Word: friedman
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Tough talk from Anna Schwartz, a financial sage who has seen it all, having lived through the crash of 1929 and co-authored with Nobel laureate Milton Friedman the highly acclaimed financial bible A Monetary History of the United States (Princeton University Press...
...antidiscretion case has been made for years with regard to Federal Reserve monetary policy. Becker's Chicago teacher Milton Friedman thought that instead of tweaking interest rates, the Fed should just automatically increase the money supply 3% to 4% a year. Measuring the money supply in an era of financial innovation has turned out to be awfully hard, so in recent years believers in an automated Fed have turned to an equation concocted by Stanford economist John Taylor that takes in inflation, current economic growth and long-term-trend growth and churns out a suggested Fed interest-rate target. Taylor...
...Friedman was a scientist too. During World War II, he used his mathematical and statistical skills to help determine the optimal degree of fragmentation of artillery shells. Officers flew back to the U.S. in the middle of the Battle of the Bulge to get his advice on the trade-off between the likelihood of hitting the target (the more fragments, the better) and the likelihood of doing serious damage (the fewer and bigger the fragments, the better...
Emboldened by this work, economists began to apply their number-crunching skills to the postwar market. Chicago graduate student Harry Markowitz devised a model for picking stocks that was, in Friedman's estimation, "identical" to his artillery-shell-fragmentation trade-off. And in the late 1950s, scholars at Chicago and the Massachusetts Institute of Technology became enamored of the idea that stock-market movements were, like many physical phenomena, random...
...strands of statistics and pro-market ideology came together in the mid-1960s. It was the great MIT economist Paul Samuelson who made the case mathematically that a rational market would be a random one. But Samuelson didn't share Friedman's political views, and he never claimed that actual markets met this ideal. It was at Chicago that a group of students and young faculty members influenced by Friedman's ideas began to make the case that the U.S. stock market, at least, was what they called "efficient...