Monday, February 13, 2006

When Milton Friedman Talked, We Listened

Here are some excerpts from an interview with Milton Friedman:

Q : The inflation rate in America as well as globally remains historically low, even as oil prices skyrocket. Why?

Friedman: Inflation is a monetary phenomenon. It is made by or stopped by the central bank. There has been no similar period in history like the last 15 years in which you’ve had little fluctuation in the price level. No matter what else happens, this will maintain as long as the US Federal Reserve maintains strict monetary policy and control of the money supply.

Q: China has registered tremendous growth since 1979 through what might be called a “market Leninist” model, or an “authoritarian free-market system” like the Pinochet government you advised in Chile. Can this model last?
Friedman: No. The same thing will happen in China that happened in Chile. Political freedom will ultimately break out of its shackles. Tiananmen Square was only the first episode. It is headed for a series of Tiananmen Squares. It cannot continue to develop privately and at the same time maintain its authoritarian character politically. It is headed for a clash. Sooner or later, one or the other will give.

If they don’t free up the political side, its economic growth will come to an end—while it is still at a very low level.

The situation is not all bleak. Personal freedom has grown greatly within China, and that will provoke ever more points of conflict between the individual and state. There is a new generation that is educated and travels abroad. It knows firsthand the alternatives out there. So, the authoritarian character is softening somewhat.

Hong Kong is the bellwether. If the Chinese stick to their agreement to let Hong Kong go its own path, then China will also go that way. If they don’t, that is a very bad sign. I’m optimistic.

Read the whole thing here.

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