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THE ECONOMY'S NEW CLOTHES: Milton Friedman on the New Economy

Hoover Institution・23 minutes read

The discussion on "Uncommon Knowledge" between Peter Robinson and Milton Friedman focuses on the parallels between the technological advancements of the 1920s and the present day economy driven by the internet, highlighting the impact on productivity and labor markets. Friedman also discusses the stock market crash of 1929, suggesting that correct Federal Reserve policy could have mitigated the crash and emphasizing the central bank's role in maintaining stable prices, not controlling stock market prices.

Insights

  • The discussion between Milton Friedman and Peter Robinson highlights the striking parallels between the technological advancements of the 1920s and the current era driven by the internet, shedding light on how historical contexts can offer insights into contemporary economic trends and challenges.
  • Milton Friedman's analysis underscores the critical role of monetary policy in stabilizing economies, as evidenced by his observations on the stock market crash of 1929 and the subsequent Great Depression, emphasizing the importance of proactive measures by institutions like the Federal Reserve to mitigate potential economic downturns.

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Recent questions

  • Who hosts "Uncommon Knowledge"?

    Peter Robinson

  • What foundations fund the program?

    John M Olin Foundation and Star Foundation

  • What were the technological advancements in the 1920s?

    Boom in automobiles and electricity

  • What was the stability in prices attributed to?

    Good monetary policy

  • What did Milton Friedman believe about the stock market in 1998?

    Stock market was in a bubble

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Summary

00:00

"1920s Technology Parallels Current Economy"

  • Funding for the program is provided by the John M Olin Foundation and the Star Foundation.
  • The show "Uncommon Knowledge" is hosted by Peter Robinson.
  • The discussion revolves around the parallels between the 1920s and the current economy driven by new technology, the internet.
  • Nobel laureate Milton Friedman discusses the similarities between the technological developments in the 1920s and the present.
  • The 1920s saw a boom in automobiles and electricity, similar to the current technological advancements.
  • The stability in prices from 1923 to 1928 was attributed to good monetary policy.
  • The discussion delves into the factors contributing to the stock market crash of 1929 and the subsequent Great Depression.
  • The concept of a business cycle is questioned, with emphasis on shocks affecting the economy.
  • The discussion touches on the growth rates in recent years and the impact of technological advancements on productivity.
  • The role of the internet in shaping the labor market and the economy is highlighted.

16:27

Friedman warns of stock market bubble

  • Milton Friedman believed the stock market was in a bubble in 1998 when the Dow was at about 6500, admitting he was wrong at that time.
  • He expressed his belief that the equity markets in the United States are currently in a bubble, particularly the high tech market.
  • In 1929, the equity markets did not collapse by 80% immediately but over the next three years, with the market almost recovering by early 1930.
  • Friedman suggested that if the Federal Reserve had followed correct policy in 1929, the market bottom would have come earlier and not dropped 80%.
  • He anticipated that if the market tanks, the Federal Reserve would likely follow an easy money policy, as seen in 1987, to cushion the fall temporarily.
  • Friedman emphasized that the Federal Reserve's primary role is to maintain stable general prices, not control stock market prices, and should react to changes in the stock market to prevent inflation.
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