Milton Friedman The Power of the Market 5-5
Friedman: In any event, I am not trying to defend one political party or another. As David says, a major enemy of a free market is a business interest. The business community is a major enemy and the problem in this society is to have the public at large understand the importance of free markets so as to protect themselves against the depredation of the business community with their tariffs, their quotas, their special provisions, and so on. But you cover all of these good things that society is supposed to do, you have to look at how many of them have been perverse in their influences and their effect. You mentioned the FDA and that is a very important case because that’s cost tens of thousands of lives over the course of time.
Brooks: You can start with the AIDS virus where the FDA tries again __ recently there have been reforms but they were very slow, even people who knew they were going to die and were going to die without any drug to try experimental drugs.
Chavez: Let me ask another question.
Galbraith: You have to establish that those experimental drugs would have, in fact, saved their lives.
Brooks: They couldn’t have done worse __ they were going to die.
Chavez: Let me give you another hypothetical. What if you have a social need, say a disease which is very lethal but effects very few people and you don’t have a company who has an interest because it is not going to make very much money, there is not a large market for the good to produce a drug, does the government have any role there to step in and try to stimulate certain social purposes?
Brooks: It’s hard for me to imagine how the government would, in the first place.
Friedman: In any event, you must realize that government isn’t the only recourse. The great period, when were the nonprofit hospitals of the United States founded? Almost all of them were in the 19th century, during the hay day of laissez faire. There are private charitable activities which are essentially the most effective way of handling the kinds of things you have described.
Galbraith: A little bit of faithfulness to history surely would cause you to concede that in 1937, when we inaugurated social security, 1965 when we inaugurated Medicare, we did so because the private charitable systems, the private insurance systems to care for people when they were old and when they were sick were failing in a gross way to meet the needs of the American people. And those programs, which are government programs, have at least had the virtue of extending the access to health care and extending income security when you are old to a very large part of the population that never had it before.
I would argue too that in addition to the regulatory functions and the judicial functions that we certainly agree on, that there is, in a rich society which can afford to take care of people who fell out of the market process, who aren’t lucky or gifted or fortunate in their economic lives, to take care of those people when they are old and when they are sick.
Friedman: What about the extent to which the same society that you described, the same logic you described, makes them poor. What about the minimum wage which prevents many people from getting employment. What about the rent controls which destroy housing in the cities.
Brooks: To switch over, you can point to the minimum wage which everybody agrees increases unemployment among the poor especially, but what about the environment. If you have a simple environmental law __ the reason the West is cleaner than the Eastern Bloc, the main reason is that we are richer. We can afford to do it.
Friedman: The problem, so far as the environment is concerned, the real function of the government is to define the property rights and it is quite clear that if I force you to take bad water for good water, then I ought to pay you. I am not quarreling with that. But if you look at the actual environmental measures that government takes, they often have harmful effects and not positive effects. The new Clean Air Bill that has just been passed, for example, is going to cost an enormous amount of money.
Brooks: Nobody knows how much.
Galbraith: It is in principle, of course, your argument is one which many economists are sympathetic to and I have some sympathy for it, but the technical facts of environmental control are such that it is often very costly to define the property rights in a way in which you can generate a efficiently functioning market. That is why you don’t have a private and organized market. The information cost of those transactions is extremely high. So, in some cases, what you want to have the government do is say, if there is mercury in the water, you find out who is putting it in and . . . . . that is the reasonable way to proceed because the alternative is extremely costly.
Friedman: Let’s look at what the government actually does. In the United States today, the federal government spends an amount of money which is 25% of the national income. State and local governments spend an additional 17% of the national income. That is 42% all together. Now, some of that is doing good, of course. It would be very hard to spend that amount of money. But an enormous amount of that is simply taking money from some and giving it to others and very often taking it from poor, giving it to well-to-do, . . . .
Galbraith: . . . social security in that which is taking money from the payroll tax from working people . . .
Friedman: On the whole, as far as social security is concerned, the people who pay are poorer than the people who benefit.
Chavez: Gentlemen, we are out of time. Thank you for watching Free to Choose. Next week we will be discussing what happens when government enters the marketplace.
The Daily Hatch 