I'm going to make this very simple. Milton Friedman supported quantitative easing, and we know he supported quantitative easing, because he told us he supported quantitative easing. Are you listening, Rand Paul?
Now, in a rational world, we wouldn't be playing this game of Milton Friedman's Next Top Fed Policy. It doesn't matter what Friedman (or Keynes, for that matter) would have said about the Fed today. What matters is what Friedman's ideas tell us about the Fed today given what experience has taught us since. But we don't live in a rational world. The idea that Friedman, on the right, or Keynes, on the left, would have supported this or not supported that is a powerful rhetorical device. So we keep playing this game about the Real Friedman™ over and over again. And Senator Rand Paul keeps losing it over and over again.
Against all evidence -- and there's plenty of it -- Rand Paul thinks Milton Friedman would have opposed Bernanke's bond-buying of the past few years. That's what Paul implied last week in an interview with Joshua Green of Bloomberg Businessweek, which just shows that he knows nothing of Friedman's work on monetary policy. As I pointed out (and others have before), Friedman explicitly called on the Bank of Japan to try quantitative easing (QE) back when it first got stuck in its own liquidity trap 15 years ago. But Paul did what any ideologue does when confronted by contrary evidence -- he ignored it. His latest op-ed in National Review doesn't mention Friedman's support for QE, and instead claims that "it is a stretch to try to make Friedman into some Krugman-like apologist for quantitative easing."
In reality, it's a stretch to try to make Krugman into some kind of Friedman-like apologist for QE. But then, you'd have to have actually know something about Friedman to know that.
Look, this isn't hard. We can use the Internet find out what Friedman actually thought about QE. And what he thought was that QE could cure a depression (not that the depression itself was the cure, like Paul does). Indeed, here's what Friedman and co-author Anna Schwartz wrote about the Great Depression in their opus, A Monetary History of the United States, 1867-1960:
Measures that might have been adequate to cope with the earlier [crises] would have been inadequate for the later ones. On the other hand, as we shall see, the bond purchases actually made in the spring and summer of 1932, which did halt the decline in the stock of money but were inadequate to prevent a substantial relapse some months after, would have been more than adequate to cope with the earlier crises.
In other words, Friedman thought the Fed could have kept the Great Depression from being quite so great if it had tried QE sooner. This gets at Friedman's two, related critiques of the 1930s-era Fed: it let the banks fail, and it let the money supply fall. Now, it is true, as Paul points out, that Friedman argued that the pre-Fed bank clearinghouses did a better job managing crises than the Fed did during the depression. (A low bar, to be sure). But Friedman was a pragmatist who recognized that you fight panics with the financial system you have -- so the question was what the Fed could have done.
Plenty, Friedman answered. For one, it could have taken its lender-of-last-resort responsibilities seriously, and stopped runs from forcing otherwise healthy banks into collapse. (But that would have been a bit tricky politically, since half of all banks weren't part of the Federal Reserve System back then). For another, it could have bought bonds, and kept buying them, until the money supply started increasing again. It's mostly forgotten now, but the Fed did half-heartedly try this -- that is, QE -- in 1932 to try to preempt Congress from making it do more. That bond-buying is what Friedman was talking about above, and, as you can see, his only problem with it was that it wasn't tried earlier.