The Daily Hatch

Yesterday, I did a twenty minute interview by phone with Milton Friedman. Of course, Mr. Friedman has an INCREDIBLE resume. He won the 1976 Nobel Memorial Prize for economic science, won the “Presidential Medal of Freedom in 1988 and received the National Medal of Science the same year”.

He was also an “economic adviser to Senator Barry Goldwater in his unsuccessful campaign for the presidency in 1964, to Richard Nixon in his successful 1968 campaign, to President Nixon subsequently, and to Ronald Reagan in his 1980 campaign.”

There is much, much, more I could add. But I think the fact that Mr. Friedman finished in a tie for the 15 slot when RWN had conservative bloggers select, “The Greatest Figures Of The 20th Centurygives you some idea of Mr. Friedman’s stature.

Enjoy the interview!

John Hawkins: Slate’s Chris Suellentrop has pointed out that Howard Dean has said “that he would demand that other countries adopt the exact same labor, environmental, health, and safety standards as the United States” if they wanted trade agreements with us (Dean said something similar to the WAPO). If that policy were ever implemented, what sort of damage do you think it would cause to the US economy?

Milton Friedman:I think it would cause immense damage, not to the US economy, but to other economies around the world — much more to the others than to us.

John Hawkins:Really? So you don’t really think it would hurt the US economy that much?

Milton Friedman:It would hurt the US economy, but it would be disastrous for the countries that are smaller than we are. World trade depends on differences among countries, not similarities. Different countries are in different stages of development. It is appropriate for them to have different patterns, different policies for ecology, labor standards, and so forth.

From my point of view, we in the United States have gone overboard in respect to the extent of regulation and detailed control of labor standards, industry, and the like. It’s bad for us, but fortunately we had two hundred years of relatively free development to provide a strong basis to sustain the cost. But to impose this on other countries that are not at that stage would be a disgraceful thing to do.

John Hawkins:Because it would keep them from ever getting to the point we’re at?

Milton Friedman:That’s right.

John Hawkins:Do you think George Bush, with the economy being as it was, did the right thing by cutting taxes?

Milton Friedman:I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it’s possible. The reason I am is because I believe the big problem is not taxes, the big problem is spending. The question is, “How do you hold down government spending?” Government spending now amounts to close to 40% of national income not counting indirect spending through regulation and the like. If you include that, you get up to roughly half. The real danger we face is that number will creep up and up and up. The only effective way I think to hold it down, is to hold down the amount of income the government has. The way to do that is to cut taxes.

John Hawkins:Now let me ask you about that. In the Reagan years, we cut taxes and it ended up leading to economic growth which increased the amount of revenue that came into the government.

Milton Friedman:Well, economic growth will inevitably increase the amount of revenue coming into the government. But so far as the Reagan years were concerned, we have to be careful there. There were initial cuts in 1981-1982 and then there was a very good income tax law in 1986. But in between that, there were increases in taxes as well. So it’s not an entirely clear picture that you can attribute the growth in revenue entirely to the tax reductions. But it’s a hard thing to disentangle the effects of several things happening at the same time. In particular, there’s no doubt that growth is very favorable to government revenue.

John Hawkins:Well let me ask you a related question about holding down the deficit. Really, I’m not seeing much political will on either side of the aisle to hold down costs. Do you think we should consider a Balanced Budget Amendment?

Milton Friedman:What we should consider and what has been considered is a Tax And Spending Limitation Amendment, an amendment to hold down total spending. I don’t think it needs to be in the form of a Balanced Budget Amendment, but that’s one form it can take.

John Hawkins:So would you favor for example a 3/5th’s majority to raise taxes like they suggested in the “Contract with America”?

Milton Friedman:Yes, but the example that comes to mind really is the Colorado Tax And Expenditure Limitation Amendment that requires the spending to increase no more from year to year than population and inflation. Also, it requires that any revenues in excess of spending have to be returned to the taxpayers.

John Hawkins:Let me ask you about this — what do you say to people who claim that free trade will eventually lead to high unemployment in the US as large numbers of jobs move to cheaper labor markets overseas?

Milton Friedman:Well, they only consider half of the problem. If you move jobs overseas, it creates incomes and dollars overseas. What do they do with that dollar income? Sooner or later it will be used to purchase US goods and that produces jobs in the United States.

In fact, all of the progress that the US has made over the last couple of centuries has come from unemployment. It has come from figuring out how to produce more goods with fewer workers, thereby releasing labor to be more productive in other areas. It has never come about through permanent unemployment, but temporary unemployment, in the process of shifting people from one area to another.

When the United States was formed in 1776, it took 19 people on the farm to produce enough food for 20 people. So most of the people had to spend their time and efforts on growing food. Today, it’s down to 1% or 2% to produce that food. Now just consider the vast amount of supposed unemployment that was produced by that. But there wasn’t really any unemployment produced. What happened was that people who had formerly been tied up working in agriculture were freed by technological developments and improvements to do something else. That enabled us to have a better standard of living and a more extensive range of products.

The same thing is happening around the world. China has been growing very rapidly in recent years. That’s because they shifted from a very inefficient method of agricultural production to something that comes close to the equivalent of private ownership of the land and agriculture. As a result, they’ve been able to produce a lot more with many fewer workers and that has released workers who have come into the cities and have been able to work in industry and other areas and China has been having a very rapid increase in income.

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