way possible, butts in seats rather than skilled people. All these things have cause-and-effect far beyond the price and profit of your product this quarter. Think about longevity, maintaining & sustaining growth long term, and the effects of what you do on your products and the people who buy them. (yes, lawsuits years down the line with evidence you don’t think people will find) Have a little restraint for god’s sake.
I respect and admire Milton Friedman’s work, and plan to read more about it to get a better understanding myself. I am pretty sure Economics is not as simple as I’ve been led to believe, but its worth knowing about. Especially because in my eyes, marketing is really just the combination of economics and creativity.
To find out more about Milton Friedman, see wikipedia.