what would Friedman say?

As the keynote speaker for the Friedman Legacy event at U of L this morning, I was asked to use a take-off of the familiar WWJD in describing what Friedman would say about the current macroeconomic situation.

(After my remarks, the bulk of the event was a panel discussion on education reform, including Jeff Reed (Friedman Foundation for Educational Choice in Indy), Jerry Stephenson (pastor of the Midwest Church of Christ; chairman of Kentucky Education Restoration Alliance), fellow economist John Garen from UK, and Phil Moffett, co-founder of School CHOICE Scholarships and recently announced candidate for governor in the Republican primary).

Of course, this might be perceived as sacrilege on two fronts-- by imitating a phrase often used to imagine Jesus Christ (albeit by humans) and by potentially (and presumptuously) putting words into the mouth of another man! But I think I was ok on both counts...

Here's what I said:

I opened by discussing how he spoke-- with grace and truth; with equal parts smile/wink and tenacity/intensity. And I noted that he would talk about both efficiency and when possible, (nearly-universal ideas of) equity. For example, in describing the travesty of Social Security, he would have described its solvency problem as a pay-as-you-go system with a wave of baby-boomers retiring. But he would have been even quicker to talk about the oppressive burden of its (payroll/FICA/12.4%) tax on the working poor and middle class-- as well as its anemic rate of return (even negative for African-Americans).

From there, I moved to a Top Ten things he would say about the current macro situation:

Distorted Housing Market as a chief catalyst (4 items)
1.) Why subsidize (only) upper-end home owners through income tax deductions?
2.) If you subsidize marginal owners (and the housing / lending market), it's bound to get rough when things get marginal.
3.) Why is the (federal) govt in the business of loaning people money for homes-- through Fannie Mae and Freddie Mac?
4.) It is not wise to set up the moral hazard problem in bailing out (subsidizing) banks.

“Stimulus” that doesn’t stimulate (3 items)
5.) Henry Hazlitt and I are rolling around in our graves. Stimulus must be paid for-- through taxes, debt and future taxes, or inflation taxes. Thus, it will be harmful in the long-run and often, is akin to treading water in the short-term. The last 3.5 years provide ample evidence for something that was proven a long time ago.
6.) JFK & Reagan are rolling around in their graves. JFK cut the top marginal tax rate from 91% to 70%. Reagan (with a heavily Democratic House of Reps) cut it again to 28%. Since then, it's moved up a little under Bush I and Clinton and then edged down under Bush II. Unfortunately, about half of Bush's tax cuts were of the Keynesian mail-us-a-check variety. (See: Hazlitt above.) And of course, that's all Obama has done.
7.) With Unemployment Insurance, if you insure unemployment, you ensure unemployment.

The Macro Environment: Higher Costs and esp. Risk/Uncertainty (3 items)
8.) The health care bill harmed the macroeconomy-- by driving costs and remarkably, continuing to bolster uncertainty (since no one knows how it will play out)!
9.) What about other potential policy changes: cap/trade, EFCA, tax changes, etc.?
10.) Wait until after the 2010 and 2012 elections-- both in terms of political outcome and potential changes in public policy. On the latter, even if voters give power back to the GOP, would they do much good with it?