THE AGE OF MILTON FRIEDMAN

While reading prof. Mankiw's blog, I came across Andrei Schleifer's new working paper entitled The Age of Milton Friedman has drawn a linking line between an unparalelled progress of the last twenty years and free market economic policies.

The acceptance of free-market policies has been initiated by Ronald Reagan and Margaret Thatcher. The policies of both contained tax cuts, deregulation of the product markets, privatization of the industries and free trade. In the last quarter of the century, millions of lives have been lifted out of poverty. Normative economic analysis might explain this phenomena in a distinct feature. Some might possibly claim that greater government intervention through social security accounts and welfare state in some countries is the reason why poverty has largely been avoided. Despite a misleading utopia that populist politicians and social demagogues are using it, the truth is that a large disappearence of poverty has largely been a result of free-market policies that emphasized tax reform and deregulation.

Milton Friedman's intellectual mind has indeed inspired many leaders around the world to pursue free-market reform agenda. Margaret Thatcher succinctly fought the status quo set by the unions which resisted the deregulation of the labor market.

Ronald Reagan endorsed the most extensive tax reform in the U.S. history. Milton Friedman's intellectual radius also reached China that, despite being a communist country, implemented several pro-growth economic reforms that emphasized openness to the world. Surprise, surprise - China is today the fastest and most rapidly growing economy in the world. This achievment hasn't been an outcome of an enhenced government intervention but largely an outcome of economic reforms that communist China embraced under Deng Xiaoping. Those reforms lifted millions of poverty by allowing them to trade, invest and do business.

The age of free-market reforms brought an unimaginable improvement in the standard of living. Market liberalization brought competition into every walk of economic life. And competition, by no surprise, has brought welfare and value to consumer in terms of lower prices and improved product and service quality. Competitive mechanisms slashed top marginal tax rates, therefore bringing job growth and incentives to work, save and invest. The liberalization of the global trade slashed tariff rates and reduced both, transaction cost and the difficulty of a resource allocation in a productive use.

Territorial competition improved the quality of business locations around the world. The number of procedures to start a business has fallen down dramatically. And most importantly, fiscal competition has made spending fever much more restrictive, putting notable limits on government spending and consumption. The economic progress in transition economies such as Estonia, Slovakia and Czech Republic, has been made possible because of a commitment to reform, responsible leadership and an ambitious growth agenda. Indeed, Friedman's Free to Choose, Capitalism and Freedom and numerous intellectual debates contributed to the understanding that today's welfare and progress is an outcome of yesterday's reform and ideas.