Thursday, February 09, 2006

MF on globalization, market, and externality

From New Perspective Quarterly:

New Perspectives Quarterly (NPQ): With globalization, are we seeing the freest world economy we’ve ever seen?

Friedman: Oh no. We had much freer trade in the 19th century. We have much less globalization now than we did then.

Will we go ahead back to this freedom of the 19th century? I don’t know. We have a freer world because of the collapse of the Soviet Union and the changes in China. Those two have been the main contributors to freedom in our time. The countries that have risen and separated out as a result of the collapse of the Soviet Union are, on the whole, following freer economic policies. Most of these states have freer government and less restrictions on trade.

This free-market base will likely expand from there by example to others not so free. Everyone, everywhere, now understands that the road to success for underdeveloped countries is freer markets and globalization.

NPQ: In the end, your ideas have triumphed over Marx and Keynes. Is this, then, the end of the road for economic thought? Is there anything more to say than free markets are the most efficient way to organize a society? Is it the “end of history,” as Francis Fukuyama put it?

Friedman: Oh no. “Free markets” is a very general term. There are all sorts of problems that will emerge. Free markets work best when the transaction between two individuals affects only those individuals. But that isn’t the fact. The fact is that, most often, a transaction between you and me affects a third party. That is the source of all problems for government. That is the source of all pollution problems, of the inequality problem. There are some good economists like Gary Becker and Bob Lucas who are working on these issues. This reality ensures that the end of history will never come.

Hat tip to Steven Levitt.

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