Bruce Bartlett makes a lofty claim (h/t Mark Thoma):
Fortunately for conservatives, the greatest free market economist of all time, Milton Friedman, found an explanation for the Great Depression that let capitalism off the hook. The fundamental problem, he said, was that the Federal Reserve foolishly allowed the money supply to shrink by a third between 1929 and 1933…
By fingering the Fed’s mistakes as the root cause of the Great Depression, Friedman rescued capitalism from blame. Today, I think most economists accept this explanation, although they differ on the appropriate response to the decline in the money supply…
Bringing it back to the Great Recession,
The main differences between today’s crisis and the Great Depression is that the deflationary pressure is less than a third of what it was in the 1930s and policymakers today reacted much more swiftly and more appropriately than they did after 1929.
Okay…but first, policymakers needed a crisis to respond to. Now, what do the Great Depression and Great Recession have in common?
Ah yes, inequality. Correlation does not imply causation; however, there are a number of mechanisms whereby inequality can engender instability in capitalism. So, remind me- how does Friedman’s money-driven explanation remove capitalism from blame?