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The first step is realizing that we never can cleanly test which economic policies are good and which are bad. Nor can we sort out a "correct story" in the sense that we can step back from hyper-complexity, comprehend how it all works, attribute progress to this or that policy or other factors and to what extents, and model it accordingly. Likewise, sometimes it's not so much novel/good v. old/bad as it is right/bad v. wrong/good. Keynes et al were right that the market is not especially self-regulating, however because there is no discernible correct story, their regulations cause more harm than good. In contrast, Friedman was wrong to attribute progress cleanly to this theoretical construct called the "free market" (which cannot be approximated in reality), but for the right reasons. The government definitely plays a central role in fostering conditions of progress, as we know. It's just that we have little confidence that the government did much fostering via policies premised on socioeconomic engineering (especially in its more ambitious phases), welfare state policies, regulations, etc. As a general, but unproven, "rule" the government does better with straightforward discrete projects involving only a few variables, while the market is better at helping us imperfectly navigate complexity. In that sense, Friedman was on the "right" (correct) side for the wrong reasons.
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Feb 25, 2014