Thursday, November 30, 2006

10 remarkable points to remember Friedman by (5/5)

Milton Friedman (31/07/1912 – 16/11/2006)
1. 20th century economics showed 2 major important economical schools: the ‘Keynesian economics’, an economic theory based on the ideas of John Maynard Keynes, and ‘Monetarism’ a theory largely attributed to Milton Friedman.

2. Friedman attacked Keynes beliefs in the 1950’s in his book ‘A Theory of the Consumption Function’. But Friedman acknowledged the fact that even he started out as a Keynesian. “We all use the Keynesian language and apparatus; none of us any longer accepts the initial Keynesian conclusions", he says.

3. Keynes says the economy is best served by government and parliament. They have to regulate the economy via taxes and government spending. Friedman and the monetarists on the other hand argue government should not interfere with economy at all. The economy should be left to the people and the companies. Exceptionally central banks can interfere and influence the economy through regulation of the quantity of money. Monetarists speak of ‘laissez-faire economics' (economic theory based on the belief that markets and the private sector could operate well on their own, without state intervention).

4. According to Keynes (1957) individual consumption depends on wages, and therefore it is an unstable parameter. Increase in wages leads to more consumption, dismissals lead to decreased consumption. Friedman does not agree: it is the ‘income-expectation on long term’, the so called ‘permanent income hypothesis’ that influences consumption. It means that consumers will spend not driven by their current income, but by their long term income expectations. Individual consumption is therefore a much more stable parameter.

5. Keynesians argue that the quantity of money should not be considered as a reliable economical instrument because the circulation speed of money is not constant. Friedman however proved that the money velocity as well as money production is constant. This means that the quantity of the money determines price setting and the level of inflation (the supply of money being larger than the demand for money). The inflation is to be regulated by controlling the amount of money poured into the national economy by the National Banks.

6. Nobel Price for Economic Science in 1976 for his work on consumption analysis and monetary theory.

7. Friedman played a remarkable role in the abolition of the draft in the 1970s in the U.S. He stated that his role in eliminating the draft was his proudest accomplishment.

8. Friedman was a Professor of Economics at the University of Chicago from 1946 to 1976. He created an intellectual community that produced a number of Nobel Prize winners, known as the 'Chicago School of Economics'.

9. Friedman co-wrote and co-produced ‘Free to Choose’ with his wife Rose D. Friedman. They also created the 'Milton and Rose D. Friedman Foundation', an organisation determined to introduce and promote schoolvouchers in the American schoolsystem as well as the freedom of choice in education. Their memoirs are published as ‘Milton and Rose D. Friedman, Two Lucky People’ (1998). Milton Friedman claimed that Rose was probably the only person in the world to have ever won an argument from him.

10. Milton Friedman was cremated. He wanted his ashes be scattered over the San Francisco bay.

Sunday, November 26, 2006

"There's no such thing as a free lunch" and other quotes from Friedman (4/5)

1. I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it's possible.

2. I'm in favor of legalizing drugs. According to my values system, if people want to kill themselves, they have every right to do so. Most of the harm that comes from drugs is because they are illegal.

3. The most important single central fact about a free market is that no exchange takes place unless both parties benefit. 4. The most important ways in which I think the Internet will affect the big issue is that it will make it more difficult for government to collect taxes.

5. Inflation is caused by too much money chasing after too few goods.

6. On the difference between public vs. private education: "Try talking French with someone who studied it in public school. Then with a Berlitz graduate."

7. There's no such thing as a free lunch.

8. The problem of social organization is how to set up an arrangement under which greed will do the least harm, capitalism is that kind of a system.

9. The only way that has ever been discovered to have a lot of people cooperate together voluntarily is through the free market. And that's why it's so essential to preserving individual freedom.

10. The power to do good is also the power to do harm.

Wednesday, November 22, 2006

6 Quotes from Friedman about Government (3/5)

1. Governments never learn. Only people learn.

2. Many people want the government to protect the consumer. A much more urgent problem is to protect the consumer from the government.

3. Only government can take perfectly good paper, cover it with perfectly good ink and make the combination worthless.

4. The black market was a way of getting around government controls. It was a way of enabling the free market to work. It was a way of opening up, enabling people.

5. President Kennedy said, "Ask not what your country can do for you - ask what you can do for your country."... Neither half of that statement expresses a relation between the citizen and his government that is worthy of the ideals of free men in a free society. "What your country can do for you" implies that the government is the patron, the citizen the ward. "What you can do for your country" assumes that the government is the master, the citizen the servant.

6. We have a system that increasingly taxes work and subsidizes nonwork.

Tuesday, November 21, 2006

Friedman on Freedom (2/5)

Friedman disliked regulations. The voluntary choices of individuals, not the dictates of the state, should be the default mode of human life. A government should protect her citizens. That’s it. That is her one and only duty. Friedman placed the choices of buyers and sellers, not government management, at the center of economical thinking. A government should not try to regulate the economy, nor try to govern morality, nor try to look after voters’ interests. A society led by a regulatory government will be less efficient, less innovative, and ultimately less free. The government should act like a referee, not as a player. "The government solution to a problem is usually as bad as the problem", Friedman says.

Wednesday, November 15, 2006

Who Becomes Great ? The 10-Year-Rule.

Geoffrey Colvin wrote an interesting article in Fortune Magazine this month: "What it takes to be great." Major conclusion of recent surveys is that nobody is great without work. It's nice to believe that if you find the field where you're naturally gifted, you'll be great from day one, but it doesn't happen. There is no evidence of high-level performance without experience or practice. Reinforcing that no-free-lunch finding is vast evidence that even the most accomplished people need around ten years of hard work before becoming world-class, a pattern so well established researchers call it the ten-year-rule.
(The ten-year rule represents a very rough estimate, and most researchers regard it as a minimum, not an average. In many fields (music, literature) elite performers need 20 or 30 years' experience before hitting their zenith.)

So greatness isn't handed to anyone, it requires a lot of hard work. Yet that isn't enough, since many people work hard for decades without approaching greatness or even getting significantly better. What's missing ? The best people in any field are those who devote the most hours to what the researchers call 'deliberate practice'. It is activity that's explicitly intended to improve performance, that reaches for objectives just beyond one's level of competence, provides feedback on results, and involves high levels of repetition. For example: Simply hitting a bucket of balls is not deliberate practice, which is why most golfers don't get better. Hitting an eight-iron 300 times with a goal of leaving the ball within 20 feet of the pin 80% of the time, continually observing results and making appropriate adjustments, and doing that for hours every day - that's 'deliberate practice'. Consistency is crucial.

Monday, November 13, 2006

People of the Night (Preparation Economy)

They are the people of the night, the DP's (delivery persons), the people that deliver the most sophisticated newspapers and magazines of the world to your door in the middle of the night. So that you, the reader, can read or at least go through the newspaper or mag before you go to work. The people of the night are at the bottom of the food chain in distribution country. There couldn't be a bigger difference in way of living between the DP's and the readers they serve.

(DP Lino in Brussels, capital of Europe, serving the
worlds biggest institutions. Here in front of the
Belgian Parliament at 4 AM)

Always at round in the deserted capitals of the world, living of cheap coffee (not Red Bull, too expensive) and junkfood from the night shops, in the worst imaginable sorts of weather, to be able to go at home around 7 AM after having digested the morning traffic jams, often to go

(Delivery of the Wall Street Journal, the Financial Times, The Times, to companies and institutions around the Brussels stock exchange)

to a second job in the early afternoon, before returning to the nightly newspaperworld again

(Night manager Luc in a Brussels warehouse preparing
newspaper tours for his drivers. Most of them are Congolese.
They will come in around 02.45 AM, they will sticker their
newspapers with addresslabels while discussing the
political situation in Congo)

that same evening. I have a deep respect for our People of the Night, without them my job would be meaningless, our customers, both readers and advertisers, wouldn't be served. They run what I call a 'preparation economy' during the night. Every action they undertake serves a higher goal during the day. They ship, handle, pack and label products, the essence being 'creation of movement' so our daytime economy wouldn't come to a standstill because lack of products or information.

Thursday, November 02, 2006

week 44 - a few days in the Ardens -
Pareto/Zipf distribution

Picture: 11-01, Ortho-Mousny, Ardens, Belgium, 20 km from La Roche

The best known manifestation of Pareto/Zipf distributions is the 80/20 Rule, which is often used to explain that 20 % of products count for 80 percent of revenues, or 20 percent of our time accounts for 80 percent of our productivity, or any number of other comparisons that all share this characterisitic of a minority having disproportionate impact.
(Chris Anderson, The Long Tail)