Seeing the Lean in Milton Friedman’s Ideas

Nobel prize winner and Chicago school free market economist and author Milton Friedman has just passed away. The impact of his ideas are huge. It ranks with the impact of the ideas of Henry Ford and Taiichi Ohno.
Like Ohno and Ford, Friedman was uncompromising in his ideas. To follow the prescription of his free market ideas, as when you follow the prescription of Lean manufacturing, is to make a more effective economic model but one that is often accused of leaving people without employment. As I read the November 17, 2006 front page article Wall Street Journal on Milton Friedman’s passing, I am seeing the Lean in Milton Friedman’s ideas.
Just as push in manufacturing results in waste, government push results in waste. Push should only be attempted when pull needs to get unstuck. Sometimes there is no clear demand for a new technology and a push is needed to get it out on the market. Sometimes governments need to take on large-scale programs that the private sector have neither the vision nor the coordination to undertake (thinking of an example here is harder than I thought – perhaps putting a man on the moon?).
Milton Friedman advocated reducing the money supply to control inflation. I see this as the same principle behind limiting overproduction and inventory. The extra flow of money creates more activity resulting in a feedback loop that raises prices. The overproduction of material or information creates a feedback loop that raises costs. Both are waste.
Friedman’s research on the “permanent income” theory is an interesting in that it suggests that people practice heijunka or “smoothing” in their spending habits based on expected long-term incomes. While this might sound like a good thing, the flip side of this type of consumer behavior is that it is based on a forecast of income and you know what they say about forecasts.
Ronald Reagan quoted Milton Friedman as saying “When you start paying people to be poor, you wind up with an awful lot of poor people.” Likewise, when you start paying people to be stupid, you get an awful lot of stupid people. Most of us may not think we pay people to be stupid but when we do not pay people to actively think, to question, to learn and to improve, we are in effect paying people to be stupid. Engaged and empowered people will be the customers and suppliers in the free market of good ideas.
Milton Friedman helped shift economic thinking from government intervention to free markets, just as Henry Ford and Taiichi Ohno helped shift production thinking from batch and queue towards flow and pull.

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