Category Archives: Milton Friedman

Dan Mitchell: “Milton Friedman noted History shows that over a long period of time government will spend whatever the tax system raises plus as much more as it can get away with” (with video from Milton Friedman)

Yes, Starve the Beast

As part of a recent discussion with Gene Tunny in Australia, I explained why I support “Starve the Beast,” which means keeping taxes as low as possible to help achieve the goal of spending restraint.

The premise of Starve the Beast is very simple.

Politicians like to spend money and they don’t particularly care whether that spending is financed by taxes or financed by borrowing (both bad options).

As Milton Friedman sagely observed, that means they will spend every penny they collect in taxes plus as much additional spending financed by borrowing that the political system will allow.

The IMF published a study on this issue about 10 years ago. The authors (Michael Kumhof, Douglas Laxton, and Daniel Leigh) assert that there’s no way of knowing whether Starve the Beast will lead to good or bad results.

…there is no consensus regarding the macroeconomic and welfare consequences of implementing a starve-the-beast approach, henceforth referred to as STB. …it could be beneficial in the ideal case in which it results in cuts in entirely wasteful government spending. In particular, lower spending frees up resources for private consumption, and the associated lower tax rates reduce distortions in the economy. On the other hand, …lower government spending may itself entail welfare losses…if it augments the productivity of private factors of production. …the paper examines whether the principal macroeconomic variables such as GDP and consumption, both in the United States and in the rest of the world, respond positively to this policy. …In addition, the paper assesses how the welfare effects depend on the degree to which government spending directly contributes to household welfare or to productivity.

The authors don’t really push any particular conclusion. Instead, they show various economic outcomes depending on with assumptions one adopts.

Since plenty of research shows that government spending is not a net plus for the economy (even IMF economists agree on that point), and because I think a less-punitive tax system is possible (and desirable) if there’s a smaller burden of government spending, I think the findings shown in Figure 4 make the most sense.

Now let’s shift from academic analysis to policy analysis.

In a piece for National Review back in July 2020, Jim Geraghty notes that Starve the Beast has an impact on government finances at the state level.

…we’re probably not going to see a massive expansion of government at the state level in the coming year or two. …Thanks to the pandemic lockdown bringing vast swaths of the economy to a halt, state tax revenues are plummeting.…So states will have much less tax revenue, constitutional balanced-budget requirements that are not easily repealed, and a limited amount of budgetary tricks to work around it. State governments could attempt to raise taxes, but that’s going to be unpopular and hurt state economies when they’re already struggling. Add it all up and it’s a tough set of circumstances for a dramatic expansion of government, no matter how ardently progressive the governor and state legislatures are.

For what it’s worth, Geraghty warned in the article that fiscal restraint by state governments wouldn’t happen if the federal government turned on the spending spigot.

And that, of course, is exactly what happened.

Now let’s look at the most unintentional endorsement of Stave the Beast.

A couple of years ago, Paul Krugman sort of admitted that cutting taxes was a potentially effective strategy for spending restraint.

…the same Republicans now wringing their hands over budget deficits…blew up that same deficit by enacting a huge tax cut for corporations and the wealthy. …this has been the G.O.P.’s budget strategy for decades. First, cut taxes. Then, bemoan the deficit created by those tax cuts and demand cuts in social spending.Lather, rinse, repeat. This strategy, known as “starve the beast,” has been around since the 1970s, when Republican economists like Alan Greenspan and Milton Friedman began declaring that the role of tax cuts in worsening budget deficits was a feature, not a bug. As Greenspan openly put it in 1978, the goal was to rein in spending with tax cuts that reduce revenue, then “trust that there is a political limit to deficit spending.” …voters should realize that the threat to programs… Social Security and Medicare as we know them will be very much in danger.

In other words, Krugman doesn’t like Starve the Beast because he fears it is effective (just like he also acknowledges the Laffer Curve, even though he’s opposed to tax cuts).

Let’s close by looking at some very powerful real-world evidence. Over the past 50 years, there’s been a massive increase in the tax burden in Western Europe.

Did all that additional tax revenue lead to lower deficits and less debt?

Nope, the opposite happened. European politicians spent every penny of the new tax revenue (much of it from value-added taxes). And then they added even more spending financed by additional borrowing.

To be fair, one could argue that this was an argument for the view of “Don’t Feed the Beast” rather than “Starve the Beast,” but it nonetheless shows that more money in the hands of politicians simply means more spending. And more red ink.

P.S. I had a discussion last year with Gene Tunny about the issue of “state capacity libertarianism.”


Friedman & Sowell: Should Our School System Be Privatized?

Regular readers know that the two things that get me most excited are the Georgia Bulldogs and the fight against a bloated public sector that is ineffective in the best of circumstances and more often than not is a threat to our freedoms.

So you will not be surprised to know that I am delighted that former Georgia Bulldog star Fran Tarkenton (who also happened to play in the NFL) has a superb piece in the Wall Street Journal ripping apart the inherent inefficiency of government-run monopoly schools.

Here is the key passage.

Imagine the National Football League in an alternate reality. Each player’s salary is based on how long he’s been in the league. It’s about tenure, not talent. The same scale is used for every player, no matter whether he’s an All-Pro quarterback or the last man on the roster. For every year a player’s been in this NFL, he gets a bump in pay. The only difference between Tom Brady and the worst player in the league is a few years of step increases. And if a player makes it through his third season, he can never be cut from the roster until he chooses to retire, except in the most extreme cases of misconduct. Let’s face the truth about this alternate reality: The on-field product would steadily decline. Why bother playing harder or better and risk getting hurt? No matter how much money was poured into the league, it wouldn’t get better. In fact, in many ways the disincentive to play harder or to try to stand out would be even stronger with more money. Of course, a few wild-eyed reformers might suggest the whole system was broken and needed revamping to reward better results, but the players union would refuse to budge and then demonize the reform advocates: “They hate football. They hate the players. They hate the fans.” The only thing that might get done would be building bigger, more expensive stadiums and installing more state-of-the-art technology. But that just wouldn’t help.

This sounds absurd, of course, but Mr. Tarkenton goes on to explain that this is precisely how government schools operate.

If you haven’t figured it out yet, the NFL in this alternate reality is the real-life American public education system. Teachers’ salaries have no relation to whether teachers are actually good at their job—excellence isn’t rewarded, and neither is extra effort. Pay is almost solely determined by how many years they’ve been teaching. That’s it. After a teacher earns tenure, which is often essentially automatic, firing him or her becomes almost impossible, no matter how bad the performance might be. And if you criticize the system, you’re demonized for hating teachers and not believing in our nation’s children. Inflation-adjusted spending per student in the United States has nearly tripled since 1970. According to the Organization for Economic Cooperation and Development, we spend more per student than any nation except Switzerland, with only middling results to show for it.

Actually, I will disagree with the last sentence of this excerpt. We’re not even getting “middling results.” Here’s a chart from an earlier post showing that we’ve gotten more bureaucracy and more spending but no improvement over the past 40 years.

So what’s the solution to this mess? Well, since government is the problem, it stands to reason that competition and markets are the answer.

Sweden, Chile, and the Netherlands are just some of the countries that have seen good results after breaking up state-run education monopolies.

Watch this video to get more details.

Economics 101: School Choice Example Shows Why Government Monopolies Are Bad

Related posts:

FRIEDMAN FRIDAY Milton Friedman’s FREE TO CHOOSE “The Tyranny of Control” Transcript and Video (60 Minutes)

Milton Friedman’s FREE TO CHOOSE “The Tyranny of Control” Transcript and Video (60 Minutes) 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 […]

FRIEDMAN FRIDAY “The Tyranny of Control” in Milton Friedman’s FREE TO CHOOSE Part 7 of 7 (Transcript and Video) “I’m not pro business, I’m pro free enterprise, which is a very different thing, and the reason I’m pro free enterprise”

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, […]

FRIEDMAN FRIDAY “The Tyranny of Control” in Milton Friedman’s FREE TO CHOOSE Part 6 of 7 (Transcript and Video) “We are the ones who promote freedom, and free enterprise, and individual initiative, And what do we do? We force puny little Hong Kong to impose limits, restrictions on its exports at tariffs, in order to protect our textile workers”

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, […]

FRIEDMAN FRIDAY “The Tyranny of Control” in Milton Friedman’s FREE TO CHOOSE Part 5 of 7 (Transcript and Video) “There is no measure whatsoever that would do more to prevent private monopoly development than complete free trade”

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, […]

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, […]

FRIEDMAN FRIDAY “The Tyranny of Control” in Milton Friedman’s FREE TO CHOOSE Part 3 of 7 (Transcript and Video) “When anyone complains about unfair competition, consumers beware, That is really a cry for special privilege always at the expense of the consumer”

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, […]

FRIEDMAN FRIDAY “The Tyranny of Control” in Milton Friedman’s FREE TO CHOOSE Part 2 of 7 (Transcript and Video) “As always, economic freedom promotes human freedom”

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, […]

FRIEDMAN FRIDAY “The Tyranny of Control” Milton Friedman’s FREE TO CHOOSE Part 1 of 7 (Transcript and Video) “Adam Smith’s… key idea was that self-interest could produce an orderly society benefiting everybody, It was as though there were an invisible hand at work”

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, […]

Open letter to President Obama (Part 654) “The Tyranny of Control” in Milton Friedman’s FREE TO CHOOSE Part 7 of 7 (Transcript and Video) “I’m not pro business, I’m pro free enterprise, which is a very different thing, and the reason I’m pro free enterprise”

Open letter to President Obama (Part 654) (Emailed to White House on July 22, 2013) 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 […]

Open letter to President Obama (Part 650) “The Tyranny of Control” in Milton Friedman’s FREE TO CHOOSE Part 6 of 7 (Transcript and Video) “We are the ones who promote freedom, and free enterprise, and individual initiative, And what do we do? We force puny little Hong Kong to impose limits, restrictions on its exports at tariffs, in order to protect our textile workers”

Open letter to President Obama (Part 650) (Emailed to White House on July 22, 2013) 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 […]

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The Teachings of Milton Friedman and Thanksgiving 2021 

The Teachings of Milton Friedman and Thanksgiving 2021

Inflation is an increase in the overall general price level of an economy. It should not be confused with an increase in the price of a good or service over a short period due to increased demand, relative to supply in the case of the introduction of a new version of a product like an Xbox, nor reduced supply, relative to demand due to supply chain problems, such as the case of computer chips for automobiles.

Nobel Prize winning economist Milton Friedman noted, “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output (goods, services and or assets).”

What is noteworthy today is President Biden declared in 2020 as he campaigned for the U.S. presidency that  “Milton Friedman is no longer in charge.” This is ironic given that 10 months into Mr. Biden’s presidency (and driven by massive increases in fiscal and monetary policy from his and the previous administration), he is presiding over the highest rate of U.S. inflation in more than 30 years. Or as Bill McGurn recently pointed out in The Wall Street Journal on the 15th anniversary of Dr. Friedman’s death: “Friedman seems to be getting the last laugh on the issue of inflation” making the University of Chicago icon as relevant as ever. This is especially true today as one reflects on Friedman’s secondary definition of inflation as a “cruel tax.” Here Friedman notes that inflation reduces a person’s purchasing power as more dollars are injected into the economy relative to output making each dollar less valuable and harming the poor disproportionately!

Inflation and the celebration of Thanksgiving

Current year over year inflation in the United States is running at 6.2% with states like Michigan running at roughly 6.5%, slightly higher than the national average.

There is much debate as to whether this inflationary spike is transitory or permanent and how much of our current rising prices are caused by supply chain malfunctions and/or increase in demand for a popular product or service. Or whether it is as scholars like Milton Friedman would argue largely due to excessive government spending and monetary policy used to fight the pandemic. One can certainly look at the more than $2 trillion the Federal Reserve has injected into the economy in the last two years and upwards of $8 trillion more designated or under debate to be spent as the root cause of today’s inflation surge. This excessive liquidity in the capital markets certainly validates Friedman’s explanation of why prices across the economy are increasing with no general explanation other than there is more money in the economy chasing the same or slightly more goods and services.

As Thanksgiving approaches, our research predicts Americans will pay more this year ($53.94) for a traditional dinner for 10, including turkey, bread stuffing, sweet potatoes, rolls with butter, peas, cranberries, a relish tray of carrots and celery, pumpkin pie with whipped cream, coffee, milk and/or water to drink. This cost is 15% higher than last year’s 10 year low of $46.90 and 9.87% higher than the previous 10-year average of $49.10, according to Statista. Many Americans will choose to substitute the traditional turkey (turkey prices are up between 20 and 24 percent) with chicken to make the meal more affordable.

It is clear to us that the price of Thanksgiving dinner is the validation of Friedman’s premise that inflation is a monetary phenomenon caused by excessive government monetary and fiscal policy with only a minor level of higher prices at Thanksgiving due to supply chain problems. Additionally, the cost to travel and spend Thanksgiving with family or friends will also be considerably higher in 2021. Based on current national averages: gasoline is up 61%; hotels are up over 15%; airline tickets are up over 24%; rental cars are up roughly 86%; new cars are up 9.8%; and the cost of used cars, SUVs and trucks are up almost 26% year over year. So, if you’re traveling for Thanksgiving, your overall costs will be considerably higher.

Let’s not forget why we celebrate Thanksgiving

We hope at this time of year Americans reflect on the very meaning of Thanksgiving. From the first Thanksgiving in the 1600s in Massachusetts to modern times, Thanksgiving has been a time to reflect on the many blessings, good times, and people in our lives who have made a difference, and to give thanks that we are very fortunate to be citizens of the greatest country and economy in the history of the world.

Most importantly, we should not only be grateful for all that we have, but also reflect on what we can do to improve the lives of others now and moving forward. Now more than ever we should consider acts of kindness; helping a family member or neighbor, service to  our communities, or if able: a financial gift to a place of worship or local charity.

It is our hope that every American WILL have a joyous Thanksgiving – and the prospect of a better future. With inflation at a 31-year high, many more people will need to depend on Thanksgiving generosity in 2021 — thus we must all do our best to enhance the Thanksgivings of others this year while enhancing our own Thanksgivings by the process.

Finally, for the sake of a brighter American future, it would be  wise if Milton Friedman once again became  relevant in the White House and the halls of Congress moving forward.

Happy Thanksgiving, America!

Dr. Timothy G. Nash is director of the McNair Center at Northwood University. Dr. Kent D. MacDonald is president of Northwood University. Dr. Daniel G. DeVos is chairman of the Orlando Magic and chairman and CEO of DP Fox Ventures. Lisa C. McClain is a member of the U.S. Congress from the 10th District of Michigan.

Milton Friedman discusses J.D. Rockefeller

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Government officials always think they know better how to spend money than the private individual. We have a huge government deficit today that demonstrates that the government does not know best. Below are some wise words from Milton Friedman:

  • “The strongest argument for free enterprise is that it prevents anybody from having too much power. Whether that person is a government official, a trade union official, or a business executive. If forces them to put up or shut up. They either have to deliver the goods, produce something that people are willing to pay for, are willing to buy, or else they have to go into a different business.”
    • “Free to Choose” (1980), segment 2 of 10, “The Tyranny of Control”

Here are some quotes from Milton Friedman that I thought you would enjoy:

  • Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.… A steady rate of monetary growth at a moderate level can provide a framework under which a country can have little inflation and much growth. It will not produce perfect stability; it will not produce heaven on earth; but it can make an important contribution to a stable economic society.
    • The Counter-Revolution in Monetary Theory (1970)
  • On the level of political principle, the imposition of taxes and the expenditure of tax proceeds are governmental functions. We have established elaborate constitutional, parliamentary and judicial provisions to control these functions, to assure that taxes are imposed so far as possible in accordance with the preferences and desires of the public — after all, “taxation without representation” was one of the battle cries of the American Revolution. We have a system of checks and balances to separate the legislative function of imposing taxes and enacting expenditures from the executive function of collecting taxes and administering expenditure programs and from the judicial function of mediating disputes and interpreting the law.
    Here the businessman — self-selected or appointed directly or indirectly by stockholders — is to be simultaneously legislator, executive and, jurist. He is to decide whom to tax by how much and for what purpose, and he is to spend the proceeds — all this guided only by general exhortations from on high to restrain inflation, improve the environment, fight poverty and so on and on.

  • The political principle that underlies the market mechanism is unanimity. In an ideal free market resting on private property, no individual can coerce any other, all cooperation is voluntary, all parties to such cooperation benefit or they need not participate. There are no values, no “social” responsibilities in any sense other than the shared values and responsibilities of individuals. Society is a collection of individuals and of the various groups they voluntarily form.
    The political principle that underlies the political mechanism is conformity. The individual must serve a more general social interest — whether that be determined by a church or a dictator or a majority. The individual may have a vote and say in what is to be done, but if he is overruled, he must conform. It is appropriate for some to require others to contribute to a general social purpose whether they wish to or not.
    Unfortunately, unanimity is not always feasible.There are some respects in which conformity appears unavoidable, so I do not see how one can avoid the use of the political mechanism altogether.

    • “The Social Responsibility of Business is to Increase its Profits” in The New York Times Magazine (13 September 1970)
  • So the question is, do corporate executives, provided they stay within the law, have responsibilities in their business activities other than to make as much money for their stockholders as possible? And my answer to that is, no they do not.
    • Interview “Milton Friedman Responds” in Chemtech (February 1974) p. 72.
  • There is no place for government to prohibit consumers from buying products the effect of which will be to harm themselves.
    • Free to Choose (1980), segment Who protects the consumer?
  • “The strongest argument for free enterprise is that it prevents anybody from having too much power. Whether that person is a government official, a trade union official, or a business executive. If forces them to put up or shut up. They either have to deliver the goods, produce something that people are willing to pay for, are willing to buy, or else they have to go into a different business.”
    • “Free to Choose” (1980), segment 2 of 10, “The Tyranny of Control”
  • Governments never learn. Only people learn.
    • Statement made in 1980, as quoted in The Cynic’s Lexicon : A Dictionary Of Amoral Advice‎ (1984), by Jonathon Green, p. 77
  • With some notable exceptions, businessmen favor free enterprise in general but are opposed to it when it comes to themselves.
  • The broader and more influential organisations of businessmen have acted to undermine the basic foundation of the free market system they purport to represent and defend.
    • Lecture “The Suicidal Impulse of the Business Community” (1983); cited in Filters Against Folly (1985) by Garrett Hardin

Musk invokes Milton Friedman in condemnation of Biden spending bill ‘trickery’ Milton Friedman: “Nothing is so permanent as a temporary government program”

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Musk invokes Milton Friedman in condemnation of Biden spending bill ‘trickery’

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Tesla founder Elon Musk blasted the “trickery” of President Joe Biden’s spending bill, channeling preeminent free-market economist Milton Friedman.

Musk, the world’s wealthiest person, posted an analysis of the Democratic spending legislation that found that by 2050, the national debt would increase by nearly 25%and gross domestic product would fall by nearly 3% should the plan be implemented with certain temporary provisions made permanent.

“There is a lot of accounting trickery in this bill that isn’t being disclosed to the public,” Musk told his 66 million Twitter followers on Wednesday.

“Nothing is more permanent than a ‘temporary’ government program,” the billionaire added, which is an almost exact word-for-word quote from Friedman, who is known for being a major proponent of free-market capitalism and one of the leaders of the Chicago school of economics.

MUSK SLAMS FEDERAL SUBSIDIES FOR ELECTRIC VEHICLES

The Democratic bill, which many in the party claim is fully paid for, is chock-full of spending provisions that have early sunsets and drive down the headline price of the agenda, a tactic that Republicans and certain outside groups have characterized as gimmickry. Should the legislation pass, Democrats would likely seek to make those early sunsets permanent, thus increasing the bill’s actual cost by a large margin.

“In an alternative, illustrative scenario in which all temporary provisions in [the package] are made permanent, spending would instead total $4.6 trillion over the 10-year budget window,” the report reads. “In this scenario, by 2050 federal debt increase by 24.4 percent and GDP would fall by 2.9 percent relative to current law.”

This week, Musk also addressed the Democratic spending legislation during an interview with the Wall Street Journal. Musk said he thinks it might be better if the legislation doesn’t end up getting passed and cited the ballooning federal deficit.

During the interview, Musk said he is not an “extreme libertarian” but does think that the United States should minimize the role of the government. Musk also bucked the notion of federal subsidies, even for the electric vehicles that his company is known for.

CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER

“It does not make sense to take the job of capital allocation away from people who have demonstrated great skill at capital allocation and give it to an entity that has demonstrated very poor skill in capital allocation, which is the government,” Musk said, invoking libertarian ideals.

“The government is simply the biggest corporation, with a monopoly on violence, and where you have no recourse,” he said, referencing renowned sociologist Max Weber.

Milton Friedman On Charlie Rose (Part One)

The late Milton Friedman discusses economics and otherwise with Charlie Rose.

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Milton Friedman: Life and ideas – Part 01

Milton Friedman: Life and ideas

A brief biography of Milton Friedman

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Stossel – “Free to Choose” (Milton Friedman) 1/6

6-10-10. pt.1 of 6. Stossel discusses Milton Friedman’s 1980 book, “Free to Choose”, which was smuggled in and read widely in Eastern Europe during the Cold War by many countries under Soviet rule. Read and admired the world over by the likes of Margaret Thatcher and Ronald Reagan, this book served as the inspiration for many of the Soviet sattellite countries’ economies once they achieved freedom after the fall of the Soviet Union.

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Milton Friedman on Medical Care [1/6]

Milton Friedman and Ronald Reagan  were two of my heroes and I know that you can learn a great deal from their lives and their economic philosophies.  I suggest checking out these episodes 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.

What’s the Half-Life of a “Temporary” Tax Increase?

July 1, 2013 by Dan Mitchell

Milton Friedman famously noted that, “Nothing is so permanent as a temporary government program”and Ronald Reagan sagely observed that “a government bureau is the nearest thing to eternal life we’ll ever see on this earth.”

Two great Americans

They’re both right, but they should have included the other half of the fiscal equation. Repealing a tax, even a “temporary tax,” is just as difficult as getting rid of wasteful spending.

Simply stated, once politicians get access to a source of additional revenue, it’s feeding time at the zoo and good luck getting them to give the money back. Here’s a sobering example from Philadelphia.

Skeptics say there’s no such thing as a “temporary” tax. Like the two-year property tax increase City Council passed in 2010 that, lo and behold, is still with us. Or another dreaded levy: the wage tax. It was passed in 1939 as a short-term fix for the city’s finances, but succeeding generations have nonetheless been forced to accept its bite in their paychecks. The latest tax under consideration for immortality is the 1 percent sales-tax increase the state allowed Philadelphia to impose in 2009 as a bridge through the recession.The increase – which raised the tax on most goods and services in Philadelphia from 7 percent to 8 percent – is slated to expire next June. City and state leaders are now talking about making the increase permanent, with the extra money being put toward one or both of the city’s greatest needs: the struggling School District and the vastly underfunded public employee pension fund.

The bulk of that excerpt is a straightforward recitation of how temporary tax hikes become permanent tax hikes, but I have to object to the final sentence. The “city’s greatest needs” are replacing the failed government education monopoly with school choice and reducing the excessive pensions for over-compensated government bureaucrats – such as the city’s former “managing director” (whatever that is), Camille Cates Barnett.

I also can’t resist commenting on the craven behavior of the city’s Chamber of Commerce. I though the national Chamber of Commerce was bad when it endorsed TARP and the faux stimulus, but the local Chamber may be even worse.

Joe Grace, director of public policy at the Greater Philadelphia Chamber of Commerce, said, “We have not seen any evidence that extending the 1 percent is going to have any negative impact on the local businesses.” The chamber is also backing a $2-a-pack cigarette tax dedicated to the schools. “Our belief is the School District needs resources,” Grace said. “We’re working, along with many others, to close the school-funding gap, really by any means necessary.”

So Mr. Grace thinks more funding for a failed education bureaucracy should be achieved by “any means necessary.” Well, I think a 100 percent tax rate on Mr. Grace should be at the top of the list.

Heck, if France can tax at 100 percent, then so can the City of Philadelphia, and Mr. Grace is a deserving recipient of such a levy.

But there are some opponents of the tax, though they’re not exactly libertarian heroes.

…members of the nearly all-Democratic Philadelphia delegation have raised concerns about using the 1 percent to help fund the schools because it lets the state off the hook for its share of education funding. Danilo Burgos, president of the Dominican Grocers Association, argued that giving sales-tax revenue to the schools was “a Band-Aid.” The state, which has control of the city’s schools, should be responsible for devising “a real solution for our schools.”

In other words, they want more money to waste, but they want to take it from people in the rest of the state.

Sort of reminds me of what the great Frederic Bastiat wrote more than 150 years ago, “The state is that great fiction by which everyone tries to live at the expense of everyone else.”

But if enough people act as if that fiction is reality, then you get too many people riding in the wagon and not enough people pulling the wagon. That’s a good description of what’s happening in places such as Philadelphia and Greece.

Related posts:Milton Friedman’s “Free to Choose” film transcripts and videos here on http://www.thedailyhatch.org

I have many posts on my blog that include both the transcript and videos of Milton Friedman’s film series “Free to Choose” and here are the episodes that I have posted.

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Here are the posts and you can find the links in order below this.

The Power of the Market from 1990

The Failure of Socialism from 1990

The Anatomy of a Crisis from 1980

What is wrong with our schools?  from 1980

Created Equal from 1980

From Cradle to Grave from 1980

The Power of the Market 1980

Debate on Inflation from 1980

Milton Friedman is the short one!!!

Milton Friedman’s Free to Choose (1980), episode 3 – Anatomy of a Crisis. part 1

“The Power of the Market” episode of Free to Choose in 1990 by Milton Friedman (Part 5)

Milton Friedman The Power of the Market 5-5 How can we have personal freedom without economic freedom? That is why I don’t understand why socialists who value individual freedoms want to take away our economic freedoms.  I wanted to share this info below with you from Milton Friedman who has influenced me greatly over the […]

“The Power of the Market” episode of Free to Choose in 1990 by Milton Friedman (Part 4)

Milton Friedman The Power of the Market 4-5 How can we have personal freedom without economic freedom? That is why I don’t understand why socialists who value individual freedoms want to take away our economic freedoms.  I wanted to share this info below with you from Milton Friedman who has influenced me greatly over the […]

“The Power of the Market” episode of Free to Choose in 1990 by Milton Friedman (Part 3)

Milton Friedman The Power of the Market 3-5 How can we have personal freedom without economic freedom? That is why I don’t understand why socialists who value individual freedoms want to take away our economic freedoms.  I wanted to share this info below with you from Milton Friedman who has influenced me greatly over the […]

“The Power of the Market” episode of Free to Choose in 1990 by Milton Friedman (Part 2)

Milton Friedman The Power of the Market 2-5 How can we have personal freedom without economic freedom? That is why I don’t understand why socialists who value individual freedoms want to take away our economic freedoms.  I wanted to share this info below with you from Milton Friedman who has influenced me greatly over the […]

“The Power of the Market” episode of Free to Choose in 1990 by Milton Friedman (Part 1)

Milton Friedman The Power of the Market 1-5 How can we have personal freedom without economic freedom? That is why I don’t understand why socialists who value individual freedoms want to take away our economic freedoms.  I wanted to share this info below with you from Milton Friedman who has influenced me greatly over the […]

Milton Friedman’s Free to Choose (1980), episode 3 – Anatomy of a Crisis. part 1

“Friedman Friday” EPISODE “The Failure of Socialism” of Free to Choose in 1990 by Milton Friedman (Part 5)

Milton Friedman: Free To Choose – The Failure Of Socialism With Ronald Reagan (Full) Published on Mar 19, 2012 by NoNationalityNeeded Milton Friedman’s writings affected me greatly when I first discovered them and I wanted to share with you. Abstract: Ronald Reagan introduces this program, and traces a line from Adam Smith’s “The Wealth of […]

“Friedman Friday” EPISODE “The Failure of Socialism” of Free to Choose in 1990 by Milton Friedman (Part 4)

Milton Friedman: Free To Choose – The Failure Of Socialism With Ronald Reagan (Full) Published on Mar 19, 2012 by NoNationalityNeeded Milton Friedman’s writings affected me greatly when I first discovered them and I wanted to share with you. Abstract: Ronald Reagan introduces this program, and traces a line from Adam Smith’s “The Wealth of […]

“Friedman Friday” EPISODE “The Failure of Socialism” of Free to Choose in 1990 by Milton Friedman (Part 3)

Milton Friedman: Free To Choose – The Failure Of Socialism With Ronald Reagan (Full) Published on Mar 19, 2012 by NoNationalityNeeded Milton Friedman’s writings affected me greatly when I first discovered them and I wanted to share with you. Abstract: Ronald Reagan introduces this program, and traces a line from Adam Smith’s “The Wealth of […]

“Friedman Friday” EPISODE “The Failure of Socialism” of Free to Choose in 1990 by Milton Friedman (Part 2)

Milton Friedman: Free To Choose – The Failure Of Socialism With Ronald Reagan (Full) Published on Mar 19, 2012 by NoNationalityNeeded Milton Friedman’s writings affected me greatly when I first discovered them and I wanted to share with you. Abstract: Ronald Reagan introduces this program, and traces a line from Adam Smith’s “The Wealth of […]

“Friedman Friday,” EPISODE “The Failure of Socialism” of Free to Choose in 1990 by Milton Friedman (Part 1)

Milton Friedman: Free To Choose – The Failure Of Socialism With Ronald Reagan (Full) Published on Mar 19, 2012 by NoNationalityNeeded Milton Friedman’s writings affected me greatly when I first discovered them and I wanted to share with you. We must not head down the path of socialism like Greece has done. Abstract: Ronald Reagan […]

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“Friedman Friday” (“Free to Choose” episode 3 – Anatomy of a Crisis. part 7of 7)

TEMIN: We don’t think the big capital arose before the government did? VON HOFFMAN: Listen, what are we doing here? I mean __ defending big government is like defending death and taxes. When was the last time you met anybody that was in favor of big government? FRIEDMAN: Today, today I met Bob Lekachman, I […]

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“Friedman Friday” (“Free to Choose” episode 3 – Anatomy of a Crisis. part 6of 7)

worked pretty well for a whole generation. Now anything that works well for a whole generation isn’t entirely bad. From the fact __ from that fact, and the undeniable fact that things are working poorly now, are we to conclude that the Keynesian sort of mixed regulation was wrong __ FRIEDMAN: Yes. LEKACHMAN: __ or […]

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“Friedman Friday” (“Free to Choose” episode 3 – Anatomy of a Crisis. part 5 of 7)

MCKENZIE: Ah, well, that’s not on our agenda actually. (Laughter) VOICE OFF SCREEN: Why not? MCKENZIE: I boldly repeat the question, though, the expectation having been __ having been raised in the public mind, can you reverse this process where government is expected to produce the happy result? LEKACHMAN: Oh, no way. And it would […]

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“Friedman Friday” (“Free to Choose” episode 3 – Anatomy of a Crisis. part 4 of 7)

The massive growth of central government that started after the depression has continued ever since. If anything, it has even speeded up in recent years. Each year there are more buildings in Washington occupied by more bureaucrats administering more laws. The Great Depression persuaded the public that private enterprise was a fundamentally unstable system. That […]

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“Friedman Friday” (“Free to Choose” episode 3 – Anatomy of a Crisis. part 3 of 7)

Worse still, America’s depression was to become worldwide because of what lies behind these doors. This is the vault of the Federal Reserve Bank of New York. Inside is the largest horde of gold in the world. Because the world was on a gold standard in 1929, these vaults, where the U.S. gold was stored, […]

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“Friedman Friday” (Part 16) (“Free to Choose” episode 3 – Anatomy of a Crisis. part 2 of 7)

  George Eccles: Well, then we called all our employees together. And we told them to be at the bank at their place at 8:00 a.m. and just act as if nothing was happening, just have a smile on their face, if they could, and me too. And we have four savings windows and we […]

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“Friedman Friday” (“Free to Choose” episode 3 – Anatomy of a Crisis. part 1of 7)

Milton Friedman’s Free to Choose (1980), episode 3 – Anatomy of a Crisis. part 1 FREE TO CHOOSE: Anatomy of Crisis Friedman Delancy Street in New York’s lower east side, hardly one of the city’s best known sites, yet what happened in this street nearly 50 years ago continues to effect all of us today. […]

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Friedman Friday” Free to Choose by Milton Friedman: Episode “What is wrong with our schools?” (Part 6 of transcript and video)

Here is the video clip and transcript of the film series FREE TO CHOOSE episode “What is wrong with our schools?” Part 6 of 6.   Volume 6 – What’s Wrong with our Schools Transcript: FRIEDMAN: But I personally think it’s a good thing. But I don’t see that any reason whatsoever why I shouldn’t have been required […]

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Friedman Friday” Free to Choose by Milton Friedman: Episode “What is wrong with our schools?” (Part 5 of transcript and video)

Here is the video clip and transcript of the film series FREE TO CHOOSE episode “What is wrong with our schools?” Part 5 of 6.   Volume 6 – What’s Wrong with our Schools Transcript: Are your voucher schools  going to accept these tough children? COONS: You bet they are. (Several talking at once.) COONS: May I answer […]

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Free to Choose by Milton Friedman: Episode “What is wrong with our schools?” (Part 4 of transcript and video)

Here is the video clip and transcript of the film series FREE TO CHOOSE episode “What is wrong with our schools?” Part 4 of 6.   Volume 6 – What’s Wrong with our Schools Transcript: It seems to me that if one is truly interested in liberty, which I think is the ultimate value that Milton Friedman talks […]

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Friedman Friday” Free to Choose by Milton Friedman: Episode “What is wrong with our schools?” (Part 3 of transcript and video)

Friedman Friday” Free to Choose by Milton Friedman: Episode “What is wrong with our schools?” (Part 3 of transcript and video) Here is the video clip and transcript of the film series FREE TO CHOOSE episode “What is wrong with our schools?” Part 3 of 6.   Volume 6 – What’s Wrong with our Schools Transcript: If it […]

Friedman Friday” Free to Choose by Milton Friedman: Episode “What is wrong with our schools?” (Part 2 of transcript and video)

Here is the video clip and transcript of the film series FREE TO CHOOSE episode “What is wrong with our schools?” Part 2 of 6.   Volume 6 – What’s Wrong with our Schools Transcript: Groups of concerned parents and teachers decided to do something about it. They used private funds to take over empty stores and they […]

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Friedman Friday” Free to Choose by Milton Friedman: Episode “What is wrong with our schools?” (Part 1 of transcript and video)

Here is the video clip and transcript of the film series FREE TO CHOOSE episode “What is wrong with our schools?” Part 1 of 6.   Volume 6 – What’s Wrong with our Schools Transcript: Friedman: These youngsters are beginning another day at one of America’s public schools, Hyde Park High School in Boston. What happens when […]

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Free to Choose by Milton Friedman: Episode “Created Equal” (Part 7 of transcript and video)

Liberals like President Obama want to shoot for an equality of outcome. That system does not work. In fact, our free society allows for the closest gap between the wealthy and the poor. Unlike other countries where free enterprise and other freedoms are not present.  This is a seven part series. Created Equal [7/7]. Milton Friedman’s Free to Choose […]

Free to Choose by Milton Friedman: Episode “Created Equal” (Part 6 of transcript and video)

Liberals like President Obama want to shoot for an equality of outcome. That system does not work. In fact, our free society allows for the closest gap between the wealthy and the poor. Unlike other countries where free enterprise and other freedoms are not present.  This is a seven part series. Created Equal [6/7]. Milton Friedman’s Free to Choose […]

“Friedman Friday” Free to Choose by Milton Friedman: Episode “Created Equal” (Part 5 of transcript and video)

Liberals like President Obama want to shoot for an equality of outcome. That system does not work. In fact, our free society allows for the closest gap between the wealthy and the poor. Unlike other countries where free enterprise and other freedoms are not present.  This is a seven part series. Created Equal [5/7]. Milton Friedman’s Free to Choose […]

Free to Choose by Milton Friedman: Episode “Created Equal” (Part 4 of transcript and video)

Liberals like President Obama want to shoot for an equality of outcome. That system does not work. In fact, our free society allows for the closest gap between the wealthy and the poor. Unlike other countries where free enterprise and other freedoms are not present.  This is a seven part series. Created Equal [4/7]. Milton Friedman’s Free to Choose […]

Friedman Friday” Free to Choose by Milton Friedman: Episode “Created Equal” (Part 3 of transcript and video)

Friedman Friday” Free to Choose by Milton Friedman: Episode “Created Equal” (Part 3 of transcript and video) Liberals like President Obama want to shoot for an equality of outcome. That system does not work. In fact, our free society allows for the closest gap between the wealthy and the poor. Unlike other countries where free enterprise and other […]

Free to Choose by Milton Friedman: Episode “Created Equal” (Part 2 of transcript and video)

Free to Choose by Milton Friedman: Episode “Created Equal” (Part 2 of transcript and video) Liberals like President Obama want to shoot for an equality of outcome. That system does not work. In fact, our free society allows for the closest gap between the wealthy and the poor. Unlike other countries where free enterprise and other freedoms are […]

Free to Choose by Milton Friedman: Episode “Created Equal” (Part 1 of transcript and video)

 Milton Friedman and Ronald Reagan Liberals like President Obama (and John Brummett) want to shoot for an equality of outcome. That system does not work. In fact, our free society allows for the closest gap between the wealthy and the poor. Unlike other countries where free enterprise and other freedoms are not present.  This is a seven part series. […]

Milton Friedman The Power of the Market 2-5

Milton Friedman Friday:(“Free to Choose” episode 4 – From Cradle to Grave, Part 7 of 7)

I am currently going through his film series “Free to Choose” which is one the most powerful film series I have ever seen. TEMIN: We don’t think the big capital arose before the government did? VON HOFFMAN: Listen, what are we doing here? I mean __ defending big government is like defending death and taxes. […]

Milton Friedman Friday:(“Free to Choose” episode 4 – From Cradle to Grave, Part 6 of 7)

I am currently going through his film series “Free to Choose” which is one the most powerful film series I have ever seen worked pretty well for a whole generation. Now anything that works well for a whole generation isn’t entirely bad. From the fact __ from that fact, and the undeniable fact that things […]

Milton Friedman Friday:(“Free to Choose” episode 4 – From Cradle to Grave, Part 5 of 7)

 I am currently going through his film series “Free to Choose” which is one the most powerful film series I have ever seen. PART 5 of 7 MCKENZIE: Ah, well, that’s not on our agenda actually. (Laughter) VOICE OFF SCREEN: Why not? MCKENZIE: I boldly repeat the question, though, the expectation having been __ having […]

Milton Friedman Friday: (“Free to Choose” episode 4 – From Cradle to Grave, Part 4 of 7)

 I am currently going through his film series “Free to Choose” which is one the most powerful film series I have ever seen. PART 4 of 7 The massive growth of central government that started after the depression has continued ever since. If anything, it has even speeded up in recent years. Each year there […]

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Milton Friedman Friday: (“Free to Choose” episode 4 – From Cradle to Grave, Part 3 of 7)

 I am currently going through his film series “Free to Choose” which is one the most powerful film series I have ever seen. PART 3 OF 7 Worse still, America’s depression was to become worldwide because of what lies behind these doors. This is the vault of the Federal Reserve Bank of New York. Inside […]

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Milton Friedman Friday:(“Free to Choose” episode 4 – From Cradle to Grave, Part 2 of 7)

 I am currently going through his film series “Free to Choose” which is one the most powerful film series I have ever seen. For the past 7 years Maureen Ramsey has had to buy food and clothes for her family out of a government handout. For the whole of that time, her husband, Steve, hasn’t […]

Friedman Friday:(“Free to Choose” episode 4 – From Cradle to Grave, Part 1 of 7)

Friedman Friday:(“Free to Choose” episode 4 – From Cradle to Grave, Part 1 of 7) Volume 4 – From Cradle to Grave Abstract: Since the Depression years of the 1930s, there has been almost continuous expansion of governmental efforts to provide for people’s welfare. First, there was a tremendous expansion of public works. The Social Security Act […]

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“Friedman Friday” (“Free to Choose” episode 1 – Power of the Market. part 7 of 7)

  Michael Harrington:  If you don’t have the expertise, the knowledge technology today, you’re out of the debate. And I think that we have to democratize information and government as well as the economy and society. FRIEDMAN: I am sorry to say Michael Harrington’s solution is not a solution to it. He wants minority rule, I […]

“Friedman Friday” (“Free to Choose” episode 1 – Power of the Market. part 6 of 7)

PETERSON: Well, let me ask you how you would cope with this problem, Dr. Friedman. The people decided that they wanted cool air, and there was tremendous need, and so we built a huge industry, the air conditioning industry, hundreds of thousands of jobs, tremendous earnings opportunities and nearly all of us now have air […]

“Friedman Friday” (“Free to Choose” episode 1 – Power of the Market. part 5 of 7)

Part 5 Milton Friedman: I do not believe it’s proper to put the situation in terms of industrialist versus government. On the contrary, one of the reasons why I am in favor of less government is because when you have more government industrialists take it over, and the two together form a coalition against the ordinary […]

“Friedman Friday” (“Free to Choose” episode 1 – Power of the Market. part 4 of 7)

The fundamental principal of the free society is voluntary cooperation. The economic market, buying and selling, is one example. But it’s only one example. Voluntary cooperation is far broader than that. To take an example that at first sight seems about as far away as you can get __ the language we speak; the words […]

“Friedman Friday” (“Free to Choose” episode 1 – Power of the Market. part 3 of 7)

  _________________________   Pt3  Nowadays there’s a considerable amount of traffic at this border. People cross a little more freely than they use to. Many people from Hong Kong trade in China and the market has helped bring the two countries closer together, but the barriers between them are still very real. On this side […]

“Friedman Friday” (“Free to Choose” episode 1 – Power of the Market. part 2 of 7)

  Aside from its harbor, the only other important resource of Hong Kong is people __ over 4_ million of them. Like America a century ago, Hong Kong in the past few decades has been a haven for people who sought the freedom to make the most of their own abilities. Many of them are […]

“Friedman Friday” (“Free to Choose” episode 1 – Power of the Market. part 1of 7)

“FREE TO CHOOSE” 1: The Power of the Market (Milton Friedman) Free to Choose ^ | 1980 | Milton Friedman Posted on Monday, July 17, 2006 4:20:46 PM by Choose Ye This Day FREE TO CHOOSE: The Power of the Market Friedman: Once all of this was a swamp, covered with forest. The Canarce Indians […]

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Milton Friedman The Power of the Market 1-5

Debate on Milton Friedman’s cure for inflation

If you would like to see the first three episodes on inflation in Milton Friedman’s film series “Free to Choose” then go to a previous post I did. Ep. 9 – How to Cure Inflation [4/7]. Milton Friedman’s Free to Choose (1980) Uploaded by investbligurucom on Jun 16, 2010 While many people have a fairly […]

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“Friedman Friday” Milton Friedman believed in liberty (Interview by Charlie Rose of Milton Friedman part 1)

Charlie Rose interview of Milton Friedman My favorite economist: Milton Friedman : A Great Champion of Liberty  by V. Sundaram   Milton Friedman, the Nobel Prize-winning economist who advocated an unfettered free market and had the ear of three US Presidents – Nixon, Ford and Reagan – died last Thursday (16 November, 2006 ) in San Francisco […]

What were the main proposals of Milton Friedman?

Stearns Speaks on House Floor in Support of Balanced Budget Amendment Uploaded by RepCliffStearns on Nov 18, 2011 Speaking on House floor in support of Balanced Budget Resolution, 11/18/2011 ___________ Below are some of the main proposals of Milton Friedman. I highly respected his work. David J. Theroux said this about Milton Friedman’s view concerning […]

“Friedman Friday,” EPISODE “The Failure of Socialism” of Free to Choose in 1990 by Milton Friedman (Part 1)

Milton Friedman: Free To Choose – The Failure Of Socialism With Ronald Reagan (Full) Published on Mar 19, 2012 by NoNationalityNeeded Milton Friedman’s writings affected me greatly when I first discovered them and I wanted to share with you. We must not head down the path of socialism like Greece has done. Abstract: Ronald Reagan […]

Defending Milton Friedman

What a great defense of Milton Friedman!!!!   Defaming Milton Friedman by Johan Norberg This article appeared in Reason Online on September 26, 2008  PRINT PAGE  CITE THIS      Sans Serif      Serif Share with your friends: ShareThis In the future, if you tell a student or a journalist that you favor free markets and limited government, there is […]

Milton and Rose Friedman “Two Lucky People”

Milton Friedman on Hayek’s “Road to Serfdom” 1994 Interview 2 of 2 Uploaded by PenguinProseMedia on Oct 26, 2011 2nd half of 1994 interview. ________________ I have a lot of respect for the Friedmans.Two Lucky People by Milton and Rose Friedman reviewed by David Frum — October 1998. However, I liked this review below better. It […]

Video clip:Milton Friedman discusses his view of numerous political figures and policy issues in (Part 2)

Milton Friedman on Hayek’s “Road to Serfdom” 1994 Interview 1 of 2 Uploaded by PenguinProseMedia on Oct 25, 2011 Says Federal Reserve should be abolished, criticizes Keynes. One of Friedman’s best interviews, discussion spans Friedman’s career and his view of numerous political figures and public policy issues. ___________________ Here is a review of “Two Lucky People.” […]

Milton Friedman believed in liberty (Interview by Charlie Rose of Milton Friedman part 1)

Charlie Rose interview of Milton Friedman My favorite economist: Milton Friedman : A Great Champion of Liberty  by V. Sundaram   Milton Friedman, the Nobel Prize-winning economist who advocated an unfettered free market and had the ear of three US Presidents – Nixon, Ford and Reagan – died last Thursday (16 November, 2006 ) in San Francisco […]

“The Failure of Socialism” episode of Free to Choose in 1990 by Milton Friedman (Part 1)

Milton Friedman: Free To Choose – The Failure Of Socialism With Ronald Reagan (Full) Published on Mar 19, 2012 by NoNationalityNeeded Milton Friedman’s writings affected me greatly when I first discovered them and I wanted to share with you. We must not head down the path of socialism like Greece has done. Abstract: Ronald Reagan […]

Volume 1: Power of the Market Volume 2: The Tyranny of Control
Volume 3: Anatomy of a Crisis 
Volume 4: From Cradle to Grave
Volume 5: Created Equal
Volume 6: What’s Wrong With Our Schools?
Volume 7: Who Protects the Consumer?
Volume 8: Who Protects the Worker?
Volume 9: How to Cure Inflation
Volume 10: How to Stay Free

Updated 1990 Series:
Volume 1: The Power of the Market
Volume 2: The Tyranny of Control
Volume 3: Freedom & Prosperity
Volume 4: The Failure of Socialism
Volume 5: Created Equal

 

“Friedman Friday” Milton Friedman – Power of Choice (Biography) Part 3

Milton Friedman – Power of Choice (Biography) Part 3 Published on May 21, 2012 by BasicEconomics Tribute to Milton Friedman English Pages, 8. 9. 2008 Dear colleagues, dear friends, (1) It is a great honor for me to be asked to say a few words to this distinguished and very knowledgeable audience about one of our greatest […]

“Friedman Friday” Milton Friedman – Power of Choice (Biography) Part 2

Milton Friedman – Power of Choice (Biography) Part 2 Published on May 21, 2012 by BasicEconomics My Tribute to Milton Friedman: The Little Giant of Free Market Economics By: admin- 11/17/2006 09:49 AM RESIZE: AAA  Milton Friedman, the intellectual architect of the free-market reforms of the post-World War II era, was a dear friend. I […]

“Friedman Friday” Milton Friedman – Power of Choice – Biography (Part 1)

Milton Friedman – Power of Choice – Biography (Part 1) Published on May 20, 2012 by BasicEconomics   David R. Henderson The Pursuit of Happiness ~ Milton Friedman: A Personal Tribute May 2007 • Volume: 57 • Issue: 4 David Henderson (davidrhenderson1950@gmail.com) is a research fellow with the Hoover Institution and an economics professor at […]

Milton Friedman’s Chicago Boys started the Chilean Miracle and it is still helping ordinary people today!!!

Milton Friedman and Chile – The Power of Choice Uploaded on May 13, 2011 In this excerpt from Free To Choose Network’s “The Power of Choice (2006)”, we set the record straight on Milton Friedman’s dealings with Chile — including training the Chicago Boys and his meeting with Augusto Pinochet. Was the tremendous prosperity unleashed […]

Margaret Thatcher admired Milton Friedman

RARE Friedman Footage – On Keys to Reagan and Thatcher’s Success Margaret Thatcher and Milton Friedman were two of my heroes. Thatcher praises Friedman, her freedom fighter By George Jones, Political Editor 12:01AM GMT 17 Nov 2006 A tireless champion of the free market Let’s not get misty eyed over the Friedman legacy Milton Friedman, […]

Milton Friedman and Chile an update

Milton Friedman was a great economist and a fine speaker. ___________________ I have written before about Milton Friedman’s influence on the economy of Chile. Now I saw this fine article below fromhttp://www.heritage.org  and below that article I have included an article from the Wall Street Journal that talks about Milton Friedman’s influence on Chile. I […]

“Friedman Friday” Milton Friedman explains negative income tax to William F. Buckley in 1968

December 06, 2011 03:54 PM Milton Friedman Explains The Negative Income Tax – 1968 0 comments By Gordonskene enlarge Milton Friedman and friends.DOWNLOADS: 36 PLAYS: 35 Embed   The age-old question of Taxes. In the early 1960′s Economist Milton Friedman adopted an idea hatched in England in the 1950′s regarding a Negative Income Tax, to […]

Milton Friedman admired Margaret Thatcher

RARE Friedman Footage – On Keys to Reagan and Thatcher’s Success Margaret Thatcher and Milton Friedman were two of my heroes. Milton Friedman on How Francois Mitterrand (and Failed Lefty Economics) Helped Re-elect Margaret Thatcher Matt Welch|Apr. 10, 2013 9:37 am Yesterday I wrote a column about how Margaret Thatcher liberated Western Europe from the […]

Milton Friedman had a solution to today’s welfare mentality!!!

  I have written about the tremendous increase in the food stamp program the last 9 years before and that means that both President Obama and Bush were guilty of not trying to slow down it’s growth. Furthermore, Republicans have been some of the biggest supporters of the food stamp program. Milton Friedman had a […]

“Friedman Friday” Milton Friedman on “Firing Line” in 1968

Milton Friedman, Ronald Reagan And William F. Buckley Jr. Peter Robinson, 12.12.08, 12:01 AM EST In a time of crisis, don’t forget what they had to say. As the federal deficit surpasses $1 trillion, Congress debates a bailout for the Detroit automakers and President-elect Barack Obama draws up plans for a vast new stimulus package, […]

Longstanding Anti‐​Price Gouging Statutes Worsen Shortages 

By Ryan Bourne and Brad Subramaniam

Anti‐​price gouging laws prolonged shortages of certain goods that were in high demand early in the pandemic. Some analysis suggests these laws even worsened public health outcomes, because ongoing shortages of, say, hand sanitizer and toilet paper, led to consumers in states with these regulations searching for them more at physical retailers, actually increasing transmission of the virus.

But there’s an interesting question that’s often underexplored in regard to these laws: how does the expectation that these price controls will be triggered shape people’s beliefs about products’ availability and so customer search behavior?

That’s the topic of another fascinating new paper by economists Rik Chakraborti and Gavin Roberts. Using data for online searches for hand sanitizer and toilet paper across states, they harness the variation in when laws were introduced to research the question: is consumer search behaviour different in states with new anti‐​price gouging legislation introduced during the pandemic from states with pre‐​existing anti‐​price gouging laws?

Economic theory would suggest that any anti‐​price gouging legislation, whenever introduced, would lead to more consumer search for goods, due to the induced shortages. And, sure enough, after controlling for the effects of lockdowns, rising infections, and declines in travel which plagued the early stages of the pandemic, consumers in states with anti‐​price gouging laws were significantly more likely to search online for toilet paper and hand sanitizer than those in states without such laws.

More searching presumably reflects higher levels of hoarding and panic‐​buying creating the shortages—after all, having to resort to online shopping for goods that are commonly bought in stores means the local grocery or drug store has probably been emptied already.

But theory would also suggest that customers in states with past experience of anti‐​price gouging laws might search even more intensely, because people come to expect shortages again when crises hit. In other words, those who have experienced shortages before might be more likely to hoard and panic buy this time around, leading to even higher online search than in situations where new laws are introduced for the first time.

Again, Chakraborti and Roberts’ paper suggests economic theory is correct. States with anti‐​price gouging regulations on the books before the pandemic saw Google Shopping searches for hand sanitizer jump by 153 percent and toilet paper searches nearly double (a 99 percent increase) relative to states without anti‐​price gouging laws. This uplift was much larger than in states where the laws were introduced during the pandemic (100 percent and 46 percent, respectively).

The long and short is that consumers in states with pre‐​existing price controls searched most intensely online for hand sanitizer and toilet paper. This suggests customers learned from previous experience of these price regulations’ effects, with the higher search levels reflecting greater hoarding and panic buying in anticipation of shortages to come. As the authors state, this implies that longstanding anti‐​price gouging legislation is even worse for economic welfare than we might think. The anticipation of shortages actually compounds shortages as consumers become more “experienced,” with excessive and fruitless searching for products the wasteful result.

For more on the basics of anti‐​price gouging legislation in the pandemic, see my book Economics In One Virus. Other Cato pieces can be found here, here, and here.

 

Government, Markets, and the Supply Chain

Way back in 2009, I shared a meme that succinctly summarizes how Washington operates.

It’s basically a version of Mitchell’s Law. To elaborate, governments cause problems and politicians then use those problems as an excuse to make government even bigger.

Lather, rinse, repeat.

I worry the same thing may be about to happen because of the current concern about “supply chain” issues, perhaps best illustrated by the backlog of ships at key ports, leading to shortages of key goods.

Some of this mess is fallout from the coronavirus pandemic, but it’s being exacerbated by bad policy.

In a column for Reason, J.D. Tuccille points out that government is the problem, not the solution.

…supply-chain issues…create shortages and push prices up around the world. …Lockdowns also changed people’s lives, closing offices and factories and confining people at home. That resulted in massive and unpredictable shifts in demand and unreliable supply. …”Market economies tend to be pretty good at getting food on the supermarket shelves and fuel in petrol stations, if left to themselves,” agrees Pilkington. “That last part is key: if left to themselves. Heavy-handed interference in market economies tends to produce the same pathologies we see in socialist economies, including shortages and inflation. That has been the unintended consequence of lockdown.” …The danger is that people see economic problems caused by earlier fiddling and then demand even more government intervention. …if the government were to further meddle in the market to allocate products made scarce by earlier actions, it’s hard to see how the result wouldn’t be anything other than increased supply chain chaos.

Allysia Finley opines for the Wall Street Journal about California’s role in the supply-chain mess.

The backup of container ships at the Long Beach and Los Angeles ports has grown in recent weeks… The two Southern California ports handle only about 40% of containers entering the U.S., mostly from Asia. Yet ports in other states seem to be handling the surge better. Gov. Ron DeSantis said last month that Florida’s seaports had open capacity.So what’s the matter with California? State labor and environmental policies. …business groups recently asked Gov. Gavin Newsom to declare a state of emergency and suspend labor and environmental laws that are interfering with the movement of goods. …One barrier is a law known as AB5. …Trucking companies warned that the law could put small carriers out of business and cause drivers to leave the state. …there’s little doubt the law hinders efficiency and productivity. …State officials have also pressed localities to attach green mandates to permits for new warehouses, which can be poison pills. …This boatload of regulations is making it more expensive and difficult to store goods arriving at California ports.

Needless to say, I’m not surprised California is making things worse.

The state seems to have some of the nation’s worst politicians.

But let’s set that aside and close with some discussion about one of the differences between government and the private sector.

This may surprise some readers, but people and businesses in the private sector make mistakes all the time.

So part of the supply-chain mess presumably is a result of companies and entrepreneurs making bad guesses.

That being said, there’s a big feedback mechanism in the private sector. It’s called profit and loss.

So when mistakes are made, there’s a big incentive to quickly change.

With government, by contrast, there’s very little flexibility (as we saw during the pandemic). And when politicians and bureaucrats do act, they often respond to political incentives that lead them to make things worse.

 

Big-Government Republicans Enable Big-Government Democrats

I get asked why I frequently criticize Republicans.

My response is easy. I care about results rather than rhetoric. And while GOP politicians often pay lip service to the principles of limited government,they usually increase spending even faster than Democrats.

Indeed, Republicans are even worse than Democrats when measuring the growth of domestic spending!

This is bad news because it means the burden of government expands when Republicans are in charge.

And, as Gary Abernathy points out in a column for the Washington Post, Republicans then don’t have the moral authority to complain when Democrats engage in spending binges.

President Biden is proposing another $3 trillion in spending… There are objections, but none that can be taken seriously. …Republicans had lost their standing as the party of fiscal responsibility when most of them succumbed to the political virus of covid fever and rubber-stamped around $4 trillion in “covid relief,”… With Trump out and Biden in, Republicans suddenly pretended that their 2020 spending spree happened in some alternate universe.But the GOP’s united opposition to Biden’s $1.9 trillion package won’t wash off the stench of the hypocrisy. …I noted a year ago that we had crossed the Rubicon, that our longtime flirtation with socialism had become a permanent relationship. Congratulations, Bernie Sanders. The GOP won’t become irrelevant because of its association with Trump, as some predict. It will diminish because it is bizarrely opposing now that which it helped make palatable just last year. Fiscal responsibility is dead, and Republicans helped bury it. Put the shovels away, there’s no digging it up now.

For what it’s worth, I hope genuine fiscal responsibility isn’t dead.

Maybe it’s been hibernating ever since Reagan left office (like Pepperidge Farm, I’m old enough to remember those wonderful years).

Subsequent Republican presidents liked to copy Reagan’s rhetoric, but they definitely didn’t copy his policies.

  • Spending restraint was hibernating during the presidency of George H.W. Bush.
  • Spending restraint also was hibernating during the presidency of George W. Bush.
  • And spending restraint was hibernating during the presidency of Donald Trump.

I’m not the only one to notice GOP hypocrisy.

Here are some excerpts from a 2019 column in the Washington Post by Fareed Zakaria.

In what Republicans used to call the core of their agenda — limited government — Trump has been profoundly unconservative. …Trump has now added more than $88 billion in taxes in the form of tariffs, according to the right-leaning Tax Foundation. (Despite what the president says, tariffs are taxes on foreign goods paid by U.S. consumers.) This has had the effect of reducing gross domestic product and denting the wages of Americans.…For decades, conservatives including Margaret Thatcher and Ronald Reagan preached to the world the virtues of free trade. But perhaps even more, they believed in the idea that governments should not pick winners and losers in the economy… Yet the Trump administration…behaved like a Central Planning Agency, granting exemptions on tariffs to favored companies and industries, while refusing them to others. …In true Soviet style, lobbyists, lawyers and corporate executives now line up to petition government officials for these treasured waivers, which are granted in an opaque process… On the core issue that used to define the GOP — economics — the party’s agenda today is state planning and crony capitalism.

Zakaria is right about Republicans going along with most of Trump’s bad policies (as illustrated by this cartoon strip).*

The bottom line is that Republicans would be much more effective arguing against Biden’s spending orgy had they also argued for spending restraint when Trump was in the White House.

P.S. It will be interesting to see what happens in the near future. Will the GOP be a small-government Reagan party or a big-government Trump party?

Or maybe it will go back to being a Nixon-type party, which would mean bigger government but without mean tweets. And there are plenty of options.

If they make the wrong choice (anything other than Reaganism), Margaret Thatcher has already warned us about the consequences.

*To be fair, Republicans also went along with Trump’s good policies. It’s just unfortunate that spending restraint wasn’t one of them.

—-

March 31, 2021

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

Dear Mr. President,

Please explain to me if you ever do plan to balance the budget while you are President? I have written these things below about you and I really do think that you don’t want to cut spending in order to balance the budget. It seems you ever are daring the Congress to stop you from spending more.

President Barack Obama speaks about the debt limit in the East Room of the White House in Washington. | AP Photo

 

“The credit of the United States ‘is not a bargaining chip,’ Obama said on 1-14-13. However, President Obama keeps getting our country’s credit rating downgraded as he raises the debt ceiling higher and higher!!!!

Washington Could Learn a Lot from a Drug Addict

Just spend more, don’t know how to cut!!! Really!!! That is not living in the real world is it?

Making more dependent on government is not the way to go!!

Why is our government in over 16 trillion dollars in debt? There are many reasons for this but the biggest reason is people say “Let’s spend someone else’s money to solve our problems.” Liberals like Max Brantley have talked this way for years. Brantley will say that conservatives are being harsh when they don’t want the government out encouraging people to be dependent on the government. The Obama adminstration has even promoted a plan for young people to follow like Julia the Moocher.  

David Ramsey demonstrates in his Arkansas Times Blog post of 1-14-13 that very point:

Arkansas Politics / Health Care Arkansas’s share of Medicaid expansion and the national debt

Posted by on Mon, Jan 14, 2013 at 1:02 PM

Baby carrot Arkansas Medicaid expansion image

 

Imagine standing a baby carrot up next to the 25-story Stephens building in Little Rock. That gives you a picture of the impact on the national debt that federal spending in Arkansas on Medicaid expansion would have, while here at home expansion would give coverage to more than 200,000 of our neediest citizens, create jobs, and save money for the state.

Here’s the thing: while more than a billion dollars a year in federal spending would represent a big-time stimulus for Arkansas, it’s not even a drop in the bucket when it comes to the national debt.

Currently, the national debt is around $16.4 trillion. In fiscal year 2015, the federal government would spend somewhere in the neighborhood of $1.2 billion to fund Medicaid expansion in Arkansas if we say yes. That’s about 1/13,700th of the debt.

It’s hard to get a handle on numbers that big, so to put that in perspective, let’s get back to the baby carrot. Imagine that the height of the Stephens building (365 feet) is the $16 trillion national debt. That $1.2 billion would be the length of a ladybug. Of course, we’re not just talking about one year if we expand. Between now and 2021, the federal government projects to contribute around $10 billion. The federal debt is projected to be around $25 trillion by then, so we’re talking about 1/2,500th of the debt. Compared to the Stephens building? That’s a baby carrot.

______________

Here is how it will all end if everyone feels they should be allowed to have their “baby carrot.”

How sad it is that liberals just don’t get this reality.

Here is what the Founding Fathers had to say about welfare. David Weinberger noted:

While living in Europe in the 1760s, Franklin observed: “in different countries … the more public provisions were made for the poor, the less they provided for themselves, and of course became poorer. And, on the contrary, the less was done for them, the more they did for themselves, and became richer.”

Alexander Fraser Tytler, Lord Woodhouselee (15 October 1747 – 5 January 1813) was a Scottish lawyer, writer, and professor. Tytler was also a historian, and he noted, “A democracy cannot exist as a permanent form of government. It can only exist until the majority discovers it can vote itself largess out of the public treasury. After that, the majority always votes for the candidate promising the most benefits with the result the democracy collapses because of the loose fiscal policy ensuing, always to be followed by a dictatorship, then a monarchy.”

Thomas Jefferson to Joseph Milligan

April 6, 1816

[Jefferson affirms that the main purpose of society is to enable human beings to keep the fruits of their labor. — TGW]

To take from one, because it is thought that his own industry and that of his fathers has acquired too much, in order to spare to others, who, or whose fathers have not exercised equal industry and skill, is to violate arbitrarily the first principle of association, “the guarantee to every one of a free exercise of his industry, and the fruits acquired by it.” If the overgrown wealth of an individual be deemed dangerous to the State, the best corrective is the law of equal inheritance to all in equal degree; and the better, as this enforces a law of nature, while extra taxation violates it.

[From Writings of Thomas Jefferson, ed. Albert E. Bergh (Washington: Thomas Jefferson Memorial Association, 1904), 14:466.]

_______

Jefferson pointed out that to take from the rich and give to the poor through government is just wrong. Franklin knew the poor would have a better path upward without government welfare coming their way. Milton Friedman’s negative income tax is the best method for doing that and by taking away all welfare programs and letting them go to the churches for charity.

_____________

_________

Thank you so much for your time. I know how valuable it is. I also appreciate the fine family that you have and your commitment as a father and a husband.

Sincerely,

Everette Hatcher III, 13900 Cottontail Lane, Alexander, AR 72002, ph 501-920-5733

Williams with Sowell – Minimum Wage

Thomas Sowell

Thomas Sowell – Reducing Black Unemployment

By WALTER WILLIAMS

—-

Ronald Reagan with Milton Friedman
Milton Friedman The Power of the Market 2-5

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The book “After the Welfare State”

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Welfare reform part 3

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JOE BIDEN RUNS TO THE RESCUE!!! (Not Really, but he makes things worse) Dying Transit Industry Grasps for Solutions

Dying Transit Industry Grasps for Solutions


Your industry gets government subsidies equal to two‐​thirds of its operating costs and all of its capital costs, and still most people refuse to use your services. Do you:

a. Increase operating subsidies so you can give away your services for free?

b. Spend more on capital improvements that haven’t attracted more customers in the past?

c. Penalize American who aren’t using your services?

d. Redefine your mission so that you appear relevant even if almost no one uses your service?

How about e. All of the above? That appears to be the transit industry’s solution to the fact that, except in New York City, almost no one rides transit anymore. Data released by the Department of Transportation early this week, for example, reveals that October transit ridership was barely more than half of pre‐​pandemic levels even as driving has returned to nearly 100 percent, flying is 80 percent, and Amtrak is 72 percent. Even in New York, transit ridership remained less than 57 percent of pre‐​pandemic levels.

To get riders back, transit agencies are trying a variety of strategies:

Free fares: President Biden is going to Kansas City this week to promote free transit. Since taxpayers are already subsidizing so much of the cost of providing transit, why not just have them subsidize all of it? Kansas City adopted free fares last year and ridership increased a little bit. But Kansas City residents still travel by car more than 500 times as much as they ride transit, so what is the point of free fares?

Capital projects: Meanwhile, transit agencies all over the country are gleefully anticipating their share of the billions of dollars of transit funds in the recent infrastructure bill. Portland, whose last light‐​rail line cost $1.5 billion and yielded zero net new riders, wants to spend billions more on its next light‐​rail line. Denver’s Regional Transit District wants to build a rail line to Longmont even though its own analysis found that it would end up costing $65 per rider. St. Louis wants to build a new light‐​rail line even though its transit system carried fewer riders in 2019 than it did before it started building light rail in the early 1990s.

Penalize the competition: Automobiles are faster, more convenient, less expensive, and–in most urban areas–greener than transit. The obvious solution, if you are a transit agency official, is to make driving slower, less convenient, and more expensive.

“It’s too easy to drive in this city,” says Los Angeles Metro CEO Phil Washington, referring to the city that is often ranked as one of the most congested in the world. Washington’s solution to declining bus ridership is to convert many of the lanes on major streets to exclusive bus lanes, thus increasing congestion and, he hopes, forcing a few people out of their cars. Cities all over the country are proposing such “bus‐​rapid transit” projects, which sound good on paper until you realize that most of them will make congestion worse, not better. Other proposals call for reducing the amount of parking available to drivers, forcing them to ride transit instead.

Change the mission: Transit is sold to voters based on its ability to reduce congestion, save energy, and protect the environment, but it can’t do any of those things if hardly anyone rides it. A recent report published by the American Public Transportation Association urges transit agencies to “define success as more than just ridership.” “Think of transit less as a business and more as an essential service,” says the report, encouraging agencies to focus on “socially equitable transit access.” But essential and equitable for whom?

Supposedly, many “essential workers” during the pandemic had low incomes that made them dependent on transit. In fact, in 2019, only 5 percent of workers whose incomes were below $25,000 a year commuted to work by transit. During the pandemic, the percentage of all workers taking transit declined from 5 percent to 3.2 percent. Meanwhile, most of the subsidies to transit come from regressive taxes such as sales or property taxes. This means the 95 percent of low‐​income workers who don’t use transit are disproportionately paying for transit rides they aren’t taking. This is the very definition of inequity.

The one thing all of these strategies have in common is they increase subsidies to transit. That’s exactly the wrong prescription for an industry that is so obsolete that, according to researchers at the University of Minnesota, people living in the nation’s 50 largest urban areas can reach more jobs on a bicycle than by transit in trips of 50 minutes or less.

The reality is that alternatives to transit are a lot less expensive and far more effective at solving the problems that transit no longer addresses. Improved traffic signal coordination, which most cities have failed to install partly because of anti‐​automobile mentality, will relieve more congestion than all of the light‐​rail lines in the world. Making automobiles just one percent more energy efficient will reduce greenhouse gases far more than spending tens of billions on transit. Helping the last few low‐​income families who don’t have cars obtain automobiles will help them out of poverty by giving them access to far more jobs than transit can reach.

Despite receiving more than $50 billion in subsidies per year, the transit industry was dying before the pandemic and the pandemic has just about killed it off. It’s time to stop subsidizing an obsolete transportation system.

Milton Friedman and Dan Mitchell on the Post Office!!!

Ep. 10 – How to Stay Free [3/7]. Milton Friedman’s Free to Choose (1980)

Pat Brennan became something of a celebrity in 1978 because she was delivering mail in competition with the United States Post Office. With her husband she set up business in a basement in Rochester, NY. Soon it was thriving. They charged less than the post office and they guaranteed delivery the same day of parcels and letters in downtown Rochester. There is no doubt now that they were breaking the law as it stood. The post office took them to court. The case against them was simply that they should not be handling letters. The Brennan’s decided to fight and local businessmen provided the financial backing.
Pat Brennan: I think there’s going to be a quiet revolt and perhaps we’re the beginning of it. That you see people bucking the bureaucrats where years ago you wouldn’t dream of doing that because you’d be squelched. Now, with tax revolts and with what we’re doing, people are deciding that their fates are their own and not up to somebody in Washington who has no interest in them whatsoever. So, it’s not a question of anarchy, but it’s a questions of people rethinking the power of the bureaucrats and rejecting it.
Friedman: The Brennan customers were clear about one thing. After all, the Brennan’s service was cheaper than the regular mail.
Thomas O’Donaghue (storekeeper): We’re not sure that they have done anything illegal and I’d like to know more about this and I hope that this gets further into the courts than it has already. And someone will listen to their appeal because when we use the Brennan’s we know for a fact that same day delivery is going to be happening day after day after day, whereas with the other guy, you’re not sure and you’re sure what kind of shape it’s going to get there in. So I am behind the Brennan’s 100% and anything I can do to help them, I will.
Pat Brennan: Well, the questions of freedom comes up in any kind of a business. Whether you have the right to pursue it and the right to decide what you are going to do. There is also the question of the freedom of the consumers to utilize the service that they find is inexpensive and far superior. And according to the federal government and the body of laws called the Private Express Statutes, I don’t have a freedom to start a business and the consumer does not have the freedom to use it. Which seems very strange in a country like this that the entire context of the country is based on freedom and free enterprise.
Friedman: The post office won the case. It went all the way to the State Supreme Court and the Brennan’s were closed down. Put out of the business of delivering mail.
What we’ve been looking at is a natural human reaction to the attempt by other people to control your life when you think it’s none of their business. The first reaction is resentment. The second is to attempt to get around it. And finally there comes a decline in respect for law in general. There’s nothing especially American about this. It happens all over the world whenever some people try to control other people. For example, take a look at what’s happening to the British.
For most of the past century Britain was known throughout the world for the respect which its citizens gave to the law, but no longer. Graham Turner (Author “Business in Britain) Nothing is perfect that we have become in the course of the last ten or fifteen years, a nation of fiddlers. How do they do it? They do it in a colossal variety of ways. Lets take it right at the lowest level. Take a small grocer in a country area, say Devon. Very small turnover. How does he make money? He finds out that by buying through regular wholesalers he’s always got to use invoices. But if he goes to the cash and carry and buys his goods from there, and the profit margin on those goods can be untaxed because the tax inspector simply don’t know he’s had those goods. That’s the way he does it. Then if you take it to the top end, if you take a company director, well there’s all kinds of ways they can do it. They buy their food through the company, they have their holidays on the company, the put their wives as company directors even though they never visit the factory. They build their houses on the company by a very simple device of building a factory at the same time as a house, it goes absolutely right through the range from the ordinary person, the ordinary working class person, doing quite menial jobs right to the top end, businessmen, senior politicians, members of the Cabinet, members of the Shadow Cabinet, they all do it. I think almost everybody now feels the tax system is basically unfair. And, everybody who can tries to find a way around that tax system. Now, once that happens, once there is a consensus that the tax system is unfair, the country in effect becomes a kind of conspiracy. And everybody helps each other to fiddle. You’ve no difficulty fiddling in this country because other people actually want to help you. Now 15 years ago that would have been quite different. People would have said, hey, you know, this is not quite as it should be. So that’s the first reason. A very high level of taxation. But I think personally there’s another fact that comes into it. And that is that over the years we’ve had a huge growth in bureaucracy, government expenditure, cotton wool, if you like, to protect people from the slings and arrow of ordinary life, you know, health service, all kinds of benefits of one sort or another. And I think this comes into the consciousness of people almost a sort of new factor feeling that things don’t quite have the value that they did that money is not a thing of value, if your short you get it from some government body or other

Postal Service: Return to Sender

I don’t mind being polemical on occasion, but I generally don’t accuse my opponents of being “socialists.”

American leftists generally focus on redistribution and regulatory intervention andsocialism technically means that the government directly owns, operates, and controls various sectors of the economy (think, for example, of the difference between Obamacare and the U.K.’s system, where doctors are public employees and the government operates the hospitals).

But we do have a few islands of socialism in the United States. Education is probably the biggest sector of our economy that is dominated by government. The air traffic control system is another unfortunate example.

Today, though, let’s focus on the Postal Service.

I wrote about this topic a couple of years ago, but we now have lots of additional evidence on why we should replace this costly and inefficient government monopoly with a system based on real competition and no subsidies.

My colleague Chris Edwards explains that, from an economic and taxpayer perspective, the postal monopoly is a dumpster fire.

The U.S. Postal Service (USPS) has lost more than $50 billion since 2007, even though it enjoys legal monopolies over letters, bulk mail, and access to mailboxes. The USPS has a unionized, bureaucratic, and overpaid workforce. And as a government entity, it pays no income or property taxes, allowing it to compete unfairly with private firms in the package and express delivery businesses. …the USPS needs a major overhaul. It should be privatized and opened to competition. But instead of reform, congressional Republicans are moving forward with legislation that tinkers around the edges. Their bill adjusts retiree health care, hikes stamp prices, and retains six-day delivery despite a 40 percent drop in letter volume since 2000. The bill would also create “new authority to offer non-postal products,” thus threatening to increase the tax-free entity’s unfair competition against private firms.

Amazingly, this is an area where European nations actually are more market-oriented than the United States.

Republican…timidity is particularly striking when you compare their no-reform bill to the dramatic postal reforms in Europe. …Since 2012 all EU countries have opened their postal industries to competition for all types of mail. A growing number of countries have privatized their postal systems, including Britain, Germany, Portugal, and the Netherlands. …On-the-ground competition is small but growing in Europe. In a dozen countries, new competitors have carved out more than five percent of the letter market, and in a handful of countries the share is more than ten percent. …the Europeans are giving entrepreneurs a chance. In response to even the modest competition that has developed so far, major European postal companies have “increased their efficiency and restructured their operations to reduce costs,” according to the EU report.

Veronique de Rugy of the Mercatus Center weighs in on the issue in a column forReason.

The Postal Service is a major business enterprise operated by the federal government. Thanks to Congress, it has something many business owners would love to have— protection from competition. Its monopoly on access to mailboxes and the delivery of first-class and standard mail means it doesn’t have to worry about someone offering a better service at a lower price. …unlike private businesses, the Postal Service has access to low-rate loans from the Department of the Treasury, effectively pays no income or property taxes, is exempt from local zoning rules and even has the power of eminent domain.

In addition to all these favors, the Postal Service is getting a huge indirect subsidy for it’s unfunded pension system.

Congress mandated that the Postal Service start making payments to fund the generous retirement health benefits it has promised workers. This was an important reform because the Postal Service has built up an unfunded liability for these benefits of nearly $100 billion. Ideally, postal workers should be paying for these benefits from payroll contributions rather than leaving the liabilities to federal taxpayers down the road. Sadly, Congress is too timid to take on special interests that benefit from the inefficient status quo, such as postal unions, and won’t support serious reforms… A few years ago, President Barack Obama called for a $30 billion bailout from the federal government, a five-day delivery schedule and an increase in the price of stamps. Unfortunately, that would be a bad solution from the perspective of customers and taxpayers. It also would perpetuate the blatantly unfair competition with companies such as FedEx and UPS.

Amazingly, some statists actually want to expand the Postal Service.

One bad idea that “reform” Postal Service supporters are pushing is to allow the government service to compete with private firms in other industries, such as banking. That would be hugely unfair to taxpaying private businesses, and do we really believe that such a bureaucratic agency as the U.S. Postal Service could out-compete private businesses in other areas if there were a level playing field?

The simple way to think about this issue is that an expanded Postal Service would be like Fannie Mae and Freddie Mac, only able to operate because of special privileges.

Shane Otten, writing for E21, has an “undeliverable” message for the Postal Service.

…the United States Postal Service (USPS)…an independent agency of the U.S. government, …has exclusive control over the postal system. Like every other government monopoly, it has lost money—$56.8 billion since 2007. The Postal Service is a smorgasbord of common government failures, including high labor costs due to unions (including the American Postal Workers Union, the National Association of Letter Carriers, and the National Rural Letter Carriers’ Association), congressional burdens restricting needed changes, unfunded pensions… Postal workers earn between 24 percent and 36 percent more than comparable workers in the private sector.  Because of this, labor costs represent approximately 80 percent of all expenses incurred by USPS. For comparison, private delivery service UPS’s labor costs only make up 62 percent of expenditures, even though UPS is unionized. And at union-free FedEx, labor costs come in at just 38 percent of total operating expenses.

Shane echoes Veronique’s argument about the Postal Service’s dodgy approach to pensions.

…the Post Office has not made a prefunding payment since fiscal year 2011. …the Postal Service pays nothing in federal, state, and local taxes on income, sales, property, and purchases. This saves the agency over $2 billion each year, giving it a major advantage over private competitors. The USPS is also immune from zoning regulations, tolls, vehicle registration, and parking tickets. …The Postal Service…can borrow money from the Treasury at a reduced interest rate. …borrowing at this artificially low rate is equivalent to a subsidy of almost $500 million.

By the way, I got castigated for saying it was a “bailout” when Congress said it was okay for the Postal Service to skip payments for employee pensions. I was basically correct, but should have referred to it as a “pre-bailout” or something like that.

The bottom line is that there’s no reason in a modern economy for a government to operate a business that delivers pieces of paper (and more than it would make sense to have government deliver pizzas). Indeed, this is such a slam-dunk issue that even the Washington Post is on the right side.

P.S. For what it’s worth, the Postal Service actually is constitutional. It’s one of thefederal government’s enumerated powers. But the fact that the federal government is allowed to maintain postal service doesn’t mean it’s obliged to do it.

P.P.S. Here’s my only example of Postal Service Humor.

P.P.P.S. Though if you have a very dark sense of humor, you may laugh at the “action” of this postal employee. I think he may deserve a retroactive promotion to the Bureaucrat Hall of Fame.

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Dan Mitchell article Free Markets and the Chilean Miracle

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Free Markets and the Chilean Miracle

There are certain topics that seem to be slam-dunk wins for those who favor free markets and limited government, and one reason I make this assertion is that folks on the left don’t even bother to make counter-arguments.

Here are just a few examples:

Prior to today, I also would have included this example:

But now I can no longer include Chile’s economic renaissance because I finally found someone who concocted an alternative explanation.

As part of a column in today’s Washington Post about Chile’s upcoming presidential election, Anthony Faiola made this claim about that nation’s economic performance.

After Pinochet’s ruthless rule came to an end in 1990, the newly democratic nation witnessed a historic period of economic growth.Gross domestic product growth between 1990 and 2018 averaged 4.7 percent annually, well above the Latin American average. Over that same period, democratic governments increased social spending. Extreme poverty (below $1.5 per day) was virtually wiped out.

But now let’s consider whether this alternative explanation is accurate.

Mr. Faiola wants readers to believe that the positive developments in Chile (“historic period of growth” and “extreme poverty…was virtually wiped out”) occurred after 1990.

But if that’s the case, why did per-capita living standards begin to climb much earlier?

As shown by these two charts, it’s far more likely that the dramatic rise in per-capita economic performance around 1980 is the result of a big increase in economic liberty (as measured by Economic Freedom of the World) that also was occurring around that time.

(There is a separate measure of economic freedom for the years before 1970, so the orange and blue lines are discontinuous.)

One should always be careful about interpreting numbers. For instance, national economic data at a given moment in time will be affected when there are periods of global recession, such as the early 1980s and 2008.

Which is why it is important to look at longer periods of time. And when looking at decades of data for Chile, the big jump in prosperity clearly began after the economy was liberalized, not after Pinochet ceded power in 1990.

We’ll close with some bad news and good news.

The bad news, as captured by the bottom-half of the stacked charts abvoe, is that there hasn’t been much pro-market reform in recent decades.

But the good news is that Chile hasn’t deteriorated. The nation has endured some left-leaning governments, but economic freedom has remained high by world standards. Which means the economy continues to grow.

P.S. I’ll add some worrisome news. The left in Chile wants a new constitution that would give politicians more power over the economy. If that effort is successful, I fear the country will suffer Argentinianstyle decline.

P.P.S. I suppose Mr. Faiola deserves some credit for cleverness. Some leftists have tried to argue Chile is a failed “neoliberal experiment.” Given the nation’s superior performance, that’s obviously an absurd strategy. So Faiola came up with a new hypothesis that acknowledges the growth, but tries to convince readers that it’s all the result of things that happened after 1990. He’s wildly wrong, but at least he tried.

P.P.P.S. I have a three-part series (here, here, and here) on how low-income people have been big winners as a result of Chile’s shift to free enterprise.

P.P.P.P.S. Here’s a column on Milton Friedman’s indirect contribution to Chilean prosperity.

Improving Bad Government: The Case of Chile and Milton Friedman

I’ve written many times about the spectacularly positive impactof pro-market reforms in Chile.

The shift toward free markets, which began in the mid-1970s, was especially beneficial for the less fortunate (see here, here, and here).

But it’s quite common for critics to assert that Chile is a bad example because many of the reforms were enacted by General Augusto Pinochet, a dictator who seized power in 1973. And some of those critics also attack Milton Friedman for urging Pinochet to liberalize the economy and reduce the burden of government.

Are these critics right?

To answer that question, I very much recommend the following cartoon strip by Peter Bagge. Published by Reason, it accurately depicts the efforts of reformers to get good reforms from a bad government.

It starts in 1973, with a group of Chilean economists, known as the “Chicago Boys,” who wanted free markets.

In 1975, they invited Milton Friedman to help make the case for economic reform.

This 1982 strip shows some of the controversies that materialized.

But by the time we got to the 21st century, everything Friedman said turned out to be true.

Chile had become an “improbable success.”

This cartoon strip is great for two reasons.

  • First, I’ll be able to share it with people who want to delegitimize Chile’s transition to a market-oriented democracy (ranked #14 according to the most-recent edition of Economic Freedom of the World). Simply stated, it was bad that Chile had a dictatorship, but it was good that the dictatorship allowed pro-market reforms (particularly when compared to the alternative of a dictatorship with no reforms). And it was great that Chile became a democracy (a process presumably aided by mass prosperity).
  • Second, we should encourage engagement with distasteful governments. I certainly don’t endorse China’s government or Russia’s government, but I’ve advised government officials from both nations. Heck, I would even give advice to Cuba’s government or North Korea’s government (not that I’m expecting to be asked). My goal is to promote more liberty and it would make me very happy if I could have just a tiny fraction of Friedman’s influence in pursuing that goal.

P.S. Here’s Milton Friedman discussing his role in Chile.

P.P.S. While I disagree, it’s easy to understand why some people try to delegitimize Chile’s reforms by linking them to Pinochet. What baffles me are the folks who try to argue that the reforms were a failure. See, for instance, Prof. Dani Rodrik and the New York Times.

P.P.P.S. Critics also tried to smear Prof. James Buchanan for supporting economic liberalization in Chile.

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José Niño

José Niño is a graduate student based in Santiago, Chile. A citizen of the world, he has lived in Venezuela, Colombia, and the United States. He is currently an international research analyst with the Acton Circle of Chile. Follow@JoseAlNino.

40 Years Later: Milton Friedman’s Legacy in Chile

“Chilean Miracle” Struck a Blow against Communism When Needed Most

Economics Nobel Laureate Milton Friedman was one of the most persuasive advocates of free markets and free minds. (Friedman Foundation)

EspañolThe power of ideas to help shape political movements has been grossly underestimated over the years. In truth, some of the largest political transformations in human history have come from ideas that were developed in the secluded confines of an intellectual’s home or in obscure academic institutes. Regardless of the origins, ideas can snowball into powerful vehicles of social change.+

As Friedrich Hayek noted in one of his most powerful works, Intellectuals and Socialism, the triumph of socialist ideas can largely be attributed to the ideas first put forward by various intellectuals. They began with relatively well-off intellectuals and then made their way to “second-hand dealers” — journalists, scientists, doctors, teachers, ministers, lecturers, radio commentators, fiction writers, cartoonists, and artists — who then spread those ideas to the masses.+

Intellectuals like Milton Friedman took it upon themselves to reverse this trend and create an environment that was more favorable to free markets. Steadfast in his beliefs in the power of ideas, Friedman knew that big changes usually start out in small venues.+

It was in Chile where Friedman’s vision was first implemented on a large scale. The results were nothing short of spectacular, as Chile was able to escape a veritable economic collapse and experience an unprecedented boom.+

Chile’s economic success was no mere coincidence; it was the product of ideas that Milton Friedman put forward in the 1950s. To understand how such a radical change was brought about, one must first look at the origins of the Chicago Boys, the group of Chilean economists that played a pivotal role in the transformation of Chile’s economy during the 1970s and 1980s.+

The Chicago Boys

Under the tutelage of the United States Agency for International Development (USAID), the University of Chicago signed a modest agreement with the Pontifical Catholic University of Chile in the 1950s to provide a group of Chilean students training in economics.+

In exchange, the University of Chicago would send four faculty members to help the Catholic University build up their economics department. Of these four faculty members, Arnold Harberger would serve as the Chicago Boys’ principal mentor.+

What at first looked liked just another exchange program between universities would play a substantial role in Chile’s economic rise.+

A Country Mired By Statism

At the start of this program, Chile’s economy was in the doldrums. Another victim of Raúl Prebisch’s Import Substitution Industrialization (ISI) policy, Chile had a very loose central banking policy, featured 15 different exchange rates, heavy tariffs, and a number of import and export controls. Subsequent governments maintained the same neo-mercantilist structure up until the 1970s.+

During this era of economic malaise, the Chicago Boys constructed El Ladrillo (The Brick), a text primarily shaped by economist Sergio de Castro which advocated for economic liberalization in all sectors of the Chilean economy. Sadly, this text was largely ignored at that time.+

It wasn’t until the presidency of Salvador Allende that the Chicago Boys’ talents would be desperately needed.+

On the Road to Cuba 2.0

Though democratically elected by a narrow margin in 1970, Salvador Allende was determined to turn Chile into the next Cuba by undermining all of its democratic institutions. Through price controls, arbitrary expropriations, and lax monetary policy, Allende put the Chilean economy on the verge of collapse. By 1973, inflation reached 606 percent and per capita GDP dropped 7.14 percent.+

Under the command of General Augusto Pinochet, the military deposed Allende’s government. Despite this tumultuous change, the military ruler did not have a clear economic vision for Chile.+

Enter Milton Friedman

Milton Friedman’s visit to Chile in March 1975 proved to be quite fateful. Friedman was on a week-long lecture tour for various think thanks. Eventually, Friedman sat down with the general himself for 45 minutes. Right off the bat, Friedman recognized that Pinochet had very little knowledge of economics. After their meeting, Friedman sent Pinochet a letter with a list of policy recommendations.+

Friedman was blunt is his diagnosis of Chile’s economy: for the country to recover, it had to truly embrace free-market measures.+

Ideas Put in Action

Cooler heads prevailed and Pinochet let the Chicago School disciples occupy various posts in the military government. In April 1975, El Plan de Recuperación Económica (The Economic Recovery Plan) was implemented. Soon Chile curbed its inflation, opened up its markets, privatized state-owned industries, and cut government spending. By the 1990s, Chile was experiencing the largest economic boom in its history.+

The numbers don’t lie:+

Chile's economic takeoff is nothing short of miraculous. (JosePinera.com)

A Freedom Fighter

A principled libertarian, Friedman criticized Pinochet’s repressive political measures. Friedman understood that economic and political freedoms are not mutually exclusive. The principles laid in Friedman’s book Capitalism and Freedom inspired José Piñera, a notable Chilean reformer, to become a part of Chile’s classical liberal revolution.+

Like Friedman, Piñera understood the link between economic and political freedom. This motivated him to help ratify the Chilean Constitution of 1980. The most classically liberal constitution in Latin America’s history, it established the transition towards free elections and Chile’s return to democracy.+

Additionally, Piñera was the architect of Chile’s private social security system that empowered millions of workers and has fostered the growth of an ownership society. This model has been exported to dozens of countries abroad and has served as a market-based alternative to government-run pension systems.+

The “Chilean Miracle” represented the first major triumph against communism during the Cold War. Chile’s classical-liberal revolution subsequently inspired the Thatcher Revolution of 1979 and the Reagan Revolution of 1980. These ideas had resounding effects all over the globe and marked the beginning of the end for Soviet-style models of economic organization.+

There is still much work to do, as the illegitimate children of Marxist and Keynesian thought still run loose these days throughout Latin America. But one thing is absolutely certain: an idea whose time has come is unstoppable.+

RIP Milton Friedman

Milton Friedman is the short one!!!

Milton Friedman’s Free to Choose (1980), episode 3 – Anatomy of a Crisis. part 1

“The Power of the Market” episode of Free to Choose in 1990 by Milton Friedman (Part 5)

Milton Friedman The Power of the Market 5-5 How can we have personal freedom without economic freedom? That is why I don’t understand why socialists who value individual freedoms want to take away our economic freedoms.  I wanted to share this info below with you from Milton Friedman who has influenced me greatly over the […]

“The Power of the Market” episode of Free to Choose in 1990 by Milton Friedman (Part 4)

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Milton Friedman and “Zero Cost” Expanded Government 

Milton Friedman and “Zero Cost” Expanded Government

By:

Richard McKenzie

President Joe Biden has declared that his proposed $3.5 (or is it $5.5?) trillion “Build Back Better” social agenda will have a “zero” cost—as in $0.00! Why?  Because the added expenditures will be covered by increased revenues drawn from businesses and the “rich.”

The President and other progressive Democrats, who have parroted the Biden claim, should reflect on the wisdom of the late Milton Friedman, who had a knack for crystallizing stark economic truths.

During the early 1980s, when supply-side economics was the rage, Reagan Republicans promoted tax-rate cuts as a means of reviving the economy (because the cuts would increase people’s incentives to work, save, and invest), which Friedman believed distracted them from concern about what was happening to government outlays, which continued to rise throughout the decade.

Friedman framed the fiscal issues of the day differently, and with far greater clarity than anyone else. He admonished everyone (including President Reagan’s advisors), to “Keep your eye on one thing and one thing only: how much government is spending, because that’s the true tax. . . If you’re not paying for it in the form of explicit taxes, you’re paying for it indirectly in the form of inflation or in the form of borrowing.”

And make no mistake, government outlays have risen substantially, especially lately, increasing from $3.9 trillion in 2016 to $6.6 trillion in 2020 (including Covid outlays). Even without passage of the reconciliation bill, the White House estimates that federal outlays will continue their upward march through 2026.

Friedman understood that the real taxes on the economy ultimately come in the form of government outlays siphoning off resources for public purposes that would otherwise be used in the private sector. If the government chooses to build a bridge or road, the concrete and steel could have been used to produce houses and office buildings.

How the added government outlays are financed—through taxes, newly printed dollars and inflation, or debt—is of secondary importance, perhaps only marginally affecting people’s incentives. The costs of expanded government outlays will be incurred through the shift of resources from private-directed uses to public-directed uses.

By declaring that his “Build Back Better” agenda has no costs, President Biden must be confused—if he truly means what he has been saying. He may think that the dollars expended for an expanded array of welfare recipients will come only at the expense of the “rich.” Not so at all. Those transferred dollars will enable the recipients to buy goods they could not otherwise buy, which means they can pull resources away from the production of the variety of goods that ordinary Walmart (and Home Depot and Kroger) shoppers, many with far less-than-privileged means, would have bought.


Richard McKenzie is an economics professor (emeritus) in the Merage Business School at the University of California, Irvine. His latest book is The Selfish Brain: A Layman’s Guide to a New Way of Economic Thinking (2021).

Milton Friedman in 2004. (Friedman Foundation for Educational Choice/Public Domain/via Wikimedia)
T

No, of course not. But it still might happen anyway.

A specter is haunting the Biden administration — the specter of inflation. Past inflations have not only harmed consumers, savers, and people on fixed incomes. They have also brought down politicians. Among the risks to the Democratic congressional majority is a rise in prices that lifts inflation to near the top of voters’ concerns, coupled by the type of Fed rate increase that hits stocks and housing. Inflation is one more signpost on the road to Republican revival, along with illegal immigration, crime, and semi-closed public schools embracing far-left critical race theory.


Milton Friedman’s FREE TO CHOOSE “How to cure inflation” Transcript and Video (60 Minutes)

Image result for milton friedman free to choose

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.“If we could just stop the printing presses, we would stop inflation,” Milton Friedman says in “How to Cure Inflation” from the Free To Choose series. Now as then, there is only one cause of inflation, and that is when governments print too much money. Milton explains why it is that politicians like inflation, and why wage and price controls are not solutions to the problem.

http://www.freetochoosemedia.org/freetochoose/detail_ftc1980_transcript.php?page=9While many people have a fairly good grasp of what inflation is, few really understand its fundamental cause. There are many popular scapegoats: labor unions, big business, spendthrift consumers, greed, and international forces. Dr. Friedman explains that the actual cause is a government that has exclusive control of the money supply. Friedman says that the solution to inflation is well known among those who have the power to stop it: simply slow down the rate at which new money is printed. But government is one of the primary beneficiaries of inflation. By inflating the currency, tax revenues rise as families are pushed into higher income tax brackets. Thus, inflation transfers wealth and resources from the private to the public sector. In short, inflation is attractive to government because it is a way of increasing taxes without having to pass new legislation to raise tax rates. Inflation is in fact taxation without representation. Wage and price controls are not the cure for inflation because they treat only the symptom (rising prices) and not the disease (monetary expansion). History records that such controls do not work; instead, they have perverse effects on both prices and economic growth and undermine the fundamental productivity of the economy. There is only one cure for inflation: slow the printing presses. But the cure produces the painful side effects of a temporary increase in unemployment and reduced economic growth. It takes considerable political courage to undergo the cure. Friedman cites the example of Japan, which successfully underwent the cure in the mid-seventies but took five years to squeeze inflation out of the system. Inflation is a social disease that has the potential for destroying a free society if it is unchecked. Prolonged inflation undermines belief in the basic equity of the free market system because it tends to destroy the link between effort and reward. And it tears the social fabric because it divides society into winners and losers and sets group against group.(Taxation without representation: Getting knocked up to higher tax brackets because of inflation pt 1)http://www.youtube.com/watch?v=b1dTWDNKH3c

Volume 9 – How to Cure Inflation

Transcript:
Friedman: The Sierra Nevada’s in California 10,000 feet above sea level, in the winter temperatures drop to 40 below zero, in the summer the place bakes in the thin mountain air. In this unlikely spot the town of Body sprang up. In its day Body was filled with prostitutes, drunkards and gamblers part of a colorful history of the American West.
A century ago, this was a town of 10,000 people. What brought them here? Gold. If this were real gold, people would be scrambling for it. The series of gold strikes throughout the West brought people from all over the world, all kinds of people. They came here for one purpose and one purpose only, to strike it rich, quick. But in the process, they built towns, cities, in places where nobody would otherwise have dreamed of building a city. Gold built these cities and when the gold was exhausted, the cities collapsed and became ghost towns. Many of the people who came here ended up the way they began, broke and unhappy. But a few struck it rich. For them, gold was real wealth. But was it for the world as a whole. People couldn’t eat the gold, they couldn’t wear the gold, they couldn’t live in houses made of gold. Because there was more gold, they had to pay a little more gold to buy goods and services. The prices of things in terms of gold went up.
At tremendous cost, at sacrifice of lives, people dug gold out of the bowels of the earth. What happened to that gold? Eventually, at long last, it was transported to distant places only to be buried again under the ground. This time in the vaults of banks throughout the world. There is hardly anything that hasn’t been used for money; rock salt in Ethiopia, brass rings in West Africa, Calgary shells in Uganda, even a toy cannon. Anything can be used as money. Crocodile money in Malaysia, absurd isn’t it?
That beleaguered minority of the population that still smokes may recognize this stuff as the raw material from which their cigarettes are made. But in the early days of the colonies, long before the U.S. was established, this was money. It was the common money of Virginia, Maryland and the Carolinas. It was used for all sorts of things. The legislature voted that it could be used legally to pay taxes. It was used to buy food, clothing and housing. Indeed, one of the most interesting sites was to see the husky young fellows at that time, lug 100 pounds of it down to the docks to pay the costs of the passage of the beauteous young ladies who had come over from England to be their brides.
Now you know how money is. There’s a tendency for it to grow, for more and more of it to be produced and that’s what happened with this tobacco. As more tobacco was produced, there was more money. And as always when there’s more money, prices went up. Inflation. Indeed, at the very end of the process, prices were 40 times as high in terms of tobacco as they had been at the beginning of the process. And as always when inflation occurs, people complained. And as always, the legislature tried to do something. And as always, to very little avail. They prohibited certain classes of people from growing tobacco. They tried to reduce the total amount of tobacco grown, they required people to destroy part of their tobacco. But it did no good. Finally, many people took it into their own hands and they went around destroying other people’s tobacco fields. That was too much. Then they passed a law making it a capital offense, punishable by death, to destroy somebody else’s tobacco. Grecian’s Law, one of the oldest laws in economics, was well illustrated. That law says that cheap money drives out dear money and so it was with tobacco. Anybody who had a debt to pay, of course, tried to pay it in the worst quality of tobacco he had. He saved the good tobacco to sell overseas for hard money. The result was that bad money drove out good money.
Finally, almost a century after they had started using tobacco as money, they established warehouses in which tobacco was deposited in barrels, certified by an inspector according to his views as to it’s quality and quantity. And they issued warehouse certificates which people gave from one to another to pay for the bills that they accumulated.
These pieces of green printed paper are today’s counterparts of those tobacco certificates. Except that they bear no relation to any commodity. In this program I want to take you to Britain to see how inflation weakens the social fabric of society. Then to Tokyo, where the Japanese have the courage to cure inflation. To Berlin, where there is a lesson to be learned from the West Germans and how so called cures are often worse than the disease. And to Washington where our government keeps these machines working overtime. And I am going to show you how inflation can be cured.
The fact is that most people enjoy the early stages of the inflationary process. Britain, in the swinging 60’s, there was plenty of money around, business was brisk, jobs were plentiful and prices had not yet taken off. Everybody seemed happy at first. But by the early 70’s, as the good times rolled along, prices started to rise more and more rapidly. Soon, some of these people are going to lose their jobs. The party was coming to an end.
The story is much the same in the U.S. Only the process started a little later. We’ve had one inflationary party after another. Yet we still can’t seem to avoid them. How come?
Before every election our representatives would like to make us think we are getting a tax break. When they are able to do it, while at the same time actually raising our taxes because of a bit of magic they have in their kit bag. That magic is inflation. They reduced the tax rates but the taxes we have to pay go up because we are automatically shoved into higher brackets by the effective inflation. A neat trick. Taxation without representation.
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Pt 2 Many a political leader has been tempted to turn to wage and price controls despite their repeated failure in practice. On this subject they never seem to learn. But some lessons may be learned. That happened to British P
Bob Crawford: The more I work, it seems like the more they take off me. I know if I work an extra day or two extra days, what they take in federal income tax alone is almost doubled because apparently it puts you in a higher income tax bracket and it takes more off you.
Friedman: Bob Crawford lives with his wife and three children in a suburb of Pittsburgh. They’re a fairly average American family.
Mrs. Crawford: Don’t slam the door Daphne. Okay. Alright. What are you doing? Making your favorite dish.
Friedman: We went to the Crawford’s home after he had spent a couple of days working out his federal and state income taxes for the year. For our benefit, he tried to estimate all the other taxes he had paid as well. In the end, though, he didn’t discover much that would surprise anybody.
Bob Crawford: Inflation is going up, everything is getting more expensive. No matter what you do, as soon as you walk out of the house, everything went up. Your gas bills keep going up, electric bills, your gasoline, you can name a thousand things that are going up. Everything is going sky high. Your food. My wife goes to the grocery store. We used to live on say, $60 or $50 every two weeks just for our basic food. Now it’s $80 or $90 every two weeks. Things are just going out of sight as far as expense to live on. Like I say it’s getting tough. It seems like every month it gets worse and worse. And I don’t know where it’s going to end. At the end of the day that I spend nearly $6,000 of my earnings on taxes. That leaves me with a total of $12,000 to live on. It might seem like a lot of money, but five, six years ago I was earning $12,000.
Friedman: How does taxation without representation really effect how much the Crawford family has left to spend after it’s paid its income taxes. Well in 1972 Bob Crawford earned $12,000. Some of that income was not subject to income tax. After paying income tax on the rest he had this much left to spend. Six years later he was earning $18,000 a year. By 1978 the amount free from tax was larger. But he was now in a higher tax bracket so his taxes went up by a larger percentage than his income. However, those dollars weren’t worth anything like as much. Even his wages, let alone his income after taxes, hadn’t kept up with inflation. His buying power was lower than before. That is taxation without representation in practice.
Unnamed Individual: We have with us today you brothers that are sitting here today that were with us on that committee and I’d like to tell you….
Friedman: There are many traditional scapegoats blamed for inflation. How often have you heard inflation blamed on labor unions for pushing up wages. Workers, of course, don’t agree.
Unnamed Individual: But fellows this is not true. This is subterfuge. This is a myth. Your wage rates are not creating inflation.
Friedman: And he’s right. Higher wages are mostly a result of inflation rather than a cause of it. Indeed, the impression that unions cause inflation arises partly because union wages are slow to react to inflation and then there is pressure to catch up.
Worker: On a day to day basis, try to represent our own numbers. But that in fact is not the case. Not only can we not play catch up, we can’t even maintain a wage rate commensurate with the cost of living that’s gone up in this country.
Friedman: Another scapegoat for inflation is the cost of goods coming from abroad. Inflation, we’re told, is imported. Higher prices abroad driving up prices at home. It’s another way government can blame someone else for inflation. But this argument, too, is wrong. The prices of imports and the countries from which they come are not in terms of dollars, they are in terms of lira or yen or other foreign currencies. What happens to their prices in dollars depends on exchange rates which in turn reflect inflation in the United States.
Since 1973 some governments have had a field day blaming the Arabs for inflation. But if high oil prices were the cause of inflation, how is it that inflation has been less here in Germany, a country that must import every drop of oil and gas that it uses on the roads and in industry, then for example it is in the U.S. which produces half of its own oil. Japan has no oil of its own at all. Yet at the very time the Arabs were quadrupling oil prices, the Japanese people were bringing inflation down from 30 to less than 5% a year. The fallacy is to confuse particular prices like the price of oil, with prices in general. Back at home, President Nixon understood this.
Nixon: “Now here’s what I will not do. I will not take this nation down the road of wage and price controls however politically expedient that may seem. The pros of rationing may seem like an easy way out, but they are really an easy way in for more trouble. To the explosion that follows when you try to clamp a lid on a rising head of steam without turning down the fire under the pot, wage and price controls only postpone the day of reckoning. And in so doing, they rob every American of a very important part of his freedom.
Friedman: Now listen to this:
Nixon: “The time has come for decisive action. Action that will break the vicious circle of spiraling prices and costs. I am today ordering a freeze on all prices and wages throughout the United States for a period of 90 days. In addition, I call upon corporations to extend the wage price freeze to all dividends.”
Friedman: Many a political leader has been tempted to turn to wage and price controls despite their repeated failure in practice. On this subject they never seem to learn. But some lessons may be learned. That happened to British Prime Minister James Callahan who finally discovered that a very different economic myth was wrong. He told the Labor Party Conference about it in 1976.
James Callahan: “We used to think that you could use, spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you in all candor that option no longer exists. It only works on each occasion since the war by injecting a bigger dose of inflation into the economy followed by a higher level of unemployment as the next step. That’s the history of the last 20 years.”
Friedman: Well, it’s one thing to say it. One reason why inflation does so much harm is because it effects different groups differently. Some benefit and of course they attribute that to their own cleverness. Some are hurt, but of course they attribute that to the evil actions of other people. And the whole problem is made far worse by the false cures which government adopts, particularly wage and price control.
The garbage collectors in London felt justifiably aggrieved because their wages had not been permitted to keep pace with the cost of living. They struck, hurting not the people who impose the controls, but their friends and neighbors who had to live with mounting piles of rat infested garbage. Hospital attendants felt justifiably aggrieved because their wages had not been permitted to keep up with the cost of living. They struck, hurting not the people who impose the controls, but cancer patients who were turned out of hospital beds. The attendants behaved as a group in a way they never would have behaved as individuals. One group is set against another group. The social fabric of society is torn apart inflicting scars that it will take decades to heal and all to no avail because wage and price controls, far from being a cure for inflation, only make inflation worse.
Within the memory of most of our political leaders, there’s one vivid example of how economic ruin can be magnified by controls. And the classic demonstration of what to do when it happens.
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(Wage and Price Controls don’t work)

Inflation is just like alcoholism. In both cases when you start drinking or when you start printing too much money, the good effects come first. The bad effects only come later.
That’s why in both cases there is a strong temptation to overdo it. To drink too much and to print too much money. When it comes to the cure, it’s the other way around. When you stop drinking or when you stop printing money, the bad effects come first and the good effects only come later.
Pt 3
Germany, 1945, a devastated country. A nation defeated in war. The new governing body was the Allied Control Commission, representing the United States, Britain, France and the Soviet Union. They imposed strict controls on practically every aspect of life including wages and prices. Along with the effects of war, the results were tragic. The basic economic order of the country began to collapse. Money lost its value. People reverted to primitive barter where they used cameras, fountain pens, cigarettes, whiskey as money. That was less than 40 years ago.
This is Germany as we know it today. Transformed into a place a lot of people would like to live in. How did they achieve their miraculous recovery? What did they know that we don’t know?
Early one Sunday morning, it was June 20, 1948, the German Minister of Economics, Ludwig Earhardt, a professional economist, simultaneously introduced a new currency, today’s Deutsche Mark, and in one fell swoop, abolished almost all controls on prices and wages. Why did he do it on a Sunday morning? It wasn’t as you might suppose because the Stock Markets were closed on that day, it was, as he loved to confess, because the offices of the American, the British, and the French occupation authorities were closed that day. He was sure that if he had done it when they open they would have countermanded the order. It worked like a charm. Within days, the shops were full of goods. Within months, the German economy was humming along at full steam. Economists weren’t surprised at the results, after all, that’s what a price system is for. But to the rest of the world it seemed an economic miracle that a defeated and devastated country could in little more than a decade become the strongest economy on the continent of Europe.
In a sense this city, West Berlin, is something of a unique economic test tube. Set as it is deep in Communist East Germany. Two fundamentally different economic systems collide here in Europe. Ours and theirs, separated by political philosophies, definitions of freedom and a steel and concrete wall.
To digress from inflation, economic freedom does not stand alone. It is part of a wider order. I wanted to show you how much difference it makes by letting you see how the people live on the other side of that Berlin Wall. But the East German authorities wouldn’t let us. The people over there speak the same language as the people over here. They have the same culture. They have the same for bearers. They are the same people. Yet you don’t need me to tell you how differently they live. There is one simple explanation. The political system over there cannot tolerate economic freedom. The political system over here could not exist without it.
But political freedom cannot be preserved unless inflation is kept in bounds. That’s the responsibility of government which has a monopoly over places like this. The reason we have inflation in the United States or for that matter anywhere in the world is because these pieces of paper and the accompanying book entry or their counterparts in other nations are growing more rapidly than the quantity of goods and services produced. The truth is inflation is made in one place and in one place only. Here in Washington. This is the only place were there are presses like this that turn out these pieces of paper we call money. This is the place where the power resides to determine how rapidly the amount of money shall increase.
What happened to all that noise? That’s what would happen to inflation if we stop letting the amount of money grow so rapidly. This is not a new idea. It’s not a new cure. It’s not a new problem. It’s happened over and over again in history. Sometimes inflation has been cured this way on purpose. Sometimes it’s happened by accident. During the Civil War the North, late in the Civil War, overran the place in the South where the printing presses were sitting up, where the pieces of paper were being turned out. Prior to that point, the South had a very rapid inflation. If my memory serves me right, something like 4% a month. It took the Confederacy something over two weeks to find a new place where they could set up their printing presses and start them going again. During that two week period, inflation came to a halt. After the two week period, when the presses started running again, inflation started up again. It’s that clear, that straightforward. More recently, there’s another dramatic example of the only effective way to deal with rampant inflation.
In 1973, Japanese housewives going to market were faced with an unpleasant fact. The cash in their purses seemed to be losing its value. Prices were starting to sore as the awful story of inflation began to unfold once again. The Japanese government knew what to do. What’s more, they were prepared to do it. When it was all over, economists were able to record precisely what had happened. In 1971 the quantity of money started to grow more rapidly. As always happens, inflation wasn’t affected for a time. But by late 1972 it started to respond. In early 73 the government reacted. It started to cut monetary growth. But inflation continued to soar for a time. The delayed reaction made 1973 a very tough year of recession. Inflation tumbled only when the government demonstrated its determination to keep monetary growth in check. It took five years to squeeze inflation out of the system. Japan attained relative stability. Unfortunately, there’s no way to avoid the difficult road the Japanese had to follow before they could have both low inflation and a healthy economy. First they had to live through a recession until slow monetary growth had its delayed effect on inflation.
Inflation is just like alcoholism. In both cases when you start drinking or when you start printing too much money, the good effects come first. The bad effects only come later.
That’s why in both cases there is a strong temptation to overdo it. To drink too much and to print too much money. When it comes to the cure, it’s the other way around. When you stop drinking or when you stop printing money, the bad effects come first and the good effects only come later. That’s why it’s so hard to persist with the cure. In the United States, four times in the 20 years after 1957, we undertook the cure. But each time we lacked the will to continue. As a result, we had all the bad effects and none of the good effects. Japan on the other hand, by sticking to a policy of slowing down the printing presses for five years, was by 1978 able to reap all the benefits, low inflation and a recovering economy. But there is nothing special about Japan. Every country that has had the courage to persist in a policy of slow monetary growth has been able to cure inflation and at the same time achieve a healthy economy.
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Pt 4
The job of the Federal Reserve is not to run government spending; it’s not to run government taxation. The job of the Federal Reserve is to control the money supply and I believe, frankly, I have always believed as you know, that these are excuses and not reasons for the performance.
DISCUSSION
Participants: Robert McKenzie, Moderator; Milton Friedman; Congressman Clarence J. Brown; William M. Martin, Chairman of Federal Reserve 1951_1970; Beryl W. Sprinkel, Executive Vice President, Harris Bank, Chicago; Otmar Emminger, President, Ieutsche Bundesbank, Frankfurt West Germany
MCKENZIE: And here at the Harper Library of the University of Chicago, our distinguished guests have their own ideas, too. So, lets join them now.
BROWN: If you could control the money supply, you can certainly cut back or control the rate of inflation. I’d have to say that that prescription is a little bit easier to write than it is to fill. I think there are some other ways to do it and I would relate the money supply __ I think inflation is a measure of the relationship between money and the goods and services that money is meant to cover. And so if you can stimulate the goods, the production of goods and services, it’s helpful. It’s a little tougher to control the money supply, although I think it can be done, than just saying that you should control it, because we’ve got the growth of credit cards, which is a form of money; created, in effect, by the free enterprise system. It isn’t all just printed in Washington, but that may sound too defensive. I think he was right in saying that the inflation is Washington based.
MCKENZIE: Mr. Martin, nobody has been in the firing line longer than you, 17 years head of the Fed. Could you briefly comment on that and we’ll go around the group.
MARTIN: I want to say 19 years.
(Laughter)
MARTIN: I wouldn’t be out here if it weren’t for Milton Friedman, today. He came down and gave us advice from time to time.
FRIEDMAN: You’ve never taken it.
(Laughter)
MCKENZIE: He’s going to do some interviewing later, I warn you.
MARTIN: And I’m rather glad we didn’t take it __
(Laughter)
MARTIN: __ all the time.
SPRINKEL: In your 19 years as Chairman of the Federal Reserve, Bill, the average growth in the money supply was 3.1 percent per year. The inflation rate was 2.2 percent. Since you left, the money supply has exactly doubled. The inflation rate is average over 7 percent, and, of course, in recent times the money supply has been growing in double-digit territory as has our inflation rate.
EMMINGER: May I, first of all, confirm two facts which have been so vividly brought out in the film of Professor Friedman; namely, that at the basis of the relatively good performance of Western Germany were really two events. One, the establishment of a new sound money which we try to preserve sound afterwards. And, secondly, the jump overnight into a free market economy without any controls over prices and wages. These are the two fundamental facts. We have tried to preserve monetary stability by just trying to follow this prescription of Professor Friedman; namely, monetary discipline. Keeping monetary growth relatively moderate. I must, however, warn you it’s not so easy as it looks. If you just say, governments have to have the courage to persist in that course.
FRIEDMAN: Nobody does disagree with the proposition that excessive growth in money supply is an essential element in the inflationary process and that the real problem is not what to do, but how to have the courage and the will to do it. And I want to go and start, if I may, on that subject; because I think that’s what we ought to explore. Why is it we haven’t had the courage and don’t, and under what circumstances will we? And I want to start with Bill Martin because his experience is a very interesting experience. His 19 years was divided into different periods. In the first period, that average that Beryl Sprinkel spoke about, averaged two very different periods. An early period of very slow growth and slow inflation; a later period of what at the time was regarded as creeping inflation __ now we’d be delighted to get back to it. People don’t remember that at the time that Mr. Nixon introduced price and wage controls in 1971 to control an outrageous inflation, the rate of inflation was four-and-a-half percent per year. Today we’d regard that as a major achievement; but the part of the period when you were Chairman, was a period when the inflation rate was starting to creep up and money growth rate was also creeping up. Now if I go from your period, you were eloquent in your statements to the public, to the press, to everyone, about the evils of inflation, and about the determination on the Federal Reserve not to be the architect of inflation. Your successor, Arthur Burns, was just as eloquent. Made exactly the same kinds of statements as effectively, and again over and over again said the Federal Reserve will not be the architect of inflation. His successor, Mr. G. William Miller, made the same speeches, and the same statements, and the same protestations. His successor, Paul Volcker, he is making the same statements. Now my question to you is: Why is it that there has been such a striking difference between the excellent pronouncements of all Chairmen of the Fed, therefore it’s not personal on you. You have a lot of company, unfortunately for the country. Why is it that there has been such a wide diversion between the excellent pronouncements on the one hand and what I regard as a very poor performance on the other?
MARTIN: Because monetary policy is not the only element. Fiscal policy is equally important.
FRIEDMAN: You’re shifting the buck to the Treasury.
MARTIN: Yes.
FRIEDMAN: To the Congress. We’ll get to Mr. Brown, don’t worry.
MARTIN: Yeah, that’s right.
(Laughter)
MARTIN: The relationship of fiscal policy to monetary policy is one of the important things.
MCKENZIE: Would you remind us, the general audience, when you say “fiscal policy”, what you mean in distinction to “monetary policy”?
MARTIN: Well, taxation.
MCKENZIE: Yeah.
MARTIN: The raising revenue.
FRIEDMAN: And spending.
MARTIN: And spending.
FRIEDMAN: And deficits.
MARTIN: And deficits, yes, exactly. And I think that you have to realize that when I’ve talked for a long time about the independence of the Federal Reserve. That’s independence within the government, not independence of the government. And I’ve worked consistently with the Treasury to try to see that the government is financed. Now this gets back to spending. The government says they’re gonna spend a certain amount, and then it turns out they don’t spend that amount. It doubles.
FRIEDMAN: The job of the Federal Reserve is not to run government spending; it’s not to run government taxation. The job of the Federal Reserve is to control the money supply and I believe, frankly, I have always believed as you know, that these are excuses and not reasons for the performance.
MARTIN: Well that’s where you and I differ, because I think we would be irresponsible if we didn’t take into account the needs and what the government is saying and doing. I think if we just went on our own, irresponsibly, I say it on this, because I was in the Treasury before I came to this __
FRIEDMAN: I know. I know.
MARTIN: __ go to the Fed; and I know the other side of the picture. I think we’d be rightly condemned by the American people and by the electorate.
FRIEDMAN: Every central bank in this world, including the German Central Bank, including the Federal Reserve System, has the technical capacity to make the money supply do over a period of two or three or four months, not daily, but over a period, has the technical capacity to control it.
(Several people talking at once.)
FRIEDMAN: I cannot explain the kind of excessive money creation that has occurred, in terms of the technical incapacity of the Federal Reserve System or of the German Central Bank, or of the Bank of England, or any other central bank in the world.
EMMINGER: I wouldn’t say technically we are incapable of doing that, although we have never succeeded in controlling the money supply month that way. But I would say we can, technically, control it half yearly, from one half-year period to the next and that would be sufficient __
FRIEDMAN: That would be sufficient.
EMMINGER: __ for controlling inflation. But however I __
VOICE OFF SCREEN: It doesn’t move.
FRIEDMAN: I’m an economic scientist, and I’m trying to observe phenomena, and I observe that every Federal Reserve Chairman says one thing and does another. I don’t mean he does, the system does.
MCKENZIE: Yeah. How different is your setup in Germany? You’ve heard this problem of governments getting committed to spending and the Fed having, one way or the other, to accommodate itself to it. Now what’s your position on this very interesting problem?
EMMINGER: We are very independent of the government, from the government, but, on the other hand, we are an advisor of the government. Also on the budget deficits and they would not easily go before Parliament with a deficit which much of it is openly criticized and disapproved by the same bank. Why because we have a tradition in our country that we can also publicly criticize the government on his account. And second, as if happened in our case too, the government goes beyond what is tolerable for the sake of moral equilibrium. We have let it come through in the capital markets. That is to say they have enough interest rates that has drawn public criticism and that has had some effect on their attitude.
_________________________________________
Pt 5
 I think that is a very important point that Dr. Emminger just made because there is not a one-to-one relationship between government deficits and what happens to the money supply at all. The pressure on the Federal Reserve comes indirectly. It comes because large government deficits, if they are financed in the general capital market, will drive up interest rates and then we have the right patents in Congress and their successors pressuring the Federal Reserve to enter in and finance the deficit by printing money as a way of supposedly holding down interest rates. Now before I turn to Mr. Brown and ask him that, I just want to make one point which is very important. The Federal Reserve’s activities in trying to hold down interest rates have put us in a position where we have the highest interest rates in history. It’s another example of how, of the difference between the announced intentions of a policy, and the actual results. But now I want to come to Clarence Brown and ask him, shift the buck to him, and put him on the hot seat for a bit. The government spending has been going up rapidly, Republican administration or Democratic administration. This is a nonpartisan issue, it doesn’t matter. Government deficits have been going up rapidly. Republican administration or Democratic administration. Why is it that here again you have the difference between pronouncements and performance? There is no Congressman, no Senator, who will come out and say, “I am in favor of inflation.” There is not a single one who will say, “I am in favor of big deficits.” They’ll all say we want to balance the budget, we want to hold down spending, we want an economical government. How do you explain the difference between performance and talk on the side of Congress?
BROWN:
FRIEDMAN: I think that is a very important point that Dr. Emminger just made because there is not a one-to-one relationship between government deficits and what happens to the money supply at all. The pressure on the Federal Reserve comes indirectly. It comes because large government deficits, if they are financed in the general capital market, will drive up interest rates and then we have the right patents in Congress and their successors pressuring the Federal Reserve to enter in and finance the deficit by printing money as a way of supposedly holding down interest rates. Now before I turn to Mr. Brown and ask him that, I just want to make one point which is very important. The Federal Reserve’s activities in trying to hold down interest rates have put us in a position where we have the highest interest rates in history. It’s another example of how, of the difference between the announced intentions of a policy, and the actual results. But now I want to come to Clarence Brown and ask him, shift the buck to him, and put him on the hot seat for a bit. The government spending has been going up rapidly, Republican administration or Democratic administration. This is a nonpartisan issue, it doesn’t matter. Government deficits have been going up rapidly. Republican administration or Democratic administration. Why is it that here again you have the difference between pronouncements and performance? There is no Congressman, no Senator, who will come out and say, “I am in favor of inflation.” There is not a single one who will say, “I am in favor of big deficits.” They’ll all say we want to balance the budget, we want to hold down spending, we want an economical government. How do you explain the difference between performance and talk on the side of Congress?
BROWN: Well, first I think we have to make one point. I’m not so much with the government as I am against it.
FRIEDMAN: I understand.
BROWN: As you know, I’m a minority member of Congress.
FRIEDMAN: Again, I’m not __ I’m not directing this at you personally.
BROWN: I understand, of course; and while the administrations, as you’ve mentioned, Republican and Democratic administrations, have both been responsible for increases in spending, at least in terms of their recommendations. It is the Congress and only the Congress that appropriates the funds and determines what the taxes are. The President has no authority to do that and so one must lay it at the feet of the U.S. Congress. Now, I guess we’d have to concede that it’s a little bit more fun to give away things than it is to withhold them. And this is the reason that the Congress responds to a general public that says, “I want you to cut everybody else’s program but the one in which I am most particularly interested. Save money, but incidentally, my wife is taking care of the orphanages and so lets try to help the orphanages,” or whatever it is. Let me try to make a point, if I can, however, on what I think is a new spirit moving within the Congress and that is that inflation, as a national affliction, is beginning to have an impact on the political psychology of many Americans. Now the Germans, the Japanese and others have had this terrific postwar inflation. The Germans have been through it twice, after World War I and World War II, and it’s a part of their national psyche. But we are affected in this country by the depression. Our whole tax structure is built on the depression. The idea of the tax structure in the past has been to get the money out of the mattress where it went after the banks failed in this country and jobs were lost, and out of the woodshed or the tin box in the back yard, get it out of there and put it into circulation. Get it moving, get things going. And one of the ways to do that was to encourage inflation. Because if you held on to it, the money would depreciate; and the other way was to tax it away from people and let the government spend it. Now there’s a reaction to that and people are beginning to say, “Wait just a minute. We’re not afflicted as much as we were by depression. We’re now afflicted by inflation, and we’d like for you to get it under control.” Now you can do that in another way and that without reducing the money supply radically. I think the Joint Economic Committee has recommended that we do it gradually. But the way that you can do it is to reduce taxes and the impact of government, that is the weight of government and increase private savings so that the private savings can finance some of the debt that you have.
FRIEDMAN: There is no way you can do it without reducing, in my opinion, the rate of monetary growth. And I, recognizing the facts, even though they ought not to be that way, I wonder whether you can reduce the rate of monetary growth unless Congress actually does reduce government spending as well as government taxes.
BROWN: The problem is that every time we use demand management, we get into a kind of an iron maiden kind of situation. We twist this way and one of the spikes grabs us here, so we twist that way and a spike over here gets us. And every recession has had higher basic unemployment rates than the previous recession in the last several years and every inflation has had higher inflation. We’ve got to get that tilt out of the society.
MCKENZIE: Wouldn’t it be fair to say, though, that a fundamental difference is the Germans are more deeply fearful of a return to inflation, having had the horrifying experience between the wars, especially. We tend to be more afraid of recession turning into depression.
EMMINGER: I think there is something in it and in particular in Germany the government would have to fear very much in their electoral prospects if they went into such an election period with a high inflation rate. But there is another important difference.
MARTIN: We fear unemployment more than inflation it seems.
EMMINGER: You fear unemployment, but unemployment is feared with us, too, but inflation is just as much feared. But there is another difference; namely, once you have got into that escalating inflation, every time the base, the plateau is higher, it’s extremely difficult to get out of it. You must avoid getting into that, now that’s very cheap advice from me because you are now.
(Laughing)
EMMINGER: But we had, for the last fifteen, twenty years, always studied foreign experiences, and told ourselves we never must get into this vicious circle. Once you are in, it takes a long time to get out of it. That is what I am preaching now, that we should avoid at all costs to get again into this vicious circle as we had it already in ’73_’74. It took us, also, four years to get out of it, although we were only at eight percent inflation. Four years to get down to three percent. So you __
MCKENZIE: Those were __ yes.
EMMINGER: You have, I think, the question of whether you can do if in a gradualist way over many, many years, or whether you don’t need a sort of shock treatment.
____________________________________
her we go into a period of still higher unemployment later on and have it to do all over again. That’s the only choice we face. And when the public at large recognizes that, they will then elect people to Congress, and a President to office who is committed to less government spending and to less government printing of money and until that happens we will not cure inflation
Pt 6
SPRINKEL: The film said it took the Japanese _ what _ four years?
FRIEDMAN: Five years.
SPRINKEL: Five years. But one of my greatest concerns is that we haven’t suffered enough yet. Most of the nations that have finally got their inflations __
BROWN: Bad election speech.
SPRINKEL: __ well, I’m not running for office, Clarence.
(Laughter)
SPRINKEL: Most countries that finally got their inflation under control had 20, 30 percent or worse inflation. Germany had much worse and the public supports them. We live in a Democracy, and we’re getting constituencies that gain from inflation. You look at people that own real estate, they’ve done very well.
MCKENZIE: Yes.
SPRINKEL: And how can we get there without going through even more pain, and I doubt that we will.
FRIEDMAN: If you ask who are the constituencies that have benefited most from inflation there are no doubt, it is the homeowners.
SPRINKEL: Yes.
FRIEDMAN: But it’s also the __ it’s also the Congressmen who have been able to vote higher spending without having to vote higher taxes. They have in fact __
BROWN: That’s right.
FRIEDMAN: __ Congress has in fact voted for inflation. But you have never had a Congressman on record to that effect. It’s the government civil servants who have their own salaries are indexed and tied to inflation. They have a retirement benefit, a retirement pension that’s tied to inflation. They qualify, a large fraction of them, for Social Security as well, which is tied to inflation. So that the beneficial __
BROWN: Labor contracts that are indexed and many pricing things that are tied to it.
FRIEDMAN: But the one thing that isn’t tied to inflation and here I want to come back and ask why Congress has been so __ so bad in this area, is our taxes. It has been impossible to get Congress to index the tax system so that you don’t have the present effect where every one percent increase in inflation pushes people up into higher brackets and forces them to pay higher taxes.
BROWN: Well, as you know, I’m an advocate of that.
FRIEDMAN: I know you are.
MCKENZIE: Some countries do that, of course.
FRIEDMAN: Oh, of course.
MCKENZIE: Canada does that. Indexes the __
BROWN: And I went up to Canada on a little weekend seminar program on indexing and came back an advocate of indexing because I found out that the people who are delighted with indexing are the taxpayers.
FRIEDMAN: Absolutely.
BROWN: Because as the inflation rate goes up their tax level either maintains at the same level or goes down. The people who are least __ well, the people who are very unhappy with it are the people who have to plan government spending because it is reducing the amount of money that the government has rather than watching it go up by ten or twelve billion. You get a little dividend to spend in this country, the bureaucrats do every year, but the politicians are unhappy with it too, as Dr. Friedman points out because, you see, politicians don’t get to vote a tax reduction, it happens automatically.
MCKENZIE: Yeah.
BROWN: And so you can’t go back and in a praiseworthy way tell your constituents that I am for you, I voted a tax reduction. And I think we ought to be able to index the tax system so that tax reduction is automatic, rather than have what we’ve had in the past, and that is an automatic increase in the taxes. And the politicians say, “Well, we’re sorry about inflation, but __”.
FRIEDMAN: You’re right and I want to __ I want to go and make a very different point. I sit here and berate you and you as government officials, and so on, but I understand very well that the real culprits are not the politicians, are not the central bankers, but it’s I and my fellow citizens. I always say to people when I talk about this, “If you want to know who’s responsible for inflation, look in the mirror.” It’s not because of the way you spend you money. Inflation doesn’t arise because you got consumers who are spendthrifts; they’ve always been spendthrifts. It doesn’t arise because you’ve got businessmen who are greedy. They’ve always been greedy. Inflation arises because we as citizens have been asking you as politicians to perform an impossible task. We’ve been asking you to spend somebody else’s money on us, but not to spend our money on anybody else.
BROWN: You don’t want us to cut back those dollars for education, right?
FRIEDMAN: Right. And, therefore, __ well, no, I do.
MCKENZIE: We’ve already had a program on that.
FRIEDMAN: We’ve already had a program on that and there’s no viewer of these programs who will be in any doubt about my position on that. But the public at large has not and this is where we come to the political will that Dr. Emminger quite properly talked about. It is __ everybody talks against inflation, but what he means is that he wants the prices of the things he sells to go up and the prices of the things he buys to go down. But, sooner or later, we come to the point where it will be politically profitable to end inflation. This is the point that __
SPRINKEL: Yes.
FRIEDMAN: __ I think you were making.
SPRINKEL: The suffering idea.
FRIEDMAN: Where do you think the __ you know, what do you think the rate of inflation has to be and judged by the experience of other countries before we will be in that position and when do you think that will happen?
SPRINKEL: Well, the evidence says it’s got to be over 20 percent. Now you would think we could learn from others rather than have to repeat mistakes.
FRIEDMAN: Apparently nobody can learn from history.
SPRINKEL: But at the present time we’re going toward higher and not lower inflation.
MCKENZIE: You said earlier, if you want to see who causes inflation look in the mirror.
FRIEDMAN: Right.
MCKENZIE: Now, for everybody watching and taking part in this, there must be some moral to that. What does need __ what has to be the change of attitude of the man in the mirror you’re looking at before we can effectively implement what you call a tough policy that takes courage?
FRIEDMAN: I think that the man in the mirror has to come to recognize that inflation is the most destructive disease known to modern society. There is nothing which will destroy a society so thoroughly and so fully as letting inflation run riot. He must come to recognize that he doesn’t have any good choices. That there are no easy answers. That once you get in this situation where the economy is sick of this insidious disease, there’s gonna be no miracle drug which will enable them to be well tomorrow. That the only choices he has, do I go through a tough period for four or five years of relatively high unemployment, relatively low growth or do I try to push it off by taking some more of the hair of the dog that bit me and get around it now at the cost of still higher unemployment, as Clarence Brown said, later on. The only choice this country faces, is whether we have temporary unemployment for a short period, as a side effect of curling inflation or whether we go into a period of still higher unemployment later on and have it to do all over again. That’s the only choice we face. And when the public at large recognizes that, they will then elect people to Congress, and a President to office who is committed to less government spending and to less government printing of money and until that happens we will not cure inflation.
____________________________________
FRIEDMAN: And therefore the crucial thing is to cut down total government spending from the point of view of inflation. From the point of view of productivity, some of the other measures you were talking about are far more important.
BROWN
Pt 7
BROWN: But, Dr. Friedman, let me __
(Applause)
BROWN: Let me differ with you to this extent. I think it is important that at the time you are trying to get inflation out of the economy that you also give the man in the street, the common man, the opportunity to have a little bit more of his own resources to spend. And if you can reduce his taxes at that time and then reduce government in that process, you give him his money to spend rather than having to yield up all that money to government. If you cut his taxes in a way to encourage it, to putting that money into savings, you can encourage the additional savings in a private sense to finance the debt that you have to carry, and you can also encourage the stimulation of growth in the society, that is the investment into the capital improvements of modernization of plant, make the U.S. more competitive with other countries. And we can try to do it without as much painful unemployment as we can get by with. Don’t you think that has some merit?
FRIEDMAN: The only way __ I am all in favor, as you know, of cutting government spending. I am all in favor of getting rid of the counterproductive government regulation that reduces productivity and disrupts investment. But __
BROWN: And we do that, we can cut taxes some, can we not?
FRIEDMAN: We should __ taxes __ but you are introducing a confusion that has confused the American people. And that is the confusion between spending and taxes. The real tax on the American people is not what you label taxes. It’s total spending. If Congress spends fifty billion dollars more than it takes in, if government spends fifty billion dollars, who do you suppose pays that fifty billion dollars?
BROWN: Of course, of course.
FRIEDMAN: The Arab Sheiks aren’t paying it. Santa Claus isn’t paying it. The Tooth Fairy isn’t paying it. You and I as taxpayers are paying it indirectly through hidden taxation.
MCKENZIE: Your view __
FRIEDMAN: And therefore the crucial thing is to cut down total government spending from the point of view of inflation. From the point of view of productivity, some of the other measures you were talking about are far more important.
BROWN: But if you concede that inflation and taxes are both part and parcel of the same thing, and if you cut spending __
FRIEDMAN: They’re not part and parcel of the same thing.
BROWN: If you cut spending you __ well, but, you take the money from them in one way or another. The average citizen.
FRIEDMAN: Absolutely.
BROWN: To finance the growth of government.
FRIEDMAN: That’s right.
BROWN: So if you cut back the size of government, you can cut both their inflation and their taxes.
FRIEDMAN: That’s right.
BROWN: If you __
FRIEDMAN: I am all in favor of that.
BROWN: All right.
FRIEDMAN: All I am saying is don’t kid yourself into thinking that there is some painless way to do it. There just is not.
BROWN: One other way is productivity. If you can __ if you can increase production, then the impact of inflation is less because you have more goods chasing __
FRIEDMAN: Absolutely, but you have to have a sense of proportion. From the point of view of the real income of the American people, nothing is more important than increasing productivity. But from the point of view of inflation, it’s a bit actor. It would be a miracle if we could raise our productivity from three to five percent a year, that would reduce inflation by two percent.
BROWN: No question, it won’t happen overnight, but it’s part of the __ it’s part of a long range squeezing out of inflation.
FRIEDMAN: There is only one way to ease the __ in my opinion there is only one way to ease the pains of curing inflation and that way is not available. That way is to make it credible to the American people that you are really going to follow the policy you say you’re going to follow. Unfortunately I don’t see any way we can do that.
(Several people talking at once.)
EMMINGER: Professor Friedman, that’s exactly the point which I wanted to illustrate by our own experience. We also had to squeeze out inflation and there was a painful time of one-and-a-half years, but after that we had a continuous lowering of the inflation rate with a slow upward movement in the economy since 1975. Year by year inflation went down and we had a moderate growth rate which has led us now to full employment.
FRIEDMAN: That’s what __
EMMINGER: So you can shorten this period by just this credibility and by a consensus you must have, also with the trade unions, with the whole population that they acknowledge that policy and also play their part in it. Then the pains will be much less.
SPRINKEL: You see in our case, expectations are that inflation’s going to get worse because it always has. This means we must disappoint in a very painful way those expectations and it’s likely to take longer, at least the first time around. Now our real problem has not been that we haven’t tried. We have tried and brought inflation down. Our real problem was, we didn’t stick to it. And then you have it all to do over.
BROWN: Well I would __ I would concede that psychology plays a great, perhaps even the major part, but I do believe that if you have private savings stimulated by your tax system, rather than discouraged by your tax system, you can finance some of that public debt by private savings rather than by inflation and the result will be to ease to some degree the paint of that heavy unemployment that you seem to suggest is the only way to deal with the problem.
FRIEDMAN: The talk is fine, but the problem is that it’s used to evade the key issue: How do you make it credible to the public that you are really going to stick to a policy? Four times we’ve tried it and four times we’ve stopped before we’ve run the course.
(Several people talking at once.)
MCKENZIE: There we leave the matter for tonight, and next week’s concluding program in this series is not to be missed.
(Applause)
From Harper Library, goodbye.

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Dan Mitchell on Supply Chain Mess: “People and businesses in the private sector make mistakes…there’s a big feedback mechanism in the private sector. It’s called profit and loss!”

 

Government, Markets, and the Supply Chain

Way back in 2009, I shared a meme that succinctly summarizes how Washington operates.

It’s basically a version of Mitchell’s Law. To elaborate, governments cause problems and politicians then use those problems as an excuse to make government even bigger.

Lather, rinse, repeat.

I worry the same thing may be about to happen because of the current concern about “supply chain” issues, perhaps best illustrated by the backlog of ships at key ports, leading to shortages of key goods.

Some of this mess is fallout from the coronavirus pandemic, but it’s being exacerbated by bad policy.

In a column for Reason, J.D. Tuccille points out that government is the problem, not the solution.

…supply-chain issues…create shortages and push prices up around the world. …Lockdowns also changed people’s lives, closing offices and factories and confining people at home. That resulted in massive and unpredictable shifts in demand and unreliable supply. …”Market economies tend to be pretty good at getting food on the supermarket shelves and fuel in petrol stations, if left to themselves,” agrees Pilkington. “That last part is key: if left to themselves. Heavy-handed interference in market economies tends to produce the same pathologies we see in socialist economies, including shortages and inflation. That has been the unintended consequence of lockdown.” …The danger is that people see economic problems caused by earlier fiddling and then demand even more government intervention. …if the government were to further meddle in the market to allocate products made scarce by earlier actions, it’s hard to see how the result wouldn’t be anything other than increased supply chain chaos.

Allysia Finley opines for the Wall Street Journal about California’s role in the supply-chain mess.

The backup of container ships at the Long Beach and Los Angeles ports has grown in recent weeks… The two Southern California ports handle only about 40% of containers entering the U.S., mostly from Asia. Yet ports in other states seem to be handling the surge better. Gov. Ron DeSantis said last month that Florida’s seaports had open capacity.So what’s the matter with California? State labor and environmental policies. …business groups recently asked Gov. Gavin Newsom to declare a state of emergency and suspend labor and environmental laws that are interfering with the movement of goods. …One barrier is a law known as AB5. …Trucking companies warned that the law could put small carriers out of business and cause drivers to leave the state. …there’s little doubt the law hinders efficiency and productivity. …State officials have also pressed localities to attach green mandates to permits for new warehouses, which can be poison pills. …This boatload of regulations is making it more expensive and difficult to store goods arriving at California ports.

Needless to say, I’m not surprised California is making things worse.

The state seems to have some of the nation’s worst politicians.

But let’s set that aside and close with some discussion about one of the differences between government and the private sector.

This may surprise some readers, but people and businesses in the private sector make mistakes all the time.

So part of the supply-chain mess presumably is a result of companies and entrepreneurs making bad guesses.

That being said, there’s a big feedback mechanism in the private sector. It’s called profit and loss.

So when mistakes are made, there’s a big incentive to quickly change.

With government, by contrast, there’s very little flexibility (as we saw during the pandemic). And when politicians and bureaucrats do act, they often respond to political incentives that lead them to make things worse.

 

 

Big-Government Republicans Enable Big-Government Democrats

I get asked why I frequently criticize Republicans.

My response is easy. I care about results rather than rhetoric. And while GOP politicians often pay lip service to the principles of limited government,they usually increase spending even faster than Democrats.

Indeed, Republicans are even worse than Democrats when measuring the growth of domestic spending!

This is bad news because it means the burden of government expands when Republicans are in charge.

And, as Gary Abernathy points out in a column for the Washington Post, Republicans then don’t have the moral authority to complain when Democrats engage in spending binges.

President Biden is proposing another $3 trillion in spending… There are objections, but none that can be taken seriously. …Republicans had lost their standing as the party of fiscal responsibility when most of them succumbed to the political virus of covid fever and rubber-stamped around $4 trillion in “covid relief,”… With Trump out and Biden in, Republicans suddenly pretended that their 2020 spending spree happened in some alternate universe.But the GOP’s united opposition to Biden’s $1.9 trillion package won’t wash off the stench of the hypocrisy. …I noted a year ago that we had crossed the Rubicon, that our longtime flirtation with socialism had become a permanent relationship. Congratulations, Bernie Sanders. The GOP won’t become irrelevant because of its association with Trump, as some predict. It will diminish because it is bizarrely opposing now that which it helped make palatable just last year. Fiscal responsibility is dead, and Republicans helped bury it. Put the shovels away, there’s no digging it up now.

For what it’s worth, I hope genuine fiscal responsibility isn’t dead.

Maybe it’s been hibernating ever since Reagan left office (like Pepperidge Farm, I’m old enough to remember those wonderful years).

Subsequent Republican presidents liked to copy Reagan’s rhetoric, but they definitely didn’t copy his policies.

  • Spending restraint was hibernating during the presidency of George H.W. Bush.
  • Spending restraint also was hibernating during the presidency of George W. Bush.
  • And spending restraint was hibernating during the presidency of Donald Trump.

I’m not the only one to notice GOP hypocrisy.

Here are some excerpts from a 2019 column in the Washington Post by Fareed Zakaria.

In what Republicans used to call the core of their agenda — limited government — Trump has been profoundly unconservative. …Trump has now added more than $88 billion in taxes in the form of tariffs, according to the right-leaning Tax Foundation. (Despite what the president says, tariffs are taxes on foreign goods paid by U.S. consumers.) This has had the effect of reducing gross domestic product and denting the wages of Americans.…For decades, conservatives including Margaret Thatcher and Ronald Reagan preached to the world the virtues of free trade. But perhaps even more, they believed in the idea that governments should not pick winners and losers in the economy… Yet the Trump administration…behaved like a Central Planning Agency, granting exemptions on tariffs to favored companies and industries, while refusing them to others. …In true Soviet style, lobbyists, lawyers and corporate executives now line up to petition government officials for these treasured waivers, which are granted in an opaque process… On the core issue that used to define the GOP — economics — the party’s agenda today is state planning and crony capitalism.

Zakaria is right about Republicans going along with most of Trump’s bad policies (as illustrated by this cartoon strip).*

The bottom line is that Republicans would be much more effective arguing against Biden’s spending orgy had they also argued for spending restraint when Trump was in the White House.

P.S. It will be interesting to see what happens in the near future. Will the GOP be a small-government Reagan party or a big-government Trump party?

Or maybe it will go back to being a Nixon-type party, which would mean bigger government but without mean tweets. And there are plenty of options.

If they make the wrong choice (anything other than Reaganism), Margaret Thatcher has already warned us about the consequences.

*To be fair, Republicans also went along with Trump’s good policies. It’s just unfortunate that spending restraint wasn’t one of them.

—-

March 31, 2021

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

Dear Mr. President,

Please explain to me if you ever do plan to balance the budget while you are President? I have written these things below about you and I really do think that you don’t want to cut spending in order to balance the budget. It seems you ever are daring the Congress to stop you from spending more.

President Barack Obama speaks about the debt limit in the East Room of the White House in Washington. | AP Photo

 

“The credit of the United States ‘is not a bargaining chip,’ Obama said on 1-14-13. However, President Obama keeps getting our country’s credit rating downgraded as he raises the debt ceiling higher and higher!!!!

Washington Could Learn a Lot from a Drug Addict

Just spend more, don’t know how to cut!!! Really!!! That is not living in the real world is it?

Making more dependent on government is not the way to go!!

Why is our government in over 16 trillion dollars in debt? There are many reasons for this but the biggest reason is people say “Let’s spend someone else’s money to solve our problems.” Liberals like Max Brantley have talked this way for years. Brantley will say that conservatives are being harsh when they don’t want the government out encouraging people to be dependent on the government. The Obama adminstration has even promoted a plan for young people to follow like Julia the Moocher.  

David Ramsey demonstrates in his Arkansas Times Blog post of 1-14-13 that very point:

Arkansas Politics / Health Care Arkansas’s share of Medicaid expansion and the national debt

Posted by on Mon, Jan 14, 2013 at 1:02 PM

Baby carrot Arkansas Medicaid expansion image

 

Imagine standing a baby carrot up next to the 25-story Stephens building in Little Rock. That gives you a picture of the impact on the national debt that federal spending in Arkansas on Medicaid expansion would have, while here at home expansion would give coverage to more than 200,000 of our neediest citizens, create jobs, and save money for the state.

Here’s the thing: while more than a billion dollars a year in federal spending would represent a big-time stimulus for Arkansas, it’s not even a drop in the bucket when it comes to the national debt.

Currently, the national debt is around $16.4 trillion. In fiscal year 2015, the federal government would spend somewhere in the neighborhood of $1.2 billion to fund Medicaid expansion in Arkansas if we say yes. That’s about 1/13,700th of the debt.

It’s hard to get a handle on numbers that big, so to put that in perspective, let’s get back to the baby carrot. Imagine that the height of the Stephens building (365 feet) is the $16 trillion national debt. That $1.2 billion would be the length of a ladybug. Of course, we’re not just talking about one year if we expand. Between now and 2021, the federal government projects to contribute around $10 billion. The federal debt is projected to be around $25 trillion by then, so we’re talking about 1/2,500th of the debt. Compared to the Stephens building? That’s a baby carrot.

______________

Here is how it will all end if everyone feels they should be allowed to have their “baby carrot.”

How sad it is that liberals just don’t get this reality.

Here is what the Founding Fathers had to say about welfare. David Weinberger noted:

While living in Europe in the 1760s, Franklin observed: “in different countries … the more public provisions were made for the poor, the less they provided for themselves, and of course became poorer. And, on the contrary, the less was done for them, the more they did for themselves, and became richer.”

Alexander Fraser Tytler, Lord Woodhouselee (15 October 1747 – 5 January 1813) was a Scottish lawyer, writer, and professor. Tytler was also a historian, and he noted, “A democracy cannot exist as a permanent form of government. It can only exist until the majority discovers it can vote itself largess out of the public treasury. After that, the majority always votes for the candidate promising the most benefits with the result the democracy collapses because of the loose fiscal policy ensuing, always to be followed by a dictatorship, then a monarchy.”

Thomas Jefferson to Joseph Milligan

April 6, 1816

[Jefferson affirms that the main purpose of society is to enable human beings to keep the fruits of their labor. — TGW]

To take from one, because it is thought that his own industry and that of his fathers has acquired too much, in order to spare to others, who, or whose fathers have not exercised equal industry and skill, is to violate arbitrarily the first principle of association, “the guarantee to every one of a free exercise of his industry, and the fruits acquired by it.” If the overgrown wealth of an individual be deemed dangerous to the State, the best corrective is the law of equal inheritance to all in equal degree; and the better, as this enforces a law of nature, while extra taxation violates it.

[From Writings of Thomas Jefferson, ed. Albert E. Bergh (Washington: Thomas Jefferson Memorial Association, 1904), 14:466.]

_______

Jefferson pointed out that to take from the rich and give to the poor through government is just wrong. Franklin knew the poor would have a better path upward without government welfare coming their way. Milton Friedman’s negative income tax is the best method for doing that and by taking away all welfare programs and letting them go to the churches for charity.

_____________

_________

Thank you so much for your time. I know how valuable it is. I also appreciate the fine family that you have and your commitment as a father and a husband.

Sincerely,

Everette Hatcher III, 13900 Cottontail Lane, Alexander, AR 72002, ph 501-920-5733

Williams with Sowell – Minimum Wage

Thomas Sowell

Thomas Sowell – Reducing Black Unemployment

By WALTER WILLIAMS

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Ronald Reagan with Milton Friedman
Milton Friedman The Power of the Market 2-5

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Why did Obama stop the Welfare Reform that Clinton put in?

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“Feedback Friday” Letter to White House generated form letter response July 10,2012 on welfare, etc (part 14)

I have been writing President Obama letters and have not received a personal response yet.  (He reads 10 letters a day personally and responds to each of them.) However, I did receive a form letter in the form of an email on July 10, 2012. I don’t know which letter of mine generated this response so I have […]

Geoffrey Norman: Milton Friedman vs. Joe Biden (No Contest) 

Back when he was campaigning for the office he now occupies, Joe Biden asked in the rhetorical, no b.s., tough guy pose he likes to assume, “When did Milton Friedman die and become king?”

Later in the campaign, he got in another shot, telling his audience, “Milton Friedman isn’t running the show anymore.”

Well, Biden went on to win the election and, now that he is running the show, one looks around and thinks, “You know, wouldn’t it be better if Milton Friedman were still alive and running the show.”

Milton Friedman was an economist whose work ranged from the densely theoretical to the immensely popular and accessible. His book Capitalism and Freedom has sold more than a million copies since it was published in 1962. In 1980, Friedman and his wife, Rose, hosted the immensely popular PBS series Free to Choose and published a companion book with the same title. It was the best-selling non-fiction book of that year.

Lots of kings never enjoyed that kind of influence.

So, to use the kind of locutions Biden prefers, what is his beef with Milton Friedman?

One suspects that it can be summed up in one word … inflation.

Friedman told people in politics and government something they didn’t want to hear. Namely, that “there is no such thing as a free lunch.” (He used that phrase as the title for another of his books.)

Government spending comes at a price in the form of taxes, debt, and inflation. One suspects that Friedman’s thinking on the matter of inflation is what peeves Joe Biden.

There is no hiding the fact of inflation, which is to say, an increase in prices and a decrease in the value of money. Which amounts to the same thing.

There is a reason that people who are on Social Security can expect their benefits to increase by almost six percent next year. That’s because those benefits are, broadly speaking, indexed to the cost of living. So everything is now more expensive by six percent.

And why is that?

Well, Milton Friedman studied that problem a lot more seriously, one thinks, than Joe Biden ever has and his answer was, “too much money chasing too few goods.”

Or, as he memorably put it, “Inflation is always and everywhere a monetary phenomenon.”

President Biden is indifferent to the economics but no doubt intensely interested in the politics of inflation. He is old enough to remember Jimmy Carter and, in fact, was first elected to the Senate in 1972. So Biden witnessed – or should have – what rampant inflation did not only to Carter’s ambitions but to the nation’s morale.

Inflation was brought under control during the administration of Ronald Reagan who, like most of his economic team, was a follower of King Milton Friedman.

President Biden and his team seem to believe that inflation is either not a problem or something that affects only the wealthy. “High class problems,” in the words of his Chief-of-Staff, Ron Clain.

Well, to be fair, Clain lives and works in Washington, D.C. and can’t really be expected to understand what life is like for ordinary Americans in the lands out there “beyond the beltway.”

Many of those people drive to and from work every day and the price of gas is something to which they pay close attention. The phrase “pain at the pump” has real meaning for them.

And those cars that people drive to and from work are increasingly expensive.

And, then, there is food. The kind that people buy at the grocery store, the prices of which are higher than they have been in a decade.

Eating and getting to and from work are not what most people would call “high class problems.”

President Biden’s poll numbers seem to move inversely with the cost of living. The more expensive everything gets, the more his popularity decreases. And having, evidently, not learned the lessons of the Carter years, he seems determined to repeat them. (To include presiding over a military debacle in a far-off, Islamic country. But that is another matter.)

The Biden administration is committed to a domestic agenda that the President claims if “fully paid for.” By which he means that … taxes will be raised to cover the expense. Well, tax revenues are already at a historic high but that, evidently, is not enough.

It never is.

But there is always the ultimate stealth tax … inflation.

Joe Biden may be President and Milton Friedman may not be King. But Friedman’s ideas and insights are still true. And much as President Biden and his team may wish it were not so (and insist that it is not) there is still “no such thing as a free lunch.”

Geoffrey Norman is a former editor of Esquire magazine and is a regular contributor to the Wall Street Journal, Weekly Standard and National Review. He has authored more than 15 books and remains active shaping public policy discussions. He lives in Vermont.


Milton Friedman’s FREE TO CHOOSE “How to cure inflation” Transcript and Video (60 Minutes)

Image result for milton friedman free to choose

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.“If we could just stop the printing presses, we would stop inflation,” Milton Friedman says in “How to Cure Inflation” from the Free To Choose series. Now as then, there is only one cause of inflation, and that is when governments print too much money. Milton explains why it is that politicians like inflation, and why wage and price controls are not solutions to the problem.

http://www.freetochoosemedia.org/freetochoose/detail_ftc1980_transcript.php?page=9While many people have a fairly good grasp of what inflation is, few really understand its fundamental cause. There are many popular scapegoats: labor unions, big business, spendthrift consumers, greed, and international forces. Dr. Friedman explains that the actual cause is a government that has exclusive control of the money supply. Friedman says that the solution to inflation is well known among those who have the power to stop it: simply slow down the rate at which new money is printed. But government is one of the primary beneficiaries of inflation. By inflating the currency, tax revenues rise as families are pushed into higher income tax brackets. Thus, inflation transfers wealth and resources from the private to the public sector. In short, inflation is attractive to government because it is a way of increasing taxes without having to pass new legislation to raise tax rates. Inflation is in fact taxation without representation. Wage and price controls are not the cure for inflation because they treat only the symptom (rising prices) and not the disease (monetary expansion). History records that such controls do not work; instead, they have perverse effects on both prices and economic growth and undermine the fundamental productivity of the economy. There is only one cure for inflation: slow the printing presses. But the cure produces the painful side effects of a temporary increase in unemployment and reduced economic growth. It takes considerable political courage to undergo the cure. Friedman cites the example of Japan, which successfully underwent the cure in the mid-seventies but took five years to squeeze inflation out of the system. Inflation is a social disease that has the potential for destroying a free society if it is unchecked. Prolonged inflation undermines belief in the basic equity of the free market system because it tends to destroy the link between effort and reward. And it tears the social fabric because it divides society into winners and losers and sets group against group.(Taxation without representation: Getting knocked up to higher tax brackets because of inflation pt 1)http://www.youtube.com/watch?v=b1dTWDNKH3c

Volume 9 – How to Cure Inflation

Transcript:
Friedman: The Sierra Nevada’s in California 10,000 feet above sea level, in the winter temperatures drop to 40 below zero, in the summer the place bakes in the thin mountain air. In this unlikely spot the town of Body sprang up. In its day Body was filled with prostitutes, drunkards and gamblers part of a colorful history of the American West.
A century ago, this was a town of 10,000 people. What brought them here? Gold. If this were real gold, people would be scrambling for it. The series of gold strikes throughout the West brought people from all over the world, all kinds of people. They came here for one purpose and one purpose only, to strike it rich, quick. But in the process, they built towns, cities, in places where nobody would otherwise have dreamed of building a city. Gold built these cities and when the gold was exhausted, the cities collapsed and became ghost towns. Many of the people who came here ended up the way they began, broke and unhappy. But a few struck it rich. For them, gold was real wealth. But was it for the world as a whole. People couldn’t eat the gold, they couldn’t wear the gold, they couldn’t live in houses made of gold. Because there was more gold, they had to pay a little more gold to buy goods and services. The prices of things in terms of gold went up.
At tremendous cost, at sacrifice of lives, people dug gold out of the bowels of the earth. What happened to that gold? Eventually, at long last, it was transported to distant places only to be buried again under the ground. This time in the vaults of banks throughout the world. There is hardly anything that hasn’t been used for money; rock salt in Ethiopia, brass rings in West Africa, Calgary shells in Uganda, even a toy cannon. Anything can be used as money. Crocodile money in Malaysia, absurd isn’t it?
That beleaguered minority of the population that still smokes may recognize this stuff as the raw material from which their cigarettes are made. But in the early days of the colonies, long before the U.S. was established, this was money. It was the common money of Virginia, Maryland and the Carolinas. It was used for all sorts of things. The legislature voted that it could be used legally to pay taxes. It was used to buy food, clothing and housing. Indeed, one of the most interesting sites was to see the husky young fellows at that time, lug 100 pounds of it down to the docks to pay the costs of the passage of the beauteous young ladies who had come over from England to be their brides.
Now you know how money is. There’s a tendency for it to grow, for more and more of it to be produced and that’s what happened with this tobacco. As more tobacco was produced, there was more money. And as always when there’s more money, prices went up. Inflation. Indeed, at the very end of the process, prices were 40 times as high in terms of tobacco as they had been at the beginning of the process. And as always when inflation occurs, people complained. And as always, the legislature tried to do something. And as always, to very little avail. They prohibited certain classes of people from growing tobacco. They tried to reduce the total amount of tobacco grown, they required people to destroy part of their tobacco. But it did no good. Finally, many people took it into their own hands and they went around destroying other people’s tobacco fields. That was too much. Then they passed a law making it a capital offense, punishable by death, to destroy somebody else’s tobacco. Grecian’s Law, one of the oldest laws in economics, was well illustrated. That law says that cheap money drives out dear money and so it was with tobacco. Anybody who had a debt to pay, of course, tried to pay it in the worst quality of tobacco he had. He saved the good tobacco to sell overseas for hard money. The result was that bad money drove out good money.
Finally, almost a century after they had started using tobacco as money, they established warehouses in which tobacco was deposited in barrels, certified by an inspector according to his views as to it’s quality and quantity. And they issued warehouse certificates which people gave from one to another to pay for the bills that they accumulated.
These pieces of green printed paper are today’s counterparts of those tobacco certificates. Except that they bear no relation to any commodity. In this program I want to take you to Britain to see how inflation weakens the social fabric of society. Then to Tokyo, where the Japanese have the courage to cure inflation. To Berlin, where there is a lesson to be learned from the West Germans and how so called cures are often worse than the disease. And to Washington where our government keeps these machines working overtime. And I am going to show you how inflation can be cured.
The fact is that most people enjoy the early stages of the inflationary process. Britain, in the swinging 60’s, there was plenty of money around, business was brisk, jobs were plentiful and prices had not yet taken off. Everybody seemed happy at first. But by the early 70’s, as the good times rolled along, prices started to rise more and more rapidly. Soon, some of these people are going to lose their jobs. The party was coming to an end.
The story is much the same in the U.S. Only the process started a little later. We’ve had one inflationary party after another. Yet we still can’t seem to avoid them. How come?
Before every election our representatives would like to make us think we are getting a tax break. When they are able to do it, while at the same time actually raising our taxes because of a bit of magic they have in their kit bag. That magic is inflation. They reduced the tax rates but the taxes we have to pay go up because we are automatically shoved into higher brackets by the effective inflation. A neat trick. Taxation without representation.
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Pt 2 Many a political leader has been tempted to turn to wage and price controls despite their repeated failure in practice. On this subject they never seem to learn. But some lessons may be learned. That happened to British P
Bob Crawford: The more I work, it seems like the more they take off me. I know if I work an extra day or two extra days, what they take in federal income tax alone is almost doubled because apparently it puts you in a higher income tax bracket and it takes more off you.
Friedman: Bob Crawford lives with his wife and three children in a suburb of Pittsburgh. They’re a fairly average American family.
Mrs. Crawford: Don’t slam the door Daphne. Okay. Alright. What are you doing? Making your favorite dish.
Friedman: We went to the Crawford’s home after he had spent a couple of days working out his federal and state income taxes for the year. For our benefit, he tried to estimate all the other taxes he had paid as well. In the end, though, he didn’t discover much that would surprise anybody.
Bob Crawford: Inflation is going up, everything is getting more expensive. No matter what you do, as soon as you walk out of the house, everything went up. Your gas bills keep going up, electric bills, your gasoline, you can name a thousand things that are going up. Everything is going sky high. Your food. My wife goes to the grocery store. We used to live on say, $60 or $50 every two weeks just for our basic food. Now it’s $80 or $90 every two weeks. Things are just going out of sight as far as expense to live on. Like I say it’s getting tough. It seems like every month it gets worse and worse. And I don’t know where it’s going to end. At the end of the day that I spend nearly $6,000 of my earnings on taxes. That leaves me with a total of $12,000 to live on. It might seem like a lot of money, but five, six years ago I was earning $12,000.
Friedman: How does taxation without representation really effect how much the Crawford family has left to spend after it’s paid its income taxes. Well in 1972 Bob Crawford earned $12,000. Some of that income was not subject to income tax. After paying income tax on the rest he had this much left to spend. Six years later he was earning $18,000 a year. By 1978 the amount free from tax was larger. But he was now in a higher tax bracket so his taxes went up by a larger percentage than his income. However, those dollars weren’t worth anything like as much. Even his wages, let alone his income after taxes, hadn’t kept up with inflation. His buying power was lower than before. That is taxation without representation in practice.
Unnamed Individual: We have with us today you brothers that are sitting here today that were with us on that committee and I’d like to tell you….
Friedman: There are many traditional scapegoats blamed for inflation. How often have you heard inflation blamed on labor unions for pushing up wages. Workers, of course, don’t agree.
Unnamed Individual: But fellows this is not true. This is subterfuge. This is a myth. Your wage rates are not creating inflation.
Friedman: And he’s right. Higher wages are mostly a result of inflation rather than a cause of it. Indeed, the impression that unions cause inflation arises partly because union wages are slow to react to inflation and then there is pressure to catch up.
Worker: On a day to day basis, try to represent our own numbers. But that in fact is not the case. Not only can we not play catch up, we can’t even maintain a wage rate commensurate with the cost of living that’s gone up in this country.
Friedman: Another scapegoat for inflation is the cost of goods coming from abroad. Inflation, we’re told, is imported. Higher prices abroad driving up prices at home. It’s another way government can blame someone else for inflation. But this argument, too, is wrong. The prices of imports and the countries from which they come are not in terms of dollars, they are in terms of lira or yen or other foreign currencies. What happens to their prices in dollars depends on exchange rates which in turn reflect inflation in the United States.
Since 1973 some governments have had a field day blaming the Arabs for inflation. But if high oil prices were the cause of inflation, how is it that inflation has been less here in Germany, a country that must import every drop of oil and gas that it uses on the roads and in industry, then for example it is in the U.S. which produces half of its own oil. Japan has no oil of its own at all. Yet at the very time the Arabs were quadrupling oil prices, the Japanese people were bringing inflation down from 30 to less than 5% a year. The fallacy is to confuse particular prices like the price of oil, with prices in general. Back at home, President Nixon understood this.
Nixon: “Now here’s what I will not do. I will not take this nation down the road of wage and price controls however politically expedient that may seem. The pros of rationing may seem like an easy way out, but they are really an easy way in for more trouble. To the explosion that follows when you try to clamp a lid on a rising head of steam without turning down the fire under the pot, wage and price controls only postpone the day of reckoning. And in so doing, they rob every American of a very important part of his freedom.
Friedman: Now listen to this:
Nixon: “The time has come for decisive action. Action that will break the vicious circle of spiraling prices and costs. I am today ordering a freeze on all prices and wages throughout the United States for a period of 90 days. In addition, I call upon corporations to extend the wage price freeze to all dividends.”
Friedman: Many a political leader has been tempted to turn to wage and price controls despite their repeated failure in practice. On this subject they never seem to learn. But some lessons may be learned. That happened to British Prime Minister James Callahan who finally discovered that a very different economic myth was wrong. He told the Labor Party Conference about it in 1976.
James Callahan: “We used to think that you could use, spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you in all candor that option no longer exists. It only works on each occasion since the war by injecting a bigger dose of inflation into the economy followed by a higher level of unemployment as the next step. That’s the history of the last 20 years.”
Friedman: Well, it’s one thing to say it. One reason why inflation does so much harm is because it effects different groups differently. Some benefit and of course they attribute that to their own cleverness. Some are hurt, but of course they attribute that to the evil actions of other people. And the whole problem is made far worse by the false cures which government adopts, particularly wage and price control.
The garbage collectors in London felt justifiably aggrieved because their wages had not been permitted to keep pace with the cost of living. They struck, hurting not the people who impose the controls, but their friends and neighbors who had to live with mounting piles of rat infested garbage. Hospital attendants felt justifiably aggrieved because their wages had not been permitted to keep up with the cost of living. They struck, hurting not the people who impose the controls, but cancer patients who were turned out of hospital beds. The attendants behaved as a group in a way they never would have behaved as individuals. One group is set against another group. The social fabric of society is torn apart inflicting scars that it will take decades to heal and all to no avail because wage and price controls, far from being a cure for inflation, only make inflation worse.
Within the memory of most of our political leaders, there’s one vivid example of how economic ruin can be magnified by controls. And the classic demonstration of what to do when it happens.
_______________________________________________

(Wage and Price Controls don’t work)

Inflation is just like alcoholism. In both cases when you start drinking or when you start printing too much money, the good effects come first. The bad effects only come later.
That’s why in both cases there is a strong temptation to overdo it. To drink too much and to print too much money. When it comes to the cure, it’s the other way around. When you stop drinking or when you stop printing money, the bad effects come first and the good effects only come later.
Pt 3
Germany, 1945, a devastated country. A nation defeated in war. The new governing body was the Allied Control Commission, representing the United States, Britain, France and the Soviet Union. They imposed strict controls on practically every aspect of life including wages and prices. Along with the effects of war, the results were tragic. The basic economic order of the country began to collapse. Money lost its value. People reverted to primitive barter where they used cameras, fountain pens, cigarettes, whiskey as money. That was less than 40 years ago.
This is Germany as we know it today. Transformed into a place a lot of people would like to live in. How did they achieve their miraculous recovery? What did they know that we don’t know?
Early one Sunday morning, it was June 20, 1948, the German Minister of Economics, Ludwig Earhardt, a professional economist, simultaneously introduced a new currency, today’s Deutsche Mark, and in one fell swoop, abolished almost all controls on prices and wages. Why did he do it on a Sunday morning? It wasn’t as you might suppose because the Stock Markets were closed on that day, it was, as he loved to confess, because the offices of the American, the British, and the French occupation authorities were closed that day. He was sure that if he had done it when they open they would have countermanded the order. It worked like a charm. Within days, the shops were full of goods. Within months, the German economy was humming along at full steam. Economists weren’t surprised at the results, after all, that’s what a price system is for. But to the rest of the world it seemed an economic miracle that a defeated and devastated country could in little more than a decade become the strongest economy on the continent of Europe.
In a sense this city, West Berlin, is something of a unique economic test tube. Set as it is deep in Communist East Germany. Two fundamentally different economic systems collide here in Europe. Ours and theirs, separated by political philosophies, definitions of freedom and a steel and concrete wall.
To digress from inflation, economic freedom does not stand alone. It is part of a wider order. I wanted to show you how much difference it makes by letting you see how the people live on the other side of that Berlin Wall. But the East German authorities wouldn’t let us. The people over there speak the same language as the people over here. They have the same culture. They have the same for bearers. They are the same people. Yet you don’t need me to tell you how differently they live. There is one simple explanation. The political system over there cannot tolerate economic freedom. The political system over here could not exist without it.
But political freedom cannot be preserved unless inflation is kept in bounds. That’s the responsibility of government which has a monopoly over places like this. The reason we have inflation in the United States or for that matter anywhere in the world is because these pieces of paper and the accompanying book entry or their counterparts in other nations are growing more rapidly than the quantity of goods and services produced. The truth is inflation is made in one place and in one place only. Here in Washington. This is the only place were there are presses like this that turn out these pieces of paper we call money. This is the place where the power resides to determine how rapidly the amount of money shall increase.
What happened to all that noise? That’s what would happen to inflation if we stop letting the amount of money grow so rapidly. This is not a new idea. It’s not a new cure. It’s not a new problem. It’s happened over and over again in history. Sometimes inflation has been cured this way on purpose. Sometimes it’s happened by accident. During the Civil War the North, late in the Civil War, overran the place in the South where the printing presses were sitting up, where the pieces of paper were being turned out. Prior to that point, the South had a very rapid inflation. If my memory serves me right, something like 4% a month. It took the Confederacy something over two weeks to find a new place where they could set up their printing presses and start them going again. During that two week period, inflation came to a halt. After the two week period, when the presses started running again, inflation started up again. It’s that clear, that straightforward. More recently, there’s another dramatic example of the only effective way to deal with rampant inflation.
In 1973, Japanese housewives going to market were faced with an unpleasant fact. The cash in their purses seemed to be losing its value. Prices were starting to sore as the awful story of inflation began to unfold once again. The Japanese government knew what to do. What’s more, they were prepared to do it. When it was all over, economists were able to record precisely what had happened. In 1971 the quantity of money started to grow more rapidly. As always happens, inflation wasn’t affected for a time. But by late 1972 it started to respond. In early 73 the government reacted. It started to cut monetary growth. But inflation continued to soar for a time. The delayed reaction made 1973 a very tough year of recession. Inflation tumbled only when the government demonstrated its determination to keep monetary growth in check. It took five years to squeeze inflation out of the system. Japan attained relative stability. Unfortunately, there’s no way to avoid the difficult road the Japanese had to follow before they could have both low inflation and a healthy economy. First they had to live through a recession until slow monetary growth had its delayed effect on inflation.
Inflation is just like alcoholism. In both cases when you start drinking or when you start printing too much money, the good effects come first. The bad effects only come later.
That’s why in both cases there is a strong temptation to overdo it. To drink too much and to print too much money. When it comes to the cure, it’s the other way around. When you stop drinking or when you stop printing money, the bad effects come first and the good effects only come later. That’s why it’s so hard to persist with the cure. In the United States, four times in the 20 years after 1957, we undertook the cure. But each time we lacked the will to continue. As a result, we had all the bad effects and none of the good effects. Japan on the other hand, by sticking to a policy of slowing down the printing presses for five years, was by 1978 able to reap all the benefits, low inflation and a recovering economy. But there is nothing special about Japan. Every country that has had the courage to persist in a policy of slow monetary growth has been able to cure inflation and at the same time achieve a healthy economy.
___________________________________
Pt 4
The job of the Federal Reserve is not to run government spending; it’s not to run government taxation. The job of the Federal Reserve is to control the money supply and I believe, frankly, I have always believed as you know, that these are excuses and not reasons for the performance.
DISCUSSION
Participants: Robert McKenzie, Moderator; Milton Friedman; Congressman Clarence J. Brown; William M. Martin, Chairman of Federal Reserve 1951_1970; Beryl W. Sprinkel, Executive Vice President, Harris Bank, Chicago; Otmar Emminger, President, Ieutsche Bundesbank, Frankfurt West Germany
MCKENZIE: And here at the Harper Library of the University of Chicago, our distinguished guests have their own ideas, too. So, lets join them now.
BROWN: If you could control the money supply, you can certainly cut back or control the rate of inflation. I’d have to say that that prescription is a little bit easier to write than it is to fill. I think there are some other ways to do it and I would relate the money supply __ I think inflation is a measure of the relationship between money and the goods and services that money is meant to cover. And so if you can stimulate the goods, the production of goods and services, it’s helpful. It’s a little tougher to control the money supply, although I think it can be done, than just saying that you should control it, because we’ve got the growth of credit cards, which is a form of money; created, in effect, by the free enterprise system. It isn’t all just printed in Washington, but that may sound too defensive. I think he was right in saying that the inflation is Washington based.
MCKENZIE: Mr. Martin, nobody has been in the firing line longer than you, 17 years head of the Fed. Could you briefly comment on that and we’ll go around the group.
MARTIN: I want to say 19 years.
(Laughter)
MARTIN: I wouldn’t be out here if it weren’t for Milton Friedman, today. He came down and gave us advice from time to time.
FRIEDMAN: You’ve never taken it.
(Laughter)
MCKENZIE: He’s going to do some interviewing later, I warn you.
MARTIN: And I’m rather glad we didn’t take it __
(Laughter)
MARTIN: __ all the time.
SPRINKEL: In your 19 years as Chairman of the Federal Reserve, Bill, the average growth in the money supply was 3.1 percent per year. The inflation rate was 2.2 percent. Since you left, the money supply has exactly doubled. The inflation rate is average over 7 percent, and, of course, in recent times the money supply has been growing in double-digit territory as has our inflation rate.
EMMINGER: May I, first of all, confirm two facts which have been so vividly brought out in the film of Professor Friedman; namely, that at the basis of the relatively good performance of Western Germany were really two events. One, the establishment of a new sound money which we try to preserve sound afterwards. And, secondly, the jump overnight into a free market economy without any controls over prices and wages. These are the two fundamental facts. We have tried to preserve monetary stability by just trying to follow this prescription of Professor Friedman; namely, monetary discipline. Keeping monetary growth relatively moderate. I must, however, warn you it’s not so easy as it looks. If you just say, governments have to have the courage to persist in that course.
FRIEDMAN: Nobody does disagree with the proposition that excessive growth in money supply is an essential element in the inflationary process and that the real problem is not what to do, but how to have the courage and the will to do it. And I want to go and start, if I may, on that subject; because I think that’s what we ought to explore. Why is it we haven’t had the courage and don’t, and under what circumstances will we? And I want to start with Bill Martin because his experience is a very interesting experience. His 19 years was divided into different periods. In the first period, that average that Beryl Sprinkel spoke about, averaged two very different periods. An early period of very slow growth and slow inflation; a later period of what at the time was regarded as creeping inflation __ now we’d be delighted to get back to it. People don’t remember that at the time that Mr. Nixon introduced price and wage controls in 1971 to control an outrageous inflation, the rate of inflation was four-and-a-half percent per year. Today we’d regard that as a major achievement; but the part of the period when you were Chairman, was a period when the inflation rate was starting to creep up and money growth rate was also creeping up. Now if I go from your period, you were eloquent in your statements to the public, to the press, to everyone, about the evils of inflation, and about the determination on the Federal Reserve not to be the architect of inflation. Your successor, Arthur Burns, was just as eloquent. Made exactly the same kinds of statements as effectively, and again over and over again said the Federal Reserve will not be the architect of inflation. His successor, Mr. G. William Miller, made the same speeches, and the same statements, and the same protestations. His successor, Paul Volcker, he is making the same statements. Now my question to you is: Why is it that there has been such a striking difference between the excellent pronouncements of all Chairmen of the Fed, therefore it’s not personal on you. You have a lot of company, unfortunately for the country. Why is it that there has been such a wide diversion between the excellent pronouncements on the one hand and what I regard as a very poor performance on the other?
MARTIN: Because monetary policy is not the only element. Fiscal policy is equally important.
FRIEDMAN: You’re shifting the buck to the Treasury.
MARTIN: Yes.
FRIEDMAN: To the Congress. We’ll get to Mr. Brown, don’t worry.
MARTIN: Yeah, that’s right.
(Laughter)
MARTIN: The relationship of fiscal policy to monetary policy is one of the important things.
MCKENZIE: Would you remind us, the general audience, when you say “fiscal policy”, what you mean in distinction to “monetary policy”?
MARTIN: Well, taxation.
MCKENZIE: Yeah.
MARTIN: The raising revenue.
FRIEDMAN: And spending.
MARTIN: And spending.
FRIEDMAN: And deficits.
MARTIN: And deficits, yes, exactly. And I think that you have to realize that when I’ve talked for a long time about the independence of the Federal Reserve. That’s independence within the government, not independence of the government. And I’ve worked consistently with the Treasury to try to see that the government is financed. Now this gets back to spending. The government says they’re gonna spend a certain amount, and then it turns out they don’t spend that amount. It doubles.
FRIEDMAN: The job of the Federal Reserve is not to run government spending; it’s not to run government taxation. The job of the Federal Reserve is to control the money supply and I believe, frankly, I have always believed as you know, that these are excuses and not reasons for the performance.
MARTIN: Well that’s where you and I differ, because I think we would be irresponsible if we didn’t take into account the needs and what the government is saying and doing. I think if we just went on our own, irresponsibly, I say it on this, because I was in the Treasury before I came to this __
FRIEDMAN: I know. I know.
MARTIN: __ go to the Fed; and I know the other side of the picture. I think we’d be rightly condemned by the American people and by the electorate.
FRIEDMAN: Every central bank in this world, including the German Central Bank, including the Federal Reserve System, has the technical capacity to make the money supply do over a period of two or three or four months, not daily, but over a period, has the technical capacity to control it.
(Several people talking at once.)
FRIEDMAN: I cannot explain the kind of excessive money creation that has occurred, in terms of the technical incapacity of the Federal Reserve System or of the German Central Bank, or of the Bank of England, or any other central bank in the world.
EMMINGER: I wouldn’t say technically we are incapable of doing that, although we have never succeeded in controlling the money supply month that way. But I would say we can, technically, control it half yearly, from one half-year period to the next and that would be sufficient __
FRIEDMAN: That would be sufficient.
EMMINGER: __ for controlling inflation. But however I __
VOICE OFF SCREEN: It doesn’t move.
FRIEDMAN: I’m an economic scientist, and I’m trying to observe phenomena, and I observe that every Federal Reserve Chairman says one thing and does another. I don’t mean he does, the system does.
MCKENZIE: Yeah. How different is your setup in Germany? You’ve heard this problem of governments getting committed to spending and the Fed having, one way or the other, to accommodate itself to it. Now what’s your position on this very interesting problem?
EMMINGER: We are very independent of the government, from the government, but, on the other hand, we are an advisor of the government. Also on the budget deficits and they would not easily go before Parliament with a deficit which much of it is openly criticized and disapproved by the same bank. Why because we have a tradition in our country that we can also publicly criticize the government on his account. And second, as if happened in our case too, the government goes beyond what is tolerable for the sake of moral equilibrium. We have let it come through in the capital markets. That is to say they have enough interest rates that has drawn public criticism and that has had some effect on their attitude.
_________________________________________
Pt 5
 I think that is a very important point that Dr. Emminger just made because there is not a one-to-one relationship between government deficits and what happens to the money supply at all. The pressure on the Federal Reserve comes indirectly. It comes because large government deficits, if they are financed in the general capital market, will drive up interest rates and then we have the right patents in Congress and their successors pressuring the Federal Reserve to enter in and finance the deficit by printing money as a way of supposedly holding down interest rates. Now before I turn to Mr. Brown and ask him that, I just want to make one point which is very important. The Federal Reserve’s activities in trying to hold down interest rates have put us in a position where we have the highest interest rates in history. It’s another example of how, of the difference between the announced intentions of a policy, and the actual results. But now I want to come to Clarence Brown and ask him, shift the buck to him, and put him on the hot seat for a bit. The government spending has been going up rapidly, Republican administration or Democratic administration. This is a nonpartisan issue, it doesn’t matter. Government deficits have been going up rapidly. Republican administration or Democratic administration. Why is it that here again you have the difference between pronouncements and performance? There is no Congressman, no Senator, who will come out and say, “I am in favor of inflation.” There is not a single one who will say, “I am in favor of big deficits.” They’ll all say we want to balance the budget, we want to hold down spending, we want an economical government. How do you explain the difference between performance and talk on the side of Congress?
BROWN:
FRIEDMAN: I think that is a very important point that Dr. Emminger just made because there is not a one-to-one relationship between government deficits and what happens to the money supply at all. The pressure on the Federal Reserve comes indirectly. It comes because large government deficits, if they are financed in the general capital market, will drive up interest rates and then we have the right patents in Congress and their successors pressuring the Federal Reserve to enter in and finance the deficit by printing money as a way of supposedly holding down interest rates. Now before I turn to Mr. Brown and ask him that, I just want to make one point which is very important. The Federal Reserve’s activities in trying to hold down interest rates have put us in a position where we have the highest interest rates in history. It’s another example of how, of the difference between the announced intentions of a policy, and the actual results. But now I want to come to Clarence Brown and ask him, shift the buck to him, and put him on the hot seat for a bit. The government spending has been going up rapidly, Republican administration or Democratic administration. This is a nonpartisan issue, it doesn’t matter. Government deficits have been going up rapidly. Republican administration or Democratic administration. Why is it that here again you have the difference between pronouncements and performance? There is no Congressman, no Senator, who will come out and say, “I am in favor of inflation.” There is not a single one who will say, “I am in favor of big deficits.” They’ll all say we want to balance the budget, we want to hold down spending, we want an economical government. How do you explain the difference between performance and talk on the side of Congress?
BROWN: Well, first I think we have to make one point. I’m not so much with the government as I am against it.
FRIEDMAN: I understand.
BROWN: As you know, I’m a minority member of Congress.
FRIEDMAN: Again, I’m not __ I’m not directing this at you personally.
BROWN: I understand, of course; and while the administrations, as you’ve mentioned, Republican and Democratic administrations, have both been responsible for increases in spending, at least in terms of their recommendations. It is the Congress and only the Congress that appropriates the funds and determines what the taxes are. The President has no authority to do that and so one must lay it at the feet of the U.S. Congress. Now, I guess we’d have to concede that it’s a little bit more fun to give away things than it is to withhold them. And this is the reason that the Congress responds to a general public that says, “I want you to cut everybody else’s program but the one in which I am most particularly interested. Save money, but incidentally, my wife is taking care of the orphanages and so lets try to help the orphanages,” or whatever it is. Let me try to make a point, if I can, however, on what I think is a new spirit moving within the Congress and that is that inflation, as a national affliction, is beginning to have an impact on the political psychology of many Americans. Now the Germans, the Japanese and others have had this terrific postwar inflation. The Germans have been through it twice, after World War I and World War II, and it’s a part of their national psyche. But we are affected in this country by the depression. Our whole tax structure is built on the depression. The idea of the tax structure in the past has been to get the money out of the mattress where it went after the banks failed in this country and jobs were lost, and out of the woodshed or the tin box in the back yard, get it out of there and put it into circulation. Get it moving, get things going. And one of the ways to do that was to encourage inflation. Because if you held on to it, the money would depreciate; and the other way was to tax it away from people and let the government spend it. Now there’s a reaction to that and people are beginning to say, “Wait just a minute. We’re not afflicted as much as we were by depression. We’re now afflicted by inflation, and we’d like for you to get it under control.” Now you can do that in another way and that without reducing the money supply radically. I think the Joint Economic Committee has recommended that we do it gradually. But the way that you can do it is to reduce taxes and the impact of government, that is the weight of government and increase private savings so that the private savings can finance some of the debt that you have.
FRIEDMAN: There is no way you can do it without reducing, in my opinion, the rate of monetary growth. And I, recognizing the facts, even though they ought not to be that way, I wonder whether you can reduce the rate of monetary growth unless Congress actually does reduce government spending as well as government taxes.
BROWN: The problem is that every time we use demand management, we get into a kind of an iron maiden kind of situation. We twist this way and one of the spikes grabs us here, so we twist that way and a spike over here gets us. And every recession has had higher basic unemployment rates than the previous recession in the last several years and every inflation has had higher inflation. We’ve got to get that tilt out of the society.
MCKENZIE: Wouldn’t it be fair to say, though, that a fundamental difference is the Germans are more deeply fearful of a return to inflation, having had the horrifying experience between the wars, especially. We tend to be more afraid of recession turning into depression.
EMMINGER: I think there is something in it and in particular in Germany the government would have to fear very much in their electoral prospects if they went into such an election period with a high inflation rate. But there is another important difference.
MARTIN: We fear unemployment more than inflation it seems.
EMMINGER: You fear unemployment, but unemployment is feared with us, too, but inflation is just as much feared. But there is another difference; namely, once you have got into that escalating inflation, every time the base, the plateau is higher, it’s extremely difficult to get out of it. You must avoid getting into that, now that’s very cheap advice from me because you are now.
(Laughing)
EMMINGER: But we had, for the last fifteen, twenty years, always studied foreign experiences, and told ourselves we never must get into this vicious circle. Once you are in, it takes a long time to get out of it. That is what I am preaching now, that we should avoid at all costs to get again into this vicious circle as we had it already in ’73_’74. It took us, also, four years to get out of it, although we were only at eight percent inflation. Four years to get down to three percent. So you __
MCKENZIE: Those were __ yes.
EMMINGER: You have, I think, the question of whether you can do if in a gradualist way over many, many years, or whether you don’t need a sort of shock treatment.
____________________________________
her we go into a period of still higher unemployment later on and have it to do all over again. That’s the only choice we face. And when the public at large recognizes that, they will then elect people to Congress, and a President to office who is committed to less government spending and to less government printing of money and until that happens we will not cure inflation
Pt 6
SPRINKEL: The film said it took the Japanese _ what _ four years?
FRIEDMAN: Five years.
SPRINKEL: Five years. But one of my greatest concerns is that we haven’t suffered enough yet. Most of the nations that have finally got their inflations __
BROWN: Bad election speech.
SPRINKEL: __ well, I’m not running for office, Clarence.
(Laughter)
SPRINKEL: Most countries that finally got their inflation under control had 20, 30 percent or worse inflation. Germany had much worse and the public supports them. We live in a Democracy, and we’re getting constituencies that gain from inflation. You look at people that own real estate, they’ve done very well.
MCKENZIE: Yes.
SPRINKEL: And how can we get there without going through even more pain, and I doubt that we will.
FRIEDMAN: If you ask who are the constituencies that have benefited most from inflation there are no doubt, it is the homeowners.
SPRINKEL: Yes.
FRIEDMAN: But it’s also the __ it’s also the Congressmen who have been able to vote higher spending without having to vote higher taxes. They have in fact __
BROWN: That’s right.
FRIEDMAN: __ Congress has in fact voted for inflation. But you have never had a Congressman on record to that effect. It’s the government civil servants who have their own salaries are indexed and tied to inflation. They have a retirement benefit, a retirement pension that’s tied to inflation. They qualify, a large fraction of them, for Social Security as well, which is tied to inflation. So that the beneficial __
BROWN: Labor contracts that are indexed and many pricing things that are tied to it.
FRIEDMAN: But the one thing that isn’t tied to inflation and here I want to come back and ask why Congress has been so __ so bad in this area, is our taxes. It has been impossible to get Congress to index the tax system so that you don’t have the present effect where every one percent increase in inflation pushes people up into higher brackets and forces them to pay higher taxes.
BROWN: Well, as you know, I’m an advocate of that.
FRIEDMAN: I know you are.
MCKENZIE: Some countries do that, of course.
FRIEDMAN: Oh, of course.
MCKENZIE: Canada does that. Indexes the __
BROWN: And I went up to Canada on a little weekend seminar program on indexing and came back an advocate of indexing because I found out that the people who are delighted with indexing are the taxpayers.
FRIEDMAN: Absolutely.
BROWN: Because as the inflation rate goes up their tax level either maintains at the same level or goes down. The people who are least __ well, the people who are very unhappy with it are the people who have to plan government spending because it is reducing the amount of money that the government has rather than watching it go up by ten or twelve billion. You get a little dividend to spend in this country, the bureaucrats do every year, but the politicians are unhappy with it too, as Dr. Friedman points out because, you see, politicians don’t get to vote a tax reduction, it happens automatically.
MCKENZIE: Yeah.
BROWN: And so you can’t go back and in a praiseworthy way tell your constituents that I am for you, I voted a tax reduction. And I think we ought to be able to index the tax system so that tax reduction is automatic, rather than have what we’ve had in the past, and that is an automatic increase in the taxes. And the politicians say, “Well, we’re sorry about inflation, but __”.
FRIEDMAN: You’re right and I want to __ I want to go and make a very different point. I sit here and berate you and you as government officials, and so on, but I understand very well that the real culprits are not the politicians, are not the central bankers, but it’s I and my fellow citizens. I always say to people when I talk about this, “If you want to know who’s responsible for inflation, look in the mirror.” It’s not because of the way you spend you money. Inflation doesn’t arise because you got consumers who are spendthrifts; they’ve always been spendthrifts. It doesn’t arise because you’ve got businessmen who are greedy. They’ve always been greedy. Inflation arises because we as citizens have been asking you as politicians to perform an impossible task. We’ve been asking you to spend somebody else’s money on us, but not to spend our money on anybody else.
BROWN: You don’t want us to cut back those dollars for education, right?
FRIEDMAN: Right. And, therefore, __ well, no, I do.
MCKENZIE: We’ve already had a program on that.
FRIEDMAN: We’ve already had a program on that and there’s no viewer of these programs who will be in any doubt about my position on that. But the public at large has not and this is where we come to the political will that Dr. Emminger quite properly talked about. It is __ everybody talks against inflation, but what he means is that he wants the prices of the things he sells to go up and the prices of the things he buys to go down. But, sooner or later, we come to the point where it will be politically profitable to end inflation. This is the point that __
SPRINKEL: Yes.
FRIEDMAN: __ I think you were making.
SPRINKEL: The suffering idea.
FRIEDMAN: Where do you think the __ you know, what do you think the rate of inflation has to be and judged by the experience of other countries before we will be in that position and when do you think that will happen?
SPRINKEL: Well, the evidence says it’s got to be over 20 percent. Now you would think we could learn from others rather than have to repeat mistakes.
FRIEDMAN: Apparently nobody can learn from history.
SPRINKEL: But at the present time we’re going toward higher and not lower inflation.
MCKENZIE: You said earlier, if you want to see who causes inflation look in the mirror.
FRIEDMAN: Right.
MCKENZIE: Now, for everybody watching and taking part in this, there must be some moral to that. What does need __ what has to be the change of attitude of the man in the mirror you’re looking at before we can effectively implement what you call a tough policy that takes courage?
FRIEDMAN: I think that the man in the mirror has to come to recognize that inflation is the most destructive disease known to modern society. There is nothing which will destroy a society so thoroughly and so fully as letting inflation run riot. He must come to recognize that he doesn’t have any good choices. That there are no easy answers. That once you get in this situation where the economy is sick of this insidious disease, there’s gonna be no miracle drug which will enable them to be well tomorrow. That the only choices he has, do I go through a tough period for four or five years of relatively high unemployment, relatively low growth or do I try to push it off by taking some more of the hair of the dog that bit me and get around it now at the cost of still higher unemployment, as Clarence Brown said, later on. The only choice this country faces, is whether we have temporary unemployment for a short period, as a side effect of curling inflation or whether we go into a period of still higher unemployment later on and have it to do all over again. That’s the only choice we face. And when the public at large recognizes that, they will then elect people to Congress, and a President to office who is committed to less government spending and to less government printing of money and until that happens we will not cure inflation.
____________________________________
FRIEDMAN: And therefore the crucial thing is to cut down total government spending from the point of view of inflation. From the point of view of productivity, some of the other measures you were talking about are far more important.
BROWN
Pt 7
BROWN: But, Dr. Friedman, let me __
(Applause)
BROWN: Let me differ with you to this extent. I think it is important that at the time you are trying to get inflation out of the economy that you also give the man in the street, the common man, the opportunity to have a little bit more of his own resources to spend. And if you can reduce his taxes at that time and then reduce government in that process, you give him his money to spend rather than having to yield up all that money to government. If you cut his taxes in a way to encourage it, to putting that money into savings, you can encourage the additional savings in a private sense to finance the debt that you have to carry, and you can also encourage the stimulation of growth in the society, that is the investment into the capital improvements of modernization of plant, make the U.S. more competitive with other countries. And we can try to do it without as much painful unemployment as we can get by with. Don’t you think that has some merit?
FRIEDMAN: The only way __ I am all in favor, as you know, of cutting government spending. I am all in favor of getting rid of the counterproductive government regulation that reduces productivity and disrupts investment. But __
BROWN: And we do that, we can cut taxes some, can we not?
FRIEDMAN: We should __ taxes __ but you are introducing a confusion that has confused the American people. And that is the confusion between spending and taxes. The real tax on the American people is not what you label taxes. It’s total spending. If Congress spends fifty billion dollars more than it takes in, if government spends fifty billion dollars, who do you suppose pays that fifty billion dollars?
BROWN: Of course, of course.
FRIEDMAN: The Arab Sheiks aren’t paying it. Santa Claus isn’t paying it. The Tooth Fairy isn’t paying it. You and I as taxpayers are paying it indirectly through hidden taxation.
MCKENZIE: Your view __
FRIEDMAN: And therefore the crucial thing is to cut down total government spending from the point of view of inflation. From the point of view of productivity, some of the other measures you were talking about are far more important.
BROWN: But if you concede that inflation and taxes are both part and parcel of the same thing, and if you cut spending __
FRIEDMAN: They’re not part and parcel of the same thing.
BROWN: If you cut spending you __ well, but, you take the money from them in one way or another. The average citizen.
FRIEDMAN: Absolutely.
BROWN: To finance the growth of government.
FRIEDMAN: That’s right.
BROWN: So if you cut back the size of government, you can cut both their inflation and their taxes.
FRIEDMAN: That’s right.
BROWN: If you __
FRIEDMAN: I am all in favor of that.
BROWN: All right.
FRIEDMAN: All I am saying is don’t kid yourself into thinking that there is some painless way to do it. There just is not.
BROWN: One other way is productivity. If you can __ if you can increase production, then the impact of inflation is less because you have more goods chasing __
FRIEDMAN: Absolutely, but you have to have a sense of proportion. From the point of view of the real income of the American people, nothing is more important than increasing productivity. But from the point of view of inflation, it’s a bit actor. It would be a miracle if we could raise our productivity from three to five percent a year, that would reduce inflation by two percent.
BROWN: No question, it won’t happen overnight, but it’s part of the __ it’s part of a long range squeezing out of inflation.
FRIEDMAN: There is only one way to ease the __ in my opinion there is only one way to ease the pains of curing inflation and that way is not available. That way is to make it credible to the American people that you are really going to follow the policy you say you’re going to follow. Unfortunately I don’t see any way we can do that.
(Several people talking at once.)
EMMINGER: Professor Friedman, that’s exactly the point which I wanted to illustrate by our own experience. We also had to squeeze out inflation and there was a painful time of one-and-a-half years, but after that we had a continuous lowering of the inflation rate with a slow upward movement in the economy since 1975. Year by year inflation went down and we had a moderate growth rate which has led us now to full employment.
FRIEDMAN: That’s what __
EMMINGER: So you can shorten this period by just this credibility and by a consensus you must have, also with the trade unions, with the whole population that they acknowledge that policy and also play their part in it. Then the pains will be much less.
SPRINKEL: You see in our case, expectations are that inflation’s going to get worse because it always has. This means we must disappoint in a very painful way those expectations and it’s likely to take longer, at least the first time around. Now our real problem has not been that we haven’t tried. We have tried and brought inflation down. Our real problem was, we didn’t stick to it. And then you have it all to do over.
BROWN: Well I would __ I would concede that psychology plays a great, perhaps even the major part, but I do believe that if you have private savings stimulated by your tax system, rather than discouraged by your tax system, you can finance some of that public debt by private savings rather than by inflation and the result will be to ease to some degree the paint of that heavy unemployment that you seem to suggest is the only way to deal with the problem.
FRIEDMAN: The talk is fine, but the problem is that it’s used to evade the key issue: How do you make it credible to the public that you are really going to stick to a policy? Four times we’ve tried it and four times we’ve stopped before we’ve run the course.
(Several people talking at once.)
MCKENZIE: There we leave the matter for tonight, and next week’s concluding program in this series is not to be missed.
(Applause)
From Harper Library, goodbye.

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Milton Friedman: Free To Choose – The Failure Of Socialism With Ronald Reagan (Full) Published on Mar 19, 2012 by NoNationalityNeeded Milton Friedman’s writings affected me greatly when I first discovered them and I wanted to share with you. We must not head down the path of socialism like Greece has done. Abstract: Ronald Reagan […]

By Everette Hatcher III | Posted in Milton FriedmanPresident Obama | Edit | Comments (1)

Larry Elder wrote in 2016: “As economist Milton Friedman says, protectionism discriminates against low prices!” 

Larry Elder wrote in 2016: “As economist Milton Friedman says, protectionism discriminates against low prices!”

The pandemic has shocked every sector of the economy. Trade restrictions enacted by the Trump administration and maintained by President Biden have rippled through the U.S. economy but have particularly impacted U.S. ports. The pandemic highlighted that American ports have broader efficiency problems and could use some serious policy and management reforms.

On the west coast in particular, ship congestion has caused severe delays, wreaking havoc on the supply chain. While factories and ports in Asia are working 24/7 to supply American consumers with valuable goods, U.S. ports have been open for far fewer hours because labor union contractsdictate the hourly terms. However, after months of backlog, the ports of Los Angeles (LA) and Long Beach (LB) are finally switching to 24/7 shifts to move goods more quickly.

As a result of these union contracts, government offices are also not open 24/7. The ports of LA and LB account for almost half of all U.S. imports. The Customs and Border Protection (CBP) officials who must clear and admit goods do not work nights or weekends. These limits create additional pressure to have goods shipped to the United States during a prohibitive time frame, or leave ships idling around the ports until they can get in. The latter is the most common response. Recently, ships have been waiting an average of 12.5 days to enter the LA port. Ship idling has caused other problems too. Orange County, CA was affected by an oil spill that is suspected to have been caused by a pipeline hit with idling ship anchors. These differences in operating hours have caused huge ports efficiency losses that are felt across the country.

While it is positive that retailers, couriers, and the International Longshore and Warehouse Union (ILWU) are making changes to run ports more efficiently, permanent trade policy changes would help ease America’s coastal shipping problems.

The best policy would be to unilaterally remove tariffs by the United States. Simply eliminating tariffs would reduce an administrative burden both for traders and CBP officials. Duty‐​free trade would increase imports and exports but all other things equal, the freed‐​up CBP resources would help to move goods more swiftly through the ports.

However, a few smaller reforms could be implemented now that would considerably help the efficiency of U.S. ports. Removing Section 232 tariffs on steel and aluminum imports could temper the current domestic scarcity of some transportation‐​related goods, including chassis (the frame of a vehicle that holds containers). Thesematerials are vital inputs for such products and the Section 232 tariffs are affecting American manufacturers’ ability to meet domestic demand. Eliminating duties and tariffs on transportation‐​related goods, including the 221 percent antidumping and countervailing (AD/CVD) duties and 25 percent Section 301 tariffs on Chinese chassis, could help increase the U.S. supply of chassis. While some freighters are paying the higher prices for Chinese chassis, the supply of transportation is still constrained, which has resulted in higher sticker prices on consumer goods.

As LA and LB move to 24/7 shifts, CBP offices should also be open 24/7. Given the sheer volume of trade these two ports process, it would seem sensible to make staffing 24/7 a permanent change at these ports, and at others depending on trade volumes.

Reforming the Jones Act could also help. All freight moved between U.S. ports must useU.S.-built, -crewed, and -flagged ships. As a result, traders circumvent these regulations by using alternative modes like trucks and trains. It would be prudent to reform the Jones Act to allow ships not in compliance with the Jones Act to pick up shipments in one U.S. port and unload at another. This would reduce pressure on inland transit that is currently being impacted by the aforementioned tariffs.

These bottlenecks have provided insight into the problems that exist at U.S. ports and with coastal shipping more broadly. Improvements in trade policy have a role to play and policymakers would be remiss not to consider permanent changes that would be beneficial now and could preempt pressures during future economic shocks.

Milton Friedman – Free Trade vs. Protectionism

Free to Choose Part 2: The Tyranny of Control (Featuring Milton Friedman

Donald Trump: Clueless about free trade

Larry Elder rebuts candidate’s ‘they’re taking our jobs’ claim

Published: 02/03/2016 at 6:39 PM

One of Donald Trump’s talking points and biggest applause lines is how “they” – Japan, China and Mexico – are “beating us in trade” and are “taking our jobs.” He proposes tariffs, for example, on Chinese goods in retaliation for that country’s alleged “cheating.”

To someone who is out of work in an industry where foreign workers do what he or she once did, Trump-like protectionism sounds appealing. But Trump actually proposes punishing the American consumer. As economist Milton Friedman says, protectionism discriminates against low prices.

It is certainly true that many countries prop up or subsidize companies or even whole industries by providing capital or special privileges. This allows them to produce goods and services “below cost” – or at prices below what a competitor could charge and still make a profit. But doing so also means that taxes in that country, which could have gone to a more productive use, are squandered to keep a company in business that otherwise wouldn’t exist or would have gone out of business. This means consumers in other countries with which the “cheater” country trades can buy those imported goods at a cheaper price.

Trump proposes to retaliate by placing tariffs on those imported goods. But this prevents American consumers from benefiting from the “cheater” country’s folly of propping up companies that would not survive but for the taxes spent to keep it alive. Why compound the stupidity?

Another justification for this kind of protectionism is that a foreign country “exploits” America through the use of “slave labor” which, as to wages, causes a “race to the bottom.” Certainly forced labor, as when “blood diamonds” are mined by workers with guns pointed to their heads, is criminal and immoral. But free laborers offering to work for less money than others is how poor countries become wealthier – by allowing other countries to buy goods more cheaply.

NAFTA, the North American Free Trade Agreement, established in 1994, has become exhibit A on how “we lose” on trade. After all, many American jobs have been “outsourced” to Mexico. But that looks at but one side of the ledger. That an American pays less for certain things frees up capital to spend on something or on someone else. A machinist sees his job “shipped to Mexico,” but the planner or analyst hired by a company with the “savings” might not see the direct relationship between free trade and the fact that he or she has this new job. When NAFTA was debated, businessman and presidential candidate Ross Perot predicted “a giant sucking sound” as jobs and incomes would be lost to Mexico.

The American Enterprise Institute writes: “It is an article of faith among protectionists that NAFTA harmed American workers. … The justification may be that NAFTA went into force at the beginning of 1994 and the U.S. trade balance with Canada and Mexico, two of our top partners, then deteriorated.

“But the American job market improved as these trade deficits grew. Unemployment fell more than two points from the beginning of 1994 through the middle of 2000. Already high labor force participation edged higher to its all-time record by early 2000. Manufacturing employment rose until mid-1998 and was above its pre-NAFTA level until April 2001. Manufacturing wages rose. The strength in the American job market from 1994 to 1999 is not due primarily to NAFTA, but it is plain that the job market, including manufacturing, strengthened after NAFTA.”

Trump is also schizophrenic on this issue. On the one hand, he opposes illegal immigration, which most often is an economic decision where, for example, a poor, unskilled worker from Mexico sneaks into America to make money. On the other hand, Trump deems it unfair and a form of “cheating” if an American company relocates to or builds a factory in Mexico to take advantage of that unskilled Mexican worker’s willingness to work for less.

If Trump were talking about the excessive taxes or regulations that induce American companies to leave the U.S. or to put factories in foreign countries, that would be one thing. The U.S. general top marginal corporate income tax rate is the highest in the industrialized world – and, worldwide, is only exceeded by Chad and the United Arab Emirates. Unnecessary regulations also increase the cost of doing business stateside. But this is not Trump’s argument.

About free trade, the father of modern economics, Adam Smith, in 1776 wrote in “The Wealth of Nations”: “In every country it always is and must be in the interest of the great body of the people to buy whatever they want of those who sell it cheapest. The proposition is so very manifest that it seems ridiculous to take any pains to prove it; nor could it ever have been called in question had not the interested sophistry of merchants and manufacturers confounded the common sense of mankind. Their interest is, in this respect, directly opposite to that of the great body of the people.”

Trump means well. But so what?

Trump vs Friedman – Trade Policy Debate

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