“Friedman Friday” :“A Nobel Laureate on the American Economy” VTR: 5/31/77 Transcript and video clip (Part 4)

Milton Friedman on the American Economy (4 of 6)


Uploaded by on Aug 9, 2009

Host: Richard D. Heffner
Guest: Milton Friedman
Title: A Nobel Laureate on the American Economy VTR: 5/31/77

Below is a transcipt from a portion of an interview that Milton Friedman gave on 5-31-77:

Friedman: “What’s good for General Motors is good for the United Sates and vice versa,” in that famous phrase of Mr. Wilson’s. So I don’t think you can distinguish between these two. I think that politicians and people, everybody, businessmen, politicians, scholars, we’re all seeking to pursue our own interests. We don’t have to interpret it as narrowly. My interests are in ideas as much as they are in dollars and cents or something else. But we’re all seeking to pursue our own interests. Politicians, their interests are closely connected with getting reelected. And therefore they will put primary emphasis on what will get me votes next time.

HEFFNER: Well, I was thinking of an analogy. I was thinking of drawing this comparison with the medical scientists; economic scientist and medical scientists. Medical scientists presumably will disagree minimally about what all other factors…

FRIEDMAN: Not at all. Not at all.

HEFFNER: On certain things they may disagree minimally in terms of the technical means that they should employ to deal with, to treat a patient. But in terms of considering the patients, in terms of considering their needs that are more than technical, they may disagree. And quite honestly, as to the approach to take, wouldn’t it be fair to say that this is as much a consideration as what you consider political, a political consideration among economists, which I would relate to how is my party going to be elected more readily the next time around?

FRIEDMAN: Well, I don’t either want to rule out completely that narrow interpretation, nor rule it in completely. I think economists are human beings like everybody else. Many of them do establish party loyalties. What’s more important, many have very strong private interests that are associated with which party is in power.

HEFFNER: Like what?

FRIEDMAN: Like what jogs they have. Like what prestige they have. Like what outside income they will be able to earn. You know, it was not a joke only, for years that the Brookings Institution in Washington was a home away from home for out-of-power Democratic economists. It’s not a joke now that the American Enterprise Institute is serving a similar function for out-of-power Republican economists. Surely these are not trivial and negligible. But they are not the only thing, I agree with you.

HEFFNER: You don’t really think that determinations of public policy or contributions by major economists in terms of the determination of public policy, that in those determinations one’s job in the next administration has played a major role; or do you?

FRIEDMAN: You know, you want to make it black and white. Human beings are distinguished from animals much more by the ability to rationalize than by the ability to reason. Sincerity is a much overrated virtue. It’s possible for anybody to be sincere about anything. I’m not questioning the sincerity or the motives of anybody. I’m only saying a human being is affected by those things that affect his image.

HEFFNER: Are your economic policies affected in that way?

FRIEDMAN: Of course they must have been. I can’t deny that they could have been.

HEFFNER: No, no, I’m not talking about could have been.

FRIEDMAN: Or that they have been. Or that they have been. I mean, we never know ourselves. And the man who says, “I am objective,” you k now that can’t be the case. We’re all of us imperfect human beings. We’re all of us going to be affected by these things. I’m not saying anybody else is any more or less affected than I am. Some people are less affected; some people are more. I would say on the whole you’ve got to look at it in a more complex and sophisticated way. Most people develop beliefs and ideas. Those beliefs and ideas in turn determine what policies they approve, what directions they move. That in turn reacts on them and affects their beliefs and ideas. And the whole thing is a kind of biological process of creating a complex structure that can/t be dissected into the simple black-and-white category. He is in favor of this policy because if he is in favor of that policy he will get this and this job. You can’t say that. That’s not true. I’m not saying that of anybody.

HEFFNER: Okay. I wondered about that because the question of self-interest did come up, and I was shocked by it.

FRIEDMAN: Well, you see, the economists… Take the economics profession as a whole. Because I think it’s very interesting from this point of view. The economists have a very schizophrenic situation. Our discipline of economics, as a science, predisposes all economists to be in favor of a market system, of a free market. Because that’s our business. We come to understand how a market operates. It’s a much more sensitive and sophisticated instrument than may appear on the surface or that the ordinary man in the street believes it. So every economist has a predisposition to be in favor of a market system. On the other hand, the major growth area for jobs for economists has arisen out of government regulation. So the special interests of economists is to be in favor of government regulation. How do you reconcile this? Again, don’t misunderstand me. I’m not saying anyone is doing this in a Machiavellian way. I’m just describing the unobserved forces that are at work on it. Well, the way in which many economists have implicitly reconciled it is by being in favor of the free market in general, and opposed to the free market in particular. “And this area is a special case that needs regulation, this area is a special case.” You know, the same thing happens to businessmen. Every businessman is in favor of private enterprise.

HEFFNER: Except in his…

FRIEDMAN: Except for himself. And he isn’t – let me emphasize – in both cases, he isn’t being Machiavellian. He isn’t being insincere. He isn’t being devious. He sincerely believes. He knows his own case. And he sincerely is persuaded that his own case is special and that it’s in the national interest to treat it differently than other cases.

HEFFNER: But this concept of the marketplace, has it always been with us?

FRIEDMAN: Yes. Oh, every society is primarily run by the marketplace. But there are many kinds of marketplaces. The political marketplace…

HEFFNER: And aren’t you talking about a particular kind?

FRIEDMAN: I’m talking… But even the particular kind, yes, there are two main kinds of marketplaces. The economic marketplace in which you buy and sell, which has much broader relevance than you might a first suppose. And the political marketplace in which decisions are made by votes or by authority through political position by command.

HEFFNER: I understand. But I just wondered whether this basic agreement that you referred to among economists, all of whom relate to the economic marketplace, I was about to ask where is it written…

FRIEDMAN: (Laughter)

HEFFNER: …where is it written that the concept of the marketplace shall prevail? Isn’t this a rather modern concept? And if it is, why must we tie ourselves to it as tightly as you would have us do, as tightly as you suggest all economists would have us?

FRIEDMAN: Well, let’s answer that in two different ways. You say, “Why must we tie to it?” Because the fact of the matter is that there is no alternative mechanism that has so far been devised which will enable large and complex societies to exist. Consider what seems like the most extreme exception: the Soviet Union. It’s not, in the first instance you would say that’s not a market economy. And yet, the main organization of resources in the Soviet Union is through the marketplace and not through government command. And this is true in all sorts of ways. Anybody who read Hedric Smith’s fascinating book on the Russians will discover that if something goes wrong with you electricity in your house, you don’t call a state office and have them send somebody. You get a government employee on his spare time to come in and fix it for you.

HEFFNER: The same thing is true here, if you can.

FRIEDMAN: Of course, of course. Well, no, if you can here, you hire somebody. But in Russia supposedly you ought to get a state official, governmental official. It’s all done by government agencies. It’s not here, yet.

Go on. Take food. Something like 25, 30, 35 percent of the people in the Soviet Union are required to produce a food. They permit small private plots. Those plots account for two to three percent of the arable land of the Soviet Union. They produce a third of the food in private markets and distributed through markets. If you have, if you look at the way in which labor is organized, the buyers are governmental agencies. But people are attracted to one job or another by the job or by the pay that is offered to them. Fundamentally, the Soviet Union is a market economy, but it’s distorted market economy because the extraordinarily great role of government forces the market into channels which are not efficient and not effective. And so much of its power is wasted in simply overcoming the bureaucratic mess of the government. That’s why the Soviet Union has such a low standard of life. So it’s interesting, on a matter of theory. Well, I don’t like that word. ON a matter of sort of abstract ideal, you can conceptualize a command economy in which the market plays no role. It’s an army. A general gives an order to a colonel, a colonel to a major, a major to a captain, and so on down the line. Or you can visualize a voluntary exchange economy, a pure market economy in which everything is conducted by voluntary agreement among individuals’ purchase and sale.

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