FRIEDMAN FRIDAY “The Tyranny of Control” in Milton Friedman’s FREE TO CHOOSE Part 4 of 7 (Transcript and Video) ” What we need are constitutional restraints on the power of government to interfere with free markets in foreign exchange, in foreign trade, and in many other aspects of our lives.”

In 1980 I read the book FREE TO CHOOSE by Milton Friedman and it really enlightened me a tremendous amount.  I suggest checking out these episodes and transcripts of Milton Friedman’s film series FREE TO CHOOSE: “The Failure of Socialism” and “What is wrong with our schools?”  and “Created Equal”  and  From Cradle to Grave, and – Power of the Market. In this episode “The Tyranny of Controls” Milton Friedman shows how government planning and detailed control of economic activity lessens productive innovation and consumer choice.

In this episode Milton Friedman asserts, ” What we need are constitutional restraints on the power of government to interfere with free markets in foreign exchange, in foreign trade, and in many other aspects of our lives.”

Milton Friedman’s Free to Choose – Ep.2 (4/7) – The Tyranny of Control

The main reason why the Japanese yen went up so sharply in price in 1977 and 1978 was because the Japanese government had been trying to prevent the yen from going up in price. In the process what might have been small disturbances were allowed to accumulate into a major gap in trade. As a result when market forces were finally permitted to operate, as sooner or later they must be, it took a major change in the yen exchange rate to bring things back into life. Why don’t governments learn, because governments never learn, only people learn, and the people who learn today may not be the people in charge of economic policy tomorrow.

As you contemplate this, you may come to agree with me, that what we need are constitutional restraints on the power of government to interfere with free markets in foreign exchange, in foreign trade, and in many other aspects of our lives.

DISCUSSION

Participants: Robert McKenzie, Moderator; Milton Friedman; Richard Deason, International Brotherhood of Electrical Workers; Donald Rumsfeld, President, G.D. Searle & Company; Helen Hughes, Director of Economic Studies, World Bank; Jagdish Bhagwati, Professor of Economics, MIT

McKENZIE: Now, here in Chicago, the special guests who have been watching that film have their say.

DEASON: This film has set me on edge. There is political, social, ethical considerations which do not reflect in the economic philosophy put out. There is a pervading feeling in this that the individual worker is to be totally sacrificed for the overall good of society. I see __ I don’t see how possibly you can sacrifice individuals’ for overall good of society because society is nothing but those millions and millions of individuals, put together. And nowhere is there any consideration given to the social and the ethical aspects of the free trade formula that you advocate.

McKENZIE: Let’s get other views now, around the group. What’s your reaction, Don Rumsfeld, as a businessman, to the idea that Milton Friedman’s advanced, that America ought to buy in the cheapest markets, the cheapest goods, without protecting against them?

RUMSFELD: I swore I would never even try to defend Milton Friedman. And I won’t. But let me comment, first, on Dick’s comment. It bothers me to hear social and moral arguments invoked in an issue like this, because it seems to me the measure is what actually happens to human beings. Each individual ought to be concerned about humanity. For a single individual who is unemployed, that’s a hundred percent unemployment.

DEASON: Absolutely.

RUMSFELD: And we recognize that. I recognize that. But the real world is, if you, as the film did, go to India, if you want to see things that one can describe as inhumane, and poverty, and problems of human beings, they exist. And the test ought to be, what works? What, in fact, will provide a circumstance that will be more than dynamic, and more productive in the world?

HUGHES: It is true that in the long run we would all be better off with free trade. I agree with Milton. But it’s the short run that matters, and in the short run there are serious adjustment problems. Now there’s no question that the developing countries need access to markets such as American markets. And America needs them to export so that they can export more to developing countries. American exports to developing countries have moved from something like twenty percent of total exports to thirty percent over the last ten years. But the adjustment is important, because what is happening at present is that it’s not just a random group of workers that is affected by this trade, it’s the most disadvantaged and underprivileged workers in America which are being affected; and they are, by and large, women, and members of minorities; in garments, in electronics. And I think that the adjustment consists of action on both the developing and the developed country sides. From the __ let’s take the American side. On the American side, the unions and industry, I think, have to get off discussion about moral issues and get their act in order.

BHAGWATI: I couldn’t agree more with Helen. I think there is a very valid income distributional problem involved here. Certainly society gets better off, consumers get better off as a result of cheaper imports, and I’m all for that, and there I agree completely with Milton. But if the incidence of the adjustment falls on disadvantaged groups, then you would want to do something about it, if this really becomes an ethical issue. But the other thing which I think Milton does bring up, which I disagree sharply with is: Suppose the foreign governments do subsidize and actively promote exports to you. Should you just sit back and just say, “Well, we’re going to be better off as a result of this”? I don’t think that takes into account the fact of the whole international system can break down as a result of what people perceive in pluralist economics as unfair competition emerging. And I think this is really what you’re beginning to see. So we do need some sanctions. I mean, I may receive stolen property, and I’m better off. Of course I’m better off. But if, as a result of this, I encourage theft, I think few people would agree that was something one did want to worry about.

McKENZIE: Before I call in Milton Friedman on this, a reaction to the comments?

DEASON: Yes. Really to Don and to Helen. Don, you choose to set aside, or you appear to choose to set aside the social and the ethical considerations. And __

RUMSFELD: Not at all, what I said was: You have to put the fact on a scale, that there are social and ethical considerations with a free market or without one. And the tendency is for people to invoke morality only on their side, and not to recognize that there are problems of human beings in this world that are going to occur in each case. And the measure, or the test ought to be, what actually happens out there and address that question.

DEASON: But you must, you must also very much consider the social aspect of this situation. Helen’s comment, the short-term displacement. I have a question for Milton at this point: How long do you put as a timetable on the displacement of these people, of these workers? Five years, ten years, a generation? How long will it be before overall society, you know, balances itself out and the individual is no longer hurt?

FRIEDMAN: Let me take your first __ your last question first and then go to your basic question. I have always been in favor of phasing out tariffs over a five year period, a twenty percent reduction a year for five years to give people time to adjust. Now to your fundamental issue. I thought I had heard every objection to my views imaginable, but you are the first one who has ever accused me of putting the interests of society as a whole ahead of the interests of individuals. If there is one element in my social philosophy, in my ethical philosophy that’s predominant, it is that the ultimate unit is the human being, the individual, and that society is a means whereby we jointly achieve our objectives. I would argue that the social and moral issues are all on the side of free trade, that it is you, and people like you, who introduce protection, who are the ones who are violating fundamental social and moral issues. Tell me, what trade union represents the workers who are displaced because high tariffs reduce exports from this country? Because high tariffs make steel, for example, or other goods, more expensive, as a result, those industries which use steel have fewer __ have to charge higher prices, they have fewer employees, the export industries that would grow up to balance the imports __ tell me, what union represents them? What moral and ethical view do you have about their interests?

McKENZIE: Richard Deason.

DEASON: You still haven’t answered my basic question: How long of a time period, how long of a frame __ five years, ten years, a generation? You still haven’t answered it.

FRIEDMAN: I said __ I said five years.

DEASON: Five years __

McKENZIE: Could we be clear, Milton, on this point. You’re saying, though, that tariffs should be phased out over five years regardless of the action of other countries. It’s not a sort of negotiation or anything else?

FRIEDMAN: Regardless. Regardless of the actions of other countries. So far, obviously, I would prefer to have other countries reduce their tariffs __

McKENZIE: But if they don’t move, America should move?

FRIEDMAN: Absolutely.

McKENZIE: Do you go along with that, Don Rumsfeld?

RUMSFELD: In others words, you’re against reciprocal __

FRIEDMAN: I’m not against __

RUMSFELD: __ you favor getting to truly reciprocal trade, but you’re willing to get there unilaterally?

FRIEDMAN: Yeah.

RUMSFELD: Yeah. It seems to me that it’s probably worth moving in that direction. I don’t know where I would stop. I am not __

McKENZIE: Well, it’s a five year program. Will you buy that?

RUMSFELD: Well, it seems to me that you get action, reaction. To the extent you’re doing something that makes sense for human beings, presumably, that would be persuasive with others. Presumably there would be a logical sequence where other countries would begin to sense that had a certain degree of validity in the world.

McKENZIE: Will that happen, Helen Hughes?

HUGHES: Providing you do something for the displaced workers in the country in which they’re displaced. Because if you don’t do something, if you don’t take some action, and it’s generally got to be government action, you will get such a backlash that you’ll be back in the thirties with the sort of thing that happened with high unemployment.”

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