Businesses should be allowed to fail if they lose money. It is amazing to me that GM was not allowed to go out of business and the same is true for any other business that is losing money.
In the video clip above Milton Friedman explains the necessity in a free market system of allowing unsuccessful businesses to go bankrupt w/out the government bailing them out. Profit/Loss system where the consumer decides who wins, NOT the federal government.
The same misguided arguments for a government bailout of GM made 30 years ago are being made today by President Barack Obama and the other statists in congress.
I hope there are more people out there as concerned as I am about this Administration’s assault on the free market. We need more Milton Friedmans in public policy today making the case for free enterprise and forcfully advocating on behalf of the market. We need more voices sounding the alarm about the ever-increasing attacks on our nation’s creators of wealth–small business.
The barons of big government in Washington are replacing our nation’s history of free-market capitalism with Crony Capitalism, where success depends not on your ability to produce a product the consumer wants to buy, but on how many lobbyists you have in Washington to force taxpayers to subsidize your company.
I agree with Milton Friedman 100 percent that government bailouts are an abomination and a disgrace.
Nowadays there’s a considerable amount of traffic at this border. People cross a little more freely than they use to. Many people from Hong Kong trade in China and the market has helped bring the two countries closer together, but the barriers between them are still very real. On this side of the border, people are free not only in the marketplace, but in all their lives. They are free to say what they want, to write what they want, to do pretty much as they please. Not so over there.
That is why people in China who cannot get permission to leave go to desperate lengths to escape. They risk their lives in the process. Many lose their lives, but that doesn’t keep others from following. Some are attracted by the higher material standard of life in Hong Kong, but more by the natural human desire to be free.
The people who get official permission to leave China are fortunate. They are going to be able to enjoy the benefits of the economic freedom they will find in Hong Kong. More important, that will give them a much wider freedom.
Human and political freedom has never existed and cannot exist without a large measure of economic freedom. Those of us who have been so fortunate as to have been born in a free society tend to take freedom for granted __ to regard it as the natural state of mankind __ it is not. It is a rare and precious thing. Most people throughout history, most people today have lived in conditions of tyranny and misery, not of freedom and prosperity. The clearest demonstration of how much people value freedom is the way they vote with their feet when they have no other way to vote.
Of course, many of the people who pour into Hong Kong will end up in conditions that most of us in the West would find appalling. Hong Kong is very far from utopia. It has its slums, its crime, its desperately poor people. But the people are free. That’s after all, why so many of them have come here, despite having to live in leaky house boats in one of Hong Kong’s many small harbors. Here they have the freedom and the opportunity to better themselves, to improve their lot, and many succeed. There’s appalling poverty in Hong Kong, it’s true, but the conditions of the people have been getting better over time. They’re far better off now than they were when they first came across the border from China. And that poverty, appalling to us, because we’re accustomed to much higher standards of life, is not poverty as viewed by most of the people in the world. It’s the poverty to which they would aspire. A state of affairs they would like to achieve.
There is an enormous amount of poverty in the world everywhere. There is no system that’s perfect. There is no system that’s going to eliminate completely poverty in whatever sense. The question is, which system has the greatest chance? Which is the best arrangement for enabling poor people to improve their life? On that, the evidence of history speaks with a single voice. I do not know any exception to the proposition that if you compare like with like, the freer the system, the better off the ordinary poor people have been.
Ask yourself what it is that assures these garment workers in Hong Kong a good wage; not high by Western standards; but high enough to enable them to live far better than most people in the world. It is not government or trade union, these workers do well because there is competition for their labor and skills.
When a businessman faces trouble, a market threatens to disappear, or a new competitor arises, there are two things he can do. He can turn to the government for a tariff or quota or some other restriction on competition, or he can adjust and adapt. In Hong Kong the first option is closed. Hong Kong is too dependent on foreign trade so that the government has simply had to adopt a policy of complete noninterference. That’s tough on some individuals, but it is extremely healthy for the society as a whole. Only the businessmen who can adapt, who are flexible and adjustable survive and they create good employment opportunities for the rest.
The complete absence of tariffs or any other restrictions on trade is one of the main reasons why Hong Kong has been able to provide such rapidly rising standard of life for its people. Even Communist China recognizes Hong Kong’s success, it set up shop here and now excepts the universal symbol of capitalism. The Bank of China, the official bank of Communist China is the largest bank in Hong Kong. There’s no doubt that Communist China recognizes the power of the market.
In all this, the government of Hong Kong has played an important part, not only by what it has done, but as much by what it has refrained from doing. It has made sure that laws are enforced and contracts honored. It has provided the conditions in which a free market can work. Most importantly, it has not tried to direct the economic activities of the colony.
No government official is telling these people what to do. They are free to buy from whom they want, to sell to whom they want, to work for whom they want. Sometimes it looks like chaos and so it is, but underneath it’s highly organized by the impersonal forces of a free marketplace. The impersonal forces of a free marketplace at work back here in the United States, prices are the key. The prices that people are willing to pay for products determines what’s produced. The prices that have to be paid for raw materials, for the wages of labor, and so on, determine the cheapest way to produce these things.
In addition, these self same prices, the wages of labor, the interest on capital, and so on, determine how much each person has to spend on the market. It’s tempting to try to separate this final function of prices from the other two. To think that some how or other you can use prices to transmit the information about what should be produced and how it should be produced, without using those prices to determine how much each person gets. Indeed, government activity over the past few decades has been devoted to little else. But that’s a very serious mistake. If what people get is not going to be determined on what they produce, how they produce it, on how successfully they work, what incentive is there for them to act in accordance with the information that is transmitted. There is only one alternative: force __ some people telling other people what to do.
Aside from its harbor, the only other important resource of Hong Kong is people __ over 4_ million of them.
Like America a century ago, Hong Kong in the past few decades has been a haven for people who sought the freedom to make the most of their own abilities. Many of them are refugees from countries that don’t allow the economic and political freedom that is taken for granted in Hong Kong.
Despite rapid population growth, despite the lack of natural resources, the standard of living is one of the highest in all of Asia. People work hard, but Hong Kong’s success is not based on the exploitation of workers. Wages in Hong Kong have gone up fourfold since the War, and that’s after allowing for inflation. The workers are free. Free to work what hours they choose, free to move to other jobs if they wish. The market gives them that choice. It also determines what they make. You can be sure that somebody somewhere is willing to pay for these cheap, plastic toys. Otherwise they simply wouldn’t be made.
Competition from places like South Korea and Taiwan has made cheap products less profitable, so Hong Kong businessmen have been adapting. They have been developing more sophisticated products and new technology that can match anything in the West or East and their employees have been developing new skills.
Hong Kong never stops. There’s always some business to be done, some opportunity to be seized. Its long been a tourist center and a shoppers paradise and it’s now one of the business centers of the East. It’s the ordinary people of Hong Kong who benefit from all this effort and enterprise.
This thriving, bustling, dynamic city, has been made possible by the free market __ indeed the freest market in the world. The free market enables people to go into any industry that they want; to trade with whomever they want; to buy in the cheapest market around the world; to sell in the dearest around the world. But most important of all, if they fail, they bear the cost. If they succeed, they get the benefit and it’s that atmosphere of incentive that has induced them to work, to adjust, to save, to produce a miracle. This miracle hasn’t been achieved by government action __ by someone sitting in one of those tall buildings and telling people what to do. It’s been achieved by allowing the market to work. Walk down any street in Hong Kong and you will see the impersonal forces of the market in operation.
Mr. Chung makes metal containers. Nobody has ordered him to. He does it because he has found that he can do better for himself that way than by making anything else. But if demand for metal containers went down, or somebody found a way of making them cheaper, Mr. Chung would soon get that message.
A few doors away, Mr. Yu’s firm has been making traditional Cantonese wedding gowns for 42 years. But the demand for these elaborate garments is falling. The firm has already gotten that message and is now looking for another product. The market tells producers not only what to produce, but how best to produce it through another set of prices __ the cost of materials, the wages of labor, and so on. For example, if these workers could earn more doing something else, Mr. Ho would soon find a way to mechanize his picture frame production.
Inside this Chinese medicine shop, a market transaction is going on. The customer’s confidence that this painful looking ordeal will help him doesn’t rest on any official certification of the bone doctor’s qualifications __ it comes from experience __ his own or his friends. In his turn, the doctor treats him not because he has been ordered to, but because he gets paid. The transaction is voluntary so both parties must expect to benefit or it will not take place.
Believe it or not, this backyard is an entrance to a factory. The workers here are some of the best paid in Hong Kong. It’s hot, sticky, and extremely noisy. The workers are highly skilled so they can command high wages. They could induce their employer to improve working conditions by offering to work for less, but they would rather accept the conditions, take the high wages, and spend them as they wish. That’s their choice. The best known statement of the principles of a free market, the kind of free market that operates in Hong Kong, was written on the other side of the world. Two hundred years ago in Scotland, Adam Smith taught at the University of Glasgow. His brilliant book, The Wealth Of Nations, was based on the lectures he gave here.
The basic principles underlying the free market, as Adam Smith taught them to his students in this University, are really very simple. Look at this lead pencil, there is not a single person in the world who could make this pencil. Remarkable statement? Not at all. The wood from which it’s made, for all I know, comes from a tree that was cut down in the State of Washington. To cut down that tree, it took a saw. To make the saw, it took steel. To make the steel, it took iron ore. This black center, we call it lead but it’s really compressed graphite, I am not sure where it comes from but I think it comes from some mines in South America. This red top up here, the eraser, a bit of rubber, probably comes from Malaya, where the rubber tree isn’t even native. It was imported from South America by some businessman with the help of the British government. This brass feral __ I haven’t the slightest idea where it came from or the yellow paint or the paint that made the black lines __ or the glue that holds it together. Literally thousands of people cooperated to make this pencil. People who don’t speak the same language; who practice different religions; who might hate one another if they ever met. When you go down to the store and buy this pencil, you are, in effect, trading a few minutes of your time for a few seconds of the time of all of those thousands of people. What brought them together and induced them to cooperate to make this pencil? There was no Commissar sending out orders from some central office. It was the magic of the price system __ the impersonal operation of prices that brought them together and got them to cooperate to make this pencil so that you could have it for a trifling sum.
That is why the operation of the free market is so essential. Not only to promote productive efficiency, but even more, to foster harmony and peace among the peoples of the world.
These people are crossing between two very different societies. This is Lo Wool, the official border crossing point between China and Hong Kong.
Sweatshops and child labor were conditions that resulted more from poverty than from laissez-faire economics. Wretched working conditions still exist in nations with all sorts of enlightened social legislation but where poverty is still extreme. We in the United States no longer suffer that kind of poverty because the free-enterprise system has allowed us to become wealthy. Everybody does take the line that laissez faire is heartless. But when do you suppose we had the highest level of private charitable activity in this country? In the 19th century. That’s when we had the great movement toward private nonprofit hospitals. The missions abroad. The library movement. Even the Society for Prevention of Cruelty to Animals. That was also the era in which the ordinary man, the low-income man, achieved the greatest improvement in his standard of living and his status. During that period, millions of penniless immigrants came in from abroad, with nothing but their hands, and enjoyed an enormous rise in their standard of living. My mother came to this country when she was 14 years old. She worked in a sweatshop as a seamstress, and it was only because there was such a sweatshop in which she could get a job that she was able to come to the U.S. But she didn’t stay in the sweatshop and neither did most of the others. It was a way station for them, and a far better one than anything available to them in the old country. And she never thought it was anything else. I must say that I find it slightly revolting that people sneer at a system that’s made it possible for them to sneer at it.
I saw on HBO Real Time with Bill Maher his interview with Mike Daisey. Below is an article on what Daisey said about Steve Jobs and sweat shops in China.
Mike Daisey’s The Agony and the Ecstasy of Steve Jobs Will Reboot at the Public in 2012
Mike Daisey’s The Agony and the Ecstasy of Steve Jobs, which played an extended run Off-Broadway at the Public Theater earlier this fall, will return for a five-week New York run in 2012.
The Agony and the Ecstasy began previews Oct. 11 and played an extended run through Dec. 4. The monologue, which examines the human cost of must-have technology, has been announced to play a Jan. 31-March 4, 2012, encore engagement at the Public.
Jean-Michele Gregory directed Daisey’s heated monologue, which opened to strong reviews Oct. 17. The Public Theater’s timely engagement began less than a week after the Apple co-founder died at the age of 56.
“The Agony and the Ecstasy of Steve Jobs is coming back because it must,” Public artistic director Oskar Eustis said in a statement. “There has been huge demand for Mike Daisey’s wonderful show, a demand that is fueled both by the brilliance of his performance and the importance of his subject. This show speaks to the heart of America, who we are, the way we live and what we value. I am thrilled that Mike has struck such a nerve.”
Here’s how the Public describes the work: “Mike Daisey turns his razor-sharp wit to America’s most mysterious technology icon in this hilarious and harrowing tale of pride, beauty, lust, and industrial design. He illuminates how the CEO of Apple and his obsessions shape our lives, while sharing stories of his own travels to China to investigate the factories where millions toil to make iPhones and iPods. Daisey’s dangerous journey shines a light on our love affair with our devices and the human cost of creating them.”
“Many of us feel a deep intimacy with Steve’s passing, because Apple’s design language and Jobs’ obsessions blur the lines—in a real sense many people’s intimate history with Apple has been a decades-long conversation about industrial design with Steve Jobs himself,” Daisey said in a previous statement.
He continued, “This moment is an opportunity to peel back the surface and get at the secret heart of our relationship with Steve Jobs, his devices, our labor, and China itself. We live in denial about China: a relationship that so disturbs us that we pretend our devices are made in magical Willy Wonka-esque factories by space elves instead of the real human cost we all know in our hearts has been paid. Steve Jobs was famous for his unsentimental directness, his ability to ignore nostalgia and demand the unvarnished truth, however difficult. I admire that, and these performances at this precise moment are an opportunity for us to together rediscover out how alive theatre can be when we don’t know all the answers.”
_____________
This argument falls apart as Milton Friedman points out above. He pointed out:
My mother came to this country when she was 14 years old. She worked in a sweatshop as a seamstress, and it was only because there was such a sweatshop in which she could get a job that she was able to come to the U.S. But she didn’t stay in the sweatshop and neither did most of the others. It was a way station for them, and a far better one than anything available to them in the old country. And she never thought it was anything else. I must say that I find it slightly revolting that people sneer at a system that’s made it possible for them to sneer at it.
According to published reports Steve Jobs was a Buddhist and he had a very interesting quote on death which I discussed in another post. Back in 1979 I saw the film series HOW SHOULD WE THEN LIVE? by Francis Schaeffer and I also read the book. Francis Schaeffer observes in How Should We Then Live: The Rise […]
Steve Jobs’ 2005 Stanford Commencement Address Uploaded by StanfordUniversity on Mar 7, 2008 It was a quite moving story to hear about Steve Jobs’ adoption. Ryan Scott Bomberger (www.toomanyaborted.com), co-founder of The Radiance Foundation, an adoptee and adoptive father: “As a creative professional, [Jobs’] visionary work has helped my own visions become reality. But his […]
I have written several posts on Steve Jobs and they are listed below. Today I want to look at the eternal impact of Steve Jobs’ life. Below are the words of – R. Albert Mohler Jr., president of Southern Baptist Theological Seminary in Louisville, Ky.: “Christians cannot leave the matter where the secular world will […]
I loved reading this article below. (Take a look at the link to other posts I have done on Steve Jobs.) David Boaz makes some great observations: How much value is the Post Office creating this year? Or Amtrak? Or Solyndra? And if you point out that the Post Office does create value for its […]
Steve Jobs’ 2005 Stanford Commencement Address Uploaded by StanfordUniversity on Mar 7, 2008 Drawing from some of the most pivotal points in his life, Steve Jobs, chief executive officer and co-founder of Apple Computer and of Pixar Animation Studios, urged graduates to pursue their dreams and see the opportunities in life’s setbacks — including death […]
Things you may not know about Steve Jobs: Steve Jobs leans against his wife, Laurene Powell Jobs (Lea Suzuki/San Francisco Chronicle/Corbis) For all of his years in the spotlight at the helm of Apple, Steve Jobs in many ways remains an inscrutable figure — even in his death. Fiercely private, Jobs concealed most specifics about […]
Steve Jobs passed away on October 5, 2011. I personally am very grateful to him for helping the world so much with his ideas and I have written about that before. Dan Mitchell of the Cato Institute noted: He’s built a $360 billion company. That presumably means at least $352 billion of wealth in the […]
Did Steve Jobs help people even though he did not give away a lot of money? (I just finished a post concerning Steve’s religious beliefs and a post about 8 things you may not know about Steve Jobs) Uploaded by UM0kusha0kusha on Sep 16, 2010 clip from The First Round Up *1934* ~~enjoy!! ______________________________________________ In the short film […]
Friedman: Once all of this was a swamp, covered with forest. The Canarce Indians who lived here traded the 22 square miles of soggy Manhattan Island to the Dutch for $24.00 worth of cloth and trinkets. The newcomers founded a city, New Amsterdam at the edge of an empty continent. In the years that followed, it proved a magnet for millions of people from across the Atlantic; people who were driven by fear and poverty; who were attracted by the promise of freedom and plenty. They fanned out over the continent and built a new nation with their sweat, their enterprise and their vision of a better future.
For the first time in their lives, many were truly free to pursue their own objectives. That freedom released the human energies which created the United States. For the immigrants who were welcomed by this statue, America was truly a land of opportunity.
They poured ashore in their best clothes, eager and expectant, carrying what little they owned. They were poor, but they all had a great deal of hope. Once they arrived, they found, as my parents did, not an easy life, but a very hard life. But for many there were friends and relatives to help them get started __ to help them make a home, get a job, settle down in the new country. There were many rewards for hard work, enterprise and ability. Life was hard, but opportunity was real. There were few government programs to turn to and nobody expected them. But also, there were few rules and regulations. There were no licenses, no permits, no red tape to restrict them. They found in fact, a free market, and most of them thrived on it.
Many people still come to the United States driven by the same pressures and attracted by the same promise. You can find them in places like this. It’s China Town in New York, one of the centers of the garment industry __ a place where hundreds of thousands of newcomers have had their first taste of life in the new country. The people who live and work here are like the early settlers. They want to better their lot and they are prepared to work hard to do so.
Although I haven’t often been in factories like this, it’s all very familiar to me because this is exactly the same kind of a factory that my mother worked in when she came to this country for the first time at the age of 14, almost 90 years ago. And if there had not been factories like this here then at which she could have started to work and earn a little money, she wouldn’t have been able to come. And if I existed at all, I’d be a Russian or Hungarian today, instead of an American. Of course she didn’t stay here a long time, she stayed here while she learned the language, while she developed some feeling for the country, and gradually she was able to make a better life for herself.
Similarly, the people who are here now, they are like my mother. Most of the immigrants from the distant countries __ they came here because they liked it here better and had more opportunities. A place like this gives them a chance to get started. They are not going to stay here very long or forever. On the contrary, they and their children will make a better life for themselves as they take advantage of the opportunities that a free market provides to them.
The irony is that this place violates many of the standards that we now regard as every worker’s right. It is poorly ventilated, it is overcrowded, the workers accept less than union rate __ it breaks every rule in the book. But if it were closed down, who would benefit? Certainly not the people here. Their life may seem pretty tough compared to our own, but that is only because our parents or grandparents went through that stage for us. We have been able to start at a higher point.
Frank Visalli’s father was 12 years old when he arrived all alone in the United States. He had come from Sicily. That was 53 years ago. Frank is a successful dentist with a wife and family. They live in Lexington, Massachusetts. There is no doubt in Frank’s mind what freedom combined with opportunity meant to his father and then to him, or what his Italian grandparents would think if they could see how he lives now.
Frank Visalli: They would not believe what they would see __ that a person could immigrate from a small island and make such success out of their life because to them they were mostly related to the fields, working in the field as a peasant. My father came over, he made something for himself and then he tried to build a family structure. Whatever he did was for his family. It was for a better life for his family. And I can always remember him telling me that the number one thing in life is that you should get an education to become a professional person.
Friedman: The Visalli family, like all of us who live in the United States today, owe much to the climate of freedom we inherited from the founders of our country. The climate that gave full scope to the poor from other lands who came here and were able to make better lives for themselves and their children.
But in the past 50 years, we’ve been squandering that inheritance by allowing government to control more and more of our lives, instead of relying on ourselves. We need to rediscover the old truths that the immigrants knew in their bones; what economic freedom is and the role it plays in preserving personal freedom.
That’s why I came here to the South China Sea. It’s a place where there is an almost laboratory experiment in what happens when government is limited to its proper function and leaves people free to pursue their own objectives. If you want to see how the free market really works this is the place to come. Hong Kong, a place with hardly any natural resources. About the only one you can name is a great harbor, yet the absence of natural resources hasn’t prevented rapid economic development. Ships from all nations come here to trade because there are no duties, no tariffs on imports or exports. The power of the free market has enabled the industrious people of Hong Kong to transform what was once barren rock into one of the most thriving and successful places in Asia.
I am a firm believer in economic freedom and I have got most of my philosophy from Milton Friedman. In this article you will see that Friedman influenced Ronald Reagan more than any other president and his policies were good the long term.
Individuals should be free to decide what to produce and consume, and their decisions should be made within a predictable policy framework based on the rule of law.
As this election year begins, a lot of people are wondering what we can do to restore America’s prosperity and create more jobs. Republican presidential candidates are offering their ideas, and at his State of the Union message on Tuesday President Obama presented his. I believe the fundamental answer is simple: Government policies must adhere more closely to the principles of economic freedom upon which the country was founded.
At their most basic level, these principles are that families, individuals and entrepreneurs must be free to decide what to produce, what to consume, what to buy and sell, and how to help others. Their decisions are to be made within a predictable government policy framework based on the rule of law, with strong incentives derived from the market system, and with a clearly limited role for government.
Getty ImagesRonald Reagan: He and advisers such as George Shultz shunned the idea of stimulus and agreed on the need for a long-term point of view.
The history of American economic policy displays major movements between more and less economic freedom, more and less emphasis on rules-based policy in fiscal and monetary affairs, more and less expansive roles for government, more and less reliance on markets and incentives. Each of these swings has had enormous consequences. Taken together, they make for a historical proving ground to determine which policy direction is better for restoring prosperity.
A big move toward more interventionist policies started in the mid-1960s, after more activist Keynesian economists came to town in the Kennedy and Johnson administrations, and it lasted through the 1970s in the Nixon, Ford and Carter administrations. We saw short-term stimulus packages, temporary tax rebates or surcharges, go-stop monetary policy with inflationary overexpansion followed by severe contraction, wage-and-price guidelines and controls. The eventual result was high unemployment, high inflation and slow economic growth.
This was followed by a shift toward more predictable policies and a more limited role for government starting in the Reagan administration and largely continuing into the George H.W. Bush and Clinton administrations. The result was lower unemployment and higher economic growth with long expansions and few recessions.
More recently—beginning during the George W. Bush administration but really taking wings in the current Obama administration—policy has returned toward more and more government intervention, with results we are all experiencing.
How to move the country back toward the policies that sustain economic freedom and prosperity? To start, much can be learned from the stories of the politicians and economic officials who got us in and out of these messes, and remembering that the cast is bipartisan. Most pertinent to our current predicament is the story of how we got out of the economic mess of the late 1970s.
It’s difficult to recall now the seriousness of the U.S. economic slump at that time. Unemployment was high and persistent. Inflation had increased past the creeping stage to a trot. Confidence in U.S. economic leadership was plunging at home and abroad.
That changed when Ronald Reagan became president in 1981. Temporary, short-term Keynesian actions and interventions were out. Stable, permanent policy was in. Reagan proposed and Congress passed critical long-term reforms, especially across-the-board tax rate reductions.
The president was a firm believer in economic freedom, an avid reader and follower of economists like Milton Friedman and Friedrich Hayek. Between the time he failed to unseat President Gerald Ford in the 1976 Republican primaries and his announcement to run again in 1980, Reagan gave innumerable radio addresses putting forth his principles. He used down-home stories of economic freedom that he could tell in three minutes or less. There were no ghost writers—he wrote his stories in long hand on lined yellow paper as he traveled around the country. The failed policies of the 1970s made Reagan’s case appealing across the political spectrum. He based his winning election campaign on these principles.
Reagan appointed a large number of economic officials who also were firmly committed to moving away from interventionist policies. No members of the original Council of Economic Advisers under Reagan had come from the Keynesian school of thought, and most of them during the Reagan administrations were influenced by Milton Friedman.
In addition, the president appointed a group of outside economic advisers—originally including George Shultz, Milton Friedman, Alan Greenspan, Arthur Laffer, William Simon and Thomas Sowell—who helped him and others in the administration implement policies to move the country toward economic freedom and then stay the course.
As an example of Reagan’s firm commitment to principle, consider monetary policy. When he became president, Federal Reserve Chairman Paul Volcker, a Democrat appointed by President Carter, was determined to reduce inflation and end the go-stop interventions of the 1970s. That meant temporarily high interest rates, which contract the economy. One might have expected Reagan to pressure the Fed to lower interest rates to give a short-term boost to the economy. He did not, despite the political costs. In comparison with the political pressure put on Fed Chairman William McChesney Martin by the Johnson administration and on Arthur Burns by the Nixon administration to follow easy money policies, Reagan’s decision to support Mr. Volcker was remarkable.
The president’s economic strategy was ready to go as soon as the votes were counted in November 1980. That same month, George Shultz, along with many of the economists who had worked in the campaign, wrote an extraordinary memo to Reagan entitled “Economic Strategy for the Reagan Administration.” It began with a call for action: “Sharp change in present economic policy is an absolute necessity. The problems . . . an almost endless litany of economic ills, large and small, are severe. But they are not intractable. Having been produced by government policy, they can be redressed by a change in policy. . . . The need for a long-term point of view is essential to allow for the time, the coherence and the predictability so necessary for success.”
That predictable, long-term view continued well beyond the Reagan presidency, but it is no longer with us. The clear lesson is to find and select those leaders, regardless of political party, who along with their advisers are most firmly committed to the principles of economic freedom and who know how to implement and maintain them.
Mr. Taylor is a professor of economics at Stanford and a senior fellow at Stanford’s Hoover Institution. This op-ed is adapted from “First Principles: Five Keys to Restoring American Prosperity,” published this week by W.W. Norton.
Thank you so much for your time. I know how valuable it is. I also appreciate the fine family that you have and your committment as a father and a husband.
Sincerely,
Everette Hatcher III, 13900 Cottontail Lane, Alexander, AR 72002, ph 501-920-5733, lowcostsqueegees@yahoo.com
TEMIN: We don’t think the big capital arose before the government did?
VON HOFFMAN: Listen, what are we doing here? I mean __ defending big government is like defending death and taxes. When was the last time you met anybody that was in favor of big government?
FRIEDMAN: Today, today I met Bob Lekachman, I met __
LEKACHMAN: But that’s not to say __ with discrimination __not per se.
VON HOFFMAN: You’re in favor of certain functions __
FRIEDMAN: I make a living by making distinctions, after all. Certainly not without qualification.
MCKENZIE: Von Hoffman, you have the floor.
VON HOFFMAN: What I was going to say is, I think most of us are not in favor of big government as a theory. The question that keeps haunting me here is, how do you, going back to your question of just the monetary regulation, how do you make __ and let’s assume that you can really, we’ll go a step further and we’ll say __ we’ll go all the way with you. We will install that mechanism. What makes you think that when the storms arise that, that the people running that mechanism are not going to misread, just as they did in the past?
FRIEDMAN: Because I’m gonna have __ if I had my way I would have a mechanism which didn’t require them to read anything.
VON HOFFMAN: In other words, simply a money formula.
FRIEDMAN: Absolutely.
VON HOFFMAN: Is cranked out in relation to the GNP regardless.
FRIEDMAN: Right.
TEMIN: The question is: How are you going to keep from tampering with this black box? Would you have a thing __
FRIEDMAN: I’m not gonna have a black box; I’m gonna have a very visible system. I have written out, as you know __
TEMIN: No, I know. Yeah, but the question is, no, you have the rule __
FRIEDMAN: __ at relative great length and precise details on what I would do.
TEMIN: __ it will calculate this, but then there’s going to be someone who’ll come in, the people that you dislike, they’ll say, “But we could do it a little bit better by doing it this way or that way.”
FRIEDMAN: Of course. Of course.
TEMIN: How will you keep them from doing it?
FRIEDMAN: Well, in the only way in which you can do it in a democratic society, by establishing both a written and an unwritten __ and the unwritten is just as important as the written __ an unwritten constitution on the part of the public at large, an acceptance of the view, that this is not what people in government ought to be doing. That it’s their problem
VON HOFFMAN: A highly sacred measure of __
FRIEDMAN: Well, if you want, but not necessarily sacred in the theological sense.
JAY: It’s unfair of people to say, Professor Friedman, he’s a bad doctor because people won’t actually take his medicine. I mean that is, that is not fair. But it does seem to me, and I say it again, that to reduce the whole debate to one, are you in favor of big government or small government, as though that is the only interesting or important political-economic choice we had to make, is very foolish.
FRIEDMAN: That is very foolish. I agree.
JAY: But __ and if you put it in that form, in practice in democratic societies, people will go on backing, supporting, and paying for big government. Because unless you __ in addition to pointing out the errors, defects, weaknesses, fallibilities, failures or government, you also describe in some detail, and to some attraction, the other changes that you’re going to make in the nongovernmental sector of the economy, which are going to give people the kind of protection, the kind of opportunities, the kind of fulfillment, the kind of stability, the kind of prosperity that they want. They are not going to buy it because you’re offering them a pig in the poke, and they will see it, whether or not you approve of the phrase, or whether or not I approve of the phrase, there’s going back to something which they’re glad to have got away from.
TEMIN: The question of how you draw the lines, and where you draw the lines is a difficult one, and I can’t see any possible way of somehow making a decision on that will stand like __ like the Rock of Gibraltar against all comers.
LEKACHMAN: I don’t think that the public is going to, nor should it, choose ideologically. I think it’s going to favor and disfavor certain activities of government out of its experience, by its perception of what’s good in its own interests and so on. And my __ I don’t preclude the possibility that there will be a different mixture of perceptions by the public which will lead to a shift in the functions of government. But I think it’s at least as possible that after the shift occurs, government will be perceived to have more functions as that it will have fewer functions.
VON HOFFMAN: It seems to me also that you could have the monetary policy that you are talking about, and have the very big HEW etcetera.
OFF SCREEN: Absolutely. Oh, yes.
VON HOFFMAN: And more easily.
FRIEDMAN: Unfortunately, you’re right.
VON HOFFMAN: Now could you dilate on that?
FRIEDMAN: No, no I __
VON HOFFMAN: No, I mean it, seriously.
FRIEDMAN: I agree with you. I agree with Nick. These are separable issues. And Peter Jay will agree with that, too. In fact he and I are in almost complete agreement on the desirable monetary policy. Where we differ is on these other policies, and there is certainly no doubt that you could have an essentially automatic stabilizing monetary policy of the kind which I’ve suggested, of a fixed rate of monetary growth, no discretionary intervention for cyclical purposes, and at the same time have a very big government on HEW, have all sorts of regulation, have tariffs and all other things. With respect to Peter Jay’s more general statement, it’s impossible not to agree with his statement, because it’s __ it concentrates on objectives and not on means. And the real issue has to do with means. What are the most appropriate and effective means which will give people the greatest assurance __ you can’t give them certainty __ but the greatest assurance that they will have a reasonably stable society with opportunity for themselves and their children, for their needs, for their wants. Of course.
MCKENZIE: We must end the discussion for this week and hope you’ll join us again for the next edition of Free to Choose.
worked pretty well for a whole generation. Now anything that works well for a whole generation isn’t entirely bad. From the fact __ from that fact, and the undeniable fact that things are working poorly now, are we to conclude that the Keynesian sort of mixed regulation was wrong __
FRIEDMAN: Yes.
LEKACHMAN: __ or alternatively that we need still more regulation. That’s my conclusion, I might say.
FRIEDMAN: You want the right people manipulating the leaders. But go back. Memory smooths things out. If you really look at that 25_year period you’re talking about, it was not a period of stability; it was a period that was punctuated by the very sharp inflation of the Korean War. It was a period that was punctuated by three recessions in the course of about eight years in the fifties and early sixties. It was a period in which you had a __ inflation really starting to go from creeping to running, in the latter sixties. It was a period which laid the ground work for the kind of situation in which we are now, where you have both higher unemployment and higher inflation. It was __
TEMIN: I don’t think that followed. I mean there were these movements, as we say, but they weren’t the movements like the 1930s. There was a recession in ’58, yes.
FRIEDMAN: I agree.
TEMIN: We all called it a recession. We all worried about it and so on, but it was a small thing, little potatoes.
FRIEDMAN: The same thing was true in earlier periods between The Great Depression. If you take the area between the great depression in the United States of the 1870s and the 1890s, again you had a period like that. If you take it between The Great Depression of the 1890s and World War I, with a minor __ with one minor exception, it was similar to that. So that what you have, and this is a historical fact, is that except for the great depressions, all of which are linked to monetary collapses and to governmental involvement, in the interim period, the society has been reasonably stable.
MCKENZIE: Haven’t we reached the stage, incidentally, where we need not again see anything like the great depression. You say recessions, yes; but it bears no relationship to what we knew __
FRIEDMAN: No.
MCKENZIE: __ in the thirties. Have we solved that problem now? People are deeply __
JAY: No, we haven’t. Because I think the seeds of it remain there. I don’t agree with Professor Lekachman that everything was __ I don’t want to misparaphrase him __ but did pretty well until 1973 and then it suddenly all went wrong. It seems to me that the seeds of the subsequent instability, stagflation, were there before. That each time round the economic cycle inflation went a little faster. Each time around the economic cycle unemployment tended to be a bit higher. But this brings me to what is my disagreement with Professor Friedman. I agree with him that government has failed to correct, and is bound to fail to correct that instability. I do not agree with him that it is the root cause of that instability or simply removing or containing the government will remove that instability. Because his constitution, and I agree with all the things he wants to put into it, but I want to put more into it, leaves big capital entirely free to operate. Now he doesn’t mind that. In response to big capital, you are bound to get __ as a simple, natural reaction __ big labor. He doesn’t mind that. He’s quite happy with that. But my contention is that once you have big labor, you have a way of setting rewards in society, not only by trade unions, but through all sorts of other processes whereby groups get together in order to exploit the political process and legal rights, and to protect themselves from competition, in which, inevitably, people set rewards above what economists call the “market clearing price” for labor. They set levels of rewards which make it impossible that everybody should be employed and you therefore have a built-in tendency to high unemployment. If governments react to that on the Keynesian pattern by trying to inject spending which will enable these people to be employed, then I agree with Professor Friedman that all you get is faster and faster inflation, and that if you like, is caused by the government. But the government is a proximate cause of an original instability that is already there. And there’s nothing in Professor Friedman’s constitution which would correct that inherent, if you like, contradiction or flaw in classical western political economy.
FRIEDMAN: Do you deny, Peter __
MCKENZIE: Let me get the reaction to that __
FRIEDMAN: __no, I want to ask just one question of Peter. Do you deny that big government plays a large part in the rise of big capital and big labor?
JAY: I think they’re interactive. I once said big capital causes big labor, causes big government, causes big failure. That is the tragic story, in my opinion, of the 20th century.
FRIEDMAN: And what about if you start that __
JAY: We have to unravel that.
FRIEDMAN: __ if you start that route with big government. Will it be wrong? Big government causes big capital, causes big labor, causes big failure?
JAY: I don’t think historically that’s what happened. But you and I are agreed, we don’t want big government.
FRIEDMAN: That’s right.
JAY: What we’re disagreed about is what else we need.
LEKACHMAN: I think something is seriously wrong with a beautiful system which develops this big, clumsy, aggressive government, huge corporations, with more influence over their markets than is desirable from the standpoint of free competitive theory, trade unions, which at least according to some opinions, have a similarly malignant influence on their markets. There must be something radically flawed with the capitalist system which allows these institutional developments. This doesn’t alarm me because I’m a socialist, but I would __ I would readily __
FRIEDMAN: There must be something radically wrong with socialist philosophy which allows the __ extraordinary __ the much worse developments that have occurred, wherever there has been any real significant attempt to put a thoroughgoing socialism into practice.
LEKACHMAN: Socialism is a word of many meanings.
MCKENZIE: Now I think we might easily get into a quite serious debate on that point.
VOICE OFF SCREEN: Right.
JAY: I think it’s possible to note in passing that they may both be right.
MCKENZIE: Yes.
JAY: That conventional capitalism, conventional socialism, as conceived in the 20th century, are both wrong and that the polarization of the debate between those simple two alternatives greatly impoverishes the real range of political-economic choices which modern societies have.
FRIEDMAN: But what has happened? Over and over again one claim after another for the kind of socialism __ this kind of socialism or that kind of socialism __ has turned to ashes. And each time the answer has come, “Oh well, it was a wrong brand of socialism that was adopted, or the wrong people were running it.”
VOICE OFF SCREEN: But you’re saying __
JAY: You’re arguing with yourself when you’re saying __
FRIEDMAN: No I’m not.
JAY: The Federal Reserve in 1929 failed to do the right thing. It was the wrong brand of government.
FRIEDMAN: It was the wrong brand, absolutely, but what I’m saying is something different. I can at least point to examples in history of systems of capitalist systems in which the government had a fairly limited role, not my ideal government. Many things, doing many things I would not want it to do. But I’m going to point to such examples over long stretches of history in __ which have been relatively successful. Where the major achievements of humankind, not merely in economics, but in all other areas, have largely arisen. It is very difficult to point to any similar examples __
TEMIN: But then you are pointing back __
FRIEDMAN: __ of where big government has achieved such success.
TEMIN: But you said before you didn’t like to go back. You’re now talking about going back.
FRIEDMAN: No, no. I didn’t say I didn’t like to go back.
TEMIN: They took place in different times.
FRIEDMAN: What I said is going back or forward is irrelevant. What we want to do is __
TEMIN: But it’s not irrelevant to this discussion __
FRIEDMAN: __ the right thing wherever it comes from.
TEMIN: __ because as Bob Lekachman said earlier, things have increased in scale, and the scale of business and increased, and you were saying just before, big government, big labor, big industry, big firms go together, and you didn’t accept it before, when Bob said you’ll accept it now from here.
FRIEDMAN: No, no. I don’t accept it. What I accept is that big government is a major factor promoting big labor and big capital. I did not accept that in the absence of big government you would have the big capital and big labor that worries him.
MCKENZIE: Ah, well, that’s not on our agenda actually. (Laughter)
VOICE OFF SCREEN: Why not?
MCKENZIE: I boldly repeat the question, though, the expectation having been __ having been raised in the public mind, can you reverse this process where government is expected to produce the happy result?
LEKACHMAN: Oh, no way. And it would be very foolish of the public which is on the whole more sensible than academic, to come to this conclusion. They look around them, what do they see? They see a whole collection of visible hands attached to EXXON, other large corporations. These are not small, independent competitors jostling with each other for the patronage of the public. These are large organizations, with substantial influence on their markets. Government’s interference, clumsy as it often is, is an almost unavoidable response to the very visible manipulations of large organizations.
FRIEDMAN: If there again, you’re an academic, we’re talking about fact in history. Now the history is that the growth of government has not been as a result of the things you’re pointing out. It isn’t the large corporations. It isn’t the large unions. It isn’t the technological development that has produced the major growth of government. The major growth of government in our time has come in the redistributive area. It’s come in the area of designing programs which take from some people and give to others. We’re not going to go into those here, because we discuss those in our next two programs which deal with exactly the question of whether the government intervention that was stimulated by The Great Depression has been a success or a failure. But to your point, the grounds that you give for greater government intervention have almost nothing whatsoever to do with the actual factual growth of government. Now at the end of the war, immediately after World War II, it was thought that government was going to get involved, especially in Britain, in France, in central economic planning on a large scale.
JAY: Partly because of the war experience, too, when government was very much involved.
FRIEDMAN: Partly.
MCKENZIE: In Germany and Japan as well.
FRIEDMAN: Germany and Japan as well, it was a war. It created a myth just as the, as The Great Depression created myth.
MCKENZIE: Or rather reinforced the myth of government responsibility.
FRIEDMAN: Yes, but it created a different myth. This is a subject we don’t discuss much in the film. We’ve discussed it in a book that we’re bringing out with the same title to go along with it but __ but the great, but the great myth that was created by the war, was the myth that government was inefficient. And it was.
MCKENZIE: We won the war.
FRIEDMAN: For wartime purposes in, at least in Britain and the United States. It wasn’t so inefficient in Germany and the losing countries. But why is that a myth? It was a myth because it is one thing for government to plan and to control an economy for a single overriding objective. One solitary objective __ win the war. It’s a very different thing for government to control the economy for the many numerous tastes of all us, of a very large number of people in a complex world. And I __ you ask the question of whether people’s opinions can be changed.
MCKENZIE: Yes.
FRIEDMAN: I can’t change their opinions. You can’t change their opinions, but experience is changing their opinions. Is there anybody, anywhere now who believes that government is an efficient way to run an industrial enterprise?
JAY: I think your question, can you get the genie back into the bottle, is a very important one. It is undoubtedly true that in democratic countries there will be a public urge expressed through the political process, for something to be done about anything that seems to be wrong. The one thing that inhibits that is the belief that it can’t be done. There is not politically expressed desire for the government to do something about the weather because it is widely believed that the government does not control the weather. It was widely believed under the gold standard and pre-Keynes that there was nothing the government could do about the kind of economic traits I call in depressions that we had before that time. Since then it is very widely believed, Milton may believe, I may believe wrongly, but nonetheless, it’s very widely believed that is now a manageable thing, and therefore the demand is expressed that unemployment should not rise too high, inflation should not rise too high, and so forth.
MCKENZIE: That we keep a war on want or a war on poverty.
JAY: If you believe, as Milton does, and on this issue I agree with him, that in fact government cannot handle this issue, and you want to get that genie back into the bottle, you can’t simply do it by authorities, or pundits, or academics, or others saying, “Here is a new rule. The government will do nothing. It will not intervene; it will not perform, but will just be a simple monetary rule.” You’ve got politically to persuade people that this is part of a system which they can understand, which will, in fact, deliver for them the minimal economic objectives that they have, which are basically high employment __ high employment and stability of prices, and one of two other things. Now in order to do that you’ve got to describe a political economic system which will in fact deliver that result. And they will not believe, and in my opinion they will rightfully not believe, that simply going back to where we were, or where we imagined that we were in 1930 or 1870, by withdrawing the government form the game and doing nothing else, will produce that result. And they’re right not to believe it.
TEMIN: The kind of pristine view that you appear to be putting up of no government isn’t really a consistent view because if you __
FRIEDMAN: I’m not putting up a view of no government. I’m putting up a view of a limited government. Limited __
TEMIN: Just how do you, how do you impose the limit?
FRIEDMAN: Note __ note that today the budget of HEW is one-and-a-half times the whole defense budget. That is not where the major growth of government has come. Whether we spend too little of too much on the military is very a arguable issue which I’m not competent to discuss.
TEMIN: Okay.
FRIEDMAN: But it is not the cutting edge of the dispute that we’re engaged in. That cutting edge is on all these other functions which government has increasingly taken on its shoulders.
TEMIN: Yes, but the question __
VON HOFFMAN: How do you get from here to there?
FRIEDMAN: By persuading people to do it, and by doing it gradually. You do not get it overnight. CAB was a very, very persuasive element on __ on getting rid of one branch of regulation. The failure of government to produce the full employment and the stable prices that was promised is another. You know what is __ who are we kidding? Is there anybody around any more who really believes that government knows how to prevent by its present methods inflation or unemployment? We’ve had increasing inflation. We’ve had increasing unemployment. Not only in the United States __
VON HOFFMAN: Well we __ we know that this government doesn’t __
VOICE OFF SCREEN: Wait, wait.
LEKACHMAN: It seems to me that we’re talking about at least four kinds of government intervention of different popularity among the public. One is redistributive __ via the Social Security System and so on __ and lots of that is popular. Welfare is unpopular, but Social Security is quite popular. Medicare has a mixed reputation, Medicaid a bad reputation. The redistributive system is a mixed bag from the public’s standpoint. Another kind of intervention deals with unemployment; a third kind deals with prices; and a fourth kind deals with regulation. Now, again, there is a cry about regulation which itself breaks down, it seems to me, into two parts: Partly a safety kind of thing, partly an economic kind of thing. I doubt that the public is prepared, for example, to eliminate the Food and Drug Administration.
FRIEDMAN: Take the way of trying to smooth out the business cycle.
LEKACHMAN: All right, now wait on that. I think that the record of doing this, in its clumsy way, Republicans, Democrats, assorted administrations in England and elsewhere, between 1945 and 1973 was quite good. Average unemployment during this considerable span of years was lower than had been probably in any previous spell of modern economic history. Inflation was not a persistent problem in this. Now I would say, putting the claim at a very modest one, that Keynesian intervention, if we use that as a label,
The massive growth of central government that started after the depression has continued ever since. If anything, it has even speeded up in recent years. Each year there are more buildings in Washington occupied by more bureaucrats administering more laws. The Great Depression persuaded the public that private enterprise was a fundamentally unstable system. That the depression represented a failure of free market capitalism, that the government had to step in to perform the essential function of stabilizing the economy, of providing security for its citizens. The widespread acceptance of these views, sparked the enormous growth in the power of government that has occurred in the decade since and that is still going on. We now know as many economists knew then that the truth about the depression was very different. The depression was produced or at the very least, made far worse by perverse monetary policies followed by the U.S. authorities.
Far from being a failure of free market capitalism, the depression was a failure of government. Unfortunately, that failure did not end with The Great Depression. Ever since, government has been attempting to fine tune the economy. In practice, just as during the depression, far from promoting stability, the government has itself, been the major single source of instability.
DISCUSSION
Participants: Robert McKenzie, Moderator; Milton Friedman; Robert Lekachman, Professor of Economics, City University, New York; Nicholas Von Hoffman, Syndicated Columnist; Peter Temin, Professor of Economics, MIT; Peter Jay, British Ambassador to the United States, 1977_1979
MCKENZIE: And now we join the invited guests here at the University of Chicago, as they discuss Friedman’s interpretation of those events and their implications for today.
LEKACHMAN: The 1929 crash, the succeeding calamities, were not the first of their kind. Capitalism has been subject to severe depressions since the beginning of the industrial revolution. This was the first time, however, government tried to intervene seriously. It did it very badly. The lesson I would draw is a very simple one: Government is unavoidable; the expectations of the public are proper; government ought to do better oddly enough the government did do better until very, very recently. Until, I would say, October 1973, even, government did reasonably well in fulfilling the expectations of the public. I’m an unrepentant proponent of government intervention, intelligent government intervention. But I would describe much of the intervention which has followed the great 1929 crash as quite intelligent.
MCKENZIE: Let’s take a further look, though, at this argument that just as during the depression, far from promoting stability, the government has itself been the major single source of instability.
VON HOFFMAN: I_I don’t think there is any stability this side of the graveyard. I mean, I think __ I don’t think it matters what system you’re working under, you are not going to __ you are not going to have a level and hold it under any system with living human beings.
TEMIN: Governments are larger now and therefore more of a source of an influence for good and for bad. And I think like Mr. Von Hoffman that you can’t get perfect stability, given that you’re going to have governments, given that there are legitimate functions of governments, there are also risks in having the government be as active as it is.
MCKENZIE: Peter Jay.
JAY: I think that government is a god that has failed. I think that we have too much of it and need less of it. I think it has failed to prevent both the modern forms of economic instability and the prewar ones. I do not, however, think that government is the original or primary source of that instability, and I do not think that simply getting rid of the government, or greatly reducing it, which I’m in favor of, will, by itself, remove the instability.
LEKACHMAN: I would put it this way: There was __ there was a great economist, with a suitably esoteric doctrine, which could nevertheless be translated as Dr. Friedman did in the film, into simple English, at the same time as there was the widespread hardship of The Great Depression and the natural yearning of human beings not to repeat anything like it. So you have a coincidence of an appropriate theory, with an appropriate public sentiment, and I suppose the symbol in the United States was the passage of 1946 of the Employment Act of that year. Which, it was a weak measure, but it was nevertheless a public declaration of an obligation of government to do something about employment, and economic prosperity, and a good thing, too.
MCKENZIE: Now that’s the __ really the crux of the matter. Do you agree it was a good thing too, that obligation was accepted by government at that stage?
JAY: I think it’s very important here to distinguish two completely different issues. There is the rather narrow issue as to whether Keynes was right or wrong in believing that you could stabilize the economy with regard to really one essential variable _ unemployment _ by a certain technique which he talked about. We may now think that he was wrong, but that’s a quite separate issue from the broad political philosophical issue associated with socialism, associated with social democrats, and many other so-called left wing political thinkers, that the duty of government, so far as it can, is to concern itself not only with defense and law and order and the traditional things, but also with the social welfare and the economic welfare of a society. Now that’s a broad philosophical __
MCKENZIE: Is that a disaster, as Milton seemed to be implying, or was it a good and helpful, useful thing to happen?
JAY: Well, that is one of the great __ perhaps the greatest of all debates in political philosophy, as to whether or not it is right or is not right to believe that a society, collectively, should concern itself with these things and has the right, having concerned itself, through law and through government and in other ways, to move to try to correct these things.
VON HOFFMAN: Well I just __ it seems to me that Americans have believed that for the last century. I mean William McKinley ran on the slogan of a full dinner pail, so that the notion that this is a government responsibility for prosperity dates from the 1930’s I think is erroneous. What I wonder about after having seen that film is this: We have in 1929 __ we have the man who could have saved it dead two years and in 1946 we’ve got the man who might have saved it dying. So what I have to ask is: Are we doomed to find out the right answer only too late? Is it possible that our __
TEMIN: Or should we just look for somebody who’s recently died.
VON HOFFMAN: Exactly. Rummage the morgues. (Laughter)
MCKENZIE: Well, you asked the question __
FRIEDMAN: No, and I think the question is a very different one. And it goes to much of the discussion to this point. Everybody looks for the right man. You say, “Government __
VON HOFFMAN: You brought’em up.
FRIEDMAN: Those men at that time. Quite right. But a system which depends on the right man is a bad system. The Federal Reserve was a bad system because it depended on the right man working it. The idea of demand management, of the kind of thing we’re talking about where Keynes’ death mattered, was a bad system because it depended on a particular man working it. The notion that the problem that Bob Lekachman brought up, that the problem is not the government interferes, but it does it unintelligently, is again a demand for the right man, the man on the white horse who will know what to do. My whole view is very different. It is that it’s the system that’s wrong, and that we’ve got to have a system that the right way to accomplish these objectives is to have a system which doesn’t depend on whether you happen to have the right man pushing the buttons at the right time.
TEMIN: The problem is somebody has to __
FRIEDMAN: Which relies on the __ on establishing a framework within which an invisible hand, within which the activities of people all over are jointly to produce the kind of result. It won’t produce perfect stability; but it’ll produce a far higher degree of stability, a far greater level of freedom, and a far greater level of prosperity than the kind of thing we’ve had with these governmental interventions.
TEMIN: Somebody still has to design the system. You can’t take the people out of it entirely.
FRIEDMAN: Of course.
TEMIN: Unless you’re in the grave as it says.
FRIEDMAN: Of course, but the __ that doesn’t __
TEMIN: But the question is __ I mean it’s said that generals always fight the last war. How do we know that the system won’t fight the last war? We probably won’t have another depression exactly like 1929 to ’33.
MCKENZIE: But, but __
TEMIN: But that doesn’t say we won’t have another depression or another stagflation or another crisis of some other source.
MCKENZIE: But is this process reversible? Because you argued that the public, having been appalled by The Great Depression, in effect demanded of government that they accept responsibility for wellbeing of the economy, for management of the society and so on. Now, that expectation having been raised, can it be reversed?
VON HOFFMAN: Let me answer a question you didn’t ask and say that it seems to me that what we’re getting here is the question of sort of social astrophysics. And that is, do we have an unseen hand, or are we on the war star where we are trying to design a computer that is going to take care of the navigation of this thing. In other words, it seems to me that’s our central question. Is there a mechanism that you can put right in the center of the spaceship that will operate regardless of who is the captain on the quarterdeck at any one moment in time? I don’t think that’s an economic question. I think that’s a question that goes to religion.
The Daily Hatch 