Category Archives: Milton Friedman

Dan Mitchell article “The Debt Limit and Long-Overdue Spending Restraint”

The Debt Limit and Long-Overdue Spending Restraint

Regarding the debt ceiling, the hysterical headlinesabout default and an economic apocalypse are silly because the Treasury Department surely will “prioritize” if Republicans and Democrats don’t reach an agreement.

The above clip was taken from an interview last week with the Soul of Enterprise.

I wasn’t intending to write about this topic, but it’s getting a lot of attention now that the deadline is approaching.

If you want to understand the real issue, there is an excellent column in the Wall Street Journal by former Senator Phil Gramm and his long-time aide, Mike Solon.

They explain that the fight is between House Republicans, who want domestic discretionary spending to grow at a slower rate and Democrats in the Senate and White House who want it to grow at a faster rate.

Here’s some of what they wrote.

Of the $5 trillion of stimulus payments between 2020 and 2022, some $362 billion has yet to be spent. The House debt-limit bill proposes to claw back $30 billion—or some 8% of the unspent balance. Only in Mr. Biden’s White House and Mr. Schumer’s Senate Democratic Caucus could such a modest proposal be considered extreme. …The most recent CBO estimate projects that fiscal 2024 discretionary spending will clock in at $1.864 trillion—a 10% real increase from the pre-pandemic estimate. …This growth in nondefense discretionary spending is the post-pandemic bow wave that Mr. McCarthy’s debt-limit plan seeks to mitigate. Even if the House GOP’s proposed reductions in discretionary-spending growth took effect, total discretionary spending would still be 2.4% more in inflation-adjusted dollars than the CBO’s 2020 projection for fiscal 2024. …A clean debt-ceiling hike would give us more government spending, and the House GOP’s proposal would allow more private spending. Only in Washington is that a hard choice.

Needless to say, I disagree with both sides. There should be deep and genuine cuts in domestic discretionary spending.

But a slower increase is better than a faster increase. And I reckon any support for fiscal restraint by Republicans is welcome after the reckless profligacy of the Trump years.

The bottom line is that fights over the debt limit are messy, but if we actually got some good policy reforms, such battles could save us from something very bad in the future.

The best way to destroy the welfare trap is to put in Milton Friedman’s negative income tax.

A Picture of How Redistribution Programs Trap the Less Fortunate in Lives of Dependency

I wrote last year about the way in which welfare programs lead to very high implicit marginal tax rates on low-income people. More specifically, they lose handouts when they earn income. As such, it is not very advantageous for them to climb the economic ladder because hard work is comparatively unrewarding.

Thanks to the American Enterprise Institute, we now have a much more detailed picture showing the impact of redistribution programs on the incentive to earn more money.

It’s not a perfect analogy since people presumably prefer cash to in-kind handouts, but the vertical bars basically represent living standards for any given level of income that is earned (on the horizontal axis).

Needless to say, there’s not much reason to earn more income when living standards don’t improve. May as well stay home and good off rather than work hard and produce.

This is why income redistribution is so destructive, not just to taxpayers, but also to the people who get trapped into dependency. Which is exactly the point made in this video.

P.S. Most of you know that I’m not a fan of the Organization for Economic Cooperation and Development because the Paris-based bureaucracy has such statist impulses. But even the OECD has written about the negative impact of overly generous welfare programs on incentives for productive behavior.

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Open letter to President Obama (Part 117B)

Milton Friedman’s Free to Choose – Ep.4 (1/7) – From Cradle to Grave   President Obama c/o The White House 1600 Pennsylvania Avenue NW Washington, DC 20500 Dear Mr. President, I know that you receive 20,000 letters a day and that you actually read 10 of them every day. I really do respect you for […]

Milton Friedman remembered at 100 years from his birth (Part 5)

Testing Milton Friedman – Preview Uploaded by FreeToChooseNetwork on Feb 21, 2012 2012 is the 100th anniversary of Milton Friedman’s birth. His work and ideas continue to make the world a better place. As part of Milton Friedman’s Century, a revival of the ideas featured in the landmark television series Free To Choose are being […]

40% of USA on government dole, need to eliminate welfare and put in Friedman’s negative income tax

Eight Reasons Why Big Government Hurts Economic Growth We got to cut these welfare programs before everyone stops working and wants to get the free stuff. The Bible says if you don’t work then you should not eat. It also says that churches should help the poor but it doesn’t say that the government should […]

Free or equal? 30 years after Milton Friedman’s Free to Choose (Part 2)

Johan Norberg – Free or Equal – Free to Choose 30 years later 2/5 Published on Jun 10, 2012 by BasicEconomics In 1980 economist and Nobel laureate Milton Friedman inspired market reform in the West and revolutions in the East with his celebrated television series “Free To Choose.” Thirty years later, in this one-hour documentary, […]

Milton Friedman remembered at 100 years from his birth (Part 4)

I ran across this very interesting article about Milton Friedman from 2002: Friedman: Market offers poor better learningBy Tamara Henry, USA TODAY By Doug Mills, AP President Bush honors influential economist Milton Friedman for his 90th birthday earlier this month. About an economist Name:Milton FriedmanAge: 90Background: Winner of the 1976 Nobel Prize for economic science; […]

Transcript and video of Milton Friedman on Bill Clinton and Ronald Reagan (Part 2)

Below is a discussion from Milton Friedman on Bill Clinton and Ronald Reagan. February 10, 1999 | Recorded on February 10, 1999 audio, video, and blogs » uncommon knowledge PRESIDENTIAL REPORT CARD: Milton Friedman on the State of the Union with guest Milton Friedman Milton Friedman, Senior Research Fellow, Hoover Institution and Nobel Laureate in […]

If converted to cash and simply given to the recipients welfare check would be $44,000 per family of four

Milton Friedman came up with the idea of eliminating all welfare programs and putting in a negative income tax that would eliminate the welfare trap. However, our federal government just doesn’t listen to reason. Obama Ends Welfare Reform as We Know It, Calls for $12.7 Trillion in New Welfare Spending Robert Rector July 17, 2012 […]

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 […]

Listing of transcripts and videos of “Free to Choose” episode 4 – From Cradle to Grave on www.theDailyHatch.org

In the last few years the number of people receiving Food Stamps has skyrocketed. President Obama has not cut any federal welfare programs but has increased them, and he  has used class warfare over and over the last few months and according to him equality at the finish line is the equality that we should […]

Milton Friedman remembered at 100 years from his birth (Part 2)

Testing Milton Friedman – Preview Uploaded by FreeToChooseNetwork on Feb 21, 2012 2012 is the 100th anniversary of Milton Friedman’s birth. His work and ideas continue to make the world a better place. As part of Milton Friedman’s Century, a revival of the ideas featured in the landmark television series Free To Choose are being […]

Dan Mitchell: “Needless to say, both Trump and Biden have contributed to America’s unimpressive [Free Trade] score”

Ranking Trade Freedom

Free trade is good and protectionism is bad.

Assuming one agrees with those common-sense observations, the Tholos Foundation’s just-released Trade Barriers Index is a great source of data about which countries are pro-trade and anti-trade.

As you can see, Singapore has the fewest trade barriers (a lower score is good), followed by New Zealand. By contrast, India is in last place with the most trade barriers, followed by Russia.

Sadly, the United States ranks a lowly 65 out of 88 countries that were included in the report.

The Index is filled with data, so it is a treasure trove for wonks.

The part I like best, which is excerpted below, notes that pro-trade nations produce a disproportionate share of global economic output.

The 88 countries in the 2023 TBI house 72 percent of the world’s population. In the freest range, those with a score reaching between 2.5 and 3.0 or lower, only 6 countries with a combined population of 207 million, or 2.6 percent of the world’s people, enjoy the most barrier-free-trade and they produce 11 percent of the world’s GDP… In the mostly-free range, with a score between 3 and 3.5, reside 395 million people or 5 percent of the world’s population in 16 countries where they produce 14 percent of world GDP.In the next range, between 3.5 and 4.0 on the TBI, 7 percent of the world’s population produces 12 percent of global GDP. In the middle range between 4.0 and 4.5, productivity gets a boost due to the inclusion of the United States; in this range 650 million people reside and produce 28 percent of GDP. Then the inefficiencies of trade restrictions start to take a large toll. In the next 4.5 to 5.0 range, nearly 2 trillion people live, 24 percent of the world’s population, but they contribute only 22 percent of GDP. Then in the 5.0 to 5.5 range, in six countries, 8 percent of the world’s people reside and they produce a dismal 3 percent of world GDP. Lastly, in the 5.5 to 6.0 range 20 percent of the world’s population reside in 2 countries, India and Russia, where they produce 5 percent of world GDP.

Let’s close with a comparison of the United States and Singapore.

In every single category, Singapore does better. But the biggest gap is in non-tariff barriers.

Needless to say, both Trump and Biden have contributed to America’s unimpressive score.

P.S. You’ll notice that trade balances are not part of the Trade Barriers Index. That’s because the authors understand trade deficits are irrelevant (or even a positive sign if a nations is attracting a lot of foreign investment).

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Portrait of Milton Friedman.jpg

Defending International Trade

As a fan of globalization – but not globalism, I endorse this new video from Reason, which punctures myths from protectionists such as Donald Trump and Bernie Sanders (and Joe Biden).

If you don’t have a spare seven minutes to watch the video, it addresses three specific points.

  1. Does cross-border trade destroy manufacturing jobs?
  2. Did liberalizing trade with China take American jobs?
  3. Does trade make us vulnerable because of supply chains?

Plenty of good material, but I also would have challenged protectionists to provide a successful example of protectionism. Today or in the past.

Did protectionism work for Herbert Hoover – or anyone else – in the 1930s?

Did protectionism work for Juan Peron in Argentina in the 1940s and 1950s?

Is protectionism working for India’s economy in the 21st century?

Did protectionism work for Donald Trump between 2017 and 2020?

The answer is no in every single case. So it is no surprise that scholarly research (see here, here, here, here, here, here, here, here, and here) shows that free trade is a better approach if a nation wants more jobs and higher income.

But protectionists make one accurate point. While free trade increases overall employment, that does not mean every worker in every industry benefits.

In his New York Times column, Peter Coy explores this topic.

The skepticism about free markets…has gotten only stronger…only 44 percent of Republican voters…viewed free trade mainly as an opportunity for growth through increased exports. …the standard Econ 101 argument for free trade… First, assert that trade increases prosperity by allowing each country to specialize in what it’s best at. …Second, acknowledge that not everyone wins from free trade… Third, state that this problem can be easily solved: Everyone in society can be made better off if the winners share some of their gains with the losers. …In reality, the winners from trade rarely share much of their gains with the losers. The losers remain losers, and they often vote for candidates who put up tariff walls. …the free traders have failed to deliver on their promises to make free trade and open markets work for all.

A reasonably fair article, but I don’t think “free traders have failed” for reasons I explained in one of my videos from earlier this year.

If you don’t want to spend three minutes watching the video, I explain that all trade destroys jobs. And that includes trade within a nation.

It’s part of “creative destruction,” which I’ve labeled as the best and worst part of capitalism.

Millions of jobs get destroyed every year, in part because new technology, new competitors, and new innovations.

That’s bad news for many people, but it’s also the process that creates even more new jobs.

And it’s the process that has made all of us so much richer than our ancestors. And that includes the ancestors of people who lost jobs because of domestic or international trade.

P.S. Click here, here, and here for some very sound observations from America’s best post-WWII president.


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

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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, […]

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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, […]

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Dan Mitchell article: Hope for Chile

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Hope for Chile

For a few decades, Chile was very interesting for fans of free markets.

The country became famous for its system of personal retirement accounts,but there were many other reforms that liberalized the economy. Everything from free trade to privatization.

Unsurprisingly, Chile quickly became the richest nation in Latin America, surpassing countries such as Argentina and Venezuela that foolishly embraced bigger government.

But in recent years, Chile has become very interesting for fans of political drama.

  • In 2019, there were big protests by the left, initially triggered by an increase in subway fares in Santiago.
  • In 2020, the left enjoyed a victory as the country voted overwhelmingly in favor of writing a new constitution.
  • In 2021, the left enjoyed another victory when former student activist Gabriel Boric was elected president.
  • In 2022, the pendulum swung back to the right as voters overwhelmingly rejected a left-wing constitution.
  • Now, in 2023, the right enjoyed another big victory in yesterday’s election for a Constitutional Council.

In a report for Bloomberg, Matthew Malinowski and Valentina Fuentes explain what just happened.

Chile’s political right dealt a crushing blow to the government of President Gabriel Boric that will undermine the young leader’s progressive agenda…right-wing candidates won 33 seats Sunday in a Constitutional Council in charge of drafting a new charter.This is above the three-fifths majority needed to push through articles at will… Left-wing contenders obtained 17 spots… A prior attempt to rewrite the charter was overwhelmingly rejected in a September referendum out of concern it went to far to the left, overhauling the foundations of Chile’s free-market economy…and weakening political checks and balances. …The election serves as a harsh reality check for Boric’s left-wing administration as it seeks to revive its progressive agenda, including plans to increase taxes on the rich.

I started today’s column by noting that Chile was interesting for fans of economic freedom and then shifted to explaining why it was an interesting country for fans of political drama.

Let’s close by revisiting the implications for economic policy.

The obvious good news is that there presumably no longer is any danger that Chile will be saddled with a leftist constitution (filled with “rights” to other people’s money).

But I’m more interested in whether yesterday’s election results indicate a rebirth in support for free enterprise.

Chile enjoyed enormous gains thanks to economic liberalization, with the poor enjoying disproportionate gains. But I worry that the nation will get caught in the “middle-income trap” without additional limits on the size and scope of government.

That won’t happen with Boric still in power, so we’ll have to see what happens in the next general election.

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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.

—-

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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FRIEDMAN FRIDAY Why Milton Friedman Saw School Choice as a First Step, Not a Final One

Milton Friedman – Public Schools / Voucher System

Published on May 9, 2012 by

JANUARY 24, 2023 3:48PM
File:President Ronald Reagan and Nancy Reagan in The East Room Congratulating Milton Friedman Receiving The Presidential Medal of Freedom.jpg

Why Milton Friedman Saw School Choice as a First Step, Not a Final One

On his birthday, let’s celebrate Milton Friedman’s vision of enabling parents, not government, to be in control of a child’s education.

Libertarians and others are often torn about school choice. They may wish to see the government schooling monopoly weakened, but they may resist supporting choice mechanisms, like vouchers and education savings accounts, because they don’t go far enough. Indeed, most current choice programs continue to rely on taxpayer funding of education and don’t address the underlying compulsory nature of elementary and secondary schooling.

Skeptics may also have legitimate fears that taxpayer-funded education choice programs will lead to over-regulation of previously independent and parochial schooling options, making all schooling mirror compulsory mass schooling, with no substantive variation.

Friedman Challenged Compulsory Schooling Laws

Milton Friedman had these same concerns. The Nobel prize-winning economist is widely considered to be the one to popularize the idea of vouchers and school choice beginning with his 1955 paper, “The Role of Government in Education.” His vision continues to be realized through the important work of EdChoice, formerly the Friedman Foundation for Education Choice, that Friedman and his economist wife, Rose, founded in 1996.

July 31 is Milton Friedman’s birthday. He died in 2006 at the age of 94, but his ideas continue to have an impact, particularly in education policy.

Friedman saw vouchers and other choice programs as half-measures. He recognized the larger problems of taxpayer funding and compulsion, but saw vouchers as an important starting point in allowing parents to regain control of their children’s education. In their popular book, Free To Choose, first published in 1980, the Friedmans wrote:

We regard the voucher plan as a partial solution because it affects neither the financing of schooling nor the compulsory attendance laws. We favor going much farther. (p.161)

They continued:

The compulsory attendance laws are the justification for government control over the standards of private schools. But it is far from clear that there is any justification for the compulsory attendance laws themselves. (p. 162)

The Friedmans admitted that their “own views on this have changed over time,” as they realized that “compulsory attendance at schools is not necessary to achieve that minimum standard of literacy and knowledge,” and that “schooling was well-nigh universal in the United States before either compulsory attendance or government financing of schooling existed. Like most laws, compulsory attendance laws have costs as well as benefits. We no longer believe the benefits justify the costs.” (pp. 162-3)

Still, they felt that vouchers would be the essential starting point toward chipping away at monopoly mass schooling by putting parents back in charge. School choice, in other words, would be a necessary but not sufficient policy approach toward addressing the underlying issue of government control of education.

Vouchers as a First Step

In their book, the Friedmans presented the potential outcomes of their proposed voucher plan, which would give parents access to some or all of the average per-pupil expenditures of a child enrolled in public school. They believed that vouchers would help create a more competitive education market, encouraging education entrepreneurship. They felt that parents would be more empowered with greater control over their children’s education and have a stronger desire to contribute some of their own money toward education. They asserted that in many places “the public school has fostered residential stratification, by tying the kind and cost of schooling to residential location” and suggested that voucher programs would lead to increased integration and heterogeneity. (pp. 166-7)

To the critics who said, and still say, that school choice programs would destroy the public schools, the Friedmans replied that these critics fail to

explain why, if the public school system is doing such a splendid job, it needs to fear competition from nongovernmental, competitive schools or, if it isn’t, why anyone should object to its “destruction.” (p. 170)

What I appreciate most about the Friedmans discussion of vouchers and the promise of school choice is their unrelenting support of parents. They believed that parents, not government bureaucrats and intellectuals, know what is best for their children’s education and well-being and are fully capable of choosing wisely for their children—when they have the opportunity to do so.

They wrote:

Parents generally have both greater interest in their children’s schooling and more intimate knowledge of their capacities and needs than anyone else. Social reformers, and educational reformers in particular, often self-righteously take for granted that parents, especially those who are poor and have little education themselves, have little interest in their children’s education and no competence to choose for them. That is a gratuitous insult. Such parents have frequently had limited opportunity to choose. However, U.S. history has demonstrated that, given the opportunity, they have often been willing to sacrifice a great deal, and have done so wisely, for their children’s welfare. (p. 160).

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Voucher Programs Today

Today, school voucher programs exist in 15 states plus the District of Columbia. These programs have consistently shown that when parents are given the choice to opt-out of an assigned district school, many will take advantage of the opportunity. In Washington, D.C., low-income parents who win a voucher lottery send their children to private schools.

The most recent three-year federal evaluation of voucher program participants found that while student academic achievement was comparable to achievement for non-voucher students remaining in public schools, there were statistically significant improvements in other important areas. For instance, voucher participants had lower rates of chronic absenteeism than the control groups, as well as higher student satisfaction scores. There were also tremendous cost-savings.

In Wisconsin, the Milwaukee Parental Choice Program has served over 28,000 low-income students attending 129 participating private schools.

According to Corey DeAngelis, Director of School Choice at the Reason Foundation and a prolific researcher on the topic, the recent analysis of the D.C. voucher program “reveals that private schools produce the same academic outcomes for only a third of the cost of the public schools. In other words, school choice is a great investment.”

In Wisconsin, the Milwaukee Parental Choice Program was created in 1990 and is the nation’s oldest voucher program. It currently serves over 28,000 low-income students attending 129 participating private schools. Like the D.C. voucher program, data on test scores of Milwaukee voucher students show similar results to public school students, but non-academic results are promising.

Increased Access and Decreased Crime

Recent research found voucher recipients had lower crime rates and lower incidences of unplanned pregnancies in young adulthood. On his birthday, let’s celebrate Milton Friedman’s vision of enabling parents, not government, to be in control of a child’s education.According to Howard Fuller, an education professor at Marquette University, founder of the Black Alliance for Educational Options, and one of the developers of the Milwaukee voucher program, the key is parent empowerment—particularly for low-income minority families.

In an interview with NPR, Fuller said: “What I’m saying to you is that there are thousands of black children whose lives are much better today because of the Milwaukee parental choice program,” he says.
“They were able to access better schools than they would have without a voucher.”

Putting parents back in charge of their child’s education through school choice measures was Milton Friedman’s goal. It was not his ultimate goal, as it would not fully address the funding and compulsion components of government schooling; but it was, and remains, an important first step. As the Friedmans wrote in Free To Choose:

The strong American tradition of voluntary action has provided many excellent examples that demonstrate what can be done when parents have greater choice. (p. 159).

On his birthday, let’s celebrate Milton Friedman’s vision of enabling parents, not government, to be in control of a child’s education.

Celebrating School Choice? Thank Milton Friedman, too

by Dr. Robert Luebke

Director of the Center for Effective Education, John Locke Foundation

January 25, 2021
  • In the 1950s, a young Milton Friedman argued that free market principles of consumer choice and competition were needed to remedy the nonresponsive and monopolistic system that controlled and delivered public education
  • Friedman’s work provided the intellectual foundations of the modern school-choice movement
  • If Friedman were alive today and came to North Carolina, he’d see school choice flourishing

In the decades after the American Revolution, parents were the drivers of how and where their children were educated. Parents could choose from private schools, tutors, and home schools as ways to educate children. In the mid-1840s, Massachusetts became the first state to lead a push for state-controlled and -funded public education. A century later, the rise of the Progressive Era saw government gain control over how schools were financed, administered, and regulated.

Along with these changes came a weakening in the ability of parents to control their child’s education. Of course, if parents didn’t like their child’s school or didn’t think it was a good fit, they could choose a private school — if they could afford it. If not, children were forced to attend the local public school, whether parents liked it or not.

In the mid-1950s, a young economist at the University of Chicago laid out a case for the role of government in education for its citizens in an article given the unassuming title of The Role of Government in Education. In it Milton Friedman acknowledged there is a case for government subsidizing public education, but not for government administering the schools. Friedman believed increased centralization and government control of public schools had led to less freedom and efficiency in education and a decline in quality. For government not only to finance education, but also largely to deliver education services was an arrangement Friedman considered unnatural as well as unjustified.

In his article Friedman argued that free market principles of consumer choice and competition were needed to remedy the nonresponsive and monopolistic system that controlled and delivered public education.

Friedman sought nothing less than to upend how American education was financed and administered. Instead of government deciding how and where children are educated, government would provide vouchers to parents for education or educational services at approved schools.

Friedman believed giving parents the power to “vote with their feet” would force monopolistic public-school systems to be responsive to parental concerns. He also was convinced that the use of vouchers would infuse competition among schools and encourage them to innovate and be more effective, qualities conspicuously absent from most public-school systems. Moreover, Friedman also thought it critical to separate the funding of education from the delivery of education services.

Six and a half decades later, it’s not difficult to see how “The Role of Government in Education” provided the intellectual foundations of the modern school-choice movement. People don’t always hear what they need to hear, so Friedman’s article went largely unnoticed outside the policy world. Those seeds took time to grow.

In 1989, Wisconsin become the first state to put Friedman’s ideas into practice when it approved a statewide voucher program that allowed low-income students to use vouchers to pay tuition at a private school. In 2013, North Carolina approved the Opportunity Scholarship Program, a similar program that today provides over 14,000 students with scholarships of up to $4,200 to help pay tuition at a local private school.

School choice today

If Milton Friedman were alive today and came to North Carolina, he’d see school choice flourishing. Today parents can choose from a variety of public and private school-choice programs. They include public options such as charter or magnet schools as well as private options such as the Opportunity Scholarship Program or the Special Education Scholarship Grants for Children with Disabilities.

Regarding charter schools, the table below shows that the number of students enrolled in charter schools has increased dramatically from over 38,000 in 2010 to over 117,000 today. Enrollment in private schools in the Tar Heel state saw modest growth over the last 10 years, while the number of home schoolers increased by 83 percent.

Over the past decade, while the average daily membership (ADM) enrollment in traditional public schools increased by just one half of one percent, the school-choice population in North Carolina expanded by 71 percent. Today over 370,000 students attend charter, private, and home schools and have access to a better education. Ten years ago, only 13 percent of students were enrolled in choice schools. Today nearly 80 percent of students still attend traditional public schools, but the number of students enrolled in choice schools has increased to almost 21 percent, up significantly from ten years ago.

K-12 Enrollment in North Carolina, by Type of School, 2010 and 2020

Schools 2010 Enrollment 2020 Enrollment Change, 2010–20
Traditional Public Schools (ADM) 1,402,269 1,409,391 0.5%
Charter Schools 38,449 117,264 204.9%
Home Schools 81,509 149,173 83.0%
Private Schools 96,421 103,959 7.8%
Total, Choice Schools 216,379 370,396 71.2%
Schools 2010 Enrollment 2020 Enrollment Percentage Point Change
Percentage of Students in Traditional Public Schools 86.7% 79.2% –7.5
Percentage of Students in
Choice Schools
13.3% 20.8% +7.5

Source: Highlights of the North Carolina Public School Budget, Statistical Profile of North Carolina Public Schools, and North Carolina Office of Non-Public Education (for specific years).

Friedman’s legacy

Friedman’s ideas have helped to fuel an education revolution in North Carolina and across the country. Choice empowers parents to make educational decisions, challenges monopolies, and calls out bureaucracies. Choice expands personal freedom but also highlights that accountability comes in different forms. In so doing, choice has helped to shift the public discussion of education from a focus on how much money is spent to how well money is spent.

Let’s be clear: Milton Friedman got it right. Choice benefits students, families, schools, and our communities. Today school choice continues to thrive because it empowers parents and students and enriches our communities. That’s not to say there haven’t been mistakes and growing pains. Nevertheless, having choices in education is far preferable. Choice recognizes what too many of our public schools ignore: children are different and learn differently.

If we are really concerned that our children receive a quality education, we must allow parents and children to access appropriate educational opportunities. As more and more families are empowered to make these choices, we should thank Milton Friedman for laying the intellectual groundwork for many of the school choice programs we enjoy today.

Milton Friedman, School Choice Pioneer


As our new School Choice Timeline shows, calls for public funding to follow students to a variety of educational options date back centuries. However, Nobel Prize‐​winning economist Milton Friedman is often considered the father of the modern school choice movement.

In a 1955 essay, The Role of Government in Education, Friedman acknowledged some justifications for government mandates and funding when it comes to education. However, he said it’s difficult to justify government administration of education. He suggested governments could provide parents with vouchers worth a specified maximum sum per child per year to be spent on “approved” educational services.

Friedman would return to this idea repeatedly over the years in his writings and his popular Free to Choose television series. But he did more than just write and talk about his idea. In 1996, he and his wife Rose, who was also a noted economist, started the Milton and Rose D. Friedman Foundation for Educational Choice. Their original plan included the eventual removal of their name from the foundation, which happened in 2016; the organization is now known as EdChoice and is the go‐​to source for up‐​to‐​date information on school choice in America.

Milton Friedman had a remarkable life. He was born in Brooklyn in 1912 to parents who emigrated to the U.S. from eastern Europe. His father died during his senior year in high school, leaving his mother and older sisters to support the family. He managed to attend Rutgers University through a combination of scholarships and various jobs. After earning a degree in economics, he was awarded a scholarship to pursue a graduate degree at the University of Chicago, where he met his future wife, Rose. The Friedmans had two children, a son and a daughter.

Friedman’s list of accomplishments is astonishingly long. In addition to his 1976 Nobel Prize for Economic Science, he was awarded the Presidential Medal of Freedom and the National Medal of Science in 1988. He was a Senior Research Fellow at Stanford University’s Hoover Institution from 1977 to 2006, a distinguished economics professor at the University of Chicago from 1946 to 1976, and a researcher at the National Bureau of Economic Research from 1937 to 1981. He was a prolific writer of newspaper and magazine columns, essays, and books.

Milton Friedman’s focus on education choice made perfect sense in light of his other work. He had a consistent focus on preserving and expanding individual freedom. He saw parental control and the ability to choose the environment that worked best for individual children as essential to a quality education. His 1962 book Capitalism and Freedom included chapters on economic and political freedom, trade, fiscal policy, occupational licenses, and poverty, along with his earlier essay on the role of government in education.

In 1980, Milton and Rose released Free to Choose, a discussion of economics and freedom, as a book and a television series. One segment/​chapter asked, “What’s Wrong with Our Schools?” and then explained the importance of parents being able to choose what works for their individual children.

When the Friedman Foundation was launched, there were five education choice programs in the U.S. with fewer than 10,000 students participating. Today, according to EdChoice, there are 74 programs in 32 states, Washington, D.C., and Puerto Rico, with 670,000 students participating.

While there is a long and deep history of individuals and organizations calling for various forms of school choice, it is clear that Milton Friedman played an enormous role in its advance in the U.S. He helped lay the intellectual groundwork for the programs in place today, and his relatable writings and videos helped explain his ideas to parents, policymakers, and thought leaders. As we celebrate National School Choice Week—and Cato’s new School Choice Timeline—it’s a great time to commemorate Milton Friedman’s important contributions to the movement.

The School Choice Revolution

It’s time to celebrate another victory for school choice.

  • In 2021, West Virginia adopted statewide school choice.
  • In 2022, Arizona adopted statewide school choice.
  • In 2023, Iowa adopted statewide school choice.

Now Utah has joined the club, with Governor Spencer Cox approving a new law that will give families greater freedom to choose the best educational options for their children.

Here are some details from Marjorie Cortez, reporting for the Deseret News.

The Utah Senate gave final passage to legislation that will provide $8,000 scholarships to qualifying families for private schools and other private education options…The bill passed by a two-thirds margin in each legislative house, which means it cannot be challenged by referendum. …The bill creates the Utah Fits All Scholarship, which can then be used for education expenses like curriculum, textbooks, education, software, tutoring services, micro-school teacher salaries and private school tuition.

As you might expect, teacher unions and their allies are very disappointed – which is a very positive sign.

…the Utah Education Association…opposed HB215… The bill was also opposed by the Utah State Board of Education, Utah PTA, school superintendents, business administrators and school boards. The Alliance for a Better Utah was pointed in its reaction… “Conservative lawmakers just robbed our neighborhood schools of $42 million. Private school vouchers have been and continue to be opposed by Utahns but these lawmakers are instead pursuing a national agenda to ‘destroy public education.’

The Wall Street Journal opined on this great development.

School choice is gaining momentum across the country, and this week Utah joined Iowa in advancing the education reform cause. …Utah’s bill, which the Senate passed Thursday, 20-8, makes ESAs of $8,000 available to every student. There’s no income cap on families who can apply, though lower-income families receive preference and the program is capped at $42 million. The funds can be used for private school tuition, home-schooling expenses, tutoring, and more.

But the best part of the editorial is the look at other states that may be poised to expand educational freedom.

About a dozen other state legislatures have introduced bills to create new ESA programs, and several want to expand the ones they have. In Florida a Republican proposal would extend the state’s already robust scholarship programs to any student in the state. The bill would remove income limits that are currently in place for families who want to apply, though lower-income applicants would receive priority. …South Carolina legislators are mulling a new ESA program for lower-income students. In Indiana, a Senate bill would make state ESAs available to more students. An Ohio bill would remove an income cap and other eligibility rules for the state’s school vouchers. Two Oklahoma Senate bills propose new ESA programs… ESA bills are in some stage of moving in Nebraska, New Hampshire, Texas and Virginia.

Let’s hope there is more progress.

School choice is a win-win for both students and taxpayers.

P.S. Here’s a must-see chart showing how more and more money for the government school monopoly has produced zero benefit.

P.P.S. There are very successful school choice systems in CanadaSwedenChile, and the Netherlands.

P.P.P.S. Getting rid of the Department of Education would be a good idea, but the battle for school choice is largely going to be won and lost on the state and local level.

The Machine: The Truth Behind Teachers Unions

Published on Sep 4, 2012 by

America’s public education system is failing. We’re spending more money on education but not getting better results for our children.

That’s because the machine that runs the K-12 education system isn’t designed to produce better schools. It’s designed to produce more money for unions and more donations for politicians.

For decades, teachers’ unions have been among our nation’s largest political donors. As Reason Foundation’s Lisa Snell has noted, the National Education Association (NEA) alone spent $40 million on the 2010 election cycle (source: http://reason.org/news/printer/big-education-and-big-labor-electio). As the country’s largest teachers union, the NEA is only one cog in the infernal machine that robs parents of their tax dollars and students of their futures.

Students, teachers, parents, and hardworking Americans are all victims of this political machine–a system that takes money out of taxpayers’ wallets and gives it to union bosses, who put it in the pockets of politicians.

Our kids deserve better.

“The Machine” is 4:17 minutes.

Written and narrated by Evan Coyne Maloney. Produced by the Moving Picture Institute in partnership with Reason TV.

Visit http://www.MovingPictureInstitute.org to learn more.

No one did more to advance the cause of school vouchers than Milton and Rose Friedman. Friedman made it clear in his film series “Free to Choose” how sad he was that young people who live in the inner cities did not have good education opportunities available to them.

I have posted often about the voucher system and how it would solve our education problems. What we are doing now is not working. Milton Friedman’s idea of implementing school vouchers was hatched about 50 years ago.

Poor families are most affected by this lack of choice. As Friedman noted, “There is no respect in which inhabitants of a low-income neighborhood are so disadvantaged as in the kind of schooling they can get for their children.” It is a sad statement quantified by data on low levels of academic achievement and attainment. Take a look at this article below.

Lindsey Burke

September 25, 2012 at 5:46 pm

SAT scores among the nation’s test-takers are at a 40-year low.

As The Washington Post reports:

Reading scores on the SAT for the high school class of 2012 reached a four-decade low, putting a punctuation mark on a gradual decline in the ability of college-bound teens to read passages and answer questions about sentence structure, vocabulary and meaning on the college entrance exam.

The decline over the decades has been significant. The average reading (verbal) score is down 34 points since 1972. Sadly, the historically low SAT scores are only the latest marker of decline. Graduation rates have been stagnant since the 1970s, reading and math achievement has been virtually flat over the same time period, and American students still rank in the middle of the pack compared to their international peers.

On the heels of the news about the SAT score decline, President Obama filmed a segment with NBC’s Education Nation earlier today. The President notably praised the concept of charter schools and pay for performance for teachers.

But those grains of reform were dwarfed by his support of the status quo. During the course of the interview, President Obama suggested hiring 100,000 new math and science teachers and spending more money on preschool. He also stated that No Child Left Behind had good intentions but was “under-resourced.”

Efforts by the federal government to intervene in preschool, most notably through Head Start, have failed—despite a $160 billion in spending on the program since 1965. And No Child Left Behind is far from “under-resourced.” The $25 billion, 600-page law has been on the receiving end of significant new spending every decade since the original law was first passed nearly half a century ago.

President Obama was also pressed on the issue of education unions by host Savannah Guthrie:

Some people think, President Obama gets so much support from the teachers’ unions, he can’t possibly have an honest conversation about what they’re doing right or wrong. Can you really say that teachers’ unions aren’t slowing the pace of reform?

President Obama responded: “You know, I just really get frustrated when I hear teacher-bashing as evidence of reform.”

Criticizing education unions for standing in the way of reform should not be conflated with criticizing teachers, as the President does in the interview. The unions have blocked reforms such as performance pay and charter schools (which the President supports), have opposed alternative teacher certification that would help mid-career professionals enter the classroom, and have consistently fought the implementation of school choice options for children.

If we ever hope to move the needle on student achievement—or see SAT scores turn in the right direction again—we’ll need to implement many of those exact reforms, particularly school choice.

And as he has in the past, President Obama stated that his Administration wants to “use evidenced-based approaches and find out what works.” We know what works: giving families choices when it comes to finding schools that best meet their children’s needs. Instead of continuing to call for more spending and more Washington intervention in education, let’s try something new: choice and freedom.

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Milton Friedman videos and transcripts Part 9 On my blog http://www.thedailyhatch.org I have an extensive list of posts that have both videos and transcripts of MiltonFriedman’s interviews and speeches. Here below is just small list of those and more can be accessed by clicking on “Milton Friedman” on the side of this page or searching […]

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Biography Part 2 In 1977, when I reached the age of 65, I retired from teaching at the University of Chicago. At the invitation of Glenn Campbell, Director of the Hoover Institution at Stanford University, I shifted my scholarly work to Hoover where I remain a Senior Research Fellow. We moved to San Francisco, purchasing […]

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Milton Friedman at Hillsdale College 2006 July 2006 Free to Choose: A Conversation with Milton Friedman Milton Friedman Economist Milton Friedman is a senior research fellow at the Hoover Institution at Stanford University and a professor emeritus of economics at the University of Chicago, where he taught from 1946-1976. Dr. Friedman received the Nobel Memorial […]

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Testing Milton Friedman – Preview Uploaded by FreeToChooseNetwork on Feb 21, 2012 2012 is the 100th anniversary of Milton Friedman’s birth. His work and ideas continue to make the world a better place. As part of Milton Friedman’s Century, a revival of the ideas featured in the landmark television series Free To Choose are being […]

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Free or Equal?: Johan Norberg Updates Milton & Rose Friedman’s Free to Choose I got this below from Reason Magazine: Swedish economist Johan Norberg is the host of the new documentary Free or Equal, which retraces and updates the 1980 classic Free to Choose, featuring Milton and Rose Friedman. Like the Friedmans, Norberg travels the globe […]

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What a great man Milton Friedman was. The Legacy of Milton Friedman November 18, 2006 Alexander Tabarrok Great economist by day and crusading public intellectual by night, Milton Friedman was my hero. Friedman’s contributions to economics are profound, the permanent income hypothesis, the resurrection of the quantity theory of money, and his magnum opus with […]

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Below is a discussion from Milton Friedman on Bill Clinton and Ronald Reagan. February 10, 1999 | Recorded on February 10, 1999 audio, video, and blogs » uncommon knowledge PRESIDENTIAL REPORT CARD: Milton Friedman on the State of the Union with guest Milton Friedman Milton Friedman, Senior Research Fellow, Hoover Institution and Nobel Laureate in […]

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FRIEDMAN FRIDAY Section 301 Tariffs Cost Americans, Not the Chinese! Larry Elder wrote in 2016: “As economist Milton Friedman says, protectionism discriminates against low prices!”

Section 301 Tariffs Cost Americans, Not the Chinese

The United States Trade Representative (USTR) is conducting a four‐​year review of the Section 301 tariffs imposed on imports from China. In 2018, the USTR initiated an investigation into China’s technology and intellectual property practices and concluded that they adversely affected U.S. businesses. As a result, the U.S. imposed punitive tariffs up to 25 percent on over $300 billion worth of imports from China.

As part of the review process, interested Americans could provide comments to the USTR. The almost 1,500 comments filed paint an ugly picture—higher costs and prices, and less investment in workers and capital.

A new study on the impact on American businesses and consumers of Section 301 tariffs specifically on imports of apparel, footwear, travel goods, and furniture paints a similarly bleak picture. All of these goods except furniture are subject to most favored nation (MFN) tariffs—a preferential tariff rate for all World Trade Organization members, except Cuba, and Russia (whose preferential treatment was revoked by Congress in response to the war in Ukraine). Chart 1 illustrates the new total tariffs on these products.

Traditionally, tariffs are paid by importers, so these new rates immediately hit American businesses importing apparel, footwear, travel goods, and furniture. U.S. firms needed to consider whether to share or totally pass on the tariff cost to their customers. In many cases, companies calculated that passing on the tariffs would lose customers. However, absorbing these costs was not sustainable and in order to stay afloat, firms began passing some or all of the new tariff costs to consumers. Table 1 illustrates the direct costs to Americans for apparel, footwear, travel goods, and furniture between 2018 and 2022 as a result of the Section 301 tariffs. The overall cost of the tariffs amounted to over $166 billion.

In response to the tariffs, many businesses tried to change sourcing from China and some succeeded in switching suppliers to other foreign manufacturers. However, most apparel, footwear, and travel goods companies could not change their sourcing.

Some apparel sourcing changed from China to other foreign manufacturers but no manufacturing moved to the U.S. For a variety of reasons, it is not straightforward (or cheap) to shift sourcing. These decisions consider price factors, but other non‐​price factors are also part of the equation. For apparel, so much of the specialized supply chain simply does not exist outside of China, including the skilled labor required to make certain apparel items. Clothing is also often subject to “minimum quantity orders” and for small businesses that need lower quantity orders, alternative sources like Vietnam do not accept small orders.

The United States imports almost all shoes sold in the U.S. market. The tariffs forced some U.S. companies to find new suppliers in other countries (though again, not in the U.S.) but most businesses could not find alternative sources. Similar to apparel, Chinese footwear producers are skilled and have specialized machinery that does not exist elsewhere.

Many travel goods benefitted from the Generalized System of Preferences (GSP), which provided duty‐​free treatment to specific goods from certain countries. However, the GSP expired at the end of 2020. U.S. firms importing travel goods from GSP countries had to choose whether to pay MFN tariffs or source from China and pay MFN tariffs plus Section 301 tariffs. Even with Section 301 tariffs, the expiration of GSP made China a more competitive place to source from. As a result, since 2020 imports of travel goods from China increased.

American furniture companies importing from China are the unique case and more than the other industries, changed sourcing to other foreign suppliers (though again, not to the U.S.). However, changing suppliers was a difficult endeavor, many U.S. retailers explained that Chinese manufacturers are the best for high volume orders and specialty orders where the furniture is custom built with individual selections for fabrics and materials. Moreover, children’s furniture is subject to more onerous U.S. health and safety standards. Changing sources lengthened the time for new suppliers to become certified with U.S. authorities, increasing wait times for orders. While some of these American companies were able to move production away from China, it came at a cost and required these companies to raise prices to consumers.

In the cases of apparel, footwear, travel goods, and furniture imports (though the same story is true for most other products impacted by Section 301 tariffs), American businesses reported that the tariffs cost them and their customers. On the other hand, Chinese firms managed to maintain much of their business with their American customers. Despite the tariffs, as illustrated in Chart 2, U.S. imports of apparel, footwear, travel goods, and furniture increased since 2020.

Finally, apparel, footwear, and furniture are essential products and an unfortunate fact that is seemingly ignored by policymakers is how tariffs disproportionately affect those earning less. While tariffs are broadly regressive (those at the lower end of the wage scale are unduly burdened), the essential nature of apparel, footwear, and furniture means that Americans tend to consume roughly the same amounts of them each month, regardless of whether prices fall or rise (though differences across households surely exist). Tables 2 and 3 illustrate the differences in shares of expenditure on apparel, footwear, and furniture between those in the top and bottom income quintiles before and after the imposition of Section 301 tariffs on these products.

Section 301 tariffs on imports from China harmed American businesses, workers, and the U.S. economy, costing the poorest the most. Moreover, the tariffs do not target those engaging in unfair practices and therefore have been ineffective at achieving the alleged intended goal of changing China’s economic policies.

As the USTR moves through the review process, there is little hope that it concludes to eliminate these tariffs. The Biden administration already maintained the othertwo tranches of tariffs imposed during the Trump presidency, even swapping some tariffs for complicated tariff‐​rate quotas. However, the evidence is clear and it is past time to remove these tariffs.

——-

Portrait of Milton Friedman.jpg

Defending International Trade

As a fan of globalization – but not globalism, I endorse this new video from Reason, which punctures myths from protectionists such as Donald Trump and Bernie Sanders (and Joe Biden).

If you don’t have a spare seven minutes to watch the video, it addresses three specific points.

  1. Does cross-border trade destroy manufacturing jobs?
  2. Did liberalizing trade with China take American jobs?
  3. Does trade make us vulnerable because of supply chains?

Plenty of good material, but I also would have challenged protectionists to provide a successful example of protectionism. Today or in the past.

Did protectionism work for Herbert Hoover – or anyone else – in the 1930s?

Did protectionism work for Juan Peron in Argentina in the 1940s and 1950s?

Is protectionism working for India’s economy in the 21st century?

Did protectionism work for Donald Trump between 2017 and 2020?

The answer is no in every single case. So it is no surprise that scholarly research (see here, here, here, here, here, here, here, here, and here) shows that free trade is a better approach if a nation wants more jobs and higher income.

But protectionists make one accurate point. While free trade increases overall employment, that does not mean every worker in every industry benefits.

In his New York Times column, Peter Coy explores this topic.

The skepticism about free markets…has gotten only stronger…only 44 percent of Republican voters…viewed free trade mainly as an opportunity for growth through increased exports. …the standard Econ 101 argument for free trade… First, assert that trade increases prosperity by allowing each country to specialize in what it’s best at. …Second, acknowledge that not everyone wins from free trade… Third, state that this problem can be easily solved: Everyone in society can be made better off if the winners share some of their gains with the losers. …In reality, the winners from trade rarely share much of their gains with the losers. The losers remain losers, and they often vote for candidates who put up tariff walls. …the free traders have failed to deliver on their promises to make free trade and open markets work for all.

A reasonably fair article, but I don’t think “free traders have failed” for reasons I explained in one of my videos from earlier this year.

If you don’t want to spend three minutes watching the video, I explain that all trade destroys jobs. And that includes trade within a nation.

It’s part of “creative destruction,” which I’ve labeled as the best and worst part of capitalism.

Millions of jobs get destroyed every year, in part because new technology, new competitors, and new innovations.

That’s bad news for many people, but it’s also the process that creates even more new jobs.

And it’s the process that has made all of us so much richer than our ancestors. And that includes the ancestors of people who lost jobs because of domestic or international trade.

P.S. Click here, here, and here for some very sound observations from America’s best post-WWII president.


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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__________

FRIEDMAN FRIDAY Milton Friedman, School Choice Pioneer

Milton Friedman – Public Schools / Voucher System

Published on May 9, 2012 by

JANUARY 24, 2023 3:48PM

Milton Friedman, School Choice Pioneer


As our new School Choice Timeline shows, calls for public funding to follow students to a variety of educational options date back centuries. However, Nobel Prize‐​winning economist Milton Friedman is often considered the father of the modern school choice movement.

In a 1955 essay, The Role of Government in Education, Friedman acknowledged some justifications for government mandates and funding when it comes to education. However, he said it’s difficult to justify government administration of education. He suggested governments could provide parents with vouchers worth a specified maximum sum per child per year to be spent on “approved” educational services.

Friedman would return to this idea repeatedly over the years in his writings and his popular Free to Choose television series. But he did more than just write and talk about his idea. In 1996, he and his wife Rose, who was also a noted economist, started the Milton and Rose D. Friedman Foundation for Educational Choice. Their original plan included the eventual removal of their name from the foundation, which happened in 2016; the organization is now known as EdChoice and is the go‐​to source for up‐​to‐​date information on school choice in America.

Milton Friedman had a remarkable life. He was born in Brooklyn in 1912 to parents who emigrated to the U.S. from eastern Europe. His father died during his senior year in high school, leaving his mother and older sisters to support the family. He managed to attend Rutgers University through a combination of scholarships and various jobs. After earning a degree in economics, he was awarded a scholarship to pursue a graduate degree at the University of Chicago, where he met his future wife, Rose. The Friedmans had two children, a son and a daughter.

Friedman’s list of accomplishments is astonishingly long. In addition to his 1976 Nobel Prize for Economic Science, he was awarded the Presidential Medal of Freedom and the National Medal of Science in 1988. He was a Senior Research Fellow at Stanford University’s Hoover Institution from 1977 to 2006, a distinguished economics professor at the University of Chicago from 1946 to 1976, and a researcher at the National Bureau of Economic Research from 1937 to 1981. He was a prolific writer of newspaper and magazine columns, essays, and books.

Milton Friedman’s focus on education choice made perfect sense in light of his other work. He had a consistent focus on preserving and expanding individual freedom. He saw parental control and the ability to choose the environment that worked best for individual children as essential to a quality education. His 1962 book Capitalism and Freedom included chapters on economic and political freedom, trade, fiscal policy, occupational licenses, and poverty, along with his earlier essay on the role of government in education.

In 1980, Milton and Rose released Free to Choose, a discussion of economics and freedom, as a book and a television series. One segment/​chapter asked, “What’s Wrong with Our Schools?” and then explained the importance of parents being able to choose what works for their individual children.

When the Friedman Foundation was launched, there were five education choice programs in the U.S. with fewer than 10,000 students participating. Today, according to EdChoice, there are 74 programs in 32 states, Washington, D.C., and Puerto Rico, with 670,000 students participating.

While there is a long and deep history of individuals and organizations calling for various forms of school choice, it is clear that Milton Friedman played an enormous role in its advance in the U.S. He helped lay the intellectual groundwork for the programs in place today, and his relatable writings and videos helped explain his ideas to parents, policymakers, and thought leaders. As we celebrate National School Choice Week—and Cato’s new School Choice Timeline—it’s a great time to commemorate Milton Friedman’s important contributions to the movement.

The School Choice Revolution

It’s time to celebrate another victory for school choice.

  • In 2021, West Virginia adopted statewide school choice.
  • In 2022, Arizona adopted statewide school choice.
  • In 2023, Iowa adopted statewide school choice.

Now Utah has joined the club, with Governor Spencer Cox approving a new law that will give families greater freedom to choose the best educational options for their children.

Here are some details from Marjorie Cortez, reporting for the Deseret News.

The Utah Senate gave final passage to legislation that will provide $8,000 scholarships to qualifying families for private schools and other private education options…The bill passed by a two-thirds margin in each legislative house, which means it cannot be challenged by referendum. …The bill creates the Utah Fits All Scholarship, which can then be used for education expenses like curriculum, textbooks, education, software, tutoring services, micro-school teacher salaries and private school tuition.

As you might expect, teacher unions and their allies are very disappointed – which is a very positive sign.

…the Utah Education Association…opposed HB215… The bill was also opposed by the Utah State Board of Education, Utah PTA, school superintendents, business administrators and school boards. The Alliance for a Better Utah was pointed in its reaction… “Conservative lawmakers just robbed our neighborhood schools of $42 million. Private school vouchers have been and continue to be opposed by Utahns but these lawmakers are instead pursuing a national agenda to ‘destroy public education.’

The Wall Street Journal opined on this great development.

School choice is gaining momentum across the country, and this week Utah joined Iowa in advancing the education reform cause. …Utah’s bill, which the Senate passed Thursday, 20-8, makes ESAs of $8,000 available to every student. There’s no income cap on families who can apply, though lower-income families receive preference and the program is capped at $42 million. The funds can be used for private school tuition, home-schooling expenses, tutoring, and more.

But the best part of the editorial is the look at other states that may be poised to expand educational freedom.

About a dozen other state legislatures have introduced bills to create new ESA programs, and several want to expand the ones they have. In Florida a Republican proposal would extend the state’s already robust scholarship programs to any student in the state. The bill would remove income limits that are currently in place for families who want to apply, though lower-income applicants would receive priority. …South Carolina legislators are mulling a new ESA program for lower-income students. In Indiana, a Senate bill would make state ESAs available to more students. An Ohio bill would remove an income cap and other eligibility rules for the state’s school vouchers. Two Oklahoma Senate bills propose new ESA programs… ESA bills are in some stage of moving in Nebraska, New Hampshire, Texas and Virginia.

Let’s hope there is more progress.

School choice is a win-win for both students and taxpayers.

P.S. Here’s a must-see chart showing how more and more money for the government school monopoly has produced zero benefit.

P.P.S. There are very successful school choice systems in CanadaSwedenChile, and the Netherlands.

P.P.P.S. Getting rid of the Department of Education would be a good idea, but the battle for school choice is largely going to be won and lost on the state and local level.

The Machine: The Truth Behind Teachers Unions

Published on Sep 4, 2012 by

America’s public education system is failing. We’re spending more money on education but not getting better results for our children.

That’s because the machine that runs the K-12 education system isn’t designed to produce better schools. It’s designed to produce more money for unions and more donations for politicians.

For decades, teachers’ unions have been among our nation’s largest political donors. As Reason Foundation’s Lisa Snell has noted, the National Education Association (NEA) alone spent $40 million on the 2010 election cycle (source: http://reason.org/news/printer/big-education-and-big-labor-electio). As the country’s largest teachers union, the NEA is only one cog in the infernal machine that robs parents of their tax dollars and students of their futures.

Students, teachers, parents, and hardworking Americans are all victims of this political machine–a system that takes money out of taxpayers’ wallets and gives it to union bosses, who put it in the pockets of politicians.

Our kids deserve better.

“The Machine” is 4:17 minutes.

Written and narrated by Evan Coyne Maloney. Produced by the Moving Picture Institute in partnership with Reason TV.

Visit http://www.MovingPictureInstitute.org to learn more.

No one did more to advance the cause of school vouchers than Milton and Rose Friedman. Friedman made it clear in his film series “Free to Choose” how sad he was that young people who live in the inner cities did not have good education opportunities available to them.

I have posted often about the voucher system and how it would solve our education problems. What we are doing now is not working. Milton Friedman’s idea of implementing school vouchers was hatched about 50 years ago.

Poor families are most affected by this lack of choice. As Friedman noted, “There is no respect in which inhabitants of a low-income neighborhood are so disadvantaged as in the kind of schooling they can get for their children.” It is a sad statement quantified by data on low levels of academic achievement and attainment. Take a look at this article below.

Lindsey Burke

September 25, 2012 at 5:46 pm

SAT scores among the nation’s test-takers are at a 40-year low.

As The Washington Post reports:

Reading scores on the SAT for the high school class of 2012 reached a four-decade low, putting a punctuation mark on a gradual decline in the ability of college-bound teens to read passages and answer questions about sentence structure, vocabulary and meaning on the college entrance exam.

The decline over the decades has been significant. The average reading (verbal) score is down 34 points since 1972. Sadly, the historically low SAT scores are only the latest marker of decline. Graduation rates have been stagnant since the 1970s, reading and math achievement has been virtually flat over the same time period, and American students still rank in the middle of the pack compared to their international peers.

On the heels of the news about the SAT score decline, President Obama filmed a segment with NBC’s Education Nation earlier today. The President notably praised the concept of charter schools and pay for performance for teachers.

But those grains of reform were dwarfed by his support of the status quo. During the course of the interview, President Obama suggested hiring 100,000 new math and science teachers and spending more money on preschool. He also stated that No Child Left Behind had good intentions but was “under-resourced.”

Efforts by the federal government to intervene in preschool, most notably through Head Start, have failed—despite a $160 billion in spending on the program since 1965. And No Child Left Behind is far from “under-resourced.” The $25 billion, 600-page law has been on the receiving end of significant new spending every decade since the original law was first passed nearly half a century ago.

President Obama was also pressed on the issue of education unions by host Savannah Guthrie:

Some people think, President Obama gets so much support from the teachers’ unions, he can’t possibly have an honest conversation about what they’re doing right or wrong. Can you really say that teachers’ unions aren’t slowing the pace of reform?

President Obama responded: “You know, I just really get frustrated when I hear teacher-bashing as evidence of reform.”

Criticizing education unions for standing in the way of reform should not be conflated with criticizing teachers, as the President does in the interview. The unions have blocked reforms such as performance pay and charter schools (which the President supports), have opposed alternative teacher certification that would help mid-career professionals enter the classroom, and have consistently fought the implementation of school choice options for children.

If we ever hope to move the needle on student achievement—or see SAT scores turn in the right direction again—we’ll need to implement many of those exact reforms, particularly school choice.

And as he has in the past, President Obama stated that his Administration wants to “use evidenced-based approaches and find out what works.” We know what works: giving families choices when it comes to finding schools that best meet their children’s needs. Instead of continuing to call for more spending and more Washington intervention in education, let’s try something new: choice and freedom.

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The Role of Government in Education By Milton Friedman (This paper first written in 1955 started the modern SCHOOL VOUCHER MOVEMENT)

Capitalism and Freedom – Milton Friedman – Full Audiobook –

Milton Friedman – Public Schools / Voucher System – Failures in Educatio…

From Milton Friedman (1962/1982), Capitalism and Freedom (Chicago, IL: University of Chicago Press); earlier version (1955) in Robert A. Solo (Ed.), Economics and the Public Interest, pp. 123-144 (New Brunswick, NJ: Rutgers University Press).

The general trend in our times toward increasing intervention by the state in economic affairs has led to a concentration of attention and dispute on the areas where new intervention is proposed and to an acceptance of whatever intervention has so far occurred as natural and unchangeable. The current pause, perhaps reversal, in the trend toward collectivism offers an opportunity to re-examine the existing activities of government and to make a fresh assessment of the activities that are and those that are not justified. This paper attempts such a re-examination for education.

Education is today largely paid for and almost entirely administered by governmental bodies or non-profit institutions. This situation has developed gradually and is now taken so much for granted that little explicit attention is any longer directed to the reasons for the special treatment of education even in countries that are predominantly free enterprise in organization and philosophy. The result has been an indiscriminate extension of governmental responsibility.

The role assigned to government in any particular field depends, of course, on the principles accepted for the organization of society in general. In what follows, I shall assume a society that takes freedom of the individual, or more realistically the family, as its ultimate objective, and seeks to further this objective by relying primarily on voluntary exchange among individuals for the organization of economic activity. In such a free private enterprise exchange economy, government’s primary role is to preserve the rules of the game by enforcing contracts, preventing coercion, and keeping markets free. Beyond this, there are only three major grounds on which government intervention is to be justified. One is “natural monopoly” or similar market imperfection which makes effective competition (and therefore thoroughly voluntary exchange) impossible. A second is the existence of substantial “neighborhood effects,” i.e., the action of one individual imposes significant costs on other individuals for which it is not feasible to make him compensate them or yields significant gains to them for which it is not feasible to make them compensate him — circumstances that again make voluntary exchange impossible. The third derives from an ambiguity in the ultimate objective rather than from the difficulty of achieving it by voluntary exchange, namely, paternalistic concern for children and other irresponsible individuals. The belief in freedom is for “responsible” units, among whom we include neither children nor insane people. In general, this problem is avoided by regarding the family as the basic unit and therefore parents as responsible for their children; in considerable measure, however, such a procedure rests on expediency rather than principle. The problem of drawing a reasonable line between action justified on these paternalistic grounds and action that conflicts with the freedom of responsible individuals is clearly one to which no satisfactory answer can be given.

In applying these general principles to education, we shall find it helpful to deal separately with (1) general education for citizenship, and (2) specialized vocational education, although it may be difficult to draw a sharp line between them in practice. The grounds for government intervention are widely different in these two areas and justify very different types of action.

General Education for Citizenship

A stable and democratic society is impossible without widespread acceptance of some common set of values and without a minimum degree of literacy and knowledge on the part of most citizens. Education contributes to both. In consequence, the gain from the education of a child accrues not only to the child or to his parents but to other members of the society; the education of my child contributes to other people’s welfare by promoting a stable and democratic society. Yet it is not feasible to identify the particular individuals (or families) benefited or the money value of the benefit and so to charge for the services rendered. There is therefore a significant “neighborhood effect.”

What kind of governmental action is justified by this particular neighborhood effect? The most obvious is to require that each child receive a minimum amount of education of a specified kind. Such a requirement could be imposed upon the parents without further government action, just as owners of buildings, and frequently of automobiles, are required to adhere to specified standards to protect the safety of others. There is, however, a difference between the two cases. In the latter, individuals who cannot pay the costs of meeting the required standards can generally divest themselves of the property in question by selling it to others who can, so the requirement can readily be enforced without government subsidy — though even here, if the cost of making the property safe exceeds its market value, and the owner is without resources, the government may be driven to paying for the demolition of a dangerous building or the disposal of an abandoned automobile. The separation of a child from a parent who cannot pay for the minimum required education is clearly inconsistent with our reliance on the family as the basic social unit and our belief in the freedom of the individual.

Yet, even so, if the financial burden imposed by such an educational requirement could readily be met by the great bulk of the families in a community, it might be both feasible and desirable to require the parents to meet the cost directly.

Extreme cases could be handled by special provisions in much the same way as is done now for housing and automobiles. An even closer analogy is provided by present arrangements for children who are mistreated by their parents. The advantage of imposing the costs on the parents is that it would tend to equalize the social and private costs of having children and so promote a better distribution of families by size.1

Differences among families in resources and in number of children — both a reason for and a result of the different policy that has been followed — plus the imposition of a standard of education involving very sizable costs have, however, made such a policy hardly feasible. Instead, government has assumed the financial costs of providing the education. In doing so, it has paid not only for the minimum amount of education required of all but also for additional education at higher levels available to youngsters but not required of them — as for example in State and municipal colleges and universities. Both steps can be justified by the “neighborhood effect” discussed above — the payment of the costs as the only feasible means of enforcing the required minimum; and the financing of additional education, on the grounds that other people benefit from the education of those of greater ability and interest since this is a way of providing better social and political leadership.

Government subsidy of only certain kinds of education can be justified on these grounds. To anticipate, they do not justify subsidizing purely vocational education which increases the economic productivity of the student but does not train him for either citizenship or leadership. It is clearly extremely difficult to draw a sharp line between these two types of education. Most general education adds to the economic value of the student — indeed it is only in modern times and in a few countries that literacy has ceased to have a marketable value. And much vocational education broadens the student’s outlook. Yet it is equally clear that the distinction is a meaningful one. For example, subsidizing the training of veterinarians, beauticians, dentists, and a host of other specialized skills — as is widely done in the United States in governmentally supported educational institutions — cannot be justified on the same grounds as subsidizing elementary education or, at a higher level, liberal education. Whether it can be justified on quite different grounds is a question that will be discussed later in this paper.

The qualitative argument from the “neighborhood effect” does not, of course, determine the specific kids of education that should be subsidized or by how much they should be subsidized. The social gain from education is presumably greatest for the very lowest levels of education, where there is the nearest approach to unanimity about the content of the education, and declines continuously as the level of education rises. But even this statement cannot be taken completely for granted — many governments subsidized universities long before they subsidized lower education. What forms of education have the greatest social advantage and how much of the community’s limited resources should be spent on them are questions to be decided by the judgment of the community expressed through its accepted political channels. The role of an economist is not to decide these questions for the community but rather to clarify the issues to be judged by the community in making a choice, in particular, whether the choice is one that it is appropriate or necessary to make on a communal rather than individual basis.

We have seen that both the imposition of a minimum required level of education and the financing of education by the state can be justified by the “neighborhood effects” of education. It is more difficult to justify in these terms a third step that has generally been taken, namely, the actual administration of educational institutions by the government, the “nationalization,” as it were, of the bulk of the “education industry.” The desirability of such nationalization has seldom been faced explicitly because governments have in the main financed education by paying directly the costs of running educational institutions, so that this step has seemed required by the decision to subsidize education. Yet the two steps could readily be separated. Governments could require a minimum level of education which they could finance by giving parents vouchers redeemable for a specified maximum sum per child per year if spent on “approved” educational services.

Parents would then be free to spend this sum and any additional sum on purchasing educational services from an “approved” institution of their own choice. The educational services could be rendered by private enterprises operated for profit, or by non-profit institutions of various kinds. The role of the government would be limited to assuring that the schools met certain minimum standards such as the inclusion of a minimum common content in their programs, much as it now inspects restaurants to assure that they maintain minimum sanitary standards. An excellent example of a program of this sort is the United States educational program for veterans after World War II. Each veteran who qualified was given a maximum sum per year that could be spent at any institution of his choice, provided it met certain minimum standards. A more limited example is the provision in Britain whereby local authorities pay the fees of some students attending nonstate schools (the so-called “public schools”). Another is the arrangement in France whereby the state pays part of the costs for students attending non-state schools.

One argument from the “neighborhood effect” for nationalizing education is that it might otherwise be impossible to provide the common core of values deemed requisite for social stability. The imposition of minimum standards on privately conducted schools, as suggested above, might not be enough to achieve this result. The issue can be illustrated concretely in terms of schools run by religious groups. Schools run by different religious groups will, it can be argued, instill sets of values that are inconsistent with one another and with those instilled in other schools; in this way they convert education into a divisive rather than a unifying force.

Carried to its extreme, this argument would call not only for governmentally administered schools, but also for compulsory attendance at such schools. Existing arrangements in the United States and most other Western countries are a halfway house. Governmentally administered schools are available but not required. However, the link between the financing of education and its administration places other schools at a disadvantage: they get the benefit of little or none of the governmental funds spent on education — a situation that has been the source of much political dispute, particularly, of course, in France. The elimination of this disadvantage might, it is feared, greatly strengthen the parochial schools and so render the problem of achieving a common core of values even more difficult.

This argument has considerable force. But it is by no means clear either that it is valid or that the denationalizing of education would have the effects suggested. On grounds of principle, it conflicts with the preservation of freedom itself; indeed, this conflict was a major factor retarding the development of state education in England. How draw a line between providing for the common social values required for a stable society on the one hand, and indoctrination inhibiting freedom of thought and belief on the other? Here is another of those vague boundaries that it is easier to mention than to define.

In terms of effects, the denationalization of education would widen the range of choice available to parents. Given, as at present, that parents can send their children to government schools without special payment, very few can or will send them to other schools unless they too are subsidized.

Parochial schools are at a disadvantage in not getting any of the public funds devoted to education; but they have the compensating advantage of being funded by institutions that are willing to subsidize them and can raise funds to do so, whereas there are few other sources of subsidies for schools.

Let the subsidy be made available to parents regardless where they send their children — provided only that it be to schools that satisfy specified minimum standards — and a wide variety of schools will spring up to meet the demand. Parents could express their views about schools directly, by withdrawing their children from one school and sending them to another, to a much greater extent than is now possible. In general, they can now take this step only by simultaneously changing their place of residence.

For the rest, they can express their views only through cumbrous political channels. Perhaps a somewhat greater degree of freedom to choose schools could be made available also in a governmentally administered system, but it is hard to see how it could be carried very far in view of the obligation to provide every child with a place. Here, as in other fields, competitive private enterprise is likely to be far more efficient in meeting consumer demands than either nationalized enterprises or enterprises run to serve other purposes. The final result may therefore well be less rather than more parochial education.

Another special case of the argument that governmentally conducted schools are necessary to keep education a unifying force is that private schools would tend to exacerbate class distinctions. Given greater freedom about where to send their children, parents of a kind would flock together and so prevent a healthy intermingling of children from decidedly different backgrounds. Again, whether or not this argument is valid in principle, it is not at all clear that the stated results would follow. Under present arrangements, particular schools tend to be peopled by children with similar backgrounds thanks to the stratification of residential areas. In addition, parents are not now prevented from sending their children to private schools. Only a highly limited class can or does do so, parochial schools aside, in the process producing further stratification. The widening of the range of choice under a private system would operate to reduce both kinds of stratification.

Another argument for nationalizing education is “natural monopoly.” In small communities and rural areas, the number of children may be too small to justify more than one school of reasonable size, so that competition cannot be relied on to protect the interests of parents and children. As in other cases of natural monopoly, the alternatives are unrestricted private monopoly, state-controlled private monopoly, and public operation — a choice among evils. This argument is clearly valid and significant, although its force has been greatly weakened in recent decades by improvements in transportation and increasing concentration of the population in urban communities.

The arrangement that perhaps comes closest to being justified by these considerations — at least for primary and secondary education — is a mixed one under which governments would continue to administer some schools but parents who chose to send their children to other schools would be paid a sum equal to the estimated cost of educating a child in a government school, provided that at least this sum was spent on education in an approved school. This arrangement would meet the valid features of the “natural monopoly” argument, while at the same time it would permit competition to develop where it could. It would meet the just complaints of parents that if they send their children to private nonsubsidized schools they are required to pay twice for education — once in the form of general taxes and once directly — and in this way stimulate the development and improvement of such schools. The interjection of competition would do much to promote a healthy variety of schools. It would do much, also, to introduce flexibility into school systems. Not least of its benefits would be to make the salaries of school teachers responsive to market forces. It would thereby give governmental educational authorities an independent standard against which to judge salary scales and promote a more rapid adjustment to changes in conditions of demand or supply.2

Why is it that our educational system has not developed along these lines? A full answer would require a much more detailed knowledge of educational history than I possess, and the most I can do is to offer a conjecture. For one thing, the “natural monopoly” argument was much stronger at an earlier date. But I suspect that a much more important factor was the combination of the general disrepute of cash grants to individuals (“handouts”) with the absence of an efficient administrative machinery to handle the distribution of vouchers and to check their use. The development of such machinery is a phenomenon of modern times that has come to full flower only with the enormous extension of personal taxation and of social security programs. In its absence, the administration of schools was regarded as the only possible way to finance education. Of course, as some of the examples cited above suggest, some features of the proposed arrangements are present in existing educational systems. And there has been strong and I believe increasing pressure for arrangements of this general kind in most Western countries, which is perhaps to be explained by the modern developments in governmental administrative machinery that facilitate such arrangements.

Many detailed administrative problems would arise in changing over from the present to the proposed system and in administering the proposed system. But these seem neither insoluble nor unique. As in the denationalization of other activities, existing premises and equipment could be sold to private enterprises that wanted to enter the field, so there would be no waste of capital in the transition. The fact that governmental units, at least in some areas, were going to continue to administer schools would permit a gradual and easy transition. The localized administration of education in the United States and some other countries would similarly facilitate the transition, since it would encourage experimentation on a small scale and with alternative methods of handling both these and other problems.

Difficulties would doubtless arise in determining eligibility for grants from a particular governmental unit, but this is identical with the existing problem of determining which unit is obligated to provide educational facilities for a particular child. Differences in size of grants would make one area more attractive than another just as differences in the quality of education now have the same effect.

The only additional complication is a possibly greater opportunity for abuse because of the greater freedom to decide where to educate children. Supposed difficulty of administration is a standard defense of the status quo against any proposed changes; in this particular case, it is an even weaker defense than usual because existing arrangements must master not only the major problems raised by the proposed arrangements but also the additional problems raised by the administration of the schools as a governmental function.

The preceding discussion is concerned mostly with primary and secondary education. For higher education, the case for nationalization on grounds either of neighborhood effects or of natural monopoly is even weaker than for primary and secondary education. For the lowest levels of education, there is considerable agreement, approximating unanimity, on the appropriate content of an educational program for citizens of a democracy — the three R’s cover most of the ground. At successively higher levels of education, there is less and less agreement. Surely, well below the level of the American college, one can expect insufficient agreement to justify imposing the views of a majority, much less a plurality, on all. The lack of agreement may, indeed, extend so far as to cast doubts on the appropriateness of even subsidizing education at this level; it surely goes far enough to undermine any case for nationalization on the grounds of providing a common core of values. Similarly, there can hardly be any question of “natural monopoly” at this level, in view of the distances that individuals can and do go to attend institutions of higher learning.

Governmental institutions in fact play a smaller role in the United States in higher education than at lower levels. Yet they grew greatly in importance until at least the 1920’s and now account for more than half the students attending colleges and universities.3 One of the main reasons for their growth was their relative cheapness: most State and municipal colleges and universities charge much lower tuition fees than private universities can afford to. Private universities have in consequence had serious financial problems, and have quite properly complained of “unfair” competition. They have wanted to maintain their independence from government, yet at the same time have felt driven by financial pressure to seek government aid.

The preceding analysis suggests the lines along which a satisfactory solution can be found. Public expenditure on higher education can be justified as a means of training youngsters for citizenship and for community leadership — though I hasten to add that the large fraction of current expenditure that goes for strictly vocational training cannot be justified in this way or, indeed, as we shall see, in any other. Restricting the subsidy to education obtained at a state-administered institution cannot be justified on these grounds, or on any other that I can derive from the basic principles outlined at the outset. Any subsidy should be granted to individuals to be spent at institutions of their own choosing, provided only that the education is of a kind that it is desired to subsidize. Any government schools that are retained should charge fees covering the cost of educating students and so compete on an equal level with non-government-supported schools. The retention of state schools themselves would, however, have to be justified on grounds other than those we have so far considered.4The resulting system would follow in its broad outlines the arrangements adopted in the United States after World War II for financing the education of veterans, except that the funds would presumably come from the States rather than the Federal government.

The adoption of such arrangements would make for more effective competition among various types of schools and for a more efficient utilization of their resources. It would eliminate the pressure for direct government assistance to private colleges and universities and thus preserve their full independence and diversity at the same time that it enabled them to grow relatively to State institutions. It might also have the ancillary advantage of causing a closer scrutiny of the purposes for which subsidies are granted. The subsidization of institutions rather than of people has led to an indiscriminate subsidization of whatever activities it is appropriate for such institutions to undertake, rather than of the activities it is appropriate for the state to subsidize. Even cursory examination suggests that while the two classes of activities overlap, they are far from identical.

Vocational or Professional Education

As noted above, vocational or professional education has no neighborhood effects of the kind attributed above to general education. It is a form of investment in human capital precisely analogous to investment in machinery, buildings, or other forms of nonhuman capital. Its function is to raise the economic productivity of the human being. If it does so, the individual is rewarded in a free enterprise society by receiving a higher return for his services than he would otherwise be able to command.5This difference is the economic incentive to acquire the specialized training, just as the extra return that can be obtained with an extra machine is the economic incentive to invest capital in the machine. In both cases, extra returns must be balanced against the costs of acquiring them. For vocational education, the major costs are the income foregone during the period of training, interest lost by postponing the beginning of the earning period, and special expenses of acquiring the training such as tuition fees and expenditures on books and equipment. For physical capital, the major costs are the expenses of constructing the capital equipment and the interest during construction.

In both cases, an individual presumably regards the investment as desirable if the extra returns, as he views them, exceed the extra costs, as he views them.6 In both cases, if the individual undertakes the investment and if the state neither subsidizes the investment nor taxes the return, the individual (or his parent, sponsor, or benefactor) in general bears all the extra cost and receives all the extra returns: there are no obvious unborne costs or unappropriable returns that tend to make private incentives diverge systematically from those that are socially appropriate. If capital were as readily available for investment in human beings as for investment in physical assets, whether through the market or through direct investment by the individuals concerned or their parents or benefactors, the rate of return on capital would tend to be roughly equal in the two fields: if it were higher on non-human capital, parents would have an incentive to buy such capital for their children instead of investing a corresponding sum in vocational training, and conversely. In fact, however, there is considerable empirical evidence that the rate of return on investment in training is very much higher than the rate of return on investment in physical capital.

According to estimates that Simon Kuznets and I have made elsewhere, professionally trained workers in the United States would have had to earn during the 1930s at most 70 percent more than other workers to cover the extra costs of their training, including interest at roughly the market rate on non-human capital. In fact, they earned on the average between two and three times as much.7

Some part of this difference may well be attributable to greater natural ability on the part of those who entered the professions: it may be that they would have earned more than the average non-professional worker if they had not gone into the professions. Kuznets and I concluded, however, that such differences in ability could not explain anything like the whole of the extra return of the professional workers.8Apparently, there was sizable underinvestment in human beings. The postwar period has doubtless brought changes in the relative earnings in different occupations.

It seems extremely doubtful, however, that they have been sufficiently great to reverse this conclusion. It is not certain at what level this underinvestment sets in. It clearly applies to professions requiring a long period of training, such as medicine, law, dentistry, and the like and probably to all occupations requiring a college training. At one time, it almost certainly extended to many occupations requiring much less training but probably no longer does, although the opposite has sometimes been maintained.9

This underinvestment in human capital presumably reflects an imperfection in the capital market: investment in human beings cannot be financed on the same terms or with the same ease as investment in physical capital. It is easy to see why there would be such a difference. If a fixed money loan is made to finance investment in physical capital, the lender can get some security for his loan in the form of a mortgage or residual claim to the physical asset itself, and he can count on realizing at least part of his investment in case of necessity by selling the physical asset. If he makes a comparable loan to increase the earning power of a human being, he clearly cannot get any comparable security; in a non-slave state, the individual embodying the investment cannot be bought and sold. But even if he could, the security would not be comparable. The productivity of the physical capital does not — or at least generally does not — depend on the co-operativeness of the original borrower. The productivity of the human capital quite obviously does — which is, of course, why, all ethical considerations aside, slavery is economically inefficient. A loan to finance the training of an individual who has no security to offer other than his future earnings is therefore a much less attractive proposition than a loan to finance, say, the erection of a building: the security is less, and the cost of subsequent collection of interest and principal is very much greater.

A further complication is introduced by the inappropriateness of fixed money loans to finance investment in training. Such an investment necessarily involves much risk. The average expected return may be high, but there is wide variation about the average. Death or physical incapacity is one obvious source of variation but is probably much less important than differences in ability, energy, and good fortune. The result is that if fixed money loans were made, and were secured only by expected future earnings, a considerable fraction would never be repaid. In order to make such loans attractive to lenders, the nominal interest rate charged on all loans would have to be sufficiently high to compensate for the capital losses on the defaulted loans. The high nominal interest rate would both conflict with usury laws and make the loans unattractive to borrowers, especially to borrowers who have or expect to have other assets on which they cannot currently borrow but which they might have to realize or dispose of to pay the interest and principal of the loan.10 The device adopted to meet the corresponding problem for other risky investments is equity investment plus limited liability on the part of shareholders. The counterpart for education would be to “buy” a share in an individual’s earning prospects: to advance him the funds needed to finance his training on condition that he agree to pay the lender a specified fraction of his future earnings. In this way, a lender would get back more than his initial investment from relatively successful individuals, which would compensate for the failure to recoup his original investment from the unsuccessful.

There seems no legal obstacle to private contracts of this kind, even though they are economically equivalent to the purchase of a share in an individual’s earning capacity and thus to partial slavery. One reason why such contracts have not become common, despite their potential profitability to both lenders and borrowers, is presumably the high costs of administering them, given the freedom of individuals to move from one place to another, the need for getting accurate income statements, and the long period over which the contracts would run. These costs would presumably be particularly high for investment on a small scale with a resultant wide geographical spread of the individuals financed in this way. Such costs may well be the primary reason why this type of investment has never developed under private auspices. But I have never been able to persuade myself that a major role has not also been played by the cumulative effect of such factors as the novelty of the idea, the reluctance to think of investment in human beings as strictly comparable to investment in physical assets, the resultant likelihood of irrational public condemnation of such contracts, even if voluntarily entered into, and legal and conventional limitation on the kind of investments that may be made by the financial intermediaries that would be best suited to engage in such investments, namely, life insurance companies. The potential gains, particularly to early entrants, are so great that it would be worth incurring extremely heavy administrative costs.11

But whatever the reason, there is clearly here an imperfection of the market that has led to underinvestment in human capital and that justifies government intervention on grounds both of “natural monopoly,” insofar as the obstacle to the development of such investment has been administrative costs, and of improving the operation of the market, insofar as it has been simply market frictions and rigidities.

What form should government intervention take? One obvious form, and the only form that it has so far taken, is outright government subsidy of vocational or professional education financed out of general revenues. Yet this form seems clearly inappropriate. Investment should be carried to the point at which the extra return repays the investment and yields the market rate of interest on it. If the investment is in a human being, the extra return takes the form of a higher payment for the individual’s services than he could otherwise command. In a private market economy, the individual would get this return as his personal income, yet if the investment were subsidized, he would have borne none of the costs. In consequence, if subsidies were given to all who wished to get the training, and could meet minimum quality standards, there would tend to be overinvestment in human beings, for individuals would have an incentive to get the training so long as it yielded any extra return over private costs, even if the return were insufficient to repay the capital invested, let alone yield any interest on it. To avoid such overinvestment, government would have to restrict the subsidies. Even apart from the difficulty of calculating the “correct” amount of investment, this would involve rationing in some essentially arbitrary way the limited amount of investment among more claimants than could be financed, and would mean that those fortunate enough to get their training subsidized would receive all the returns from the investment whereas the costs would be borne by the taxpayers in general. This seems an entirely arbitrary, if not perverse, redistribution of income.

The desideratum is not to redistribute income but to make capital available for investment in human beings on terms comparable to those on which it is available for physical investment. Individuals should bear the costs of investment in themselves and receive the rewards, and they should not be prevented by market imperfections from making the investment when they are willing to bear the costs. One way to do this is to have government engage in equity investment in human beings of the kind described above.

A governmental body could offer to finance or help finance the training of any individual who could meet minimum quality standards by making available not more than a limited sum per year for not more than a specified number of years, provided it was spent on securing training at a recognized institution. The individual would agree in return to pay to the government in each future year x percent of his earnings in excess of y dollars for each $1,000 that he gets in this way. This payment could easily be combined with payment of income tax and so involve a minimum of additional administrative expense. The base sum, $y, should be set equal to estimated average — or perhaps modal — earnings without the specialized training; the fraction of earnings paid, x , should be calculated so as to make the whole project self-financing. In this way the individuals who received the training would in effect bear the whole cost. The amount invested could then be left to be determined by individual choice. Provided this was the only way in which government financed vocational or professional training, and provided the calculated earnings reflected all relevant returns and costs, the free choice of individuals would tend to produce the optimum amount of investment. The second proviso is unfortunately not likely to be fully satisfied. In practice, therefore, investment under the plan would still be somewhat too small and would not be distributed in the optimum manner. To illustrate the point at issue, suppose that a particular skill acquired by education can be used in two different ways; for example, medical skill in research or in private practice. Suppose that, if money earnings were the same, individuals would generally prefer research. The non-pecuniary advantages of research would then tend to be offset by higher money earnings in private practice. These higher earnings would be included in the sum to which the fraction x was applied whereas the monetary equivalent of the non-pecuniary advantages of research would not be. In consequence, the earnings differential would have to be higher under the plan than if individuals could finance themselves, since it is the net monetary differential, not the gross, that individuals would balance against the non-pecuniary advantages of research in deciding how to use their skill. This result would be produced by a larger than optimum fraction of individuals going into research necessitating a higher value of x to make the scheme self-financing than if the value of the non-pecuniary advantages could be included in calculated earnings. The inappropriate use of human capital financed under the plan would in this way lead to a less than optimum incentive to invest and so to a less than optimum amount of investment.12

Estimation of the values of x and y clearly offers considerable difficulties, especially in the early years of operation of the plan, and the danger would always be present that they would become political footballs. Information on existing earnings in various occupations is relevant but would hardly permit anything more than a rough approximation to the values that would render the project self-financing. In addition, the values should in principle vary from individual to individual in accordance with any differences in expected earning capacity that can be predicted in advance — the problem is similar to that of varying life insurance premia among groups that have different life expectancy. For such reasons as these it would be preferable if similar arrangements could be developed on a private basis by financial institutions in search of outlets for investing their funds, non-profit institutions such as private foundations, or individual universities and colleges.

Insofar as administrative expense is the obstacle to the development of such arrangements on a private basis, the appropriate unit of government to make funds available is the Federal government in the United States rather than smaller units. Any one State would have the same costs as an insurance company, say, in keeping track of the people whom it had financed. These would be minimized for the Federal government. Even so, they would not be completely eliminated. An individual who migrated to another country, for example, might still be legally or morally obligated to pay the agreed-on share of his earnings, yet it might be difficult and expensive to enforce the obligation. Highly successful people might therefore have an incentive to migrate. A similar problem arises, of course, also under the income tax, and to a very much greater extent. This and other administrative problems of conducting the scheme on a Federal level, while doubtless troublesome in detail, do not seem serious. The really serious problem is the political one already mentioned: how to prevent the scheme from becoming a political football and in the process being converted from a self-financing project to a means of subsidizing vocational education.

But if the danger is real, so is the opportunity. Existing imperfections in the capital market tend to restrict the more expensive vocational and professional training to individuals whose parents or benefactors can finance the training required. They make such individuals a “non-competing” group sheltered from competition by the unavailability of the necessary capital to many individuals, among whom must be large numbers with equal ability. The result is to perpetuate inequalities in wealth and status. The development of arrangements such as those outlined above would make capital more widely available and would thereby do much to make equality of opportunity a reality, to “diminish inequalities of income and wealth, and to promote the full use of our human resources. And it would do so not, like the outright redistribution of income, by impeding competition, destroying incentive, and dealing with symptoms, but by strengthening competition, making incentives effective, and eliminating the causes of inequality.

Conclusion

This re-examination of the role of government in education suggests that the growth of governmental responsibility in this area has been unbalanced. Government has appropriately financed general education for citizenship, but in the process it has been led also to administer most of the schools that provide such education. Yet, as we have seen, the administration of schools is neither required by the financing of education, nor justifiable in its own right in a predominantly free enterprise society. Government has appropriately been concerned with widening the opportunity of young men and women to get professional and technical training, but it has sought to further this objective by the inappropriate means of subsidizing such education, largely in the form of making it available free or at a low price at governmentally operated schools.

The lack of balance in governmental activity reflects primarily the failure to separate sharply the question what activities it is appropriate for government to finance from the question what activities it is appropriate for government to administer — a distinction that is important in other areas of government activity as well. Because the financing of general education by government is widely accepted, the provision of general education directly by governmental bodies has also been accepted. But institutions that provide general education are especially well suited also to provide some kinds of vocational and professional education, so the acceptance of direct government provision of general education has led to the direct provision of vocational education. To complete the circle, the provision of vocational education has, in turn, meant that it too was financed by government, since financing has been predominantly of educational institutions not of particular kinds of educational services.

The alternative arrangements whose broad outlines are sketched in this paper distinguish sharply between the financing of education and the operation of educational institutions, and between education for citizenship or leadership and for greater economic productivity. Throughout, they center attention on the person rather than the institution. Government, preferably local governmental units, would give each child, through his parents, a specified sum to be used solely in paying for his general education; the parents would be free to spend this sum at a school of their own choice, provided it met certain minimum standards laid down by the appropriate governmental unit. Such schools would be conducted under a variety of auspices: by private enterprises operated for profit, nonprofit institutions established by private endowment, religious bodies, and some even by governmental units.

For vocational education, the government, this time however the central government, might likewise deal directly with the individual seeking such education. If it did so, it would make funds available to him to finance his education, not as a subsidy but as “equity” capital. In return, he would obligate himself to pay the state a specified fraction of his earnings above some minimum, the fraction and minimum being determined to make the program self-financing. Such a program would eliminate existing imperfections in the capital market and so widen the opportunity of individuals to make productive investments in themselves while at the same time assuring that the costs are borne by those who benefit most directly rather than by the population at large.

An alternative, and a highly desirable one if it is feasible, is to stimulate private arrangements directed toward the same end. The result of these measures would be a sizable reduction in the direct activities of government, yet a great widening in the educational opportunities open to our children. They would bring a healthy increase in the variety of educational institutions available and in competition among them. Private initiative and enterprise would quicken the pace of progress in this area as it has in so many others. Government would serve its proper function of improving the operation of the invisible hand without substituting the dead hand of bureaucracy.

Note: I am indebted to P. T. Bauer, A. R. Prest, and H. G. Johnson for helpful comments on an earlier draft of this paper.

Notes

1. It is by no means so fantastic as may at first appear that such a step would noticeably affect the size of families. For example. one explanation of the lower birth rate among higher than among lower socio-economic groups may well be that children are relatively more expensive to the former, thanks in considerable measure to the higher standards of education they maintain and the costs of which they bear.

2. Essentially this proposal — public financing but private operation of education has recently been suggested in several southern states as a means of evading the Supreme Court ruling against segregation. This fact came to my attention after this paper was essentially in its present form. My initial reaction — and I venture to predict, that of most readers — was that this possible use of the proposal was a count against it, that it was a particularly striking case of the possible defect — the exacerbating of class distinctions — referred to in the second paragraph preceding the one to which this note is attached.

Further thought has led me to reverse my initial reaction. Principles can be tested most clearly by extreme cases. Willingness to permit free speech to people with whom one agrees is hardly evidence of devotion to the principle of free speech; the relevant test is willingness to permit free speech to people with whom one thoroughly disagrees. Similarly, the relevant test of the belief in individual freedom is the willingness to oppose state intervention even when it is designed to prevent individual activity of a kind one thoroughly dislikes. I deplore segregation and racial prejudice; pursuant to the principles set forth at the outset of the paper, it is clearly an appropriate function of the state to prevent the use of violence and physical coercion by one group on another; equally clearly, it is not an appropriate function of the state to try to force individuals to act in accordance with my — or anyone else’s views, whether about racial prejudice or the party to vote for, so long as the action of anyone individual affects mostly himself. These are the grounds on which I oppose the proposed Fair Employment Practices Commissions; and they lead me equally to oppose forced nonsegregation. However, the same grounds also lead me to oppose forced segregation. Yet, so long as the schools are publicly operated, the only choice is between forced nonsegregation and forced segregation; and if I must choose between these evils, I would choose the former as the lesser.

The fact that I must make this choice is a reflection of the basic weakness of a publicly operated school system. Privately conducted schools can resolve the dilemma. They make unnecessary either choice. Under such a system, there can develop exclusively white schools, exclusively colored schools, and mixed schools. Parents can choose which to send their children to. The appropriate activity for those who oppose segregation and racial prejudice is to try to persuade others of their views; if and as they succeed, the mixed schools will grow at the expense of the nonmixed, and a gradual transition will take place. So long as the school system is publicly operated, only drastic change is possible; one must go from one extreme to the other; it is a great virtue of the private arrangement that it permits a gradual transition.

An example that comes to mind as illustrating the preceding argument is summer camps for children. Is there any objection to the simultaneous existence of some camps that are wholly Jewish, some wholly non-Jewish, and some mixed? One can — though many who would react quite differently to negro-white segregation — would not explore the existence of attitudes that lead to the three types; one can seek to propagate views that would tend to the growth of the mixed school at the expense of the extremes; but is it an appropriate function of the state to prohibit the unmixed camps?

The establishment of private schools does not of itself guarantee the desirable freedom of choice on the part of parents. The public funds could be made available subject to the condition that parents use them solely in segregated schools; and it may be that some such condition is contained in the proposals now under consideration by southern states. Similarly, the public funds could be made available for use solely in nonsegregated schools. The proposed plan is not therefore inconsistent with either forced segregation or forced nonsegregation. The point is that it makes available a third alternative.

3. See George J. Stigler. Employment and Compensation in Education, (National Bureau of Economic Research, Occasional Paper 1111, 1950). p. 1111.

4. The subsidizing of basic research for example. I have interpreted education narrowly so as to exclude considerations of this type which would open up an unduly wide field.

5. The increased return may be only partly in a monetary form; it may also consist of non-pecuniary advantages attached to the occupation for which the vocational training fits the individual. Similarly, the occupation may have nonpecuniary disadvantages, which would have to be reckoned among the costs of the investment.

6. For a more detailed and precise statement of the considerations entering into the choice of an occupation, see Milton Friedman and Simon Kuznets, Income from Independent Professional Practice, (National Bureau of Economic Research, N.Y., 1945). pp. 81-94, 118-37.

7. Ibid., pp. 68-69. 84. 148-51.

8. Ibid., pp. 88-94.

9. Education and Economic Well-Being in American Democracy , (Educational Policies Commission, National Education Association of United States and American Association of School Administrators, 1940).

10. Despite these obstacles to fixed money loans, I am told that they have been a very common means of financing university education in Sweden, where they have apparently been available at moderate rates of interest. Presumably a proximate explanation is a smaller dispersion of income among university graduates than in the United States. But this is no ultimate explanation and may not be the only or major reason for the difference in practice. Further study of Swedish and similar experience is highly desirable to test whether the reasons given above are adequate to explain the absence in the United States and other countries of a highly developed market in loans to finance vocational education, or whether there may not be other obstacles that could be removed more easily.

11. It is amusing to speculate on how the business could be done and on some ancillary methods of profiting from it. The initial entrants would be able to choose the very best investments, by imposing very high quality standards on the individuals they were willing to finance. If they did so, they could increase the profitability of their investment by getting public recognition of the superior quality of the individuals they financed: the legend, “Training financed by XYZ Insurance Company” could be made into an assurance of quality (like “Approved by Good Housekeeping”) that would attract custom. All sorts of other common services might be rendered by the XYZ company to “its” physicians, lawyers, dentists, and so on.

12. The point in question is familiar in connection with the disincentive effects of income taxation. An example that perhaps makes this clearer than the example in the text is to suppose that the individual can earn $5, say, by some extra work and would just be willing to do so if he could keep the whole $5 — that is, he values the non-pecuniary costs of the extra worth at just under $5. If x is say 0.10, he only keeps $4.50 and this will not be enough to induce him to do the extra work. It should be noted that a plan involving fixed money loans to individuals might be less seriously affected by differences among various uses of skills in non-pecuniary returns and costs than the plan for equity investment under consideration. It would not however be unaffected by them; such differences would tend to produce different frequencies of default depending on the use made of the skill and so unduly favor uses yielding relatively high non-pecuniary returns or involving relatively low non-pecuniary costs. I am indebted to Harry G. Johnson and Paul W. Cook, Jr., for suggesting the inclusion of this qualification. For a fuller discussion of the role of non-pecuniary advantages and disadvantages in determining earnings in different pursuits. See Friedman and Kuznets, loc. cit.

ADVICE FOR PRESIDENT TRUMP:Free to Choose Part 6: What’s Wrong With Our Schools Featuring Milton Friedman

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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

_____________________

________

Dan Mitchell article: The European Union Threatens Global Prosperity with Carbon Protectionism

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The European Union Threatens Global Prosperity with Carbon Protectionism

Recent years have been very depressing for supporters of free trade.

Trump pushed protectionist policies.

Now Biden is pushing protectionist policies.

And the European Union is pushing protectionist policies using global warming as an excuse.

More specifically, EU politicians and bureaucrats in Brussels have rammed through a so-called Carbon Border Adjustment Mechanism (CBAM), which is euro-speak for a new protectionist tax on imports that are not sufficiently green.

The Wall Street Journal‘s editorial summarizes some of the problems.

The European Parliament this week pulled the trigger on the opening shot in a new climate trade war. …Foreign companies that haven’t paid for carbon emissions at home will have to pay a tariff when exporting goods to Europe. …Climate coercion advocates say a tariff is needed to avoid “carbon leakage,” which is their term for the flight of manufacturing to countries with less onerous emissions restrictions.This is a tacit admission that Europe’s climate policies are failing. …European consumers won’t pay higher prices for greener goods unless the Brussels tax man forces them to. …Foreign companies and governments have raised concerns about the European carbon border tax, which imposes complex and costly compliance burdens and then imposes steep default tariffs on companies that don’t play along. China and India are in the crosshairs of this border tax, although companies from any country that doesn’t impose emissions taxes will have to pay. That includes U.S. firms. …Consumers will be the big losers, first in Europe and then elsewhere.

In his Bloomberg column, Professor Tyler Cowen pointed out some practical problems with the EU’s scheme.

There is a right and a wrong way to encourage the world to use greener energy. Unfortunately, the European Union’s move toward a carbon tax on imports — essentially a tariff on products made using too much dirty energy — is the latter. …Economic changes take place at the margin, and currently the EU is engaged in substitution toward coal, a very dirty energy source. …The tariffs will lead to more coal use and a dirtier energy supply. Be suspicious of green energy policies which at first make the problem worse. …So, despite about as strong an incentive as possible — a war — the EU made the harmful rather than the beneficial adjustment. Now it is expecting that much poorer nations, often with worse governance structures, to do better. Not only is this naïve, but it is also protectionist….it’s easy to imagine China and India not improving their energy policies as a result of EU tariffs. They, like the EU, have domestic pressure groups… In general, Western attempts to shape those nations have failed more than they have succeeded. So again the negative short-term results of the policy — more European coal use — could outweigh any longer-run benefits. Even the positive long-run effects are up for grabs. …the tariff hike…makes the exporting nations poorer than they otherwise would be. Poorer nations tend to be less interested in improving their environments… And extreme poverty worsens other global problems… Should EU policy make it more difficult for Africa to industrialize? …Once protectionist measures are in place, they are hard to reverse. The EU would be reaping tariff revenue, and domestic EU industries would be receiving trade protection. Any reclassification of the imports as fundamentally “greener” would require an investigation across borders and clearance through multiple levels of bureaucracy. Such changes will not be easy to accomplish, especially in an era increasingly enamored of trade restrictions. …the most likely scenario will play itself out: The EU will spin its wheels, indulging in protectionism and feeling good about itself — all at the expense of our planet’s future.

The part about “reclassification of imports” is especially worrisome. For all intents and purposes, the EU will have a corruption-enabling process where industries on all sides will have incentives to hire lots of lobbyists.

That will line the pockets of bureaucrats who “retire” and become facilitators, but it won’t be good for anyone else.

Last but not least, Tori Smith explained for American Action Forum that the EU’s protectionist approach is a violation of trade commitments.

International trade law and WTO experts such as Joel Trachtman of Tufts University and Jennifer Hillman of the Council on Foreign Relations have examined at length the areas where a CBAM might trigger a WTO violation… there do seem to be three principles to follow to have a “reduced risk of violating WTO law” when considering a CBAM: (1) the carbon tax must apply to domestic goods and imports; (2) imports from all WTO members must be treated the same; and (3) rebates for exports cannot exceed the carbon tax. …The EU’s CBAM could run afoul of these commitments because it gives special treatment to countries that already have a carbon price. … Compliance with WTO commitments should be a top priority when considering any new tariff or tax.

Sadly, the World Trade Organization already has been weakened, so I won’t be surprised if officials somehow decide to give a green light to the EU’s protectionism.

Which will be a shame since the WTO for many years actually did a good job.

P.S. You won’t be surprised to learn that the Biden Administration also is interested in carbon protectionism. Indeed, there was plenty of green protectionism is his misnamed Inflation Reduction Act.

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Donald Trump and Milton Friedman Debate Free Trade

If it wasn’t for Bernie Sanders, Donald Trump would win the title of most economically illiterate presidential candidate in the short history of the twenty-first century.

A prime example of why he’d earn this ignoble title is Trump’s opposition to free trade — a position which, not surprisingly, he shares with Sanders. The only real difference between Sanders and Trump on this issue is that no one trust that Trump would actually carry out his proposed destructive policies (he’d flip-flop on the issue like he does on everything else), while Sanders would be devastatingly consistent.

The video below compares and contrasts Trump’s ignorance about free trade with the wisdom of Milton Friedman, one of the greatest economists in American history.

Trump vs Friedman – Trade Policy Debate

Published on Nov 9, 2015

Import tariffs v. free trade, argued by Donald Trump and Milton Friedman. http://www.LibertyPen.com

If judged on substance, it’s obvious Friedman wins this debate. But in the long run Trump and other anti-free market politicians are likely to continue to convince the public to support their terrible, anti-trade policies. When it comes to economics, Americans have a tendency to reject policies that make our country more prosperous in favor of ignorant demagoguery that gives the appearance of punishing foreign nations.

(Via: AEI Ideas)

JOE CARTER Joe Carter is a Senior Editor at the Acton Institute. Joe also serves as an editor at the The Gospel Coalition, a communications specialist for the Ethics and Religious Liberty Commission of the Southern Baptist Convention, and as an adjunct professor of journalism at Patrick Henry College. He is the editor of the NIV Lifehacks Bible and co-author of How to Argue like Jesus: Learning Persuasion from History’s Greatest Communicator (Crossway).

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By Everette Hatcher III | Also posted in Current Events | Tagged , , , , | Edit | Comments (0)

Dan Mitchell: “The bottom line is that budget deficits don’t necessarily lead to inflation. But if a government is untrustworthy, then it will have trouble issuing debt to private investors”

——

Milton Friedman – Deficits and Government Spending

——

The Federal Reserve and “Fiscal Dominance”

Appearing on Vance Ginn’s Let People Prosper, I discussed spending caps, entitlement reform, past fiscal victories, and potential future defeats.

For today, I want to highlight what I said about monetary policy.

The above segment is less than three minutes, and I tried to make two points.

First, as I’ve previously explained, the Federal Reserve goofed by dramatically expanding its balance sheet (i.e., buying Treasury bonds and thus creating new money) in 2020 and 2021. That’s what produced the big uptick in consumer prices last year.

And it’s now why the Fed is raising interest rates. Part of the boom-bust cycle that you get with bad monetary policy.

Second, I speculate on why we got bad monetary policy.

I’ve always assumed that the Fed goofs because it wants to stimulate the economy (based on Keynesian monetary theory).

But I’m increasingly open to the idea that the Fed may be engaging in bad monetary policy in order to prop up bad fiscal policy.

To be more specific, what if the central bank is buying government bonds because of concerns that there otherwise won’t be enough buyers (which is the main reason why there’s bad monetary policy in places such as Argentina and Venezuela).

In the academic literature, this is part of the discussion about “fiscal dominance.” As shown in this visual, fiscal dominance exists when central banks decide (or are forced) to create money to finance government spending.

The visual is from a report by Eric Leeper for the Mercatus Center. Here’s some of what he wrote.

…a critical implication of fiscal dominance: it is a threat to central bank success. In each example, the central bank was free to choose not to react to the fiscal disturbance—central banks are operationally independent of fiscal policy. But that choice comes at the cost of not pursuing a central bank legislated mandate: financial stability or inflation control. Central banks are not economically independent of fiscal policy, a fact that makes fiscal dominance a recurring threat to the mission of central banks and to macroeconomic outcomes. …why does fiscal dominance strike fear in the hearts of economists and financial markets? Perhaps it does so because we can all point to extreme examples where fiscal policy runs the show and monetary policy is subjugated to fiscal needs. Outcomes are not pleasant. Germany’s hyperinflation in the early 1920s may leap to mind first. …The point of creating independent central banks tasked with controlling inflation…was to take money creation out of the hands of elected officials who may be tempted to use it for political gain instead of social wellbeing.

A working paper from the St. Louis Federal Reserve Bank, authored by Fernando Martin, also discusses fiscal dominance.

In recent decades, central banks around the world have gained independence from fiscal and political institutions. The proposition is that a disciplined monetary policy can put an effective brake on the excesses of political expediency.This is frequently achieved by endowing central banks with clear and simple goals (e.g., an inflation mandate or target), as well as sufficient control over specific policy instruments… Despite these institutional advances, the resolve of central banks is chronically put to the test. … the possibility of fiscal dominance arises only when the fiscal authority sets the debt level.

The bottom line is that budget deficits don’t necessarily lead to inflation. But if a government is untrustworthy, then it will have trouble issuing debt to private investors.

And that’s when politicians will have incentives to use the central bank as a printing press.

P.S. Pay attention to Italy. The European Central Bank has been subsidizing its debt. That bad policy supposedly is coming to an end and things could get interesting.

——-

A.F. Branco for Oct 21, 2021

US Debt by President: By Dollar and Percentage

Who increased the U.S. debt the most? That depends on how you measure it.

US President Barack Obama (L) former President Bill Clinton (C) and former President George W. Bush (R) walk to the Rose Garden
PHOTO:MARK WILSON/STAFF/GETTY IMAGES

What’s the best way to determine how much each president has contributed to our nation’s $31 trillion in U.S. debt? The most popular ways to measure involve comparing the debt level from when a president enters office to the debt level when they leave. It’s also good to compare the debt as a percentage of economic output, which takes into account the size of the economy at the time the administration accumulated the debt.1

Drawback of Measuring Debt by President

Neither of the techniques mentioned above is a very accurate way to measure each president’s impact on the national debtbecause the president doesn’t have much control over the national debt during their first year in office.

For example, President Donald Trump took office in January 2017. He submitted his first budget in May. It covered the 2018 fiscal year, which didn’t begin until October 1, 2017. Trump operated the first part of his term under President Barack Obama’s budget for fiscal year 2017, which ended on Sept. 30, 2017.2

fusing, Congress intentionally sets it up this way. An advantage of the federal fiscal year is that it gives the new president time to put together their budget during their first months in office.

The Best Way to Measure Debt by President

The best way to measure a president’s debt is to add up their budget deficits and compare that total to the debt level when they took office. A president’s budget reveals their administration’s priorities.

Note

Though they sound similar, deficit and debt are two different things. A deficit is a budget shortfall, whereas debt is the running total of all deficits and surpluses. Deficits add to the debt, while surpluses reduce it.

Top 5 Presidents Who Contributed to the Debt by Percentage

Franklin D. Roosevelt (1933-1945)

President Roosevelt added the largest percentage increase to the national debt. Although he only added $236 billion, this was an increase of about 1,048% from the $22.5 billion debt level left by President Herbert Hoover before him. The Great Depression and the New Deal contributed to FDR’s yearly deficits, but the biggest cost was World War II—it added $186.3 billion to the debt between 1942 and 1945.3

Woodrow Wilson (1913-1921)

President Wilson was the second-largest contributor to the debt, percentage-wise. He added about $21 billion, which was a 723% increase over the $2.9 billion debt of his predecessor. World War I contributed to the deficits that raised the national debt.3

Ronald Reagan (1981-1989)

President Reagan increased the debt by $1.86 trillion, or by 186%. Reagan’s supply-side economics didn’t grow the economy enough to offset the lost revenue from its tax cuts. Reagan also increased the defense budget by 35%.4

George W. Bush (2001-2009)

President Bush added $5.85 trillion to the national debt. That’s a 101% increase, putting him in fourth. Bush launched the War on Terror in response to the 9/11 attacks, which led to multi-trillion-dollar spending on the War in Afghanistan and the War in Iraq. Bush also dealt with the 2001 recession and the 2008 financial crisis.5

Barack Obama (2009-2017)

Under President Obama, the national debt grew the most in dollar terms ($8.6 trillion) and was fifth by percentage at 74%. Obama fought the Great Recession with an $831 billion economic stimulus package and added $858 billion through tax cuts. Even though the fiscal year 2009 budget was set by President Bush, Obama added to it with the Economic Stimulus Act in 2009.657

US Debt Increase by President Per Fiscal Year

The U.S. Treasury Department has historical tables that report the annual U.S. debt for each fiscal year (FY) since 1790. We’ve compiled this data from that source to create the figures used below.81

Joe Biden

In January 2023, the nation hit the $31.4 trillion debt limit Congress passed in 2021.9Republican lawmakers control the House of Representatives and said they won’t raise the debt limit unless Democrats, who control the Senate, agree to budget cuts.

On Oct. 1, 2021, at the end of fiscal year 2021, the national debt was $28.4 trillion. Between the end of fiscal year 2020 and the end of fiscal year 2021, the national debt grew $1.5 trillion, a 5.6% increase year over year. For fiscal year 2022, President Joe Biden’s budget included a deficit of $1.84 trillion, and by August 2022, the national debt had grown to $30.8 trillion.110

When Biden took office, the economy and household finances were still reeling from the pandemic, and Biden continued his predecessor’s policy of spending heavily to keep households afloat. In March 2021, Biden signed the American Rescue Plan, which showered taxpayers with pandemic relief cash in the form of stimulus checks and extra unemployment payments, and temporarily expanded child tax credits, plus other help. It all came with a cost to future budgets: The bill would add $1.9 trillion to the national debt by 2031, the Congressional Budget Office estimated.11

The bipartisan infrastructure bill, signed by Biden in November 2021, which provided new funding for highways, railways, broadband Internet expansion and other projects, added to the debt too, with estimates on its 10-year impact ranging from $374 billion to $400 billion, depending on how it’s calculated.1213

Some of Biden’s actions cut the other way. In August 2022, Biden signed the Inflation Reduction Act, an anti-climate change bill that spent money on new green energy programs and tax credits as well as to make drugs cheaper for patients, and paid for it by raising taxes on corporations and the ultra-wealthy. The bill should reduce the national debt by $102 billion by 2031, the CBO estimated.14

Biden followed up this bill with an executive action that forgave up to $10,000 of federal student loan debt per borrower, and $20,000 for those who received Pell Grants. He also proposed a new, cheaper income-driven student loan repayment program for future borrowers. However, he also announced that student loan interest and required payments, both of which had been frozen since the pandemic hit, would resume in January 2023.15

In August 2022, the government did not have an official estimate for how these measures would impact the national debt. One piece of it—forgiving $10,000 of debt per student loan borrower—would cost $329.7 billion over 10 years, according to an estimate by the Wharton School of Business.16

Donald Trump

At the end of fiscal year 2020, the debt was $26.9 trillion. Trump added $6.7 trillion to the debt between fiscal year 2017 and fiscal year 2020, a 33.1% increase, largely due to the effects of the coronavirus pandemic and 2020 recession.

In his FY 2021 budget, Trump’s budget included a $966 billion deficit.17 However, the national debt actually grew by $1.5 trillion between October 1, 2020, and October 1, 2021.

  • FY 2021: $1.5 trillion
  • FY 2020: $4.2 trillion
  • FY 2019: $1.2 trillion
  • FY 2018: $1.3 trillion

Barack Obama

President Obama added about $8.6 trillion, about a 74% increase, to the national debt at the end of President Bush’s last budget in 2009.

  • FY 2017: $671 billion
  • FY 2016: $1.42 trillion
  • FY 2015: $326 billion
  • FY 2014: $1.09 trillion
  • FY 2013: $672 billion
  • FY 2012: $1.28 trillion
  • FY 2011: $1.23 trillion
  • FY 2010: $1.65 trillion
  • FY 2009: $253 billion (Congress passed the Economic Stimulus Act, which spent $253 billion)18

George W. Bush

President Bush added $5.85 trillion to the national debt, a 101% increase from the $5.8 trillion debt at the end of Clinton’s last budget for fiscal year 2001.

  • FY 2009: $1.63 trillion (this was Bush’s deficit without the impact of the Economic Stimulus Act)
  • FY 2008: $1.02 trillion
  • FY 2007: $501 billion
  • FY 2006: $574 billion
  • FY 2005: $553 billion
  • FY 2004: $596 billion
  • FY 2003: $555 billion
  • FY 2002: $421 billion

Bill Clinton

President Clinton increased the national debt by almost $1.4 trillion, almost a 32% increase from the $4.4 trillion debt at the end of President H.W. Bush’s last budget.54

  • FY 2001: $133 billion
  • FY 2000: $18 billion
  • FY 1999: $130 billion
  • FY 1998: $113 billion
  • FY 1997: $189 billion
  • FY 1996: $251 billion
  • FY 1995: $281 billion
  • FY 1994: $281 billion

George H.W. Bush

President H.W. Bush added $1.55 trillion to the debt, a 54% increase from the $2.857 trillion debt at the end of Reagan’s last budget.4

  • FY 1993: $347 billion
  • FY 1992: $399 billion
  • FY 1991: $432 billion
  • FY 1990: $376 billion

Ronald Reagan

President Regan added $1.86 trillion to the national debt, a 186% increase from the $997.8 billion debt at the end of Carter’s last budget.4

  • FY 1989: $255 billion
  • FY 1988: $252 billion
  • FY 1987: $225 billion
  • FY 1986: $302 billion
  • FY 1985: $251 billion
  • FY 1984: $195 billion
  • FY 1983: $235 billion
  • FY 1982: $145 billion

Jimmy Carter

President Carter added $299 billion to the debt, a 42.7% increase from the $698.8 billion debt at the end of Ford’s last budget.4

  • FY 1981: $90.1 billion
  • FY 1980: $81.1 billion
  • FY 1979: $54.9 billion
  • FY 1978: $72.7 billion

Gerald Ford

President Ford added $223.7 billion to the debt.4

  • FY 1977: $78.4 billion
  • FY 1976: $87.2 billion
  • FY 1975: $58.1 billion

Richard Nixon

President Nixon added $121.1 billion to the national debt, a 34% increase from the $353.7 billion debt at the end of President Johnson’s last budget.4

  • FY 1974: $16.9 billion
  • FY 1973: $30.8 billion
  • FY 1972: $29.1 billion
  • FY 1971: $27.2 billion
  • FY 1970: $17.1 billion

Lyndon B. Johnson

President Johnson added $41.8 billion to the national debt, just a small 13% increase from the $312 billion debt at the end of President Kennedy’s time in office in 1964.4

  • FY 1969: $6.1 billion
  • FY 1968: $21.3 billion
  • FY 1967: $6.3 billion
  • FY 1966: $2.6 billion
  • FY 1965: $5.5 billion

John F. Kennedy

President Kennedy added $22.6 billion to the national debt.4

  • FY 1964: $5.8 billion
  • FY 1963: $7.6 billion
  • FY 1962: $9.2 billion

Dwight Eisenhower

President Eisenhower added $22.8 billion to the national debt.4

  • FY 1961: $2.6 billion
  • FY 1960: $1.6 billion
  • FY 1959: $8.3 billion
  • FY 1958: $5.8 billion
  • FY 1957: $2.2 billion surplus
  • FY 1956: $1.6 billion surplus
  • FY 1955: $3.1 billion
  • FY 1954: $5.1 billion

Harry Truman

President Truman added $7.3 billion to the national debt.43

  • FY 1953: $6.9 billion
  • FY 1952: $3.8 billion
  • FY 1951: $2.1 billion surplus
  • FY 1950: $4.5 billion
  • FY 1949: $478 million surplus
  • FY 1948: $6 billion surplus
  • FY 1947: $11 billion surplus
  • FY 1946: $10.7 billion

Franklin D. Roosevelt

President Roosevelt increased the national debt by $236 billion, a 1,048% increase from the $22.5 billion debt at the end of Hoover’s last budget.3

  • FY 1945: $57.7 billion
  • FY 1944: $64.3 billion
  • FY 1943: $64.2 billion
  • FY 1942: $23.5 billion
  • FY 1941: $6 billion
  • FY 1940: $2.5 billion
  • FY 1939: $3.2 billion
  • FY 1938: $740 million
  • FY 1937: $2.6 billion
  • FY 1936: $5 billion
  • FY 1935: $1.6 billion
  • FY 1934: $4.5 billion

Herbert Hoover

President Hoover added about $5.7 billion to the national debt.3

  • FY 1933: $3 billion
  • FY 1932: $2.8 billion
  • FY 1931: $616 million
  • FY 1930: $746 million surplus

Calvin Coolidge

President Coolidge reduced the national debt by about $5.3 billion.3

  • FY 1929: $673 million surplus
  • FY 1928: $907 million surplus
  • FY 1927: $1.1 billion surplus
  • FY 1926: $873 million surplus
  • FY 1925: $734.6 million surplus
  • FY 1924: $1 billion surplus

Warren G. Harding

President Harding reduced the national debt by about $1.6 billion thanks to budget surpluses.3

  • FY 1923: $614 million surplus
  • FY 1922: $1 billion surplus

Woodrow Wilson

President Wilson added about $21 billion to the national debt, a 723% increase from the $2.9 billion debt at the end of Taft’s last budget for fiscal year 1913.3

  • FY 1921: $1.9 billion surplus
  • FY 1920: $1.4 billion surplus
  • FY 1919: $12.8 billion
  • FY 1918: $9.8 billion
  • FY 1917: $2.1 billion
  • FY 1916: $551 million
  • FY 1915: $146 million
  • FY 1914: $0 (slight surplus)

Note

All presidents from 1790 to 1913 added a total of $2.8 billion to the national debt.8

Frequently Asked Questions (FAQ)

Which president has put the United States the most in debt?

President Joe Biden is on track to add the most to the budget deficit, largely due to the costs associated with continuing to battle the coronavirus pandemic. In late 2021, Congress voted to raise the debt ceiling.

Why does the United States owe so much debt?

Continued decreases in the amount of taxes paid by corporations and the wealthiest Americans have resulted in less money coming in. At the same time, spending on pandemic relief and the military continues to increase.

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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Democrats Refuse to Deal as House Republicans Deliver a Pro-Growth Bill to Reduce Spending

A.F. Branco for Oct 21, 2021

It’s important to understand why House Republicans’ proposal on the debt ceiling would be an excellent step toward restoring fiscal sanity to the Washington swamp. Pictured: President Joe Biden presents a copy of his State of the Union speech Feb. 7 to House Speaker Kevin McCarthy, R-Calif., before delivering the address to a joint session of Congress. (Photo: Jacquelyn Martin/Pool/Getty Images)

House Speaker Kevin McCarthy, R-Calif., releasedtext April 19 of legislation dubbed the Limit, Save, Grow Act. The bill, a focus of internal negotiationsamong House Republicans, would provide an increase in the federal debt ceiling lasting into next spring in exchange for a package of reforms aimed at lowering future deficits and boosting economic growth.

This approach of pairing debt ceiling increases with fiscally responsible reforms has public support, but Washington has an uneven track record of doing the right thing. In recent years, Congress has tended to punt and allow huge increases to the federal debt limit without any meaningful reforms.

Kicking the can down the road is exactly what Senate Majority Leader Chuck Schumer, R-N.Y., wants.

A “clean” debt limit increase such as Democrats seek would mean ignoring the stark reality of what America’s financial trajectory looks like:

McCarthy has criticized President Joe Biden for an unwillingness to negotiate a debt limit deal, which puts Biden to the left of former Presidents Bill Clinton and Barack Obama, both fellow Democrats. Even House Democrats are concerned about Biden’s approach.

Although there is no telling how the debt standoff drama will play out, it’s important to understand why House Republicans’ proposal would be an excellent step toward restoring fiscal sanity to the Washington swamp.

In turn, deficit reduction also would  go a long way toward slowing the inflation that has punished hardworking families since the start of the Biden administration.

Bringing Spending Back to Earth, Repealing Unspent COVID-19 Cash

On the spending side, the most significant proposal in House Republicans’ Limit, Save, Grow Act is a reduction in discretionary spending, which covers most federal activity outside of major benefit programs.

The bill would reduce budget authority for fiscal year 2024 to the level of fiscal year 2022, then allow increases of 1% per year moving forward.

Although this might seem like a modest change—reverting to spending levels passed less than two years ago—it would lead to big savings.

That’s because Congress passed a bloated, pork-filled spending frenzy to cover fiscal year 2023, which began Oct. 1. Merely undoing the spending increases from that one-year period would save taxpayers $131.3 billion.

Holding spending growth to 1% per year, rather than the almost 9% growth in the last bill, would lead directly to even larger savings every year thereafter, as well as significantly reduced net interest costs.

The Congressional Budget Office estimates that this approach would save $3.2 trillion over a decade, or about $25,000 per household.

If Congress enacts a long-term discretionary spending limit, it’s vital for taxpayers to hold their representatives’ feet to the fire. The Budget Control Act of 2011 led to spending caps that saved hundreds of billions of dollars, but the caps eventually were undone in a series of bipartisan deals.

Americans must remember that members of Congress will not do the right thing with public funds unless they know that there will be consequences for irresponsibility. As the tea party movement waned, Washington’s big spenders went hog wild.

Another way the Republican savings package would address reckless spending is by rescinding leftover funds passed during the COVID-19 spending spree, saving tens of billions of dollars.

Ending Biden’s Student Loan Bailouts

The next-largest amount of savings in the Limit, Save, Grow Act, worth $460 billion, would target the Biden administration’s outrageous attempt to cancel student loan debt for those who haven’t felt like repaying what they owe.

This attempted power grab is politically corrupt, so unconstitutional that even then-House Speaker Nancy Pelosi said in 2021 that it would be illegal. It’s an insult to both those who repaid their student debt and to the tens of millions of taxpayers who never took out student loans in the first place.

The House package also would end the loan repayment pause that began in March 2020 as a result of the COVID-19 pandemic. Biden repeatedly has extended the pause, which  now will last through June 30 even though the administration belatedly ended the national emergency two weeks ago.

Trading ‘Green New Deal’ for Low-Cost American Energy

The Limit, Save, Grow Act includes two sections devoted to energy policy:

  • Repeal of a swath of hyper-expensive “green” energy and electric vehicle tax credits passed by Democrats last year.
  • The entirety of HR 1, the Lower Energy Costs Act, which the House passed March 30. It primarily serves to enable more domestic energy production by reforming outdated and cumbersome regulations that impose massive costs for minimal environmental effects.

Although the two sections are not explicitly linked, they flow from the same stream of thought.

Rather than using a mix of taxes, subsidies, and regulations to micromanage the nation’s energy and transportation sectors—the approach of Biden and other progressives—House Republicans would empower Americans to produce and consume energy in ways that best suit them.

This one-two punch has many benefits. It would help prevent energy dependence on China (which controls much of the supply chain for many “green” products such as batteries and rare minerals), grow the economy through increased energy production and lower energy prices, create hundreds of thousands of jobs, and reduce future deficits by hundreds of billions (or even trillions) of dollars.

These provisions would do more to combat inflation than anything Congress has done in decades.

Rescinding That Huge Funding Boost for IRS

The so-called Inflation Reduction Act of 2022 provided the Internal Revenue Service with almost $80 billion of supplemental funding through fiscal year 2031. These funds were in addition to the agency’s regular annual appropriations, which stood at $12.6 billion as of fiscal 2022.

The Limit, Save, Grow Act would rescind most of the unspent portion of the supplemental IRS funding, but would leave in place funding set aside for taxpayer services, business systems modernization (technology improvements), and agency oversight. The new House bill potentially would prevent IRS outlays of more than $45 billion on enforcement and nearly $25 billion on operations between fiscal 2024 and 2031.

The enforcement portion of the IRS funding was perhaps the most controversial element of the biggest tax-and-spend bill of 2022. Enforcement almost entirely consists of new audit examinations and collections.

Repeal of the extra IRS funding would save honest taxpayers in at least three ways, by: (1) reducing direct taxpayer funding to the IRS, (2) reducing the number of costly and time-consuming audits Americans face, and (3) lowering consumer prices by reducing company overhead, especially for small businesses that can ill afford to pay high-priced accountants and lawyers for tax and audit services.

On April 19, the IRS submitted a compendium of its strategic operating plan to the Senate Finance Committee, and that document shows that the IRS plans to amass an enormous enforcement apparatus, more than tripling its spending on enforcement from about $5.4 billion in 2022 to about $16.9 billion in 2031.

If IRS employees assigned to enforcement were to increase at the same rate as enforcement funding, that would allow the IRS to hire more than 76,000 more full-time employees in enforcement by 2031. If the IRS averaged 50 audits of households per year per new full-time employee in enforcement (less than one audit per week per new employee), that would mean 3.8 million additional audits in 2031 alone.

(Incidentally, fewer than 3.8 million American households reported adjusted gross income of greater than $400,000 as of 2020.)

The coming wave of new IRS audits would impose a huge cost on Americans, regardless of whether they themselves were selected for an audit. The $144.5 billion accounting industry would benefit, but everyday Americans would pay the price if labor and scarce resources were diverted from producing the goods and services they need and shifted to the IRS, accountants, and lawyers.

By constraining the IRS and freeing American workers and small businesses from excessive audits, the Limit, Save, Grow Act wouldn’t just save Americans money, it also would limit the expansion of government and grow the economy.

Work Requirements: Good for Welfare Recipients and Taxpayers

An aspect of the Limit, Save, Grow Act that is receiving outsize attention considering its budgetary impact is adding and strengthening work requirements for federal programs such as Medicaid and food stamps.

The estimated savings, in the neighborhood of $100 billion over a decade, are certainly helpful. However, what matters more is the beneficial effect that work requirements have in rescuing families from the trap of dependency on government.

Welfare reform made great strides in the 1990s by steering the able-bodied into the workforce, which in turn dramatically reduced poverty in single-parent households. Unfortunately, some of that progress has been lost in recent years, and millions of open jobs are available to adults who are languishing in the welfare system.

While the Left portrays work requirements as a harmful burden, keeping adults in the workforce actually has a variety of positive effects beyond improved household financials, including better mental and physical health. That means these reforms would be worth passing even if they didn’t reduce future deficits—which they do.

Protecting the Economy from Regulatory Strangulation

Although discussions about the federal budget typically focus on spending and taxes, Congress has another method to reduce long-term deficits: increasing economic growth by reducing burdensome regulations.

The Limit, Save, Grow Act contains the contents of the REINS (Regulations from the Executive in Need of Scrutiny) Act, a measure that would force presidential administrations to receive approval from Congress before implementing major regulations.

This would prevent administrations from abusing executive authority and also make it more difficult for Washington to entangle businesses in additional layers of red tape. Such protections are badly needed due to the radical bend of the Biden administration, which has pushed statutes to a breaking point in pursuit of increasing its control over the economy.

While the REINS Act is only one of many necessary actions Congress should take regarding regulation, it would help bolster economic growth, which in turn would help the nation’s bottom line.

Conclusion: This Can’t Wait

The debate over the debt limit is likely to take center stage in the coming months. Hopefully, Democrats will put aside demagoguery long enough to participate in good faith negotiations.

In the meantime, House and Senate Republicans must stand their ground and make it clear to the public that tackling Washington’s unsustainable, inflationary spending can’t wait.

Have an opinion about this article? To sound off, please email letters@DailySignal.com and we’ll consider publishing your edited remarks in our regular “We Hear You” feature. Remember to include the url or headline of the article plus your name and town and/or state.

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

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