Category Archives: Milton Friedman

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

October 28, 2011 – 12:30 am

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

Created Equal [5/7]. Milton Friedman’s Free to Choose (1980)

FRIEDMAN: I agree with you that everything called free enterprise is not free enterprise.

I agree with you that many things have been done __

PIVEN: Where is it?

FRIEDMAN: __ under the name of free enterprise that are not consistent with free enterprise. I agree with you and we stress over and over again in this series that whenever businessmen have the chance they will, of course, use government to pursue objectives which may or may not be in the interest of the public at large. But, you always are talking about mixed systems and I challenge you to find a single example in history, at any time, of any society, where people have been relatively free __ and I don’t mean merely, what you call, “merely economic freedom.” I mean freedom __

PIVEN: I said economic license.

FRIEDMAN: __ in the full sense. I mean freedom of individuals to pursue their own objectives, their own values, to live their lives. I want you to name me any society in which you have had any large measure of that freedom where capitalism and free enterprise has not been the predominant mechanism for controlling economic activity. Not the sole mechanism, but the dominant one. I want you to name me one exception.

PIVEN: Your conception of freedom, does that apply in Chile today with the free enterprise system?

FRIEDMAN: Chile is not politically free. Chile today does not have political freedom and I do not condone __

PIVEN: And yet the free enterprise system __

FRIEDMAN: __ but let me go on for a moment, if you will. You raised the question, let me answer it. Chile is not a politically free system and I do not condone the political system But the people there are freer than the people in communist societies because government plays a smaller role because the free enterprise that has been emerging has been cutting down the fraction of the total income of the people spent by government because unemployment has been going down. Output has been going up. Food production has been going up. The conditions of the people for the first __ not the first time, but in the past few years has been getting better and not worse. They would be still better __

PIVEN: Unemployment __

FRIEDMAN: __ to get rid of the junta and to be able to have a free democratic system. What I have said and what I repeat here is that it’s a necessary condition. You cannot have a free society in my opinion and I know no counter example and I challenge you to produce one. You cannot have a free society unless free enterprise plays a substantial role.

PIVEN: But in Chile the free enterprise __

MCKENZIE: Could we hole Chile. We would get beyond that. Let me come back, though, to your theory of equality, Milton, because I’m confused about it. You say there is a widespread demand for equality of material condition.

FRIEDMAN: Absolutely.

MCKENZIE: Now I don’t know of a political party in a democracy that advocates that kind of equality.

FRIEDMAN: Well, I look at what __

MCKENZIE: And I challenge you to name one, a major party in a democracy which is advocating the kind of equality you presented as a major threat to freedom.

FRIEDMAN: I’m perfectly willing to take your Labor Party. I’m perfectly willing to take some segments of our Democratic Party which have certainly advocated programs directed towards that objective, of course. In the practical political structure of democracies __

MCKENZIE: Yeah.

FRIEDMAN: __ and there’s no question but what Britain, like the United States, is fundamentally a democracy and among the freest nations in the world despite the growth of intervention. In a democracy you proceed slowly. You don’t proceed at one fell swoop. If you take the societies which have ostensibly declared equality as their basic goal, the societies like China and like Russia, there’s no question we all agree that those are terrible tyrannical societies and so in a country like Britain and the United States you have stopped very short of the objective, but there’s no doubt what the objective of the parties has been.

MCKENZIE: Well, I think Peter may want to come here and I should say that in this one I shall take the opportunity to play a bit myself because you’re right squarely in my area of special interest. I am __

FRIEDMAN: They ought to let me be the moderator for a change.

MCKENZIE: Yes, indeed.

(Laughter) MCKENZIE: I don’t accept for a minute that there has been a calculated move to absolute equality in the social policy of Britain since the war. And I’ve lived there during the time. I write the history of it. I teach social policy and you’re wrong on this one Milton, but I give it to you Peter.

JAY: Well I think Milton’s __

FRIEDMAN: That’s what’s known as the one-two.

MCKENZIE: Yes. (Laughing)

JAY: Milton is still equivocating as to whether he is attacking the idea of absolute equality, in which case his examples of the Labor Party, his examples of some sections of the Democratic Party just don’t stand up; or whether he is maintaining the proposition that any concern to reduce inequalities of result are right, not of opportunity but of result is wrong. Now if he saying the second, it seems to me that his arguments that he’s made don’t tend to show that result.

FRIEDMAN: Peter __

JAY: It is perfect __ well, just let me finish because we let you finish.

FRIEDMAN: Okay.

JAY: It is perfectly reasonable for a society to say or for people in a society to say and together through their political process to express the thought that there are many objectives that society has. Efficiency is one. Prosperity is one. Freedom is perhaps the most important of all. But concern about equality or at least about reducing inequality is another. And that we should ask ourselves the question: are all the inequalities that we face, the gross inequalities described in Dickens, the gross inequalities which you yourself reported in India, the gross inequalities which you yourself said in the film were offensive and were unfair. Are all of these justified by the criteria of freedom and efficiency or are some of them unnecessary? In other words, we take the principle that there should only be such inequality as is necessary and justified by one of the other criteria of the society. Now if you’re willing to say that then you’re not in disagreement with anybody. If you’re denying that you’ve made no arguments to support what you’re saying.

MCKENZIE: Now before we have Milton reply, we must bring in Thomas.

SOWELL: I think we’re talking at cross purposes. On the one hand we’re talking about results that we’re hoping for. On the other hand we’re talking about processes that we’re setting in motion. You’re saying, should we hope for certain kinds of lessening of inequality and so on. The real question, the political question is: shall we set in motion certain processes because we hope for that and do those processes enhance or reduce freedom? And I think the argument that Milton is making and certainly the argument that I would make is that the attempt at doing these things __ and it doesn’t really matter, it’s a complete strawman to talk about absolute inequality if you’re __

JAY: This is the strawman.

SOWELL: __ no, no not at all.

JAY: Yes it is. Absolutely throughout the film this is the strawman he brings up in order to say how ridiculous to have absolute equality. And then he goes on to say __

SOWELL: No.

JAY: __ how ridiculous to have __

SOWELL: My whole point is __ as a result, you see, that you set up processes and the end result may not be any more or less inequality that exists now, but the question of it is, those processes may indeed reduce freedom greatly. I would go beyond the question of equality and put it more generally that any process to ascribe any status to any group of people, equality, inferiority, superiority, must necessarily reduce freedom because whatever the government wishes to ascribe to any group, whatever place, to use the phrase that was very common in the south that blacks should have their place, whatever place the government is going to assign to people. That place will not coincide __ wait __ that place will not coincide either with what all those people are doing or with how others perceive all those people because there’s too much diversity among human beings to maintain any system of ascribed status from the top is going to mean reducing people’s freedom across the spectrum. That’s the point.

PIVEN: People have an ascribed status. It isn’t as if government by its intervention creates it, people are born into this world in a given specter of the society and many, many of them are born at the bottom of the society. The argument of, about equality of results was an argument that was linked to equality of opportunity. People recognized that unless there was a degree of equality in __ a degree __ enough food, enough security, access to education. Unless these things were available to all children, then equality of opportunity was merely a mockery. That’s why equality of results became an issue and it became an issue for black people in the United States and they expressed their concern whatever the opinion polls __

SOWELL: You expressed it, dammit, look.

PIVEN: They expressed __

SOWELL: No, they did not. They did not.

(Applause)

SOWELL: Dammit.

PIVEN: They expressed that.

MCKENZIE: Frances finish it and then reply.

PIVEN: They expressed their will by their extraordinary participation in a protest movement that began in the late 1950s and didn’t end until the 1960s.

SOWELL: I have never __

PIVEN: Intellectuals were not in that protest movement. Black people were in that protest.

SOWELL: You want me to answer or do you want to keep on? Do you want me to answer it?

PIVEN: I’ve finished.

SOWELL: Good. Black people have never supported, for example, affirmative action, quotas, anything of that sort. Wherever polls have been taken of black opinion on such matters as should people be paid equally or should there be this or that. Black people have never taken a position that you described. So it is not a question of what black people choose to do. It’s what you choose to put in the mouths of black people and it’s what you choose to project. It is not what any black people have ever said anywhere that you could put your finger on.

PIVEN: It’s what you choose to put into the mouths of the pollsters, as far as I can see.

SOWELL: I put in the mouth of the pollsters?

PIVEN: Look at the leadership of the black community.

SOWELL: Like most people I have never seen a pollster.

By Everette Hatcher III | Comments (0)

99th anniversary of Milton Friedman’s birth (Part 17) (“Free to Choose” episode 3 – Anatomy of a Crisis. part 3 of 7)

October 26, 2011 – 12:04 am

Milton Friedman was born on July 31, 1912 and he died November 16, 2006. I started posting tributes of him on July 31 and I hope to continue them until his 100th birthday. Here is another tribute below:

Worse still, America’s depression was to become worldwide because of what lies behind these doors.
This is the vault of the Federal Reserve Bank of New York. Inside is the largest horde of gold in the world. Because the world was on a gold standard in 1929, these vaults, where the U.S. gold was stored, provide an excellent test of where the depression originated. If the depression had started in Europe or somewhere else in the world, the U.S. would have lost gold, more gold would have flown out of the country then came in. If, on the other hand, the depression started in the United States, the opposite would happen. More gold would come in from abroad as the effects of our depression spread there then went out abroad, in reality that is exactly what happened.
When the international money system was based on gold, the rules of the game were these. The gold in the United States was supposed to control the amount of money issued by the Federal Reserve. In turn, the amount the Federal Reserve issued controlled the amount of money issued by the commercial banks which in turn controlled the amount of money that individuals, businesses and industry could get from the banks. The result, a monetary structure all supposedly tied to the amount of gold in the vaults in the United States. But in 1930 the Federal Reserve didn’t play by the rules. It stood by as banks started to collapse and with each one that went the money supply fell. Businesses and industry inevitably began to fail. Americans, now poor, bought less from abroad. Britain was one of the countries effected. Like the United States, Britain had its own monetary structure tied to gold. The trouble was that Britain could now sell less abroad. It cut down the amount it bought from abroad but not by enough. Under the rules of the gold standard, it had to pay the difference in gold. With every bar of gold that was shipped out of Britain, the amount of money decreased.
A depression that was already underway in Britain got worse. British gold flowed into the United States, supposedly to form the foundation of a new slice of the monetary structure. But the Federal Reserve didn’t let it. The gold was simply locked away. The results, Britain remained in trouble until in 1931 it went off the gold standard cutting the link between the amount of gold and the amount of money. In the United States, suffering the worst depression in history, there was plenty of gold, but to no avail.
Although these events happened almost 50 years ago, many of our policies today derived directly from them. Central bankers throughout the world, government officials everywhere, are afraid of a new great depression. They, have therefore, moved the opposite direction. Instead of the problem of too little money, we are faced with the problem of too much money. The problems of inflation that plagues us today trace directly from the problem of deflation that plagued us from 1929 to 1933.
People came to believe that free market capitalism had failed. Something was needed to replace it. At Cambridge University in England, a new orthodoxy emerged in the 30’s one that has remained powerful to this day.
It owes its influence to the brilliance of one man. John Manrd Kane was unquestionably one of the greatest economists of all time. Like other economists of his generation, he found The Great Depression both a paradox and a challenge. It was a paradox because it seemed to contradict some of the fundamental principles that economists have come to take for granted. Kane rose to the challenge by constructing a complex and sophisticated hypothesis which not only explained what had been going on, but also offered a way out way to end The Great Depression and to avoid similar episodes in the future. The core of his theory was that what happened to the quantity of money didn’t matter. What really mattered was a particular category of spending. In economists jargon, autonomous spending. What kind of spending is that? It might be investment by business enterprises in building factories and adding to the number of machines and adding to inventories. It might be spending by individuals to build houses. Or, most important of all, it might be deficit spending by government. If private spending on investment, on house building, is not enough to maintain full employment, then government could always step in and spend enough to make up the difference. The theory of pump priming was born. The theory was a godsend to politicians who had been grasping at any expedient. After all, throughout the ages, politicians had been only too willing to spend money provided they didn’t have to tax their citizens to pay for it. And here along came a scientific theory offered under the most responsible of auspices that justified what they had been wanting to do all along. Is it any wonder that government spending has exploded ever since or that deficit spending, even without the excuse of war, and on a large scale, has become the order of the day?
In America, the new Roosevelt administration adopted the Keynesian approach. It authorized massive spending on government projects. It involved government increasingly in the running of the economy. It developed programs designed to provide security for every individual. In England too, the idea that only the government could bolster the economy was firmly established as this film at the time makes clear.
With the assistance of the national government, work was restarted on the great Granada, 534. And we all hope that this is a prelude to a period of increasing prosperity in the industry. Exports of cotton goods to India have increased and as a result of the quota system in the colonies, which the national government introduced in order to diminish the dangers of Japanese competition, exports of cotton good to those colonies have been more than doubled. One of the most important contributions which the national government has made toward the improvement of social conditions has been a housing campaign without parallel in our history.
Though some of these measures may have been useful and indeed needed during the depression years, the length to which they have since then carried would have horrified Kane.
Kane died in 1946. I have always regarded it as a tragedy that they did not live another decade. He was the one man who had the standing, the personality, the force of character to persuade his disciples not to carry too far some ideas which were good for the 1930’s but which did not apply in the post war situation. That he might have done so is suggested by an article he wrote just before his death. The last article he ever wrote published after his death. In that article he expressed strong reservations about the lengths to which some of his disciples had been carrying his ideas. If he had been able, if he had lived another decade, the postwar inflationary explosion might have been avoided.
By Everette Hatcher III | Comments Off on 99th anniversary of Milton Friedman’s birth (Part 17) (“Free to Choose” episode 3 – Anatomy of a Crisis. part 3 of 7)

99th anniversary of Milton Friedman’s birth (Part 16) (“Free to Choose” episode 3 – Anatomy of a Crisis. part 2 of 7)

October 26, 2011 – 12:03 am

99th anniversary of Milton Friedman’s birth (Part 16)

Milton Friedman was born on July 31, 1912 and he died November 16, 2006. I started posting tributes of him on July 31 and I hope to continue them until his 100th birthday. Here is another tribute below:

George Eccles: Well, then we called all our employees together. And we told them to be at the bank at their place at 8:00 a.m. and just act as if nothing was happening, just have a smile on their face, if they could, and me too. And we have four savings windows and we said, never leave the window. Lunch hour, anything else, we must have every window open all day. But, the important things was we knew you would have a big line so there was no use trying to hurry, because the line was going to continue. So we said, now, when you get a withdraw slip and the passbook, go back and check the signature. Even though you know your friend John Jones, just to delay time, just to mark time and then when you pay the money out, we are not going to pay in $100 bills. We are going to pay in $5, $10 and $20. And count it twice and hand it out with a smile.
Friedman: The banks survived the morning. But they didn’t have enough cash left so in the afternoon they called for more from the Federal Reserve Bank.
George Eccles: So the Federal Reserve sent up the armored car, two big sacks full of currency were brought in by the guard crowded through the crowd and the assistant manager, Morgan Kraft, came in also. So Mariner and my brother grabbed Mr. Kraft and he says, now, get up on this marble counter and tell these people that you brought up a lot of money and there is more where that came from! And he did. And then Mariner got up and said now you’ve heard that story, were not going to close. We’re going to stay open as long as any of you people want your money. So don’t worry about it at all. Well, of course, you had one other bank in the city and we called him and told him he couldn’t close either. He said well I can’t I haven’t got any money to stay open. So we made him a temporary loan. Because if we had another bank close while this run was going on the psychology of the public would be such that they’d, we’d never break the run in our bank. Everybody would come until they got all of their money out. (END)
The bank survived the first day’s run. It was time to change psychology. The second day was to be very different.
George Eccles: So that evening we called our employees all together because we knew that the next day that people had been working during the day and would have heard about this and the next morning we’d have them with us. So we figured now we can’t let a crowd build up in the lobby. So we told our tellers, I say now, you pay out this money just as fast as you can. So when anybody comes in the front door they don’t see a line. You pay out in $100 bills and don’t let any line ever develop at your window. Well it never did. So along about noon time people were just coming and going in a normal fashion and the run was over.
Friedman: It was all a question of reassuring the public that they could get their money. The Federal Reserve System was there to insure that this happened by supplying cash to the banks.
Why didn’t this system prevent The Great Depression after 1929? Because from 1929 to 1930 after the stock market crashed, the Federal Reserve system allowed the quantity of money to decline slowly thereby throttling the monetary structure. By December 1930, the quantity of money had fallen by 3% which may not seem much, but a growing economy needs additional money in order to prevent deflation and problems. Given this throttling of the monetary system, what happened after that was more or less inevitable. If the Bank of United States had not happened to fail, some other bank would have been the victim. It would have failed and would’ve set off the runs. Once the runs started, the Federal Reserve could have prevented them from having the disastrous consequences they did by stepping in and providing the banking system in general through creating new money with the cash it needed to meet the demands of the depositors. After all, once depositors start trying to take their money out of the banks, there is a strong tendency for the quantity of money to fall. Each dollar of cash which is withdrawn from a bank had been backing several dollars of deposits. If the Federal Reserve had stepped in, bought government securities on a large scale, provided the cash, the depositors would have found that they could’ve got their money and they would have stopped asking for it.
Ironically, the people at the New York Reserve Bank knew that this was the right policy. No one had advocated it more forcefully than Benjamin Strong, the first head of the bank. Tragically for America, he died two years before the real crisis.
With the death of Benjamin Strong, a truly remarkable man who not only ran the New York bank but was also the key figure in the entire Federal Reserve system. A struggle for power broke out between New York, the other banks and the Board in Washington. New York lost, the other banks and even more, the Board in Washington, won. That was a little noticed event but it was the first step in that massive move of power to Washington that has dominated our lives ever since. Then and now, this building housed the U.S. Treasury Department. But at that time, the Federal Reserve Board also had its modest offices somewhere in the same building. The shift of power was sealed a few years later when the Board got its own magnificent temple a few blocks away from here on Constitution Avenue. Despite excellent advice from New York, the system refused to buy government bonds, something which would have provided cash to the commercial banks with which they could have met more easily the insisted demands of their depositors. Instead, believe it or not, the system stood idly by while banks crashed on all sides. As the head of one of the banks put it, the reserve system had to keep its powder dry for a real emergency.
But if this wasn’t an emergency, what was? As bank after bank closed a chain reaction was in process destroying money as it went. It’s a process that even today a few bankers understand.
If you ask an individual banker whether he creates money, he’ll look at you as if you are mad. Of course not, he’ll say. I don’t create money, all I do is I accept deposits from high customers, I put a little of that deposit in the vault as a reserve and I lend the rest out. I don’t create money. From the point of view of the economist, the situation is very different. As I explained earlier, most of the deposits on the books of banks were put there by an accountant’s pen. But that simple fact is concealed from the individual banker, because is doesn’t happen here, inside the bank, it happens as a result of the transactions between banks.
As the men who ran the Federal Reserve knew very well, it happens when money loaned by one bank is deposited into another bank, to be loaned out yet again. In the depression the process was working in reverse. The banks were destroying money. Nonetheless, the Federal Reserve let it happen.
The end result was that by the time the whole sorry episode was over, by 1933 the quantity of money in the United States had gone down by a third. The slow throttling had turned into strangulation. For every $3 of currency in deposits the people had in 1929, only $2 were left. For every three banks that were open in 1929, in 1933 only two were left.
The terrible depression that followed was a direct result of bungling by the Federal Reserve System. Their monetary policy starts with any hope of economic recovery.
By Everette Hatcher III | Comments (0)

99th anniversary of Milton Friedman’s birth (Part 15) (“Free to Choose” episode 3 – Anatomy of a Crisis. part 1of 7)

October 25, 2011 – 12:02 am

99th anniversary of Milton Friedman’s birth (Part 15)

Milton Friedman was born on July 31, 1912 and he died November 16, 2006. I started posting tributes of him on July 31 and I hope to continue them until his 100th birthday. Here is another tribute below:

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.
By Everette Hatcher III | Comments (0)

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

October 21, 2011 – 12:15 am

I am currently going through his film series “Free to Choose” which is one the most powerful film series I have ever seen.

TEMIN: We don’t think the big capital arose before the government did?
VON HOFFMAN: Listen, what are we doing here? I mean __ defending big government is like defending death and taxes. 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.
By Everette Hatcher III | Comments (0)

99th anniversary of Milton Friedman’s birth (Part 14)

October 20, 2011 – 12:01 am

Milton Friedman: Life and ideas – Part 06

99th anniversary of Milton Friedman’s birth (Part 14)

Milton Friedman was born on July 31, 1912 and he died November 16, 2006. I started posting tributes of him on July 31 and I hope to continue them until his 100th birthday. Here is another tribute below:
November 20, 2006

Milton Friedman: A Tribute

 
David R. Henderson

“In the course of his [General Westmoreland’s] testimony, he made the statement that he did not want to command an army of mercenaries. I [Milton Friedman] stopped him and said, ‘General, would you rather command an army of slaves?’ He drew himself up and said, ‘I don’t like to hear our patriotic draftees referred to as slaves.’ I replied, ‘I don’t like to hear our patriotic volunteers referred to as mercenaries.’ But I went on to say, ‘If they are mercenaries, then I, sir, am a mercenary professor, and you, sir, are a mercenary general; we are served by mercenary physicians, we use a mercenary lawyer, and we get our meat from a mercenary butcher.’ That was the last that we heard from the general about mercenaries.”
– Milton and Rose Friedman, Two Lucky People, Chicago: University of Chicago Press, 1998, p. 380.

In May 1970, a few days after graduating from the University of Winnipeg with a major in mathematics, I flew to Chicago to look into getting a Ph.D. in economics at the University of Chicago. While there, I went to visit Milton Friedman and he invited me into his office. I had a sense that he had been through this routine before – talking to an idealistic young person showing up and wanting an autograph on his copy of Capitalism and Freedom and, beyond that, simply wanting to meet and talk to him. But he didn’t treat our meeting as routine; we had a real talk for about 10 minutes. When I told him that I’d initially been attracted to libertarianism by reading Ayn Rand, he told me that while Rand was well worth reading, there were many other people worth reading too, and I shouldn’t get stuck on her. He also stated, “Make politics an avocation, not a vocation.” Both were good pieces of advice.

The advice didn’t stop there. I ended up getting my Ph.D. at UCLA and going to my first academic job as an assistant professor at the University of Rochester’s Graduate School of Management. From then on, I wrote Milton a couple of times a year and he always wrote back, sometimes writing in the margins of my letter to comment on my questions and thoughts. When I contemplated my first major career change – leaving academia to work at a think tank – he advised me strongly against it (I didn’t take this advice), referring to himself as my “Dutch uncle.” I had never heard the term before and didn’t bother to look it up until writing this piece, but I understood what he meant from the context: a Dutch uncle is someone who gives you tough love, holding you to high standards because of a benevolent regard for your well-being.

But here’s the bigger point: with his steady and passionate work to end the military draft, Milton Friedman was the Dutch uncle of every young man in the United States. Or even better, he was like a favorite uncle that they’d never even met. He cared more for them than any president, any general, or any defense secretary has ever cared. How so? Because he wanted every young man to be free to choose whether to join the military or not.

Milton Friedman’s work against the draft began in December 1966, when he gave a presentation at a four-day conference at the University of Chicago. Various prominent and less-prominent academics, politicians, and activists had been invited. Papers had been commissioned, and the authors gave summaries, after which the discussion was open to all. Fortunately, the discussion was transcribed. The papers and discussions appear in a book edited by sociologist Sol Tax and titled The Draft: A Handbook of Facts and Alternatives. The invitees included two young anti-draft congressmen, Robert Kastenmeier (D-Wisc.) and Donald Rumsfeld (R-Ill.), and one pro-draft senator, Edward Kennedy (D-Mass.). Also attending were pro-draft anthropologist Margaret Mead and anti-draft economists Milton Friedman and Walter Oi. Friedman gave the general economic and philosophical case for a voluntary military in his presentation, “Why Not a Voluntary Army?” Friedman pointed out that the draft is a tax on young men. He stated:

“When a young man is forced to serve at $45 a week, including the cost of his keep, of his uniforms, and his dependency allowances, and there are many civilian opportunities available to him at something like $100 a week, he is paying $55 a week in an implicit tax. … And if you were to add to those taxes in kind, the costs imposed on universities and colleges; of seating, housing, and entertaining young men who would otherwise be doing productive work; if you were to add to that the costs imposed on industry by the fact that they can only offer young men who are in danger of being drafted stopgap jobs, and cannot effectively invest money in training them; if you were to add to that the costs imposed on individuals of a financial kind by their marrying earlier or having children at an earlier stage, and so on; if you were to add all these up, there is no doubt at all in my mind that the cost of a volunteer force, correctly calculated, would be very much smaller than the amount we are now spending in manning our Armed Forces.”

Reading through the whole Sol Tax volume, with all the papers and transcripts of the discussion, I had the sense that there was a coalescing of views over the four days, as people from various parts of the ideological spectrum found that they had in common a strong antipathy to the draft and found also that the economists made a surprisingly strong economic case. Both Friedman’s speech and his various comments at the conference still make compelling reading. One of his best rhetorical flourishes was his criticism of the charge that those who advocate ending the draft are advocating a “mercenary” army. You’ll recognize the same kind of argument he used against Westmoreland in the lead quote of this article. Friedman said:

“Now, when anybody starts talking about this [an all-volunteer force] he immediately shifts language. My army is ‘volunteer,’ your army is ‘professional,’ and the enemy’s army is ‘mercenary.’ All these three words mean exactly the same thing. I am a volunteer professor, I am a mercenary professor, and I am a professional professor. And all you people around here are mercenary professional people. And I trust you realize that. It’s always a puzzle to me why people should think that the term ‘mercenary’ somehow has a negative connotation. I remind you of that wonderful quotation of Adam Smith when he said, ‘You do not owe your daily bread to the benevolence of the baker, but to his proper regard for his own interest.’ And this is much more broadly based. In fact, I think mercenary motives are among the least unattractive that we have.” (p. 366)

In the margin of my 35-year-old, dog-eared copy of the Sol Tax book containing this passage, I wrote one word: “Wow!” This is rhetoric at its best, a tight argument passionately stated. When I read this at about age 18, just a year before meeting Friedman in his office, I felt cared-for. Fortunately, being Canadian, I wasn’t vulnerable to the draft. But I had the thought that if I had grown up in United States, I would be so thankful that here was this man, himself well beyond draft age and who could probably figure out how to get his son out of the draft, and yet who cared enough to be out in front on this issue.

Two of Friedman’s comments about this conference are worth noting. Writing some 30 years later, Friedman noted that the 74 invited participants “included essentially everyone who had written or spoken at all extensively on either side of the controversy about the draft, as well as a number of students.” (Two Lucky People, p. 377.) Friedman’s other comment is also worth citing:

“I have attended many conferences. I have never attended any other that had so dramatic an effect on the participants. A straw poll taken at the outset of the conference recorded two-thirds of the participants in favor of the draft; a similar poll at the end, two-thirds opposed. I believe that this conference was the key event that started the ball rolling decisively toward ending the draft.” (p. 378.)

Friedman didn’t stop there. He wrote a number of articles in his tri-weekly column in Newsweek making the case against the draft. Friedman was one of 15 people chosen for Nixon’s Commission on the All-Volunteer Force. By his estimate, five started off being against the draft, five in favor, and five on the fence. By the end, the Commission was able to come out with a 14-0 consensus in favor of ending the draft. Black leader Roy Wilkins, in a Feb. 6, 1970 letter to Nixon, stated he had been unable to attend many of the meetings due to a major illness and, therefore, could not support its specific recommendations; Wilkins did state, however, that he endorsed the idea of moving toward an all-volunteer armed force. (The Report of the President’s Commission on an All-Volunteer Armed Force, New York: Collier Books, 1970; letter from Roy Wilkins.)

It was at one of these meetings that Friedman put Westmoreland on the spot with his comeback about slaves. Knowing that Friedman was persuasive and focused and also a warm human being, I credit him with having swung at least a few of the Commission members in his direction. And although Nixon took his sweet time acting on the recommendations, finally, at the start of his second term, he let the draft expire. Friedman kibitzed in his Newsweek column, never letting up. He once wrote that the draft “is almost the only issue on which I have engaged in any extensive personal lobbying with members of the House and Senate.” (Milton Friedman, An Economist’s Protest, 2nd ed., Glen Ridge, N.J.: Thomas Horton and Daughters, 1975, p. 188.)

And Friedman stuck around as an opponent of the draft when the going got tough. In the late 1970s, high inflation caused a serious drop in real military pay and a consequent increase in difficulty meeting recruiting quotas. Of all the threats to bring back the draft in the last 32 years, the threat in 1979 to 1980 was the most serious. Sen. Sam Nunn (D-Ga.) held hearings with the goal of building support for the draft and, at least, registration for a future draft. Hoover economist Martin Anderson organized an important conference on the draft at the Hoover Institution in November 1979 and invited the top proponents and opponents of the draft. (For the papers and transcript of the discussion, see Martin Anderson, ed., Registration and the Draft: Proceedings of the Hoover-Rochester Conference on the All-Volunteer Force, Stanford, California: Hoover Institution Press, 1982.) Friedman was one of the attendees and, at the end, debated Congressman Pete McCloskey on the draft. It was actually the weakest performance I’ve ever seen by Friedman, but Friedman’s “weak” is still pretty good.

In 1980, in response to the threat from Sam Nunn, I wrote and circulated the following “Economists’ Statement in Opposition to the Draft”:

“We, the undersigned, oppose moves toward the reimposition of the draft. The draft would be a more costly way of maintaining the military than an all-volunteer force. Those who claim that a draft costs less than a volunteer military cite as a savings the lower wages that the government can get away with paying draftees. But they leave out the burden imposed on the draftees themselves. Since a draft would force many young people to delay or forego entirely other activities valuable to them and to the rest of society, the real cost of military manpower would be substantially more than the wages draftees would be paid. Saying that a draft would reduce the cost of the military is like saying that the pyramids were cheap because they were built with slave labor.”

Friedman’s speed at signing made it much easier, I’m sure, to get the signatures of almost 300 other prominent and not-so-prominent economists, including Kenneth Boulding, Harold Demsetz, David Friedman, Alan Greenspan, Donald McCloskey, William Meckling, Allen H. Meltzer, James C. Miller III, William A. Niskanen, Mancur Olson, Sam Peltzman, Murray Rothbard, Jeremy J. Siegel, Vernon Smith, Beryl W. Sprinkel, Jerome Stein, and James L. Sweeney.

The statement, with about 150 signatures, was published as a full-page ad in Libertarian Review, Inquiry, and The Progressive.

Milton Friedman and I had our differences about foreign policy. I tried, in vain, to persuade him to be against the first Gulf war. Even there, though, he publicly supported, in an interview with the San Francisco Chronicle, my economic argument against the war. He stated, “Henderson’s analysis is correct. There is no justification for intervention on grounds of oil.” (Jonathan Marshall, “Economists Say Iraq’s Threat to U.S. Oil Supply Is Exaggerated,” San Francisco Chronicle, Oct. 29, 1990.) Friedman did oppose the second Gulf war, as evidenced in an interview in the Wall Street Journal, in which he called it, correctly, “aggression.” (Tunku Varadarajan, “The Romance of Economics,” Wall Street Journal, July 22, 2006; page A10).

As far as I know, though, Friedman did not oppose the second Gulf war publicly when it mattered most – that is, before the March 2003 invasion. But on the draft, Friedman never wavered. For that, many young American men owe him a lot.

Two weeks ago, I attended a conference in Guatemala at which it was announced that Friedman had had a bad fall and was in the hospital. The person who announced it, Bob Chitester, producer of the Friedmans’ 1980 television series, Free to Choose, handed out buttons that read, “Have you thanked Milton Friedman today?” Thanks, Uncle Miltie.

Copyright © 2006 by David R. Henderson. Requests for permission to reprint should be directed to the author or Antiwar.com.

David R. Henderson is a research fellow with the Hoover Institution and an associate professor of economics in the Graduate School of Business and Public Policy at the Naval Postgraduate School. He is author of The Joy of Freedom: An Economist’s Odyssey and co-author, with Charles L. Hooper, of Making Great Decisions in Business and Life (Chicago Park Press.) His latest book is The Concise Encyclopedia of Economics (Liberty Fund, 2008.)

By Everette Hatcher III | Comments (0)

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

October 19, 2011 – 1:44 pm

Here is the video clip and transcript of the film series FREE TO CHOOSE episode “What is wrong with our schools?” Part 6 of 6.

 
Volume 6 – What’s Wrong with our Schools
Transcript:
FRIEDMAN: But I personally think it’s a good thing. But I don’t see that any reason whatsoever why I shouldn’t have been required to pay back that money. Individuals pursuing their separate individual interests also provide public benefits. Of course I think that the public benefited from my getting an education, but the primary beneficiary was me. I was the one who got the benefit from it. I was the one who had the higher income.
COONS: We know you benefited from it.
FRIEDMAN: I know I benefited, I don’t know about the public.
McKENZIE: I’d like others of you to react to the idea of moving from state education at the higher level, which is based upon low fees in state universities, in favor of a loan system. This has been hotly debated in many other countries, too. What’s your own feeling about that?
COONS: Being a tenured professor at a state university I suppose you’ve really put me on the spot. I hope none of my friends are listening. But I tend to agree in general with Milton Friedman that we ought to find a way to open up to all classes, all income classes the kinds of opportunities that the middle class have at my university. And I cannot give you __ we don’t have time to go through all of the kinds of ways in which we would do it, but I would just personally, it seems to me we ought to let people come free at the beginning and pay it back out of their income over their life span, so if they make a lot of money, they pay back a lot of money. Perhaps we can run the whole university in the future on their success, to which we contributed with our teaching. And if they don’t make any money, they don’t pay anything back, and that’s okay too.
FRIEDMAN: And you ought to share in the losses if they don’t.
SHANNON: I can’t think of anything __
COONS: Exactly.
SHANNON: I can’t think of anything that would frighten poor people more than the thought at the end of the four years or six or seven or eight years of higher education, they have this albatross around their neck __
COONS: Only if they’re rich. Only if they become rich.
FRIEDMAN: There’s no albatross __ would you say the same thing about people in this country who start private businesses every year. Many of them lose money. Many of them make money. Would you say that nobody is gonna start a business because he might end up with an albatross? You ought to let people decide that for themselves. What I really want to know is a very different thing. How do you justify taxing the people in Watts, to send the children from Beverly Hills to college? That’s a demagogic statement, but it happens to be empirically a correct statement. How do you justify it?
SHANKER: Well I don’t know how we justify taxing all the people of this country to send the GI’s under the GI Bill, but I’m very grateful that we did it. I don’t know what this country would have done in a postwar period without a huge number of educated people in a whole bunch of fields that opened up after that. I doubt very much that the GI’s would have come back at the age that they were and everything else, and would have decided that now they’re gonna take out loans in order to go to college.
VOICE OFF SCREEN: And a lot of them were poor.
SHANKER: Yes, they were poor, and they went because they had government support to go, and because basically there were a lot of state-supported low-tuition schools, and if you didn’t have the state schools, and if you didn’t have the government support we wouldn’t __ we would have been without those people, and I don’t know what would have happened either to our strength or to our economy.
FRIEDMAN: The history of this country goes back a little bit before 1945. It goes back 200 years. The state schools, universities, were a minor part of the total higher educational system for a long time. That educational system did generate a great many educated and schooled people, a great many people who made great contribution to this country.
SHANKER: What percentage of people went to college before World War II in this country?
FRIEDMAN: The percentage that was going to college was going up and rising. You know __ let me tell you one __ another statistic __ I hate to introduce statistics. But let me tell you one more. Do you know that the percentage of the students at private universities who come from low-income classes is higher than the percentage of students at state universities, at government universities that come from the lowest income families.
SHANKER: Because they are there with government assistance.
FRIEDMAN: Most cases they are there with __
SHANKER: They are there with government assistance which in many cases favors the private as against the public schools.
FRIEDMAN: In most cases they are there with private scholarships that have been contributed by people __
SHANKER: Some of them, some of them, yes.
FRIEDMAN: __ which is all to the good.
McKENZIE: Dr. Anrig on this.
ANRIG: We come back to the point that I tried to make earlier with Dartmouth, the reason the public higher education system developed, the reason that you have the UCLA’s and others is not simple that government went amuck or bureaucrats went that way; but because eight of those students were not getting into Dartmouth, and there was not a place for them. And it was public higher education that opened up its doors to those students. Those are the youngsters that now have an opportunity they wouldn’t have had before. I think on the issue of loans that it’s as with all complex human tasks, it’s not an either/or situation. You need a mix of strategies on the issue of alternatives for youngsters in schools. I think you can have, as indeed you do have, alternatives within public school systems. I think you can have alternatives within schools. I think you can have competition through open enrollment kinds of arrangements. I am fearful, however, always for those eight youngsters than can’t get in to something which is basically selective and exclusive. If you can assure us __
FRIEDMAN: Well, let’s go back __
ANRIG: __ that those eight youngsters all will be provided with equal attention, equal opportunity and equal rights. Then I would begin to be more interested in the alternative.
FRIEDMAN: But I want to suggest to you that we’re not proposing, neither Jack Coons nor I, to dismantle anything. We’re only saying, put up or shut up. Either show that you can produce the kind of education people are willing to go and get, or reduce your size, go out of business. We are only proposing that there be a wider range of alternatives. Now, it is not true __ let me put a different point to you. There are a small minority of people who are problems. Is it desirable to impose a straightjacket on a hundred percent of the people, or ninety percent of the people, in order to provide special assistance or special help to four or five or ten percent of the people? Not at all. I think that there’s a big difference between two kinds of systems. One kind of system in which the great bulk of parents have effective freedom to choose the kind of schools their children go to, whether it’s the lower or the higher level. And there are programs and provisions for a small minority. That’s one kind of a system. That isn’t what we have now. What people in the public school system, people like yourselves do, they do not want to give up the monopoly of the public school system any more than the Post Office want to give up the monopoly of delivering mail.
ANRIG: I think you attribute the monopoly desire to the bureaucrat. And I don’t think that’s right. The concern of the public school is for being sure that every youngster in this country gets access to a public education.
FRIEDMAN: Excuse me. You have had an attempt to introduce voucher experiments around the country. Every one of those attempts, as at Alamrock (phonics) and elsewhere, has been prevented by the opposition of the educational bureaucracy.
ANRIG: Oh, but, no, no, you can’t __ that’s a glittering generality.
FRIEDMAN: That was true in New Hampshire, it was true in Connecticut.
SHANKER: It was not true in Alamrock (phonics) because Alamrock was not what you might call a voucher system, it was a kind of a system of free choice within public schools.
FRIEDMAN: I agree, I agree.
SHANKER: And whether one school did better in its scores, others did worse, and when you measured the whole system when it was all over, the scores were exactly the same as they were before, except that some students had moved to other schools and the grades were better in one school as against another. We do very strongly oppose a voucher system which will end up with public schools being abandoned and thereby destroyed. largely. They will become the schools for those who can’t get in anywhere else, or who are expelled elsewhere.
VOICE OFF SCREEN: So if you had a voucher system __
SHANKER: Because if you compel public schools to educate all children, including the most difficult, and if you have other schools, that have _
FRIEDMAN: It isn’t compelling public schools, it’s compelling parents _
SHANKER: No, no, it’s public schools. The public school cannot say to a parent, “Your child is very difficult. Your child throws things. Your child screams & yells. Your child takes all the attention of the teacher, therefore, get out and go find a private school.” On the other hand, you have hundreds of private schools in this country where when they get a very disturbed child, out that child goes. And where does that child go? The public schools must take him.
FRIEDMAN: But look at __
SHANKER: And that’s what we have. We have one system of schools which cream, and which throw out the most difficult __ you know, it would be like the hospital throwing out all the sick patients and keeping the healthy ones.
McKENZIE: Well, there we leave this week’s discussion. We hope you’ll join us for the next episode of Free to Choose.
By Everette Hatcher III | Also posted in Vouchers | Comments (0)

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

October 18, 2011 – 1:43 pm

Here is the video clip and transcript of the film series FREE TO CHOOSE episode “What is wrong with our schools?” Part 5 of 6.

 
Volume 6 – What’s Wrong with our Schools
Transcript:
Are your voucher schools  going to accept these tough children?
COONS: You bet they are. (Several talking at once.)
COONS: May I answer the question?
SHANKER: If they accept those children, I’ll tell you what’s gonna happen.
COONS: Okay, you tell me and then I’ll tell you.
SHANKER: What’s gonna happen is that the parents of all the other children are gonna move right out and go to another school, because ultimately you’re going to have to deal with hardcore problems__
McKENZIE: John Coons.
SHANKER: __ whether it’s in a private school or whether it’s in a public school.
COONS: In other words, that kid isn’t tough in the school that he’s in because he’s stuck there, he’s just a rotten, tough kid.
SHANKER: He may be a kid with a lot of problems, not rotten, a kid with a lot of problems.
COONS: And it will never __ you can’t imagine a situation where if he were given choice, and allowed to go to a school that he liked, and to which he would connect emotionally that he would no longer be a troublemaker, but that he would like to stay in a place where he has chosen and would therefore do what is necessary to stay there and to learn.
SHANKER: You know, I don’t think you’ve been near schools or classrooms for a heck of a long time.
COONS: Thanks a lot.
(Laughter and applause.)
COONS: I happen to have five kids who’ve done a lot of time in public and private schools both.
SHANKER: We’re not talking about the problems of your children, though.
McKENZIE: Let’s get around the table, I want to __
FRIEDMAN: No, no. I have to get to this point, because I think it’s a very crucial one. I don’t think Mr. Shanker is saying that you should never use a doctor if you have cancer who hasn’t himself had cancer.
SHANKER Oh, I didn’t say that.
FRIEDMAN: Let’s get rid of the idea that the only people who are competent to judge about whether a school is good or bad is a parent who at the moment has children in that school. The plain fact is that children are not born troublemakers. They do not emerge from the womb __ some of them do, of course, but most of them do not. Most of the cases of the tough kids in the schools you’re talking about are tough kids because they’re lousy schools. Because the schools do not evoke their interest. Because the school does not __
SHANKER: You’re dead wrong. You’re dead __
(Several talking at once.)
McKENZIE: Now wait a minute now, Greg Anrig on this one. Milton, let __
ANRIG: It’s not often I have a chance to tell a professor he’s wrong. With all respect, Professor, the problems that you see in the urban schools of this country are not problems of the schools, they are problems of poverty. And they are problems of what do you do when for demographic and sociological and economic reasons, in a country like ours, you begin to concentrate those people who are poor in the inner and older parts of the cities of our country. That’s when the problem comes, and it’s not just a problem with schools. It’s a problem of housing, of jobs, of medical care, of social services, and the same problems crop up, and to say that the answer to that is take one part of that element and say, just set up a competitive marketplace, is not dealing with the problem. The problem is the problem of poverty.
FRIEDMAN: We’ve dealt with the problem __
SHANNON: I am struck the anomaly. The anomaly that rises out of this discussion of the voucher system. The facts are that government support __ call it subventions, call it direct aid, call it grants in aid, call it vouchers, call it anything, will lead ultimately to government control of the private schools, thus undercutting the alternative nature of private schooling and hurting it at its very source.
VOICE OFF SCREEN: Well, then you ought to look at our initiative.
FRIEDMAN: We’ve had long experience with that on the higher education level. You have the whole GI Bill. Did the GI Bill really lead, fundamentally, to control of all the schools. There’s a fundamental difference between government giving money to an institution, to a school, that does lead to control directly, and government giving money to people to use, the food stamps don’t determine what people buy with their food stamps. They may be a good or a bad program, that’s not my point. My point is that don’t underestimate the crucial difference between making money available to parents to spend as they choose to exercise their judgment, and making money available to institutions like schools, which they spend subject to all the conflicts which they have with school teachers and others.
ANRIG: You use Dartmouth as an example, and I think the concerns that I have about the voucher systems, the various ones proposed, is not with the one applicant that can get accepted to Dartmouth, but with the eight applicants that don’t get accepted to Dartmouth. What’s going to happen to those __ or that group of youngsters. You can have a situation in the free marketplace where everybody takes the cream, but what about the youngster that doesn’t measure up? What about the youngster that’s a risk? It seems to me that some of the greatest leaders of this country were people that would have been rejected by Dartmouth, and most of the Ivy League schools.
McKENZIE: Let’s get other views on this, then we’ll come back to you, Milton.
FRIEDMAN: No, no. I just want to comment, because I have to comment on two points, the one he made earlier about poverty and this one. But on this one. Dartmouth is one of the best examples of the private schools. UCLA is one of the best examples of the state schools. That’s why we chose it. There are many other private schools which are not as selective and do not __ are not available to people who can’t make the Dartmouth cut. There are many other public schools, state schools, that are less advanced than UCLA and the California system. There are all sorts of grades of schools. But the difference between the two is the same at lower levels. Now I do want to make one comment going back to your poverty thing; and that is that, first of all, other programs in this series deal with the issues you’ve raised. But, second, do not underestimate the role which bad schooling, provided by our present governmental mechanism has played in creating poverty. It’s been a major source, particularly among black and white teenagers coming up in the slums, it’s been a major source of their difficulties of getting out of the trap of poverty. So it’s not a one-way relation between poverty and the schools, the schools themselves bear a great deal of responsibility.
SHANKER: Well, the reason the schools bear it, and it isn’t the schools directly, it’s that we don’t put enough resources in for children who need special and additional help because they are not getting it in their homes or they’re not getting the same sort of support in home and community as middle class kids do, and then we wait until the child is 16 or 17 and drops out, and then we provide a youth employment program for them where we spend between five and ten thousand dollars to try to undo what could have been undone in the first, second and third grade if we had a decent investment in the public schools.
FRIEDMAN: I have never yet known anybody who was trying to defend a government program who didn’t say all it’s evils came from the fact that it wasn’t big enough. Now the facts are __
SHANKER: Would you think the children with problems need the same amount of education __
FRIEDMAN: No, no.
SHANKER: __ the same amount as children who don’t have special problems?
FRIEDMAN: No, but I just want to tell you some facts. The number of students in schools has been going down. The total expenditures on schools, allowance being made for inflation, after allowing for inflation has been going up. The number of pupils has been going down, the number of teachers have been going up, and by all accounts the quality has been going down.
SHANKER: But I have to explain __
(Several talking at once)
McKENZIE: Milton, just a minute. I want to hold you __ Mr. Shanker, Mr. Shanker. We got onto higher education and I don’t want to leave it without getting the rest of Milton’s thoughts on it. In particular, you seem to be coming to say at the end of the film that the right answer is a system of realistic loans where people, therefore, know what it’s costing, rather than trying to hold down college fees and that kind of thing.
FRIEDMAN: Absolutely.
McKENZIE: Yeah. And__
FRIEDMAN: I think that the higher education is the most disgraceful example on the record. I know of no governmental program that seem to me is so unfair and disgraceful in imposing costs on low income people to benefit high-income people. We in the upper and middle income classes have conned the poor in this country to supporting our children in going through college and university and we don’t __ and we scream to the treetops about how disinterested and how public-spirited we are. We ought to have a system under which everybody who wants to go to college can go there. He has to pay his own way, either now or later on, and the schemes I have in mind, if we developed them more fully, and as I have in other contexts in other areas, are along the line of the educational opportunity bank, that Professor Zacharias of MIT and a commission appointed by President Johnson came up with as a way of enabling students to finance their own higher education without facing the problem you raised of ending up with a large dollar debt.
ANRIG: I do think __
McKENZIE: Dr. Anrig.
ANRIG: With some trepidation, Professor, I raise a question of taxation. That is that I agree that we need better loan systems than we have, but as I understand the American tax system in general, as a generality, it is a graduated system.
FRIEDMAN: Absolutely.
ANRIG: It is an equalizing system.
FRIEDMAN: Absolutely.
ANRIG: And to reach the conclusion that the __
FRIEDMAN: No, no, it is not. It’s on paper, but you’ve got to look at the facts.
McKENZIE: Let him make his point, yes.
ANRIG: Well, I’m trying to __ it is a system which the wealthier get __ or the middle class get taxed more than somebody who’s making a lesser salary. To say then that the poor are funding __
FRIEDMAN: That’s true.
ANRIG: __ public higher education, where middle class youngsters and by the way a lot of poor youngsters go as well, it doesn’t fit with my understanding at least of the tax system. Now I’m not an economist, I admit it.
FRIEDMAN: Well, it turns out that there have been some very careful studies made of exactly what you’re describing. There’s one particularly careful one for California. There’s one for Florida. These show __ it’s not a minor item, that if you take the total receipts from expenditures on higher education going to the lower classes, and the total taxes they pay that are used for higher education, the lower classes are paying more than they’re getting, and the higher classes are getting more than they are paying for.
(Several talking at once.)
FRIEDMAN: Now I myself am a beneficiary of this subsidy. I’m one of the worst cases on record. I went to a state school, Rutgers University. I went on a state scholarship. The poor suckers in the State of New Jersey paid for my going to college. I personally think that was a good thing, there are many people who have different opinions about that. (Laughing)
 
By Everette Hatcher III | Also posted in Vouchers | Comments (0)

Milton Friedman:Republicans are wrong to oppose payroll tax reduction (Part 2 of Friedman interview with John Hawkins)

October 17, 2011 – 8:50 am

Image Detail

 Milton Friedman and Ronald Reagan

John Brummett is critical of Republicans for opposing the payroll tax reduction and I have to agree with him on this.

In an interview shortly after the Bush Tax Cuts passed Milton Friedman was asked:

John Hawkins:Do you think George Bush, with the economy being as it was, did the right thing by cutting taxes?

Milton Friedman: I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it’s possible. The reason I am is because I believe the big problem is not taxes, the big problem is spending. The question is, “How do you hold down government spending?” Government spending now amounts to close to 40% of national income not counting indirect spending through regulation and the like. If you include that, you get up to roughly half. The real danger we face is that number will creep up and up and up. The only effective way I think to hold it down, is to hold down the amount of income the government has. The way to do that is to cut taxes.

_______________________

Here is some more of the interview:

Written By : John Hawkins

John Hawkins:I’d like to switch to a different area here. The economy certainly did well in the Clinton years except for the recession that started right at the end of his term. Was that because of Bill Clinton’s policies, a continuation of the success of Ronald Reagan’s policies, or something else?

Milton Friedman:I think it was #1 a continuation of the Reagan policies and #2 an indication of the virtues of a President of one party and a House and Senate of the other. That’s the best combination for economic growth…

John Hawkins:Because they hold down spending?

Milton Friedman:Yes, you have a deadlock. You can’t get any major spending programs through because one party or the other will oppose it. That’s why we have what looks like a paradox. The Clinton administration, in terms of the budget, has one of the best records of holding down spending. Spending went up less under Clinton than almost any other President.

John Hawkins:So do you think if we had Democrats controlling the House and Senate we’d have much less spending from the Bush administration?

Milton Friedman:If the White House were under Bush, and House and Senate were under the Democrats, I do not believe there would be much spending.

John Hawkins:That may be true. Switching directions again, Europe has been moving towards a single currency. Do you think that’s a wise move for all the states, some of them, or none of them? Why so?

Milton Friedman:We’re in the midst of a wonderful natural experiment. You have a really different arrangement with the euro than we’ve ever had historically. We’ve had many cases in which a number of countries have used the same currency. That’s when they’ve used gold or silver as money. But each individual country has been able to control the content of its own money. So while they were using the same commodity as currency, they were always in a position to determine what the terms of exchange were between their own currency and the other currencies.

But the euro is a very different arrangement. For the first time in history, we have essentially an independent central bank for a considerable number of distinct political entities. I, in advance, was very negative about it and have been very negative & pessimistic about it. We’ll see how the Europe plan does on the one hand and on the other, how the other countries of the world, the UK, the United States, Japan, which are linked together by flexible exchange rates, we’ll see how they do.

So we’ll have a really nice, natural experiment just as before the Soviet Union dissolved, we had a natural experiment comparing socialism and capitalism.

John Hawkins:If the euro were to replace the dollar as the medium of exchange, if everyone bought and sold their goods in euros instead of dollars, would that have an impact on the US economy?

Milton Friedman:The success of the United States will depend on how much it can produce at home, how much it can sell abroad, what it buys from abroad. It’s of less importance whether it is denominated in dollars or euros.

John Hawkins:So in the end, that is really not going to make a big difference one way or the other…

Milton Friedman:That’s not going to make a great deal of difference. What’s going to make the difference is the productivity of the different countries. But personally, as I say, I believe the Euroland is going to run into big difficulties. That’s because the different countries have different languages, limited mobility among them, and they’re effected differently by external events.

Right now for example, Ireland and Spain are doing very well, but on the other hand Germany and France are doing very poorly. The question is; “Is the same monetary policy appropriate for all of them?” Germany and France on one hand and Ireland and Spain on the other: it’s very dubious that it is. That’s why you’re having increasing difficulties within the Euroland group. As you probably know Sweden, which had not joined the European Monetary Union, voted down doing so and will keep its own currency.

John Hawkins: It was 56% to 42%so they voted it down by a good margin. Switching gears again here, in your opinion, what caused us to pull out of the Great Depression? Was it Roosevelt’s policies, WW2…

Milton Friedman:Roosevelt’s policies were very destructive. Roosevelt’s policies made the depression longer and worse than it otherwise would have been. What pulled us out of the depression was the natural resilience of the economy + WW2.

You know, it’s a mystery as to why people think Roosevelt’s policies pulled us out of the Depression. The problem was that you had unemployed machines and unemployed people. How do you get them together by forming industrial cartels and keeping prices and wages up? That’s what Roosevelt’s policies in the New Deal amounted to. Essentially, increasing the role of government, enhancing the monopolistic position of labor, and creating as I said before the equivalent of price fixing cartels made things worse. So most of his policies were counterproductive.

John Hawkins:Fast forward to today and there are a lot of Democrats & people on the left out there who say, “Why don’t we just have exorbitant taxes on the rich and minimal taxes on everyone else”? What would that do to the economy?

Milton Friedman:That would eliminate the rich.

John Hawkins:Right. Would it have a negative effect on economy overall?

Milton Friedman:Well, who would provide the funds, the capital, and the entrepreneurship for the new industries? In a world in which there were no rich people, how would you have ever gotten the capital to produce steel mills or automobile plants? You can do it through the state, but the world tried that with the Soviet Union.

It’s an interesting thing. If you ask yourself, “what tax system would be best for the low income group,” it’s the opposite of what they’re saying there. It would be a system with a maximum amount of taxation rather than a minimum. If you look at the taxation system in China for example, which is now doing very, very, well, that’s exactly what it is. In Russia you now have a 20% flat tax which is having the effect of increasing revenues rapidly and also stimulating production. You cannot help the poor by destroying the rich.

John Hawkins:If we don’t “fix” Social Security, what sort of impact is it going to have on the economy in say 10-20 years?

Milton Friedman:Well, Social Security is having a bad effect now through the tax system. But ya know, when Adam Smith was told that the British loss at Yorktown would be the ruination of Britain, Adam Smith replied, “Young man, there’s a deal of ruin in a nation.” So, we’re a very strong country, lots of able people, lots of active entrepreneurs, and so the Social Security system will be a burden, but it won’t destroy the country.

I think it will be changed of course. I think there is a great and growing pressure towards privatizing Social Security, converting it into individual accounts. We’ve been moving that way indirectly through 401ks and the equivalent retirement accounts. I think Mr. Bush will go back to his emphasis on privatizing Social Security. I think there’s a good chance it can be done. It has been done in a considerable number of countries around the world. There’s no reason why it couldn’t be done here.

John Hawkins:Are there any political websites you’d like to recommend to our readers?

Milton Friedman: No, I don’t really follow any political websites. I think they’ll do better reading the Wealth of Nations(laughs)…

John Hawkins:Last but not least, is there anything else you’d like to say or promote?

Milton Friedman:I’d like to promote lots of things. I’d like to promote elimination of drug prohibition. I’d like to promote parental choice in education through vouchers. Those are two things I think are very urgent and important. They’re both more important than the harm which Social Security will do.

I think that our policy with respect to drugs is fundamentally immoral and it’s really disgraceful that we cause thousands of deaths in South America because we cannot enforce our own laws. If we could enforce our own laws against consumption of drugs, there would be no drug cartels in South America. There would be no — nearly a civil war in a place like Columbia.

Similarly, I think the performance of our school systems is disgraceful. I think roughly a quarter of the population never graduates high school. We have a lower level of literacy today than we had a hundred years ago. That’s not despite, but because of the poor schools, particularly in low-income areas.

But I think that’s enough for you. It has been nice to talk to you.

John Hawkins:Thank you for your time Mr. Friedman.

If you’d like to find out more about Mr. Friedman, you can do so at the Milton & Rose D. Friedman Foundation & the Hoover Institution.

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By Everette Hatcher III | Also posted in spending out of control, Taxes | Tagged , , , , | Comments (0)

John Hawkins interview with Milton Friedman (Part 1)

October 17, 2011 – 8:38 am

Uploaded by on Aug 19, 2009

Here is the first part  of the interview:

Written By : John Hawkins
 

Yesterday, I did a twenty minute interview by phone with Milton Friedman. Of course, Mr. Friedman has an INCREDIBLE resume. He won the 1976 Nobel Memorial Prize for economic science, won the “Presidential Medal of Freedom in 1988 and received the National Medal of Science the same year”.

He was also an “economic adviser to Senator Barry Goldwater in his unsuccessful campaign for the presidency in 1964, to Richard Nixon in his successful 1968 campaign, to President Nixon subsequently, and to Ronald Reagan in his 1980 campaign.”

There is much, much, more I could add. But I think the fact that Mr. Friedman finished in a tie for the 15 slot when RWN had conservative bloggers select, “The Greatest Figures Of The 20th Centurygives you some idea of Mr. Friedman’s stature.

Enjoy the interview!

John Hawkins: Slate’s Chris Suellentrop has pointed out that Howard Dean has said “that he would demand that other countries adopt the exact same labor, environmental, health, and safety standards as the United States” if they wanted trade agreements with us (Dean said something similar to the WAPO). If that policy were ever implemented, what sort of damage do you think it would cause to the US economy?

Milton Friedman:I think it would cause immense damage, not to the US economy, but to other economies around the world — much more to the others than to us.

John Hawkins:Really? So you don’t really think it would hurt the US economy that much?

Milton Friedman:It would hurt the US economy, but it would be disastrous for the countries that are smaller than we are. World trade depends on differences among countries, not similarities. Different countries are in different stages of development. It is appropriate for them to have different patterns, different policies for ecology, labor standards, and so forth.

From my point of view, we in the United States have gone overboard in respect to the extent of regulation and detailed control of labor standards, industry, and the like. It’s bad for us, but fortunately we had two hundred years of relatively free development to provide a strong basis to sustain the cost. But to impose this on other countries that are not at that stage would be a disgraceful thing to do.

John Hawkins:Because it would keep them from ever getting to the point we’re at?

Milton Friedman:That’s right.

John Hawkins:Do you think George Bush, with the economy being as it was, did the right thing by cutting taxes?

Milton Friedman:I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it’s possible. The reason I am is because I believe the big problem is not taxes, the big problem is spending. The question is, “How do you hold down government spending?” Government spending now amounts to close to 40% of national income not counting indirect spending through regulation and the like. If you include that, you get up to roughly half. The real danger we face is that number will creep up and up and up. The only effective way I think to hold it down, is to hold down the amount of income the government has. The way to do that is to cut taxes.

John Hawkins:Now let me ask you about that. In the Reagan years, we cut taxes and it ended up leading to economic growth which increased the amount of revenue that came into the government.

Milton Friedman:Well, economic growth will inevitably increase the amount of revenue coming into the government. But so far as the Reagan years were concerned, we have to be careful there. There were initial cuts in 1981-1982 and then there was a very good income tax law in 1986. But in between that, there were increases in taxes as well. So it’s not an entirely clear picture that you can attribute the growth in revenue entirely to the tax reductions. But it’s a hard thing to disentangle the effects of several things happening at the same time. In particular, there’s no doubt that growth is very favorable to government revenue.

John Hawkins:Well let me ask you a related question about holding down the deficit. Really, I’m not seeing much political will on either side of the aisle to hold down costs. Do you think we should consider a Balanced Budget Amendment?

Milton Friedman:What we should consider and what has been considered is a Tax And Spending Limitation Amendment, an amendment to hold down total spending. I don’t think it needs to be in the form of a Balanced Budget Amendment, but that’s one form it can take.

John Hawkins:So would you favor for example a 3/5th’s majority to raise taxes like they suggested in the “Contract with America”?

Milton Friedman:Yes, but the example that comes to mind really is the Colorado Tax And Expenditure Limitation Amendment that requires the spending to increase no more from year to year than population and inflation. Also, it requires that any revenues in excess of spending have to be returned to the taxpayers.

John Hawkins:Let me ask you about this — what do you say to people who claim that free trade will eventually lead to high unemployment in the US as large numbers of jobs move to cheaper labor markets overseas?

Milton Friedman:Well, they only consider half of the problem. If you move jobs overseas, it creates incomes and dollars overseas. What do they do with that dollar income? Sooner or later it will be used to purchase US goods and that produces jobs in the United States.

In fact, all of the progress that the US has made over the last couple of centuries has come from unemployment. It has come from figuring out how to produce more goods with fewer workers, thereby releasing labor to be more productive in other areas. It has never come about through permanent unemployment, but temporary unemployment, in the process of shifting people from one area to another.

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.

The same thing is happening around the world. China has been growing very rapidly in recent years. That’s because they shifted from a very inefficient method of agricultural production to something that comes close to the equivalent of private ownership of the land and agriculture. As a result, they’ve been able to produce a lot more with many fewer workers and that has released workers who have come into the cities and have been able to work in industry and other areas and China has been having a very rapid increase in income.

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