A highlight of my life was visiting with Milton and Rose Friedman in their San Francisco apartment and being served homemade cookies by Rose near Milton’s Nobel Prize hanging on a nearby wall. A few years later I asked Rose to confirm that she really made the cookies herself. She said if she served them, she made them.
Milton Friedman could have earned the highest honor in economics for several of his different contributions individually. My preference would have been for his whole body of work. I’ve always been a bit perplexed that the contribution cited in connection with his prize was his permanent income hypothesis. As Wikipedia summarizes it,
“The Permanent Income Hypothesis states that the choices made by consumers regarding their consumption patterns are determined not by current income, but by longer-term income expectations. The key conclusion of this theory is that transitory, short-term changes in income have little effect on consumer spending behavior.”
There was more to it than that, of course, but it stills sounds rather too obvious to be Nobel Prize material. As with others, however, I’m sure the methodology of reaching the conclusion had more to do with it than the bottom line conclusion itself.
However, that simple bottom line conclusion looms large these days as the administration piles one stimulus on top of another that are expected to produce permanent changes in economic behavior from temporary tax and spending changes, and wonders why they don’t.