Milton Friedman Will be Turning in His Grave These Days!!

Today, there was a guest lecture organized in the Odette School of Business and some of us enjoyed it more for its philosophy behind the premise of the thesis rather than the thesis and its validation which had left many questions unanswered but attempted to give answers which was never been part of the study. We were three (Me, Jack and Allan) left at the end after every one disappeared from the lecture and it was me who observed to my colleague Jack Freeman that present day scenario in the economic order of the US and by implication of the entire global order is in acute need of money supply. Liquidity contraction is killing several otherwise robust industries. This became a real long and serious interactive and interesting discussion for next three hours or so.

Friedman was a unique economist of his genre for his views which were very much against the Keynesian views. Though he was known to be a quantitative monetarist for many but he was the one who was a leading public policy philosopher true to the name of political economy. US economy is in turmoil because there is no liquidity. Corporates find it difficult to remain solvent in pragmatic sense. Where has that money disappeared? Was that money at all existed in first place? Friedman argued all through his life time that state should not interfere in the autonomic function of economy by introducing controls or increasing participation through regulatory regime. He was a true laissez faire brand of economist though he was an advocate of taxing people income at source. Of course, he regretted it later on.

I will answer the first question as best as I can do. Liquidity is not all the time liquid. Today's scenario is most compelling evidence of this assertion. Corporates in the first place used to park funds in securities which had highest liquidity in the first place. Mostly these were the short term investments in Wall street. bankers used to be highly liquid because earnings were abnormal accruing from sub prime mortgage financing. Excess were finding theirs way into Wall street. Every one was happy because DOW and S&P were spiralling to troposphere. Big institutional and individual investors were ga-ga over the vibrancy of the economy. Money was every where to see. Money was easily available through placing stocks as collatoral.

Contd.