Fellows with Friedman

Michael J. Boskin

The Traditional View (TV) of large deficits and debt is they have large economic costs, save in a recession and early recovery, because they crowd out investment and lower future income, and taken to extremes, can cause inflation and even a financial crisis. The TV has been challenged, most fundamentally in Olivier Blanchard’s 2019 AEA [American Economic Association] Presidential Address, an elegant extension of Peter Diamond’s OLG [overlapping generations] model to account for risk in an expected utility framework. He concludes they may have no fiscal cost and increase welfare. I present evidence of looming large deficit and debt/GDP increases and their effects on recovery from recession, interest rates and long-run growth. I discuss several substantive issues with the “no fiscal cost” view that limit its applicability, including accounting neither for the effect of increasing debt on interest rates and growth nor the pre-existing primary deficit, debt and their projected evolution; disputable readings of the data; strong assumptions and parameter values driving the results; and a political economy of deficits and debt likely to lead to even larger debt ratios. Acknowledging uncertainties, the evidence still suggests that large increases in the debt ratio could lead to much higher taxes, lower future incomes and intergenerational inequity.

To learn more, read "Are Large Defecits and Debt Dangerous?" Available here. 

Richard A. Epstein

One of the most disturbing trends in the United States is the relentless concentration of power in the federal government. Ever since the New Deal, the classical liberal vision of limited government and strong property rights has taken a back seat to a progressive vision of a robust administrative state, dominated by supposed experts, whose powers are largely unimpeded by legal constraints. Wholly apart from Congress, the new administrative state has adopted and enforced its own laws and regulations, and is defined by unilateral actions by the President and other members of the executive branch, all of which threaten the system of checks and balances built into the original constitutional design.

To learn more, read "The Perils of Execuitve Power," available here.

Lee Ohanian

The rapid rise of cell phone usage in Africa coincides with dramatic economic growth. Since 2000, per-capita GDP has grown enormously in Africa, including increases of over 500 percent in Ethiopia, and over 300 percent in Kenya and Nigeria. While these countries are still poor in absolute terms, these growth rates are extraordinary and have lifted hundreds of millions of people out of extreme poverty. Not a bad philanthropic record from greedy corporatists, no?

The most remarkable aspect of this is that none of it was planned. No one set up a committee. No one thought, “Hey, let’s send a billion cell phones to Africa.” Even if someone had, very few of those hypothetical phones would likely have ever found their way into the hands of African consumers, as has been the case with so many other aid programs to poor countries with corrupt governments.

The introduction of the smartphone to Africa, and the remarkable transformation of African life, was the fortuitous outcome of what we call “the power of the free market.” Corporations who blindly tried to make a profit for their shareholders created a social good that overwhelms anything any government or foreign aid agency has ever done.

To learn more, read "How a California Coorporation Creates More Social Good Than Any Government," available here.