Milton Friedman was an extraordinary Nobel Prize-winning economist whose ideas helped underpin modern conservative economic theory. His contributions to economics and the conservative movement cannot be underestimated. Sadly, Milton Friedman passed away a little more than five years ago at the ripe old age of 94. Although Friedman is no longer with us, his words, his ideas, and his legacy live on. In honor of Friedman, here are some of his best quotations.
10) “If you put the federal government in charge of the Sahara Desert, in 5 years there’d be a shortage of sand.”
9) “I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it’s possible.”
8) “The most important single central fact about a free market is that no exchange takes place unless both parties benefit.”
7) “When everybody owns something, nobody owns it, and nobody has a direct interest in maintaining or improving its condition. That is why buildings in the Soviet Union — like public housing in the United States — look decrepit within a year or two of their construction…”
6) “There is all the difference in the world, however, between two kinds of assistance through government that seem superficially similar: first, 90 percent of us agreeing to impose taxes on ourselves in order to help the bottom 10 percent, and second, 80 percent voting to impose taxes on the top 10 percent to help the bottom 10 percent — William Graham Sumner’s famous example of B and C decided what D shall do for A. The first may be wise or unwise, an effective or ineffective way to help the disadvantaged — but it is consistent with belief in both equality of opportunity and liberty. The second seeks equality of outcome and is entirely antithetical to liberty.”
5) “When the United States was formed in 1776, it took 19 people on the farm to produce enough food for 20 people. So most of the people had to spend their time and efforts on growing food. Today, it’s down to 1% or 2% to produce that food. Now just consider the vast amount of supposed unemployment that was produced by that. But there wasn’t really any unemployment produced. What happened was that people who had formerly been tied up working in agriculture were freed by technological developments and improvements to do something else. That enabled us to have a better standard of living and a more extensive range of products.”
4) “Nobody spends somebody else’s money as carefully as he spends his own. Nobody uses somebody else’s resources as carefully as he uses his own. So if you want efficiency and effectiveness, if you want knowledge to be properly utilized, you have to do it through the means of private property.”
3) “Inflation is taxation without legislation.”
2) “The great danger to the consumer is the monopoly — whether private or governmental. His most effective protection is free competition at home and free trade throughout the world. The consumer is protected from being exploited by one seller by the existence of another seller from whom he can buy and who is eager to sell to him. Alternative sources of supply protect the consumer far more effectively than all the Ralph Naders of the world.”
1) “(T)he supporters of tariffs treat it as self-evident that the creation of jobs is a desirable end, in and of itself, regardless of what the persons employed do. That is clearly wrong. If all we want are jobs, we can create any number — for example, have people dig holes and then fill them up again, or perform other useless tasks. Work is sometimes its own reward. Mostly, however, it is the price we pay to get the things we want. Our real objective is not just jobs but productive jobs — jobs that will mean more goods and services to consume.”
In the New York Times today, columnist Joseph Nocera quotes a book published in 1940 on Herbert Hoover and the Great Depression:
Herbert Hoover was “leery of any direct governmental offensive against the Depression,” writes Allen. “So he stood aside and waited for the healing process to assert itself, as according to the hallowed principles of laissez-faire economics it should.”
OK, let’s go to the tape. In a new Cato study economist Steve Horwitz notes what Hoover really did:
He almost doubled federal spending from 1929 to 1933.
He expanded public works projects to “create jobs.”
He pressured businesses not to cut wages, even in the face of deflation.
He signed the Davis-Bacon Act and the Norris-LaGuardia acts to prop up unions.
He signed the Smoot-Hawley tariff.
He created the Reconstruction Finance Corporation.
He proposed and signed the largest peacetime tax increase in
American history.
And that’s why FDR brains-trusters Rexford Guy Tugwell and Raymond Moley acknowledged later that Hoover “really invented” all the devices of the New Deal. Frederick Lewis Allen might not have recognized that in 1940, but Joseph Nocera should. And if we don’t want to relive the Great Depression, as Nocera worries, then we’d better learn what didn’t work in 1929-33 any better than it worked in 1933-39.
Milton Friedman’s Free to Choose (1980), episode 3 – Anatomy of a Crisis. part 1
FREE TO CHOOSE: Anatomy of Crisis
Friedman Delancy Street in New York’s lower east side, hardly one of the city’s best known sites, yet what happened in this street nearly 50 years ago continues to effect all of us today. Wall Street. Most of us know what happened here 50 years ago. Inside the Stock Exchange on October 29, 1929, the market collapsed. It came to be known as Black Thursday. The Wall Street crash was followed by the worst depression in American history. That depression has been blamed on the failure of capitalism. It was no such thing but the myth lives on. What really happened was very different.
Although things looked healthy on the surface, business had begun to turn down in mid 1929. The crash intensified the recession. So did continuing bank failures in the south and Midwest. But the recession only became a crisis when these failures spread to New York and in particular to this building, then the headquarters of the Bank of United States. The failure of this bank had far reaching effects and need never have happened.
It was something of a historical accident that this particular bank played the role it did. Why did it fail? It was a perfectly good bank. Banks that were in far worse financial shape had come under difficulties before it did and had, through the cooperation of other banks, been saved. The reason why it wasn’t saved has to do with its rather special character. First its name, Bank of United States, a name that made immigrants believe it was an official governmental bank although in fact it was an ordinary commercial bank. Second its ownership, Jewish, both its name and the character of its ownership which had so much to do with attracting the large number of depositors from the many Jewish businessmen in the city of New York. Both of them also had the effect of alienating other bankers who did not like the special advantage of the name and did not like the character of the ownership. As a result, other banks were all too ready to spread rumors, to help promote an atmosphere in which runs got started on the bank and which it came into difficulty. And they were less then usually willing to cooperate in the efforts that were made to save it.
Only a few blocks away is the Federal Reserve Bank of New York. It was here that the Bank of United States could have been saved. Indeed, the Federal Reserve System had been set up 17 years earlier precisely to prevent the worst consequences of bank failures.
The Federal Reserve Bank of New York, whose directors today meet in this room, devised a plan in cooperation with the superintendent of banking of the State of New York to save the Bank of United States. Their plan called for merging the Bank of United States with several other banks and also providing a guarantee fund to be subscribed to by still other bankers to assure the depositors that the assets of the Bank of United States were safe and sound. The Reserve Bank called meeting after meeting to try to put the plan into effect. It was on again, off again. But finally, after an all night meeting on December 10, 1930, the other bankers, including in particular John Pierpont Morgan, refused to subscribe to the guarantee fund and the plan was off. The next day the Bank of United States closed its doors, never again to open for business. For its depositors who saw their savings tied up and their businesses destroyed, the closing was tragic. Yet when the bank was finally liquidated, in the worst years of the depression, it paid back 92.5 cents on the dollar. Had the other banks cooperated to save it, no one would have lost a penny.
For the other New York banks, they thought closing the Bank of United States would have purely local effects. They were wrong. Partly because it had so many depositors, partly because so many of the depositors were small businessmen, partly because it was the largest bank that had ever been permitted to fail in the United States up to this time, the effects were far reaching. Depositors all over the country were frightened about the safety of their funds and rushed to withdraw them. There were runs. There were failures of banks by the droves. And all the time the Federal Reserve System stood idly by when it had the power and the duty and the responsibility to provide the cash that would have enabled the banks to meet the insistent demands of their depositors without closing their doors.
The way runs on banks can spread and can be stopped is a consequence of the way our bank system works. You may think that when you take some cash to a bank and deposit it, the bank takes that money and sticks it in a vault somewhere to wait until you need it again to turn it back over to you.
Bank teller: Okay, how would you like this? Two tens, one five and five ones. Okay.
Friedman: The bank does no such thing with it. It immediately takes a large part of what you put in and lends it out to somebody else. How do you suppose it earns interest, to pay its expenses, or pay you something for the use of your money? The result is that if all depositors in all the banks tried all at once to convert their deposits into cash, there wouldn’t be anything like enough cash in the banks of the country to meet their demands. In order to prevent such an outcome, in order to cut short a run, it is necessary to have some way either to stop people from asking for it, or to have some additional source from which cash can be obtained. That was intended to be the purpose of the Federal Reserve System. It was to provide the additional cash to meet the demands of the depositors when a run arose.
A classic example of how this system could and did work properly can be found over 2,000 miles from New York near the great Salt Lake in Utah.
In the early 30’s some banks in Salt Lake City and surrounding towns began to get into difficulties. The owners of one them were smart enough to see what had to be done to keep their banks open and courageous enough to do it. When fearful depositors began to clamor to withdraw all their money, one of George Eccles jobs was to brief his cashiers on how to handle the run.
Ronald Reagan introduces this program, and traces a line from Adam Smith’s “The Wealth of Nations” to Milton Friedman’s work, describing Free to Choose as “a survival kit for you, for our nation and for freedom.” Dr. Friedman travels to Hungary and Czechoslovakia to learn how Eastern Europeans are rebuilding their collapsed economies. His conclusion: they must accept the verdict of history that governments create no wealth. Economic freedom is the only source of prosperity. That means free, private markets. Attempts to find a “third way” between socialism and free markets are doomed from the start. If the people of Eastern Europe are given the chance to make their own choices they will achieve a high level of prosperity. Friedman tells us individual stories about how small businesses struggle to survive against the remains of extensive government control. Friedman says, “Everybody knows what needs to be done. The property that is now in the hands of the state, needs to be gotten into the hands of private people who can use it in accordance with their own interests and values.” Eastern Europe has observed the history of free markets in the United States and wants to copy our success. After the documentary, Dr. Friedman talks further about government and the economy with Gary Becker of the University of Chicago and Samuel Bowles of the University of Massachusetts. In a wide-ranging discussion, they disagree about the results of economic controls in countries around the world, with Friedman defending his thesis that the best government role is the smallest one.
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Below is a portion of the transcript of the program and above you will find the complete video of the program:
Hello, I am Linda Chavez and welcome to Free to Choose. Joining Dr. Friedman for a discussion of the failure of socialism are Gary Becker from the University of Chicago and Samuel Bowles of the University of Massachusetts. Dr. Bowles, I think we can all agree that socialism has failed Eastern Europe. Dr. Friedman believes that the path out of that is the free market and I think he thinks there are lessons for the United States. What do you think?
Bowles: The homeless people are homeless because they are poor and they are out of work. They are not homeless because of rent control.
Friedman: I beg your pardon. All of them aren’t. Of course there are some like that, but the existence of rent control has certainly increased the number of homeless.
Becker: Many people are homeless because they are mentally ill. But the homeless is a tiny fraction. Housing policy in the United States should not be oriented around the homeless because that is a tiny part of the problem in any major city, and certainly outside of major cities. If you look at the bulk of housing in the United States, I see no evidence that it cannot be adequately provided by the private sector.
Bowles: Let’s talk about incentives because I know both of you like to talk about incentives a lot. I think incentives are terribly important. Milton says in the show, and I agree with him, that we have to choose between taking orders from the top down, or incentives at the bottom. Now Milton’s idea of how do you get the incentives down at the bottom is essentially a view of an economy in which individuals, through their ownership of property, can own the results of their hard work and their innovation. It is a great idea. It doesn’t exist anywhere and it can’t exist. When I read your stuff Milton and when I watch you on TV, I think, you know, Milton has this idea of, Charlie Brown and Linus are going to have a lemonade stand and Lucy is going to have another lemonade stand and that is your idea of capitalism. But that is a myth. That is not what capitalism is. We don’t have thousands and millions of little firms competing on a level playing field. We have giant industrial corporations that use their power to their own advantage and to the disadvantage of others. That is what you have to be able to deal with you if you want to be relevant to the modern world. That is what the countries that I talked about, Sweden, Korea, Norway, Japan, are very good at doing __ dealing with the problem of economic power so that the power of those institutions can be used by and large for public good. If you ignore them with this lemonade stand capitalism myth, you are simply giving those powerful spenders of wealth and affluence free rein.
Friedman: Gary, it is a strange thing that not a single one of the countries that you have described has a standard of living as high as that of the United States with respect to the bulk of its population.
Bowles: Yes and the United States got its standard of living through precisely the policies that you have opposed such as protecting our industrial base from . . . . . .
Becker: I would be very happy to go back to the 19th century U.S. policy. It was a tiny part. The government, sure they did some things, but as a tiny part of the economy and let’s go back to a resource that went through the government at that time what was it? Ten percent of the maximum. The largest employer of the government was the postal system. That is the main thing the government was doing. Some tariff policies probably hurt us and a few other activities. Let me come back to the other issue raised then. There are millions and millions of companies in the United States. It is true that in some sectors these are very large companies like in manufacturing. But what I think has happened, particularly in the modern world, is these large companies are now having to compete with large countries from elsewhere. It is not capitalism. It is the political sector that is limiting that competition, partly at the behest of these companies, but also at the behest of the employees of these companies to limit the competition from abroad, but most industries, it would be hard put for you to argue now that even the large companies aren’t facing significant competition in the United States markets, not only from domestic companies, but from large companies based abroad.
Bowles: Oh, I agree with that completely. But what I am concerned about is this. If you work at General Motors or IBM and you are a secretary or you are a production worker, what you are getting there is you are getting orders from the top down. You don’t own your work. You don’t own the results of your work. When you talk about incentives from the bottom, if you want to get incentives from the bottom, you have to get the people who work at the bottom to own the results of their work and to have a say in how their work is going to be used. You can do that if you . . . like employee ownership and employee control. That is what made Wierton Steel from almost bankruptcy to one of the most successful steel companies in the United States __ employee ownership and control. The same with Columbia Aluminum, one of the most efficient aluminum companies in the United States. It went from shutdown to being a very successful company through employee ownership and employee control over their production processes. That is what I call putting incentives at the bottom where they belong, but you never advocate that.
Becker: I am not against employee ownership, but you have to permit employee ownership to compete on a level playing field against other forms. We permitted that in the United States, up until 1975, when you had trivial employee ownership in the United States. That to me suggests that workers didn’t want it.
Chavez: Dr. Friedman, who owns companies now? Are these in the hands of a small number of people or is it stockholders?
Friedman: No, it is the stockholders who own it and a very large fraction of that is owned in pension plans which are for the benefit of the employees. But of course, Gary is right, what produced the spate of employee ownership was government subsidy through ESOP’s since 1975.
Friedman: I think that is disgraceful.
Becker: That is the only reason you have gotten the growth of employee ownership in the United States. We have 5,000 or 6,000 employee owned companies now in the United States, and you take away these subsidies and they think that would go down to 1,000 or so, and let them be there, that is fine. Let the market determine which form is most desired and which form is most efficient.
Chavez: Gentlemen, obviously we have not exhausted this subject, but we are out of time. Thank you for watching Free to Choose. Next week we will be discussing the failure of our schools. We send our kids to school hoping that they will receive something that will benefit them in the future for when they go out here and compete in the job market. Unfortunately, none of that is taking place out of Hyde Park.
Milton Friedman clears up misconceptions about wealth redistribution, in general, and inheritance tax, in particular. http://www.LibertyPen.com
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Many times in the past our government has tried to even the playing field but the rich and poor will always be with us as Christ reminded us so long ago. Providing people a chance is fine but trying to punish others is not and it does not work.
She’s joined a corporate board, gotten a job as a correspondent for NBC and has her pick of gatherings of the mighty or simply important just about anywhere on the globe.
Reactions tended to fall along partisan lines. Fans of Bill and/or Hillary Clinton were happy for their 31-year-old daughter. Non-fans weren’t impressed. She’d done nothing to deserve her good fortune except choose good parents, they said. The really ugly ones criticized everything from her hairstyle to her speech.
I’m not impartial on the subject. I’ve known Chelsea since she was an infant, though most of my exposure came before her move to Washington in junior high. She’s remained friendly with my daughter and has been good to her. That’s enough for me.
But Chelsea is smart and poised. She’s worked hard at demanding schools and jobs. Would she be precisely where she is today without her famous parents? Of course not. She hasn’t claimed otherwise. (I do like how often she credits her Grandmother Rodham for sage advice.)
But she now has made the important decision to accept inheritance of her parents’ considerable public franchise. If nothing else, her growth in the larger public world might position her to someday take leadership of the Clinton Foundation. If she’s lucky — if we’re all lucky — she will continue to amass the resources her father has raised for fighting significant global problems. If she should decide to try politics, she’s been homeschooled by the best and brightest.
Make no mistake. Chelsea Clinton is a one percenter, if not precisely in the net worth category, close enough. She is also, if you prefer, a lucky sperm club member. But she manages to send a signal that she understands how much of her stature is owed to her parents. She signals a generosity of spirit about her good fortune that is more reminiscent of a Buffett than a Koch.
We will always have the 1 percent. There’s nothing inherently evil about being in that small number. The question is how much the 1 percent is willing to allow the 99 percent to share.
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Milton Friedman discusses the inheritance of talent on “Free to Choose”
“The inheritance of talent is no different (from an ethical point of view) from the inheritance of other forms of property– of bonds, of stocks, of houses, or of factories. Yet many people resent the one, but not the other.”
From “Free to Choose” (1980), Part V: “Created Equal.”
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Burton Folsom, Jr. is a professor of history at Hillsdale College and author of New Deal or Raw Deal?, to be published by Simon & Schuster this year.
The subject of “equality” is the source of much political debate. Ever since the founding era, free-market thinkers have argued for equality of opportunity in the economic order. Equality, in other words, is a framework, not a result. In modern terms the goal is a level playing field. Government is a referee that enforces property rights, laws, and contracts equally for all individuals.
What the free-market view means in policy terms is no (or few) tariffs for business, no subsidies for farmers, and no racism written into law. Also, successful businessmen will not be subject to special taxes or the seizure of property.
In America this view of equality is enshrined in the Declaration of Independence (“all men are created equal and are endowed by their creator with certain inalienable rights”) and the Constitution (“imposts and excises shall be uniform throughout the United States” and “equal protection of the laws”). Much of America’s first century as a nation was devoted to ending slavery, extending voting rights, and securing property and inheritance rights for women—fulfilling the Founders’ goal of equal opportunity for all citizens.
Progressives and modern critics of equality of opportunity have launched two significant criticisms against the Founders’ view. First, that equality of opportunity is impossible to achieve. Second, to the extent that equality of opportunity has been tried, it has resulted in a gigantic inequality of outcomes. Equality of outcome, in the Progressive view, is desirable and can only be achieved by massive government intervention. Let’s study both of these objections.
To some extent, of course, the Progressives have a valid point—equality of opportunity is, at an individual level (as opposed to an institutional level) hard to achieve. We are all born with different family advantages (or disadvantages), with different abilities, and in different neighborhoods with varying levels of opportunity. As socialist playwright George Bernard Shaw said on the subject, “Give your son a fountain pen and a ream of paper and tell him that he now has an equal opportunity with me of writing plays and see what he says to you.”
What the Progressives miss is that their cure is worse than the illness. Any attempt to correct imbalances in family, ability, and neighborhood will produce other inequalities that may be worse than the original ones. Thomas Sowell writes, “[A]ttempts to equalize economic results lead to greater—and more dangerous—inequality in political power.” Or, as Milton Friedman concluded, “A society that puts equality—in the sense of equality of outcome—ahead of freedom will end up with neither equality nor freedom. The use of force to achieve equality will destroy freedom, and the force, introduced for good purposes, will end up in the hands of people who use it to promote their own interests.”
Failure During the New Deal
Sowell’s and Friedman’s point is illuminated by the failed efforts of the federal government to reduce inequalities during the New Deal. In the early 1930s the United States had massive unemployment (sometimes over 20 percent). In 1932 President Herbert Hoover supported the nation’s first relief program: $300 million was distributed to states. This was not a transfer from richer states to poorer states but a political grab by most state governors to secure all they could. Illinois played this game well and secured over $55 million, more than New York, California, and Texas combined.
Massachusetts, with almost as many people as Illinois, received zero federal money. Massachusetts had much poverty and distress, but Governor Joseph Ely believed states should try to supply their own needs and not rush to Washington to gain funds at someone else’s expense. Ely therefore promoted a variety of fundraising events throughout his state to help those in need. “Whatever the justification for [federal] relief,” Ely noted, “the fact remains that the way in which it has been used makes it the greatest political asset on the practical side of party politics ever held by any administration.”
In 1935 President Franklin Roosevelt confirmed Ely’s beliefs by turning the Works Progress Administration (WPA), which he had established, into a gigantic political machine to transfer money to key states and congressional districts to secure votes. Roosevelt and his cohorts used the rhetoric of removing inequalities as a political cover to gain power. Reporter Thomas Stokes won a Pulitzer Prize for his investigative research that exposed the WPA for using federal funds to buy votes.
The use of tax dollars, then, to mitigate inequality failed because—whatever the good intentions—the funds quickly became politicized.
Presidential (and congressional) authority to tax and to transfer funds from one group to another also proved to be a dangerous centralization of power. Taxation increased both in size and complexity. The IRS thus became a weapon a president could use against those who resisted him. “My father,” Elliott Roosevelt observed of his famous parent, “may have been the originator of the concept of employing the IRS as a weapon of political retribution.”
Sowell and Friedman indeed recognized that efforts to remove inequalities would create new inequalities, perhaps just as severe, and would also dangerously concentrate power in the hands of politicians and bureaucrats. But Sowell and Friedman have readily conceded that when markets are left free, the inequality of outcomes is not necessarily morally justified. In other words, some people—through luck or inheritance—become incredibly rich and others, who may have worked harder and more diligently, end up barely earning a living. Rewards, as F. A. Hayek, among others, has noted, are “based only partly on achievements and partly on mere chance.” Societies are more prosperous under free markets, but individual success and failure can occur independently of ability and hard work.
Progressive Claims in Light of History
What the historical record does seem to demonstrate is that the richest men in American history have been creative entrepreneurs who have improved the lives of millions of Americans and have achieved remarkable upward mobility doing so. For example, the first American to be worth $10 million was John Jacob Astor, a German immigrant and a son of a butcher. Astor founded the largest fur company in the United States, transforming tastes and lowering costs in clothing for people all over the world.
John D. Rockefeller, the first American to be worth $1 billion, was the son of an itinerant peddler. Yet Rockefeller, with little education or training, went into the business of refining oil and did it better than anyone in the world. As a result, he sold the affordable kerosene that lit up most homes in the world. (He had a 60 percent world market share in the late 1800s.)
Henry Ford, the son of a struggling farmer, was the second American billionaire. He used the cheap oil sold by Rockefeller and cheap steel that was introduced by immigrant Andrew Carnegie to make cars affordable for most American families. The most recent wealthiest men in the United States—Sam Walton and Bill Gates—both came from middle-class households and both added much value for most American consumers.
Free markets may yield odd results and certainly unequal outcomes, but the greater opportunities and prosperity have made the tradeoff worthwhile for American society.
Ronald Reagan introduces this program, and traces a line from Adam Smith’s “The Wealth of Nations” to Milton Friedman’s work, describing Free to Choose as “a survival kit for you, for our nation and for freedom.” Dr. Friedman travels to Hungary and Czechoslovakia to learn how Eastern Europeans are rebuilding their collapsed economies. His conclusion: they must accept the verdict of history that governments create no wealth. Economic freedom is the only source of prosperity. That means free, private markets. Attempts to find a “third way” between socialism and free markets are doomed from the start. If the people of Eastern Europe are given the chance to make their own choices they will achieve a high level of prosperity. Friedman tells us individual stories about how small businesses struggle to survive against the remains of extensive government control. Friedman says, “Everybody knows what needs to be done. The property that is now in the hands of the state, needs to be gotten into the hands of private people who can use it in accordance with their own interests and values.” Eastern Europe has observed the history of free markets in the United States and wants to copy our success. After the documentary, Dr. Friedman talks further about government and the economy with Gary Becker of the University of Chicago and Samuel Bowles of the University of Massachusetts. In a wide-ranging discussion, they disagree about the results of economic controls in countries around the world, with Friedman defending his thesis that the best government role is the smallest one.
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Below is a portion of the transcript of the program and above you will find the complete video of the program:
Hello, I am Linda Chavez and welcome to Free to Choose. Joining Dr. Friedman for a discussion of the failure of socialism are Gary Becker from the University of Chicago and Samuel Bowles of the University of Massachusetts. Dr. Bowles, I think we can all agree that socialism has failed Eastern Europe. Dr. Friedman believes that the path out of that is the free market and I think he thinks there are lessons for the United States.
Chavez: I would like to bring this discussion back to the United States for a moment. What about socialism in the United States. There has been one area where we have tried to redistribute wealth. We have done that through our welfare policies and social security. Has that worked?
Friedman: For some people, it benefited, but taken as a whole, I think it has been a failure.
Becker: I agree with that. I think the big problem in the United States has been, of course, some of the welfare programs have been successful. But by trying to do too many things, the government is no longer doing the things that it should be doing. We all agree there are many things government should be doing. I agree with Milton __ he is a strong man to be say this is an issue between no government and 100% government. The question is what are the tasks that government should be doing. I believe the tasks are, of course, defense against outside aggression, internal protection, some infrastructure, protection of the people can’t make it. In every one of these areas, we are not doing very well. I think we are not doing well mainly because we are trying to do a lot of things we shouldn’t be doing. They can’t do all of them.
Chavez: I couldn’t help but think, Dr. Bowles, as I watched that film that the public housing area that we saw in Eastern Europe and the problems that we have here in the United States. Aren’t there some lessons to be learned?
Bowles: There is absolutely no reason why housing shouldn’t be privately owned. That does not mean that the government has no role in housing. It seems to me that housing is precisely something that ought to be a matter of private property. But we also know, from the experience of this country, that the market itself doesn’t provide housing that the rest of the public thinks is adequate for the vast majority of poor people in this country. Now that doesn’t mean it has to be done by government building the houses, but it certainly does mean that something has to be done or we are going to have the kind of homeless crisis that we have in this country and they are getting one in Eastern Europe too.
Becker: The homeless crisis is a tiny fraction of the population of the United States. Let’s not make that a major part of the housing problem in the United States. I am not at all convinced that there is any evidence suggesting that the private system cannot provide adequate housing. I think there is a good case to be made that there are poor people in this country and the government obviously has to help them out. We all agree on that. But should they be doing it by building housing or by giving them income and permitting them to spend as they see fit. I see no evidence from the U.S. or any other country who were better off when then government takes a major role in housing or any of these other particular activities that allocate resources.
Friedman: What role has been played in the difficulty of getting housing by government interventions? By rent control? By excessive building code regulations, many of which are designed to protect the interests of special groups. Government played a very large role.
Over and over we hear that the reason private schools are better is because they don’t have to keep the troubling making kids. It reminds me of this short film that I saw many years ago.
Cleaned up (restored) version of the 1932 “Our Gang” short with just the scenes of Kendall McComas (Breezy), Bobby Hutchins (Wheezer) and Otto Fries (Blacksmith). Everyone wants this poor kid to grow up to be president, but all he wants to be is a streetcar conductor, ‘cuz boy, do they pick up the nickels!.
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If you want to see how Milton Friedman’s school voucher system would work then check out these posts below:
Here is the video clip and transcript of the film series FREE TO CHOOSE episode “What is wrong with our schools?” Part 1 of 6. Volume 6 – What’s Wrong with our Schools Transcript: Friedman: These youngsters are beginning another day at one of America’s public schools, Hyde Park High School in Boston. What happens when […]
HALT:HaltingArkansasLiberalswithTruth.com Milton Friedman’s film series “Free to Choose” Episode on Education part 6. It was Friedman’s voucher plan that was put into practice in Sweden in 1993. I read an excellent article called “School Choice in Sweden: An Interview with Thomas Idergard of Timbro,” (March 8, 2010) by Dan Lips and I wanted to share […]
HALT:HaltingArkansasLiberalswithTruth.com Milton Friedman’s film series “Free to Choose” Episode on Education part 5. It was Friedman’s voucher plan that was put into practice in Sweden in 1993. I read an excellent article called “School Choice in Sweden: An Interview with Thomas Idergard of Timbro,” (March 8, 2010) by Dan Lips and I wanted to share […]
On the Arkansas Times Blog the person using the username “Jake da Snake” noted, “Friedman also railed long and hard for school vouchers to be adopted, to little avail…” (June 11, 2011). Milton Friedman firmly believed, “competition is a way in which both public and private schools can be required to satisfy their customers.” Here […]
Ronald Reagan introduces this program, and traces a line from Adam Smith’s “The Wealth of Nations” to Milton Friedman’s work, describing Free to Choose as “a survival kit for you, for our nation and for freedom.” Dr. Friedman travels to Hungary and Czechoslovakia to learn how Eastern Europeans are rebuilding their collapsed economies. His conclusion: they must accept the verdict of history that governments create no wealth. Economic freedom is the only source of prosperity. That means free, private markets. Attempts to find a “third way” between socialism and free markets are doomed from the start. If the people of Eastern Europe are given the chance to make their own choices they will achieve a high level of prosperity. Friedman tells us individual stories about how small businesses struggle to survive against the remains of extensive government control. Friedman says, “Everybody knows what needs to be done. The property that is now in the hands of the state, needs to be gotten into the hands of private people who can use it in accordance with their own interests and values.” Eastern Europe has observed the history of free markets in the United States and wants to copy our success. After the documentary, Dr. Friedman talks further about government and the economy with Gary Becker of the University of Chicago and Samuel Bowles of the University of Massachusetts. In a wide-ranging discussion, they disagree about the results of economic controls in countries around the world, with Friedman defending his thesis that the best government role is the smallest one.
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Below is a portion of the transcript of the program and above you will find the complete video of the program:
DISCUSSIONHello, I am Linda Chavez and welcome to Free to Choose. Joining Dr. Friedman for a discussion of the failure of socialism are Gary Becker from the University of Chicago and Samuel Bowles of the University of Massachusetts. Dr. Bowles, I think we can all agree that socialism has failed Eastern Europe. Dr. Friedman believes that the path out of that is the free market and I think he thinks there are lessons for the United States. What do you think?Chavez: I would like to bring this discussion back to the United States for a moment. What about socialism in the United States. There has been one area where we have tried to redistribute wealth. We have done that through our welfare policies and social security. Has that worked?
Bowles: Well, there is much to celebrate in Eastern Europe __ not only the elimination of dictatorial rule. I go back on that a long time. I was in the Soviet Union in the late 50’s (1958 and 1959) as a musician and I met many Russian musicians and made friends with a lot of Russian people who found themselves harassed and victimized by the police. In fact, my own musical group was prevented from singing a couple of times by the police. That is all on the way out and I hope it is gone for good. Equally welcome is the end of this myth of a centrally planned society. That is gone too and I hope that basically the lesson is learned. But Milton seems to think that we have to choose between either a centrally planned society or a society in which we have markets which are basically unregulated. So the choice is really between all or nothing.
I don’t think that is the choice. I think what Milton is posing for us is a model which is as unrealistic as a centrally planned model. It is outdated, it won’t work, it is extreme, and I think it is undemocratic. I think that we have choices in between, what Milton called the third way, a way that he said wouldn’t work, has been shown to work around the world. I think that Eastern Europe would be very ill-advised to take Milton’s advise on this. Yet, the last time anybody took Milton’s advise on economic policy was Ronald Reagan and Ronald Reagan has put the U.S. economy into a situation where it can’t pay its bills and is facing mounting economic instability and difficulties.
Chavez: Dr. Friedman, what about this midway path?
Friedman: First of all, I utterly reject what Sam says about the results of Ronald Reagan’s changes. We had a decade of extraordinary growth, increased employment in which inflation was brought down sharply. Ronald Reagan came into office at a period of very high inflation, and so on. But this program is not about the Reagan administration. This program is about Eastern Europe and I want to go to Eastern Europe.
I believe Sam is completely wrong in saying that the model I propose is outdated. I believe that what he calls obsolete is something very different. You have had the third way __ you have had it in the United States; you have had it in Sweden; you have had it in Britain; you’ve had it elsewhere. In every case it has been built on the foundation of a long period of what I call the first way. The United States had 150 years of essentially a free private market before it launched on this period of the welfare state. The same thing was true in Britain, the same thing was true in Sweden. I believe he will find it very difficult to site any example of a country which started from a very low level and immediately adopted that combination of policies.
Becker: Let me add something on that. I think the lesson that we learned from what happened in Eastern Europe goes beyond simply that central planning doesn’t work. I think we all agree that it doesn’t work. But it is more than that __ it is the role of private property in the system and the incentives provided by private property.
I don’t know what socialism means anymore, but I remember when I was in Poland I asked the head of the ideology department is private property consistent with socialism? He said, it may be. Then I asked him, well what is the difference between socialism and capitalism. His answer was, we are still working on that. I think what we have seen is a rejection of the ideas associated with traditional socialism which are suppression of private property, government ownership of property, and so on.
Now, how far should we move in the other direction? I think that is question you are asking Sam, and is there a middle way. I think the middle ways that have been successful have all been largely reliant on private property, private ownership, private incentives. The difficult question is one that Milton raised in the documentary. How far can you redistribute income and make it consistent with effective incentives?
I don’t think we know the boundary point, whether 30% of the income being redistributed is too much, 40%, 50% __ my own feeling is that we have gone much too far in Sweden and some of the other Scandinavian countries, and they are beginning to step back from this. They are lowering maximum tax rates to 50% now __ they were up to 80%. So I think there is a third way, but that third way is going to be a lot closer to unregulated market than toward a socialist organization of resources and a suppression of private property.
Bowles: Let’s get back to the particulars though. You talk about Sweden and you talk about the third way failing, and Milton says nobody has ever really gotten rich on the third way __ they have only benefited from that. Let’s talk about the United States. The period you described included a very long period in which the United States was a highly protectionist country in which our industrial base was developed from Alexander Hamilton on for some time, and then during the late 19th and early 20th century. To call that a free market solution would be against everything you have taught. Or, if one wants to go back into the 19th century, the huge subsidies of the railroads were, of course, an intervention in the market.
In the case of England that you talk about, the same is true. The role of the British Navy and for example the Parliament in actually establishing the private property which is what you favor. This was done by a government intervention. We talk about the other cases. Talk about Sweden or about Korea. These are two countries which I think are justly admired for their economic performance. Both countries have income distributions far more equal than the United States.
In Sweden, over the half the GNP is taxed. Now, people in this country would say that obviously they have gone too far. But let’s look at the test of the market. Sweden and Korea have been defeating the United States in world markets. Exports have grown five percent per year during the Reagan/Bush years in Sweden. In the United States, they have grown one percent per year. In Korea we know they have grown much better. If you want to go on to Norway, where much of the investing is done by the government, they have grown their exports even faster than Sweden. Meanwhile, we can’t compete in world markets.
So the lesson of these countries is if you look at the facts Milton, a combination of government regulation and the market works. I agree with Gary. I think private property is extremely important because the incentives associated with owning the results of your work is essential. But private property does not mean that we have to let the market go unregulated and all the evidence says that the countries that are beating us in the world market today don’t do it. They are not that dumb. Japan doesn’t do it; Korea doesn’t do it; Sweden doesn’t do it.
Friedman: Let’s not throw straw men around. Obviously I am not in favor of no government. Government has some very important roles to play. Those are very limited. You take the case of the United States during the 19th century and of Britain in the 19th century. At the time of Queen Victoria’s jubilee in 1899, total government spending in Britain was 10% of the national income. Up until 1929 in the United States, except for periods of great war, total government spending in the United States was about 10% of national income. Now that is a very far cry from a government which spends over half of the national income . . . . and a little less than half in the United States.
Bowles: You are opposed to capital controls. You are opposed to telling people they can’t move their money internationally. That is what Korea does. You are opposed to . . .
Friedman: I think Korea makes a mistake by doing it.
Bowles: Korea has beaten us by exactly the policies you are posing.
Friedman: So has Hong Kong. Hong Kong has beaten us by the policies I am proposing.
Bowles: . . . if Korea is not a middle way and if Sweden is not a middle way, then I would like to know what you call it.
Becker: Korea is a lot closer to a market-oriented economy than any of the economies we have been talking about.
Bowles: The government approves the heads of the banks in Korea. They have nationalized their steel industry and have one of the most efficient plants in the world at Palhang. If you call that a private economy . . .
Becker: What fraction of resources in Korea goes through the government?
Bowles: A tremendous fraction if you take account of the fact that the banks are centrally run and they control the credit allocations there and they don’t let people take their money out of the . . .
Milton Friedman’s Free to Choose – Ep.4 (1/7) – From Cradle to Grave
Max Brantley of the Arkansas Times said on Arkansas Week on AETN on 6-8-12:
I give republicans credit for they are not really mincing words anymore. They have decided that cutting government and cutting taxes even in one of the poorest states even if it means devastng impact on people that have been lifted out of poverty by these programs is to say that you need to take this tough bitter medicine we think it is better for you and a lot of people have responded to it. That is what the election is about. If that works then they win, and people will reap that harvest.
I have a couple of points to make about this statement. First, I was impressed that Brantley gave Republicans credit for shooting straight with the people what their strategy is.
Second, I do not agree that cutting welfare will have a “devastng impact on people that have been lifted out of poverty by these programs” as Brantley contends. What we have now in the USA is a welfare trap that must be eliminated. The first step is to remove all welfare programs and replace them with the negative income tax program that Milton Friedman first suggested.
Milton Friedman points out that though many government welfare programs are well intentioned, they tend to have pernicious side effects. In Dr. Friedman’s view, perhaps the most serious shortcoming of governmental welfare activities is their tendency to strip away individual independence and dignity. This is because bureaucrats in welfare agencies are placed in positions of tremendous power over welfare recipients, exercising great influence over their lives. In addition, welfare programs tend to be self-perpetuating because they destroy work incentives. Dr. Friedman suggests a negative income tax as a way of helping the poor. The government would pay money to people falling below a certain income level. As they obtained jobs and earned money, they would continue to receive some payments from the government until their outside income reached a certain ceiling. This system would make people better off who sought work and earned income.
Here are some previous posts that I made that show how that should be done in greater detail.
Ep. 4 – From Cradle to Grave [7/7]. Milton Friedman’s Free to Choose (1980) With the national debt increasing faster than ever we must make the hard decisions to balance the budget now. If we wait another decade to balance the budget then we will surely risk our economic collapse. The first step is to […]
Ep. 4 – From Cradle to Grave [6/7]. Milton Friedman’s Free to Choose (1980) With the national debt increasing faster than ever we must make the hard decisions to balance the budget now. If we wait another decade to balance the budget then we will surely risk our economic collapse. The first step is to […]
Ep. 4 – From Cradle to Grave [5/7]. Milton Friedman’s Free to Choose (1980) With the national debt increasing faster than ever we must make the hard decisions to balance the budget now. If we wait another decade to balance the budget then we will surely risk our economic collapse. The first step is to […]
Ep. 4 – From Cradle to Grave [4/7]. Milton Friedman’s Free to Choose (1980) With the national debt increasing faster than ever we must make the hard decisions to balance the budget now. If we wait another decade to balance the budget then we will surely risk our economic collapse. The first step is to […]
Ep. 4 – From Cradle to Grave [3/7]. Milton Friedman’s Free to Choose (1980) With the national debt increasing faster than ever we must make the hard decisions to balance the budget now. If we wait another decade to balance the budget then we will surely risk our economic collapse. The first step is to […]
With the national debt increasing faster than ever we must make the hard decisions to balance the budget now. If we wait another decade to balance the budget then we will surely risk our economic collapse. The first step is to remove all welfare programs and replace them with the negative income tax program that […]
Milton Friedman’s Free to Choose – Ep.4 (1/7) – From Cradle to Grave With the national debt increasing faster than ever we must make the hard decisions to balance the budget now. If we wait another decade to balance the budget then we will surely risk our economic collapse. The first step is to […]
The Center for Freedom and Prosperity has released another “Economics 101″ video, and this one has a very powerful message about the federal government’s so-called War on Poverty.
As explained by Hadley Heath of the Independent Women’s Forum, the various income redistribution schemes being imposed by Washington are bad for taxpayers — and bad for poor people.
Free Markets, Not Redistribution, Is Best Way to Reduce Poverty
The so-called War on Poverty has failed. Making government bigger and creating more federal redistribution programs has been bad news for taxpayers. But the welfare state also has been a disaster for the less fortunate, creating a flypaper effect that makes it difficult for people to lead independent and self-reliant lives. This Center for Freedom and Prosperity Foundation video shows how the poverty rate was falling after World War II — but then stagnated once the federal government got involved. www.freedomandprosperity.org
Another remarkable finding in the video is that poor people in America rarely suffer from material deprivation. Indeed, they have wide access to consumer goods that used to be considered luxuries – and they also have more housing space than the average European (and with Europe falling apart, the comparisons presumably will become even more noteworthy).
The most important message of the video, however, is that small government and economic freedom are the best answers for poverty. As Hadley explains, poor people can be liberated to live meaningful, self-reliant lives if we can reduce the heavy burden of the federal government.
Last but not least, the video doesn’t address every issue in great detail, and there are three additional points that should be added to any discussion of poverty.
This last point is worth emphasizing because it is also one of the core messages of the video. The federal government has done a terrible job dealing with poverty. The time has come to get Washington out of the racket of income redistribution.
Friedman Friday” Free to Choose by Milton Friedman: Episode “Created Equal” (Part 3 of transcript and video) Liberals like President Obama want to shoot for an equality of outcome. That system does not work. In fact, our free society allows for the closest gap between the wealthy and the poor. Unlike other countries where free enterprise and other […]
Free to Choose by Milton Friedman: Episode “Created Equal” (Part 2 of transcript and video) Liberals like President Obama want to shoot for an equality of outcome. That system does not work. In fact, our free society allows for the closest gap between the wealthy and the poor. Unlike other countries where free enterprise and other freedoms are […]
I am currently going through his film series “Free to Choose” which is one the most powerful film series I have ever seen. PART 4 of 7 The massive growth of central government that started after the depression has continued ever since. If anything, it has even speeded up in recent years. Each year there […]
If you would like to see the first three episodes on inflation in Milton Friedman’s film series “Free to Choose” then go to a previous post I did. Ep. 9 – How to Cure Inflation [4/7]. Milton Friedman’s Free to Choose (1980) Uploaded by investbligurucom on Jun 16, 2010 While many people have a fairly […]
Ep. 9 – How to Cure Inflation [1/7]. Milton Friedman’s Free to Choose (1980) Cochrane’s Kinky Curves Posted by Jim Powell The doctrine that inflation can cure unemployment, implicit in the Obama administration’s spending blowout, goes way back. The modern version originated with William Phillips, a New Zealand-born economist who, in 1958, wrote a paper […]
I am currently going through his film series “Free to Choose” which is one the most powerful film series I have ever seen. PART 3 OF 7 Worse still, America’s depression was to become worldwide because of what lies behind these doors. This is the vault of the Federal Reserve Bank of New York. Inside […]
Milton Friedman and Ronald Reagan Liberals like President Obama (and John Brummett) want to shoot for an equality of outcome. That system does not work. In fact, our free society allows for the closest gap between the wealthy and the poor. Unlike other countries where free enterprise and other freedoms are not present. This is a seven part series. […]
The third monthly luncheon with featured speaker Ernest Istook was excellent. First, we got to hear from Dave Elswick of KARN who came up with the idea of this luncheon, and then from Teresa Crossland of Americans for Prosperity. Below is a portion of Istook’s biography from the Heritage Foundation: Ernest Istook Distinguished Fellow Government Studies Ernest […]
I am currently going through his film series “Free to Choose” which is one the most powerful film series I have ever seen. For the past 7 years Maureen Ramsey has had to buy food and clothes for her family out of a government handout. For the whole of that time, her husband, Steve, hasn’t […]
I love Milton Friedman’s film series “Free to Choose.” In that film series over and over it is shown that the ability to move from poor to rich is more abundant here than any other country in the world. This article below reminded me of that that. Are Poor Really Helpless Without Government? By Michael […]
Milton Friedman served as economic advisor for two American Presidents – Richard Nixon and Ronald Reagan. Although Friedman was inevitably drawn into the national political spotlight, he never held public office.
Milton Friedman’s Free to Choose (1980), episode 1 – Power of the Market. part 1
I know that Charlie Collins is a big Milton Friedman fan like I am. Therefore, I put this post together with both Collins and Friedman in mind.
John Brummett is one of the liberals in Arkansas that does write very interesting articles and I make a point of reading them regularly. I don’t agree with many of them though. For instance, the other day Brummett made the statement that President Obama was not a big spender. That was not too difficult to debunk.
On June 3, 2012 in the Arkansas Democrat-Gazette Brummett asserted, “I’d like to rearrange these rates, exempting more of the lowest income from them altogether and hitting the rich folks a little more steeply than the 7 percent that kicks in way too early at $31,000 or so.”
I think this would drive away the job creators from Arkansas. I was thrilled that Republican state Rep. Charlie Collins of Fayetteville was a given a chance to respond to Brummett in the June 7, 2012 edition of the Arkansas Democrat-Gazette. Here are some portions of his response:
Brummett said that, overall, taxes in Arkansas aren’t that high. Using federal numbers, total Arkansas state tax revenue on everything from income to fishing licenses in 2011 was $2,634 per person, which ranked us 35th of 50. However, as a percentage of personal income, Arkansas had the ninth-highest taxation rate in the country! States with higher percentages included special cases like Alaska (energy tax revenue included), North Dakota (energy taxes) and Hawaii (tropical island). Even California and New York took a lower share of personal income than Arkansas.
Our top income-tax rate is 7 percent on earned income above $33,200. My plan would give all workers tax relief and simplify the system. We eliminate two of the six tax brackets—the 2.5 percent and 7 percent rates—which drops the new top rate to 6 percent. We then phase in higher income levels (six-figure earners) for the 6 percent rate over time.
The result is a dramatic tax break for low-income workers (60 percent reduction from 2.5 percent to 1 percent), strong relief for middle-class working families (35 percent cut from 7 percent to 4.5 percent), and a modest drop for high-income workers and job creators (14 percent from 7 percent to 6 percent).
We can phase in tax relief at a pace that maintains state government spending, keeps the budget balanced, and includes other priorities such as eliminating the grocery sales tax and targeted spending increases. We do it by slowing the growth in state spending.
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Today President Obama is telling us that we must raise taxes in order for us to prosper and grow our economy and that sounds like the same think that Brummett and his liberal friend are saying. I have heard that before and it has never worked!!!!
Liberals like Ernie Dumas and Max Brantley who write for the Arkansas Times have always bragged on the 7% state income tax that Dale Bumpers raised in 1971 and how Arkansas has grown economically since then. However, the facts are quite different.
Until Gov. Dale Bumpers raised income-tax rates and other taxes in 1971, Arkansas had by far the lowest per-capita state and local taxes in the United States. Afterward, we were still 50th but within shouting distance of 49th.
(June 2006) Democratic Gov. Dale Bumpers and the General Assembly raised Arkansas’ top income tax rate to “broaden the tax base” in 1971(1). Yet Arkansas’ per capita income, expressed as a percentage of the U.S. total, has barely improved, moving from 71 (1971) to 77.7 percent (2005) over the 34-year period, according to data from the U.S. Bureau of Economic Analysis. The 1971 income tax increase reversed a decades-long strong growth trend and left Arkansas with the highest income tax rate among bordering states (Mississippi, Missouri, Louisiana, Oklahoma, Tennessee and Texas).
Income Stagnation: The 1930s
One has to turn to the 1930s-the decade of the Great Depression-to find weaker income growth than in recent years.
Arkansas per capita personal income was 44 percent of the U.S. in 1929, the first year data was compiled in the BEA time series. The Great Depression started that year, and by the time it ended in 1933 Arkansas per capita income had fallen to 41 percent of the U.S. By decade’s end (1939) it had returned to 44 percent.
Growth Decades: The 1940s, 1950s & 1960s Arkansas per capita income increased as a percentage of the U.S. in the next three decades. In 1941, at the onset of World War II, Arkansas per capita income was 47 percent of the U.S. It was 59 percent at war’s end in 1945 and again in 1949. It was 56 percent in 1950, 62 percent a decade later in 1960, and 68 percent in 1969. If this growth rate had continued Arkansas would have exceeded 100 percent of the U.S. average in the current decade (2000-2009).
To summarize, Arkansas per capita income increased from 44 to 71 percent of the U.S. total between 1939 and 1971.
Anemic Income Growth (1971-2005) The trend in recent decades is anemic growth in Arkansas per capita personal income. Fiscal policy changes effect economic behavior with a time lag. Arkansas per capita income was 71 percent of the U.S. in 1971 and 76 percent in 1973. Income growth stagnated for the rest of the decade, reaching 77 percent of the U.S. in 1979. It fell to 75 percent in 1989, and was 76 percent in 1999. Today, Arkansas per capita income, at 77.7 percent of the U.S., is barely above its high point of the 1970s.
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We can look at other states and see what their experience is too.
Some of the best evidence about high tax rates vs. low tax rates comes from inside America. Art Laffer (yes, that Art Laffer) and Steve Moore have a great column in today’s Wall Street Journal. It’s sort of Reaganomics vs. Obamanomics, looking at evidence from the states.
Barack Obama is asking Americans to gamble that the U.S. economy can be taxed into prosperity. …Mr. Obama needs a refresher course on the 1920s, 1960s, 1980s and even the 1990s, when government spending and taxes fell and employment and incomes grew rapidly. But if the president wants to see fresher evidence of how taxes matter, he can look to what’s happening in the 50 states. In our new report “Rich States, Poor States,” prepared for the American Legislative Exchange Council, we compare the economic performance of states with no income tax to that of states with high rates. It’s like comparing Hong Kong with Greece… Every year for the past 40, the states without income taxes had faster output growth (measured on a decadal basis) than the states with the highest income taxes. In 1980, for example, there were 10 zero-income-tax states. Over the decade leading up to 1980, those states grew 32.3 percentage points faster than the 10 states with the highest tax rates. Job growth was also much higher in the zero-tax states. The states with the nine highest income tax rates had no net job growth at all, and seven of those nine managed to lose jobs.
Tax rates also lead people to “vote with their feet.” Laffer and Moore look at migration patterns.
Over the past decade, states without an income tax have seen 58% higher population growth than the national average, and more than double the growth of states with the highest income tax rates. …Illinois, Oregon and California are state practitioners of Obamanomics. All have passed soak-the-rich laws like the Buffett Rule (plus economically harmful regulations, like California’s cap-and-trade scheme), and all face big deficits because their economies continue to sink. Illinois has lost one resident every 10 minutes since hiking tax rates in January. California has 10.9% unemployment, having lost 4.8% of its jobs over the past decade. …Every time California, Illinois or New York raises taxes on millionaires, Florida, Texas and Tennessee see an influx of rich people who buy homes, start businesses and shop in the local economy.
Competition among the states is leading some states to make further improvements. Some are even trying to get rid of their income taxes.
Republican governors in Florida, Georgia, Idaho, North Dakota, South Carolina, Ohio, Tennessee, Wisconsin and even Michigan and New Jersey are cutting taxes to lure new businesses and jobs. Asked why he wants to reduce the cost of doing business in Wisconsin, Gov. Scott Walker replies: “I’ve never seen a store get more customers by raising its prices, but I’ve seen customers knock down the doors when they cut prices.” Georgia, Kansas, Missouri and Oklahoma are now racing to become America’s 10th state without an income tax.
I like the quote from Governor Walker. He seems to know what he’s talking about, so it will be interesting to see whether he survives the upcoming recall election. I guess it depends whether voters understand that big government and high tax rates is a recipe for continued decline.
Some states, such as Illinois and California, are filled with voters who refuse to recognize reality. Think of them as the Greece and Spain of America, perhaps because the number of tax-consumers is greater than the number of tax-producers.
Take a look at all the Milton Friedman clips that I have posted today. These liberals I mentioned above have truly forgotten how powerful the market is if not interferred with by the government.
Milton Friedman’s Free to Choose (1980), episode 1 – Power of the Market. part 2
Milton Friedman served as economic advisor for two American Presidents – Richard Nixon and Ronald Reagan. Although Friedman was inevitably drawn into the national political spotlight, he never held public office. Milton Friedman’s Free to Choose (1980), episode 1 – Power of the Market. part 1 Mike Huckabee recently moved to Florida? Why? The answer […]
The Daily Hatch 