Ep. 4 – From Cradle to Grave [3/7]. Milton Friedman’s Free to Choose (1980)

President Obama c/o The White House
1600 Pennsylvania Avenue NW
Washington, DC 20500

Dear Mr. President,

I know that you receive 20,000 letters a day and that you actually read 10 of them every day. I really do respect you for trying to get a pulse on what is going on out here.

With the national debt increasing faster than ever we must make the hard decisions to balance the budget now. If we wait another decade to balance the budget then we will surely risk our economic collapse.

The first step is to remove all welfare programs and replace them with the negative income tax program that Milton Friedman first suggested.

Milton Friedman points out that though many government welfare programs are well intentioned, they tend to have pernicious side effects. In Dr. Friedman’s view, perhaps the most serious shortcoming of governmental welfare activities is their tendency to strip away individual independence and dignity. This is because bureaucrats in welfare agencies are placed in positions of tremendous power over welfare recipients, exercising great influence over their lives. In addition, welfare programs tend to be self-perpetuating because they destroy work incentives. Dr. Friedman suggests a negative income tax as a way of helping the poor. The government would pay money to people falling below a certain income level. As they obtained jobs and earned money, they would continue to receive some payments from the government until their outside income reached a certain ceiling. This system would make people better off who sought work and earned income.

Here is a  portion of the trancript of the “Free to Choose” program called “From Cradle to Grave” (program #4 in the 10 part series):

Friedman: Joe Gardner helped to set up an organization of local black people to protect their own interests. Previously, the blacks had rioted in the streets to try to get their way. Now it was to be done peacefully using government money.

When government funds became available, the Woodlawn Organization got control. They used them to build the kind of houses they wanted. Low rise apartments like these.

The bureaucrats, planners and architects told them that it was uneconomical. That only high-rise blocks would work. They were wrong.

Joe Gardner: A lot of people have this view that, the disadvantaged if you will, have no ideas what their problems are and how to resolve them, that it takes outside professionals to do that. And we say that’s baloney because the outside professional does not feel in his gut what a woman on welfare with six kids living off of a $100 a month in a deteriorated building feels. She can come up with solutions much better than a bureaucrat.

Friedman: The intentions of this local community group are good. They want to rebuild the community as the community wants.

Joe Gardner talking to an elderly woman: I can’t hear you. I said are you pretty pleased with the work we are doing? Yes I am very pleased with it.

Friedman: But government money always corrupts. Look at the number of people rebuilding this garage. It doesn’t make sense except that these are CETA workers paid for by taxpayers money.

Government funds have allowed the organization to take over a whole area of Chicago. They now have their own supermarket.

They’ve built splendid houses for middle class occupiers. Very expensive, protected by the latest security systems. All at the taxpayers expense.

Joe Gardner: In a sense TWA is rapidly becoming a mini-government. At this particular point we have approximately 400 employees. We have an operating budget of, in excess of $5 million per year. So we are large.

Friedman: Large and expanding. Their next project is to redevelop this site. And that’s only the first step in a 20 year plan that will cost $220 million. Most of it coming from the taxpayers.

In the South Bronx, they are very familiar with government protection. Like the rent controls have made it uneconomic for landlords to maintain their buildings. They’ve moved out and the vandals have moved in. The South Bronx is an area where many of the people are on welfare, and where the crime rate is high. But all this could change. A group of local people has begun to renovate these buildings to build new homes. They call themselves “Sweat Equity.” Because at first sweat and effort was all they could put into the project. Only later did they accept a small government grant.

Friedman and Robert Foster: How long ago did you start working on this building? Four months ago for this building right here. And I take it what you are going…to gut the whole thing from beginning to end. Totally gut it. And you’ll have to rewire, right, roof, put new walls up, new floors, new ceilings, new everything in winter and summer whenever there was a chance to work. How many people do you have working here? A good 40 people. How do you keep them working? You know, some of them must want to, get tired of it. We show them what can be done in the future and what will be done in the future. And they get, at first, it’s kind of hard to prove to somebody that in the next three or four years what will come out of it. They can’t see it in long range terms. They only see it in short, they need money right now, not in two years. So we try to show them that it will happen.

Friedman: It’s true they now accept some government money. But so far they’ve managed to retain their original philosophy. That the best way to get something done well is to do it yourself.

Robert Foster: Like what we’re doing. We’re bringing people out of the street and giving them something to look forward to. They have their own apartment, they’ll be taken care of, the area around it, they have a garden, they have something to look forward to. They even get off welfare, you even give them a job. They can drop the welfare and have some self pride. That’s the only thing about it, self pride. The longer you take from the government and sitting back, you’ve got no worries. We’re not sitting back, we’re working. We’re making our money come in. And we are putting it into our building, we’re building ourselves up as well as the buildings.

Friedman: Some of these people are CETA workers. Paid for by the taxpayer. But this isn’t as useful as it might appear.

You ask these fellows which would they rather have, the CETA workers or the money that’s being paid to the CETA workers? Laughter. Which would you rather have?

Robert Foster: The money paid to the workers. Friedman: That’s your answer. That’s very expensive help. In terms of what these people could use with the money. You give these people the amount of money you’re paying to that CETA worker and I’ll bet they’ll have twice as much, three times as much, work. Am I wrong?

Robert Foster: Your right.

Friedman: So it’s a very inefficient way to use their money. The problem is you’ve got bureaucracy and the government bureaucrats, they want to decide what to do. They don’t want to let you decide what to do.

Robert Foster: Exactly.

Friedman: Ask yourself, how does this place get built up in the first place. After all, this was a pretty respectable, solid, substantial region when it was first developed. It wasn’t done through a government project. It was done by people individually having an incentive to put up these buildings and occupying them. What these people we’ve been seeing here are doing is they are trying to restore that feeling and that attitude. You’ll have a far healthier community here that grows out of the self-help of people like the people we’ve been talking to. That it is a paternalistic venture undertaken by governmental civil servants and bureaucrats who have to plan on a large scale for other people.

We must find a way to give everyone caught in the welfare trap the kind of initiative these people have.

The best, or should I say the least bad, solution I have even been able to devise was something called the negative income tax. This is the idea that we should get rid of a large part of the welfare bureaucracy, and for demeaning rules, and we should help people who are poor fundamentally by giving them money.

With a positive income tax, you’re entitled to a certain amount of personal exemptions and deductions. And above that amount you pay tax. But suppose you have no income. Under a negative income tax a fraction of your unused exemptions would be paid to you by the government. Guaranteeing at least a minimum income.

If you earned something, you’d still get a fraction of your unused exemptions. And you’d end up better off.

As your earnings rose, the supplement to your income would become smaller and smaller until your earnings equaled your exemptions. At that point, you’d break even. Neither paying tax nor receiving a subsidy.

It’s not an ideal system. It’s not the system we might have liked to get into, but it’s a system which would have the effect of eliminating the separation of a society into those to receive and those who pay. A separation that tends to destroy the whole social fabric. It would mean that we could each of us take advantage of opportunities that opened up without fearing that if by some chance we lost our jobs, it would be a long time before we could get back on assistance. It would be a system that would give all of us an incentive gradually to improve our lives would perhaps enable us, over time, to work ourselves out of the kind of mess we’ve gotten ourselves into. A mess we’ve gotten ourselves into for the very best of motives but with the very worst of results.

We’ve become increasing dependent on government. We’ve surrendered power to government, nobody has taken it from us. It’s our doing. The results, monumental government spending. Much of it wasted, little of it going to the people whom we would like to see helped. Burdensome taxes, high inflation, a welfare system under which neither those who receive help nor those who pay for it are satisfied. Trying to do good with other people’s money simply has not worked.

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