Category Archives: Milton Friedman

Myth:Conservative Herbert Hoover responsible for Depression?

October 16, 2011 – 11:43 am

Myth:Conservative Herbert Hoover responsible for Depression

When I grew up I always heard that the conservative Herbert Hoover was responsible for the depression. Is that true?

The Hoover Myth Marches On

Posted by David Boaz

In the New York Times today,  columnist Joseph Nocera quotes a book published in 1940 on Herbert Hoover and the Great Depression:

Herbert Hoover was “leery of any direct governmental offensive against the Depression,” writes Allen. “So he stood aside and waited for the healing process to assert itself, as according to the hallowed principles of laissez-faire economics it should.”

OK, let’s go to the tape. In a new Cato study economist Steve Horwitz notes what Hoover really did:

  • He almost doubled federal spending from 1929 to 1933.
  • He expanded public works projects to “create jobs.”
  • He pressured businesses not to cut wages, even in the face of deflation.
  • He signed the Davis-Bacon Act and the Norris-LaGuardia acts to prop up unions.
  • He signed the Smoot-Hawley tariff.
  • He created the Reconstruction Finance Corporation.
  • He proposed and signed the largest peacetime tax increase in
    American history.

And that’s why FDR brains-trusters Rexford Guy Tugwell and Raymond Moley acknowledged later that Hoover “really invented” all the devices of the New Deal. Frederick Lewis Allen might not have recognized that in 1940, but Joseph Nocera should. And if we don’t want to relive the Great Depression, as Nocera worries, then we’d better learn what didn’t work in 1929-33 any better than it worked in 1933-39.

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

FREE TO CHOOSE: Anatomy of Crisis
Friedman Delancy Street in New York’s lower east side, hardly one of the city’s best known sites, yet what happened in this street nearly 50 years ago continues to effect all of us today. Wall Street. Most of us know what happened here 50 years ago. Inside the Stock Exchange on October 29, 1929, the market collapsed. It came to be known as Black Thursday. The Wall Street crash was followed by the worst depression in American history. That depression has been blamed on the failure of capitalism. It was no such thing but the myth lives on. What really happened was very different.
Although things looked healthy on the surface, business had begun to turn down in mid 1929. The crash intensified the recession. So did continuing bank failures in the south and Midwest. But the recession only became a crisis when these failures spread to New York and in particular to this building, then the headquarters of the Bank of United States. The failure of this bank had far reaching effects and need never have happened.
It was something of a historical accident that this particular bank played the role it did. Why did it fail? It was a perfectly good bank. Banks that were in far worse financial shape had come under difficulties before it did and had, through the cooperation of other banks, been saved. The reason why it wasn’t saved has to do with its rather special character. First its name, Bank of United States, a name that made immigrants believe it was an official governmental bank although in fact it was an ordinary commercial bank. Second its ownership, Jewish, both its name and the character of its ownership which had so much to do with attracting the large number of depositors from the many Jewish businessmen in the city of New York. Both of them also had the effect of alienating other bankers who did not like the special advantage of the name and did not like the character of the ownership. As a result, other banks were all too ready to spread rumors, to help promote an atmosphere in which runs got started on the bank and which it came into difficulty. And they were less then usually willing to cooperate in the efforts that were made to save it.
Only a few blocks away is the Federal Reserve Bank of New York. It was here that the Bank of United States could have been saved. Indeed, the Federal Reserve System had been set up 17 years earlier precisely to prevent the worst consequences of bank failures.
The Federal Reserve Bank of New York, whose directors today meet in this room, devised a plan in cooperation with the superintendent of banking of the State of New York to save the Bank of United States. Their plan called for merging the Bank of United States with several other banks and also providing a guarantee fund to be subscribed to by still other bankers to assure the depositors that the assets of the Bank of United States were safe and sound. The Reserve Bank called meeting after meeting to try to put the plan into effect. It was on again, off again. But finally, after an all night meeting on December 10, 1930, the other bankers, including in particular John Pierpont Morgan, refused to subscribe to the guarantee fund and the plan was off. The next day the Bank of United States closed its doors, never again to open for business. For its depositors who saw their savings tied up and their businesses destroyed, the closing was tragic. Yet when the bank was finally liquidated, in the worst years of the depression, it paid back 92.5 cents on the dollar. Had the other banks cooperated to save it, no one would have lost a penny.
For the other New York banks, they thought closing the Bank of United States would have purely local effects. They were wrong. Partly because it had so many depositors, partly because so many of the depositors were small businessmen, partly because it was the largest bank that had ever been permitted to fail in the United States up to this time, the effects were far reaching. Depositors all over the country were frightened about the safety of their funds and rushed to withdraw them. There were runs. There were failures of banks by the droves. And all the time the Federal Reserve System stood idly by when it had the power and the duty and the responsibility to provide the cash that would have enabled the banks to meet the insistent demands of their depositors without closing their doors.
The way runs on banks can spread and can be stopped is a consequence of the way our bank system works. You may think that when you take some cash to a bank and deposit it, the bank takes that money and sticks it in a vault somewhere to wait until you need it again to turn it back over to you.
Bank teller: Okay, how would you like this? Two tens, one five and five ones. Okay.
Friedman: The bank does no such thing with it. It immediately takes a large part of what you put in and lends it out to somebody else. How do you suppose it earns interest, to pay its expenses, or pay you something for the use of your money? The result is that if all depositors in all the banks tried all at once to convert their deposits into cash, there wouldn’t be anything like enough cash in the banks of the country to meet their demands. In order to prevent such an outcome, in order to cut short a run, it is necessary to have some way either to stop people from asking for it, or to have some additional source from which cash can be obtained. That was intended to be the purpose of the Federal Reserve System. It was to provide the additional cash to meet the demands of the depositors when a run arose.
A classic example of how this system could and did work properly can be found over 2,000 miles from New York near the great Salt Lake in Utah.
In the early 30’s some banks in Salt Lake City and surrounding towns began to get into difficulties. The owners of one them were smart enough to see what had to be done to keep their banks open and courageous enough to do it. When fearful depositors began to clamor to withdraw all their money, one of George Eccles jobs was to brief his cashiers on how to handle the run.
By Everette Hatcher III | Also posted in Cato Institute | Tagged , , , , | Comments (0)

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

October 14, 2011 – 12:14 am

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

worked pretty well for a whole generation. Now anything that works well for a whole generation isn’t entirely bad. From the fact __ from that fact, and the undeniable fact that things are working poorly now, are we to conclude that the Keynesian sort of mixed regulation was wrong __
FRIEDMAN: Yes.
LEKACHMAN: __ or alternatively that we need still more regulation. That’s my conclusion, I might say.
FRIEDMAN: You want the right people manipulating the leaders. But go back. Memory smooths things out. If you really look at that 25_year period you’re talking about, it was not a period of stability; it was a period that was punctuated by the very sharp inflation of the Korean War. It was a period that was punctuated by three recessions in the course of about eight years in the fifties and early sixties. It was a period in which you had a __ inflation really starting to go from creeping to running, in the latter sixties. It was a period which laid the ground work for the kind of situation in which we are now, where you have both higher unemployment and higher inflation. It was __
TEMIN: I don’t think that followed. I mean there were these movements, as we say, but they weren’t the movements like the 1930s. There was a recession in ’58, yes.
FRIEDMAN: I agree.
TEMIN: We all called it a recession. We all worried about it and so on, but it was a small thing, little potatoes.
FRIEDMAN: The same thing was true in earlier periods between The Great Depression. If you take the area between the great depression in the United States of the 1870s and the 1890s, again you had a period like that. If you take it between The Great Depression of the 1890s and World War I, with a minor __ with one minor exception, it was similar to that. So that what you have, and this is a historical fact, is that except for the great depressions, all of which are linked to monetary collapses and to governmental involvement, in the interim period, the society has been reasonably stable.
MCKENZIE: Haven’t we reached the stage, incidentally, where we need not again see anything like the great depression. You say recessions, yes; but it bears no relationship to what we knew __
FRIEDMAN: No.
MCKENZIE: __ in the thirties. Have we solved that problem now? People are deeply __
JAY: No, we haven’t. Because I think the seeds of it remain there. I don’t agree with Professor Lekachman that everything was __ I don’t want to misparaphrase him __ but did pretty well until 1973 and then it suddenly all went wrong. It seems to me that the seeds of the subsequent instability, stagflation, were there before. That each time round the economic cycle inflation went a little faster. Each time around the economic cycle unemployment tended to be a bit higher. But this brings me to what is my disagreement with Professor Friedman. I agree with him that government has failed to correct, and is bound to fail to correct that instability. I do not agree with him that it is the root cause of that instability or simply removing or containing the government will remove that instability. Because his constitution, and I agree with all the things he wants to put into it, but I want to put more into it, leaves big capital entirely free to operate. Now he doesn’t mind that. In response to big capital, you are bound to get __ as a simple, natural reaction __ big labor. He doesn’t mind that. He’s quite happy with that. But my contention is that once you have big labor, you have a way of setting rewards in society, not only by trade unions, but through all sorts of other processes whereby groups get together in order to exploit the political process and legal rights, and to protect themselves from competition, in which, inevitably, people set rewards above what economists call the “market clearing price” for labor. They set levels of rewards which make it impossible that everybody should be employed and you therefore have a built-in tendency to high unemployment. If governments react to that on the Keynesian pattern by trying to inject spending which will enable these people to be employed, then I agree with Professor Friedman that all you get is faster and faster inflation, and that if you like, is caused by the government. But the government is a proximate cause of an original instability that is already there. And there’s nothing in Professor Friedman’s constitution which would correct that inherent, if you like, contradiction or flaw in classical western political economy.
FRIEDMAN: Do you deny, Peter __
MCKENZIE: Let me get the reaction to that __
FRIEDMAN: __no, I want to ask just one question of Peter. Do you deny that big government plays a large part in the rise of big capital and big labor?
JAY: I think they’re interactive. I once said big capital causes big labor, causes big government, causes big failure. That is the tragic story, in my opinion, of the 20th century.
FRIEDMAN: And what about if you start that __
JAY: We have to unravel that.
FRIEDMAN: __ if you start that route with big government. Will it be wrong? Big government causes big capital, causes big labor, causes big failure?
JAY: I don’t think historically that’s what happened. But you and I are agreed, we don’t want big government.
FRIEDMAN: That’s right.
JAY: What we’re disagreed about is what else we need.
LEKACHMAN: I think something is seriously wrong with a beautiful system which develops this big, clumsy, aggressive government, huge corporations, with more influence over their markets than is desirable from the standpoint of free competitive theory, trade unions, which at least according to some opinions, have a similarly malignant influence on their markets. There must be something radically flawed with the capitalist system which allows these institutional developments. This doesn’t alarm me because I’m a socialist, but I would __ I would readily __
FRIEDMAN: There must be something radically wrong with socialist philosophy which allows the __ extraordinary __ the much worse developments that have occurred, wherever there has been any real significant attempt to put a thoroughgoing socialism into practice.
LEKACHMAN: Socialism is a word of many meanings.
MCKENZIE: Now I think we might easily get into a quite serious debate on that point.
VOICE OFF SCREEN: Right.
JAY: I think it’s possible to note in passing that they may both be right.
MCKENZIE: Yes.
JAY: That conventional capitalism, conventional socialism, as conceived in the 20th century, are both wrong and that the polarization of the debate between those simple two alternatives greatly impoverishes the real range of political-economic choices which modern societies have.
FRIEDMAN: But what has happened? Over and over again one claim after another for the kind of socialism __ this kind of socialism or that kind of socialism __ has turned to ashes. And each time the answer has come, “Oh well, it was a wrong brand of socialism that was adopted, or the wrong people were running it.”
VOICE OFF SCREEN: But you’re saying __
JAY: You’re arguing with yourself when you’re saying __
FRIEDMAN: No I’m not.
JAY: The Federal Reserve in 1929 failed to do the right thing. It was the wrong brand of government.
FRIEDMAN: It was the wrong brand, absolutely, but what I’m saying is something different. I can at least point to examples in history of systems of capitalist systems in which the government had a fairly limited role, not my ideal government. Many things, doing many things I would not want it to do. But I’m going to point to such examples over long stretches of history in __ which have been relatively successful. Where the major achievements of humankind, not merely in economics, but in all other areas, have largely arisen. It is very difficult to point to any similar examples __
TEMIN: But then you are pointing back __
FRIEDMAN: __ of where big government has achieved such success.
TEMIN: But you said before you didn’t like to go back. You’re now talking about going back.
FRIEDMAN: No, no. I didn’t say I didn’t like to go back.
TEMIN: They took place in different times.
FRIEDMAN: What I said is going back or forward is irrelevant. What we want to do is __
TEMIN: But it’s not irrelevant to this discussion __
FRIEDMAN: __ the right thing wherever it comes from.
TEMIN: __ because as Bob Lekachman said earlier, things have increased in scale, and the scale of business and increased, and you were saying just before, big government, big labor, big industry, big firms go together, and you didn’t accept it before, when Bob said you’ll accept it now from here.
FRIEDMAN: No, no. I don’t accept it. What I accept is that big government is a major factor promoting big labor and big capital. I did not accept that in the absence of big government you would have the big capital and big labor that worries him.
By Everette Hatcher III | Comments (0)

Milton Friedman discusses Reagan and Reagan discusses Friedman

October 13, 2011 – 12:36 pm

Uploaded by on Aug 19, 2009

Nobel Laureate Dr. Milton Friedman discusses the principles of Ronald Reagan during this talk for students at Young America’s Foundation’s 25th annual National Conservative Student Conference

MILTON FRIEDMAN ON RONALD REAGAN

In Friday’s WSJ, Milton Friedman reflectedon Ronald Reagan’s legacy. (The link should work for a few more days.)

I first realized what a truly extraordinary person he was in early 1973 when I spent an unforgettable day with him barnstorming across California to promote his Proposition 1 — an amendment to the state constitution that would set a limit to the amount the state could spend in any year. We flew in a small private plane from place to place and at each stop held a press conference. In between, Gov. Reagan talked freely about his life and views. By the time we returned to our final press interview in Los Angeles, I was able to give an enthusiastic yes to a reporter’s question whether I would support Reagan for president. And, I may say, I have never been disappointed since.

As a good social scientist, Frieman also has data. It doesn’t make Bush I look too good, but it does bust the myth–popular among some libertarians–that Reagan did nothing real to shrink government.
 

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 Milton Friedman and Ronald Reagan
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By Everette Hatcher III | Also posted in Ronald Reagan | Comments (0)

Social Security is a Ponzi scheme (Part 10)

October 13, 2011 – 12:55 am

Milton Friedman – The Social Security Myth

Uploaded by on Mar 5, 2010

Using Social Security as his prime example, Professor Friedman explodes the myth that the major expansions in government resulted from popular demand. In a speech delivered more than 30 years ago, he directly relates this dynamic to today’s health care debate. http://www.LibertyPen.com

Uploaded by on Jan 8, 2009

Professor Williams explains what’s ahead for Social Security

 

Governor Rick Perry got in trouble for calling Social Security a Ponzi scheme and I totally agree with that. This is a series of articles that look at this issue.

Social Security Private Option

by Michael D. Tanner

This article appeared in the Washington Times on January 22, 2010.

Could it be time to put Social Security reform back on the table? That would seem to be a bizarre question, given the spectacular failure of President George W. Bush’s attempt to reform the troubled retirement program. Yet, none of Social Security’s problems have gotten better during the intervening years.

Social Security is the largest government program in the world, accounting for 23 percent of the federal budget. The Social Security tax is the largest tax the average American family pays. Indeed, nearly 80 percent of Americans pay more in Social Security taxes than they do in federal income tax. And, millions of seniors depend on Social Security for their retirement income.

The program is unsustainable. It cannot pay future benefits without drowning our children and grandchildren in debt and taxes. Social Security will begin running a deficit by 2016, just six years from now. In theory, the Social Security trust fund will pay benefits until 2037, which should serve as cold comfort to today’s 31-year-olds. But that figure is misleading because the trust fund contains no actual assets. The government bonds it holds are simply a form of IOU, a measure of how much money the government owes the system. It says nothing about where the government will get the money to pay back those IOUs. Even if Congress can find a way to redeem the bonds, the trust-fund surplus will be exhausted by 2037. Overall, the amount the system has promised beyond what it can actually pay now totals $17.5 trillion. Yes, that’s trillion with a T.

[S]tudies show that long-term investment remains remarkably safe.

Equally important, workers still have no ownership of their benefits. This means that workers are left totally dependent on the goodwill of 535 politicians to determine what they will receive in retirement. Low- and middle-income workers are still unable to accumulate a nest egg of real, inheritable wealth. And younger workers still receive a dismal rate of return on their money.

If Social Security’s problems haven’t changed since the Bush years, neither have the possible ways to fix those problems: Raise taxes (the Social Security payroll tax would have to be nearly doubled to keep the program afloat), cut benefits by as much as 25 percent or allow younger workers to invest privately.

We could always raise taxes or cut benefits enough to bring the system into balance. Some have suggested removing the cap on income subject to the payroll tax. But while that would be the largest tax increase in U.S. history, at least $1.3 trillion over the first 10 years, it would increase Social Security’s cash-flow solvency by just seven years. Raising taxes or cutting benefits will make an already bad deal worse for younger workers, many of whom will end up paying more in taxes than they receive in benefits. And raising taxes will do nothing to fix the fundamental problems of ownership, inheritability and choice.

The only workable solution still is to allow younger workers to invest privately a portion of their Social Security taxes through personal accounts so as to take advantage of the higher returns earned through investment in real assets, and offset the reduction in government benefits that will be required to bring the system into solvency.

Critics undoubtedly will point to the collapse of the stock market in 2008 and suggest that private investing is just too risky. However, studies show that long-term investment remains remarkably safe. If workers retiring today had been allowed to start privately investing their taxes 40 years ago, they obviously would have less money than those who retired a couple of years ago, but they still would have more than Social Security promises. Remember, someone retiring today would have begun contributing to his or her retirement account 40 years ago, when the Dow was at less than 1000.

Michael Tanner is a senior fellow at the Cato Institute and author of Social Security and Its Discontents.

More by Michael D. Tanner

Not every worker would want to take on the risks and volatility of private investment. Some might prefer the political risks of today’s system despite its looming insolvency. But that’s why personal accounts have always been – and should continue to be – an option. Those who want to remain in the current system should do so, but those who wish to invest a portion of their money privately should be given that choice.

Not surprisingly, a great many would do so. A survey taken last year by Sun Life Financial at the nadir of the market’s decline found that 48 percent of American workers would opt out of Social Security even if doing so meant the loss of all future Social Security benefits (something far more drastic than is being proposed). Among workers younger than 30, the number wanting out of Social Security was a startling 59 percent.

Today’s conservative leaders might want, understandably, to stay far away from any initiative associated with Mr. Bush. Yet no one who aspires to political leadership can ignore the need to reform entitlement programs, including Social Security. Those who are willing to do so in a way that gives workers more choice and more control over their money may find themselves doing something that is surprisingly popular as well as good public policy.

By Everette Hatcher III | Also posted in Social Security | Comments (0)

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

October 12, 2011 – 4:37 pm

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

Here is the video clip and transcript of the film series FREE TO CHOOSE episode “What is wrong with our schools?” Part 4 of 6.

 
Volume 6 – What’s Wrong with our Schools
Transcript:
It seems to me that if one is truly interested in liberty, which I think is the ultimate value that Milton Friedman talks about, one has to be very careful how he structures the kinds of subsidies that are proposed for education so that you do not wind up with the poor in one kind of school and the rich all in the other, and very little liberty for low-income people left over, which is what is what I think he has in mind. That is, I don’t think he has that result in mind. He has the hope in mind of liberty, but that it’s going to need a certain kind of tailoring before it works that way.
SHANKER: I think your remarks about free competition are very unfair for a very simple reason. You cannot have free competition where one group of schools must accept every single student who comes along, no matter what his physical or emotional handicaps or other problems; whereas the very essence of a private school and your voucher school is that they’re going to be able to keep out the students and the finest schools that you saw in that film were schools that deliberately kept out the most difficult students. Of course you can have a wonderful school if you pick students whose parents __
(Several talking at once)
SHANKER: __ no, no. Whose parents are so highly motivated that they’re willing to spend more money and willing to go out of their way to do something like that. Now the public schools have to take the handicapped, must provide bilingual education, must engage in bussing or other programs in terms of integration, must do all of these things. Whereas the private school can come along and say, well if your child has no problems, you know what we can do? We can offer you a school where you don’t have to sit next a child with these other problems. We’re gonna put you next to other children who are advantaged.
SHANNON: I think in the real world there is no competition between private schools and public schools because private schools, especially parochial schools, do not have to comply with Federal and State mandates and constitutional limitations and things of that sort.
McKENZIE: Dr. Anrig.
ANRIG: I think the part of the film that speaks to the greater parental involvement, I agree with very enthusiastically. However, I think the solution is the wrong solution for the problem that you identify. I think the role of public education in a democracy is not akin to that of the marketplace. The purpose for the common school is not the same as the purpose for the marketplace. We are trying in our public schools to create a democracy, to create an educated electorate. If you’re going to do that, you have to have the common school.
McKENZIE: How far do you accept his analysis of the present condition of the public education system? A pretty drastic analysis.
ANRIG: Well, I think he’s established three straw men that I think have to be challenged with all respect, Professor Friedman. The first is that there is a profession of education out there which has run amuck. We have the most decentralized system in the world in the American education. Sixteen thousand school districts that are governed not by the profession, but by elected citizen representatives, most of whom are parents. Secondly, you long, as I would, for the good old days of the one-room school in Vermont. That school served a small proportion of the youngsters for a short period of time, and those days will never come back. Third, you as an example of American education, a troubled high school in an urban center.
McKENZIE: In your bailiwick.
ANRIG: In my bailiwick, which is not typical of where the American student goes to school, first of all; and secondly is not typical of the City of Boston. And I do think it’s important to point out that that particular school, at the time that you took filming there, or your production crew did, was in the middle of a desegregation process that was not anywhere remarked about in the film. So it was not a typical example either of education in America or of education in Boston.
McKENZIE: The one unsurprising thing about these comments is that all of the opposition to allowing the market work comes from people who have a very strong vested interest in the present public school system. I am not proposing, we are not proposing to destroy the public school system. We are only asking that the public school system should be free to compete, should be open to competition, if it is really as good as you people make it out to be, it has nothing to worry about. Now, in terms of your comment, of course there’s a great deal of decentralization. We showed a very good school in this film as well as a very bad school. There are many good schools, and the more decentralized the control, in my opinion, the more satisfactory is the schooling. The real problem is concentrated in those areas where decentralization is broken down. Where you have moved to much greater centralization, much greater control, and the main trouble areas are in the large cities. That’s why we picked that school to show. In response to the question of the excellence of the schooling that’s coming, I think there is nobody who can question the declining SAT scores, the declining scores on exams, the declining performance in the schools, the fact that there is widespread dissatisfaction, that many schools, not all schools, some schools, in urban areas are more accurately described as centers to keep people off the street than as educational institutions.
SHANKER: When you have a free market, there are dangers that go along with that market. Now, we know that there are people in our society who buy consumer’s reports, and there are people who do a great deal of research before they buy something, and there are other people who are taken in by the Crest commercials and instant appeal to give them some sort of a gimmick with a thing. And I think that the evidence is pretty clear that if you take middle class and wealthier families they are gonna do a good deal of research. They may very well be able to invest some additional money of their own to take some inconvenience. And if you have an open system of this sort it may very well be that the poorest parents are gonna have to take what is most convenient for them. What is going to fit in with their own work schedules, what is not going to require additional sums of money. And there is no doubt in my mind that you set up a system of free choice of this sort, you’re going to end up with the poor in one set of schools of their own on the basis of a good deal of gimmicks that will be offered to them.
COONS: They can’t learn, right? They’re __
FRIEDMAN: Excuse me, Mr. Shanker. I want to ask you one question: How do you explain the fact that there is no area of the free market, no area of the private market, in which the poor people who live in the ghettos of our major cities are as disadvantaged as they are with respect to the kind of schooling they can get. I want you to name me any aspect in the kind of supermarkets they can go to. They’re not as disadvantaged even in the kind of housing they can occupy as they are in respect of the kind of schooling their children can go to. How does __
SHANKER: What’s your evidence for that? I don’t think you have any evidence for that.
COONS: But, they’re trying to get out.
FRIEDMAN: They’re trying desperately to get out. Families with very low incomes are trying to get into the parochial schools that you’re talking about.
SHANKER: Exactly. And they’re trying to get out of the slums, and they’re trying to get into different neighborhoods __
FRIEDMAN: They are trying to, sure.
SHANKER: __ they’re trying to do all sorts of things.
FRIEDMAN: They’re doing better on that. They’re doing better on that. And instead, in a free choice system you would have more heterogeneous schools in my opinion, far less segregation by social and economic class than you now have. Because __
(Several talking at once.)
McKENZIE: Dr. Anrig.
ANRIG: It just doesn’t hold up by the very examples he’s used.
FRIEDMAN: Excuse me. It so happens that right now, the parochial schools are the only alternative really available to low-income people.
SHANKER: Do they take all the children who want to get in?
FRIEDMAN: And the reason for that is that it’s very hard to sell something when other people are giving it away. Anybody who wants to send his child to a nonpublic school has to pay twice for it. Once in the form of taxes and once in the form of tuition. Under the kind of voucher scheme that Jack Coons and I would support, that difficulty would be eliminated. You would now have a situation in which the low-income people would have the kind of bargaining power, the kind of possibility of choice, that those of us who are in the upper-income groups have had all along. (Several talking at once.)
McKENZIE: I want to move __ Jack Coons. Jack Coons, I want you to come in now. I know you’re in principle advocating the voucher system. Could you give us the case as you see it. I know you’ve got your differences with Milton on it, but let’s have the case.
COONS: What we are doing in California is establishing a form of change, possible change, proposing a change, in which lower-income people will get information along with the opportunity to go to any school of their choice and transportation to get there. Of course they need information. Anybody needs information in a market. And they need information from independent sources, not from the schools themselves, and that’s the way the initiative is designed, to come from independent sources. Now, we believe that ordinary people can make the best judgments for their children about where they should go, if they’re given good professional advice. And it also helps teachers because they can, for the first time, be professionals. They can act like real professionals, because they don’t have a captive audience. They don’t dominate their client, they respect their client, and they deal with them on the basis of a contract. What could be better for teachers than for the first time to become people who are dealing in a democratic and respectful way with clientele instead of with captives.
SHANNON: I am concerned that a voucher system will lead towards havens for white flight, will lead towards a duel school system in the sense that you have one school system operating under one set of rules, the other school system, public school system, operating under carefully articulated educational policy in any given state. And that’s why I think it’s __
COONS: Exactly, in Los Angeles County the movement to private schools last year was less, a smaller percentage than in the statewide pattern.
SHANKER: You may have five or ten percent of the students __
FRIEDMAN: Right, right.
SHANKER: __ you have very severe problems and come from families with very severe problems, and those students take up 95 percent of the time of the teachers and the administrators and the other children aren’t getting an education. Now, you’re gonna set up your voucher school. Are your voucher schools going to accept these tough children?
By Everette Hatcher III | Also posted in Vouchers | Tagged , , , , | Comments (0)

Tax increases are not the way to go

October 11, 2011 – 1:46 pm

Tax increases are not the way to go, but the president doesn’t get that.

Liberals love tax increases.

Seven Reasons Why Tax Increases Are the Wrong Approach

Uploaded by on May 3, 2011

This Economics 101 video from the Center for Freedom and Prosperity gives seven reasons why the political elite are wrong to push for more taxes. If allowed to succeed, the hopelessly misguided pushing to raise taxes would only worsen our fiscal mess while harming the economy.

The seven reasons provided by the video against this approach are as follows:

1) Tax increases are not needed;
2) Tax increases encourage more spending;
3) Tax increases harm economic performance;
4) Tax increases foment social discord;
5) Tax increases almost never raise as much revenue as projected;
6) Tax increases encourage more loopholes; and,
7) Tax increases undermine competitiveness

________________________

The Real Budget Problem

by Michael D. Tanner 

Michael Tanner is a senior fellow at the Cato Institute and coauthor of Leviathan on the Right: How Big-Government Conservatism Brought Down the Republican Revolution.

Added to cato.org on June 15, 2011

This article appeared on National Review (Online) on June 15, 2011.

If you listen to the discussion of the deficit in the mainstream media or the talking points from leading Democrats on the Hill (but I repeat myself), the refrain is that tax increases must be part of any deficit fix.

There is a superficial moderation to that appeal, a sort of splitting the difference between Republicans who want to cut spending and Democrats who want to pay for popular programs. And, frankly, some tax breaks and loopholes should be eliminated — ethanol subsidies, for example — not as revenue raisers, but because they are such bad economic policies. 

But raising taxes to reduce the deficit would be bad policy for several reasons:

There’s not really a revenue problem. Democrats correctly point out that federal tax revenues are now just 16.5 percent of GDP, well below the post–World War II average of roughly 18 percent. This would have meant a bigger budget deficit than usual even if spending hadn’t exploded in recent years. But much of that decline is due to the economic slowdown, not to the Bush tax cuts or other policy changes. In fact, the Congressional Budget Office predicts that as economic growth returns, federal tax revenues will grow by an average of 7.3 percent annually over the next ten years. By the end of the decade, taxes will have pushed back through the 18 percent level, and be headed toward 20 percent — all without any changes in tax policy.

Government is too big, too intrusive, and too expensive. It doesn’t take more taxes to fix that.

There is a spending problem. Focusing on taxes implies that the problem is how to pay for spending — taxes or debt — not the spending itself. But, as Milton Friedman constantly pointed out, the real cost of government is the size of government. According to the CBO, the federal government is on track to consume 42 percent of GDP by 2050. (State and local governments will consume another 10 to 15 percent of GDP.) Would we really be better off if we raised taxes enough to pay for all that spending?

You can’t tax enough. The president keeps talking about solving our deficit problems by taxing millionaires and billionaires. Congressional Democrats throw in oil companies. But you could confiscate — not tax, confiscate — every penny belonging to every millionaire in America and cover barely one-tenth of our government’s total indebtedness (including the unfunded liabilities of Social Security and Medicare). Meanwhile the tax breaks for oil and gas companies amount to about $1.4 billion annually. Those tax breaks may or may not be defensible, but they amount to less than 1 percent of this year’s budget deficit.

Bait and switch.  If you look at most of the deficit-cutting proposals, including the president’s, they call for tax increases today in exchange for spending cuts somewhere in the future. I think we’ve seen that movie before. In fact, the president’s proposal actually makes the bait-and-switch game worse. His proposal says that if Congress didn’t actually make those spending cuts, there would be additional tax increases. So Republicans would be agreeing to tax increases today in exchange for . . . more tax increases tomorrow.

Tax hikes are bad for the economy and for freedom. Of course it’s an exaggeration to suggest that all tax cuts pay for themselves, but there is no doubt that high taxes discourage the type of investment and risk-taking necessary to grow the economy and create jobs. Every dollar that the federal government takes in taxes is one less dollar that the private sector can save, invest, or spend as it sees fit. Unless you believe that the government knows better than the private sector what to do with that money, this exchange hurts the economy. And unless you believe that our money really belongs to the government, it means we are less free to make use of the fruits of our labor as we see fit.

Republicans should not fall into the trap of reflexively defending every special-interest loophole in the tax code. But neither should they be seduced by the argument that we need a “balanced” approach to deficit reduction that includes tax increases. Government is too big, too intrusive, and too expensive. It doesn’t take more taxes to fix that.

By Everette Hatcher III | Also posted in Cato Institute, Taxes | Tagged , , , , | Comments (0)

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

October 11, 2011 – 7:31 am

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

Here is the video clip and transcript of the film series FREE TO CHOOSE episode “What is wrong with our schools?” Part 3 of 6.

 
Volume 6 – What’s Wrong with our Schools
Transcript:
If it doesn’t, they can simply pick up and go elsewhere. For the students, they want to get their money’s worth. They are customers, and like every customer everywhere, they want to get full value for the money they are paying. And so much of the success here comes from the fact that students understand precisely the cost involved and they are determined to get their money’s worth.
Regina Barreca, Student:. . .they send you sheets saying how much everything costs all the time, so that you know exactly, you can break it down per lecture. And when you see each lectures costing $35, and you think of the other things you could be doing with the $35, you’re making very sure you’re going to that lecture.
Friedman: Many of the buildings and facilities at Dartmouth have been donated by private individuals and foundations. Like other private universities, Dartmouth has combined the selling of monuments with the provision of education and the one activity reinforces the other.
The students, in effect, earn part of their keep by helping to solicit alumni for contributions, knowing full well that they will be solicited in their turn. It is another way in which the real value of education is brought home. This may not be the usual idea of an economic market, but it is nonetheless a marketplace where buyers can choose and sellers must compete for customers.
What happens when the educational market is distorted? Look at state colleges and universities. Their fees are generally very low, paying for only a small part of the cost of schooling. They attract serious students just as interested in their education as the students at Dartmouth or other private schools, but they also attract a great many others. Students who come because fees are low, residential housing is good, food is good, and above all there are lots of their peers, it’s a pleasant interlude for them.
The University of California at Los Angeles __ for those students who are here as a pleasant interlude, going to class is a price they pay to be here, not the product they are buying. Darrell Dearmone,
Lecturer: We frequently wind up with people who cannot compete favorably with even the average person here. There is a magnet here for everything. We have the best weather practically speaking, in the country. Hollywood is here, Beverly Hills is here, the social scene, the television industry in this country is centered here.
Friedman: The justification for using tax money to support institutions like this is supposed to be so that every youngster, regardless of the income or wealth of his parents, can go to college. A few youngsters from poor families are here, but not very many. Most of these students are from middle and upper-income families, yet everybody, whatever his income, pays taxes to help support these institutions. That is a disgraceful situation. It is hardly what public education was all about. These students are being subsidized by people who will never go to college. That means that on the average people who will end up with higher income are being subsidized by people who will end up with lower income. And in addition, the quality of undergraduate education is poor. Undergraduate teaching is not what UCLA is famous for. Besides from its athletic team, UCLA’s reputation is for graduate work and research.
Faculty members have every incentive to do research, that’s the way to advance in their profession. They have much less to gain by good teaching.
Only about half of those who enroll in UCLA complete the undergraduate course. Compare that with the 95% at Dartmouth who finish the work for their degrees. What a waste of student time and what a waste of taxpayers’ money.
What should we do about this disgraceful situation? We must not deny any young man or woman whose desires formal education. Everyone who has the capacity and the desire to have a higher education should be able to do so, provided they are willing to undertake the obligation to pay the cost of their schooling either currently or in later years out of the higher income that their education will make possible. We now have a governmental program of loans which is supposedly directed to this objective but it’s a loan program in name only. The interest rate charged is well below the market rate. Many of these loans are never paid back. We must have a system under which those who are not able or do not go to college are not forced to pay for those who do.
As we have seen the market works in education. When people pay for what they get, they value what they get. The market works in higher education. It can also work at the level of primary and secondary education. Until we change the way we run our public schools, far too many children will end up without being able to read, write, or do arithmetic. That is not what any of us wants.
The system is not working and it is not working because it lacks a vital ingredient. The experts mean well, but a centralized system cannot possibly have that degree of personal concern for each individual child that we have as parents. The centralization produces deadening uniformity, it destroys the experimentation that is the fundamental source of progress. What we need to do is to enable parents, by vouchers or other means, to have more say about the school which their child goes to, a public school or a private school, whichever meets the need of the child best. That will inevitably give them also more say about what their children are taught, and how they are taught. Market competition is the surest way to improve the quality and promote innovation in education as in every other field.
DISCUSSION
Participants: Robert McKenzie, Moderator; Milton Friedman; Albert Shanker, President, American Federation of Teachers; Professor John Coons, Initiative for Family Choice in Education, California; Thomas A. Shannon, Executive Director, National School Boards Association; Gregory Anrig, Commissioner of Dept. of Education in Commonwealth of Massachusetts
McKENZIE: The distinguished guests tonight are all intimately concerned with the world of education; so lets find out how they react to Friedman’s analysis.
SHANKER: I think it’s very foolish to throw out something that you’ve got and that has some shortcomings, but is very, very good in order to try out someone’s pet ideas.
McKENZIE: Well, before we ask Milton to reply to that, lets get other views on the same quotation, “Market competition is the surest way to improve the quality and promote innovation in education.” John Coons.
COONS: Well, of course, there’s enormous evidence that that is exactly right and we see it in the case in California that I observe every day of low income children whose families are making great sacrifices to go to schools that operate at a third of the cost of public education and are turning out kids who are performing and are learning and achieving at very high levels. On the other hand, I wouldn’t want to suggest that unlimited competition is the answer to every problem. And, indeed, the whole definition of competition is very ambiguous. It seems to me that if one is truly interested in liberty, which I think is the ultimate value that Milton Friedman talks about, one has to be very careful how he structures the kinds of subsidies…
By Everette Hatcher III | Also posted in Vouchers | Tagged , , , , | Comments (0)

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

October 7, 2011 – 11:12 am

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

Here is the video clip and transcript of the film series FREE TO CHOOSE episode “What is wrong with our schools?” Part 2 of 6.

 
Volume 6 – What’s Wrong with our Schools
Transcript:

Groups of concerned parents and teachers decided to do something about it. They used private funds to take over empty stores and they set up what became known as store front schools. One of the first and most successful was Harlem Prep. It was designed to cater to students for whom conventional education had failed. Many of the teachers didn’t have the right pieces of paper to qualify for employment in public schools. That didn’t stop them from doing a good job here. A lot of the students had been misfits and dropouts. Here they found the sort of teaching they wanted. After all, they had made a deliberate choice to come to Harlem Prep. It was a very successful school. Many students went on to college and some to leading colleges.

But after some years, the school ran short of cash. The board of education offered Ed Carpenter, the head of the school and one of its founders, tax money, provided he would conform to their regulations. After a long battle to preserve independence, he finally gave in. The school was taken over by bureaucrats.
Ed Carpenter, Former Principal, Harlem Preparatory School: I felt that a school like Harlem Prep would certainly die and not prosper under the rigid bureaucracy of a board of education. We had to see what was going to happen. I didn’t believe it was going to be good. I am right. What has happened since we have come to the board of education is not all good __ it is not all bad __ but it is more bad than good.
Friedman: The school may not look different yet, but 30 of the former teachers have gone. Ed Carpenter has resigned. The school is being moved to a traditional school building. No one, except maybe the bureaucrats, is very optimistic about its future.
Unfortunately, the strangling of successful experiments by bureaucrats is not unusual. The same thing happened in California, at a place called Alum Rock. For three years parents at this school could choose to send their children to any of several specially created mini-schools, each with a different curriculum. The experiment was designed to restore a choice to those who were most closely involved, the parents and the teachers.
Don Ayers, Former Principal, Millard McCollam Elementary School: Probably the most significant thing that happened was that the teachers, for the first time, had some power and they were able to build the curriculum to fit the needs of the children as they saw it. The state and local school board did not dictate the kind of curriculum that was used in the McCollam School. The parents became more involved in this school. They attended more meetings. They also had a power to pull their child out of that particular mini-school if they chose another mini-school
Friedman: Giving parents greater choice had a dramatic effect on educational quality. In terms of test scores, this school went from 13th to 2nd place among the schools in its district, but the experiment is now over. When school resumed after the summer vacation, this was just another public school, back in the hands of the bureaucrats.
Giving parents a choice is a good idea, yet it always meets with opposition from the educational establishment. This is Ashford, a town in the south of England. For four years, there have been efforts here to introduce an experiment in greater parental choice. Parents would be given vouchers covering the cost of schooling. They could use the voucher to send their child to any school of their choice. I have long believed that children, teachers, all of us, would benefit from a voucher system. But the head master here, who happens also to be secretary of the local teacher’s union, has very different views about introducing vouchers.
Mr. Dennis Gee, Headmaster, Newtown Primary School: We see this as a barrier between us and the parent. This sticky little piece of paper in their hand, coming in and under due writ you will do this or else. We make our judgment because we believe it is in the best interest of every Willy and every little Johnny that we have got, and not because someone is going to say, if you don’t do it, we will do that. It is this sort of philosophy of the marketplace that we object to.
Friedman: In other words, Mr. Gee objects to giving the customer, in this case the parent, anything to say about the kind of schooling his child gets. Instead, the bureaucrats should decide.
Mr. Gee: We are answerable to parents and to our government bodies, through the inspectorate of the county council and through her Majesty’s inspectorate to the secretary of state. These are professionals who are able to make professional judgments.
Friedman: But things look very different from the point of view of parents. Jason Walton’s parents had to fight the bureaucracy, the professionals, for a year before they could get him into the school that they thought was best suited to his needs.
Maurice Walton, Parent: As the present system stands, I think virtually parents have got no freedom of choice whatsoever. They are told what is good for them by the teachers and are told that the teachers are doing a great job, and I just got no sign at all. If the voucher system were introduced, I think it would bring teachers and parents together, I think closer. A parent that is worried about his child would remove their child from the school that wasn’t giving a good service and take it to one that was. And if a school is going to crumble because it’s got nothing but vandalism, it is generally slack on discipline, and the children aren’t learning well, then it is a good thing from my point of view.
Friedman: Even good schools like this would benefit from a voucher system. From having to shape up or see parents take children elsewhere, but that is not how it looks to the head master.
Gee: I am not sure that parents know what is best educationally for their children. They know what is best for them to eat, they know the best environment they can provide at home, but we’ve been trained to ascertain the problems of children, to detect their weaknesses, and put light in things that need putting light, and we want to do this freely, with the cooperation of parents, and not under any undue strains.
Walton: I can understand the teacher saying yes, it is a gun at my head, but they have got the same gun at the parents’ head at the moment. The parent goes up to the teacher and says, well I am not satisfied with what you are doing, and the teacher can say, well tough, you can’t take him away, you can’t remove him, you can’t do what you like so go away and stop bothering me. That can be the attitude of some teachers today __ it often is. But now that the positions are being reversed and the roles are changed, I can only say tough on the teachers __ let them pull their socks up and give us a better deal and let us participate more.
Friedman: In America there is one part of education where the market has had extensive scope, that is higher education. These students attend Dartmouth College, a private school founded in 1769. The college is supported entirely by private donations, income from endowment, and student fees. It has a high reputation and a fine record. Ninety-five percent of the students who enroll here complete their undergraduate course and get a degree.
The students here pay high fees, fees which cover most of the cost of the schooling which they get. Most of them get the money from their parents, but some are on scholarships provided either by Dartmouth or by outside sources. Still others take out loans to pay the costs of schooling, loans which they will have to pay back years later. Still others work either during the school year or during the summer to pay the costs. Many students work in the college’s own hotel. This girl is helping to pay her own way which is pretty good evidence that she is serious about getting an education.
Parents of perspective students come here on shopping expeditions to check out the product before they buy.
What you have here is a private market in education and the college is selling schooling. The students are buying schooling. And as in most such markets, both sides have a strong incentive to serve one another.
For the college, it has a strong incentive to provide the kind of schooling that its students want. 
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Milton Friedman Friday:(“Free to Choose” episode 4 – From Cradle to Grave, Part 5 of 7)

October 7, 2011 – 12:13 am

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

PART 5 of 7

MCKENZIE: Ah, well, that’s not on our agenda actually. (Laughter)
VOICE OFF SCREEN: Why not?
MCKENZIE: I boldly repeat the question, though, the expectation having been __ having been raised in the public mind, can you reverse this process where government is expected to produce the happy result?
LEKACHMAN: Oh, no way. And it would be very foolish of the public which is on the whole more sensible than academic, to come to this conclusion. They look around them, what do they see? They see a whole collection of visible hands attached to EXXON, other large corporations. These are not small, independent competitors jostling with each other for the patronage of the public. These are large organizations, with substantial influence on their markets. Government’s interference, clumsy as it often is, is an almost unavoidable response to the very visible manipulations of large organizations.
FRIEDMAN: If there again, you’re an academic, we’re talking about fact in history. Now the history is that the growth of government has not been as a result of the things you’re pointing out. It isn’t the large corporations. It isn’t the large unions. It isn’t the technological development that has produced the major growth of government. The major growth of government in our time has come in the redistributive area. It’s come in the area of designing programs which take from some people and give to others. We’re not going to go into those here, because we discuss those in our next two programs which deal with exactly the question of whether the government intervention that was stimulated by The Great Depression has been a success or a failure. But to your point, the grounds that you give for greater government intervention have almost nothing whatsoever to do with the actual factual growth of government. Now at the end of the war, immediately after World War II, it was thought that government was going to get involved, especially in Britain, in France, in central economic planning on a large scale.
JAY: Partly because of the war experience, too, when government was very much involved.
FRIEDMAN: Partly.
MCKENZIE: In Germany and Japan as well.
FRIEDMAN: Germany and Japan as well, it was a war. It created a myth just as the, as The Great Depression created myth.
MCKENZIE: Or rather reinforced the myth of government responsibility.
FRIEDMAN: Yes, but it created a different myth. This is a subject we don’t discuss much in the film. We’ve discussed it in a book that we’re bringing out with the same title to go along with it but __ but the great, but the great myth that was created by the war, was the myth that government was inefficient. And it was.
MCKENZIE: We won the war.
FRIEDMAN: For wartime purposes in, at least in Britain and the United States. It wasn’t so inefficient in Germany and the losing countries. But why is that a myth? It was a myth because it is one thing for government to plan and to control an economy for a single overriding objective. One solitary objective __ win the war. It’s a very different thing for government to control the economy for the many numerous tastes of all us, of a very large number of people in a complex world. And I __ you ask the question of whether people’s opinions can be changed.
MCKENZIE: Yes.
FRIEDMAN: I can’t change their opinions. You can’t change their opinions, but experience is changing their opinions. Is there anybody, anywhere now who believes that government is an efficient way to run an industrial enterprise?
JAY: I think your question, can you get the genie back into the bottle, is a very important one. It is undoubtedly true that in democratic countries there will be a public urge expressed through the political process, for something to be done about anything that seems to be wrong. The one thing that inhibits that is the belief that it can’t be done. There is not politically expressed desire for the government to do something about the weather because it is widely believed that the government does not control the weather. It was widely believed under the gold standard and pre-Keynes that there was nothing the government could do about the kind of economic traits I call in depressions that we had before that time. Since then it is very widely believed, Milton may believe, I may believe wrongly, but nonetheless, it’s very widely believed that is now a manageable thing, and therefore the demand is expressed that unemployment should not rise too high, inflation should not rise too high, and so forth.
MCKENZIE: That we keep a war on want or a war on poverty.
JAY: If you believe, as Milton does, and on this issue I agree with him, that in fact government cannot handle this issue, and you want to get that genie back into the bottle, you can’t simply do it by authorities, or pundits, or academics, or others saying, “Here is a new rule. The government will do nothing. It will not intervene; it will not perform, but will just be a simple monetary rule.” You’ve got politically to persuade people that this is part of a system which they can understand, which will, in fact, deliver for them the minimal economic objectives that they have, which are basically high employment __ high employment and stability of prices, and one of two other things. Now in order to do that you’ve got to describe a political economic system which will in fact deliver that result. And they will not believe, and in my opinion they will rightfully not believe, that simply going back to where we were, or where we imagined that we were in 1930 or 1870, by withdrawing the government form the game and doing nothing else, will produce that result. And they’re right not to believe it.
TEMIN: The kind of pristine view that you appear to be putting up of no government isn’t really a consistent view because if you __
FRIEDMAN: I’m not putting up a view of no government. I’m putting up a view of a limited government. Limited __
TEMIN: Just how do you, how do you impose the limit?
FRIEDMAN: Note __ note that today the budget of HEW is one-and-a-half times the whole defense budget. That is not where the major growth of government has come. Whether we spend too little of too much on the military is very a arguable issue which I’m not competent to discuss.
TEMIN: Okay.
FRIEDMAN: But it is not the cutting edge of the dispute that we’re engaged in. That cutting edge is on all these other functions which government has increasingly taken on its shoulders.
TEMIN: Yes, but the question __
VON HOFFMAN: How do you get from here to there?
FRIEDMAN: By persuading people to do it, and by doing it gradually. You do not get it overnight. CAB was a very, very persuasive element on __ on getting rid of one branch of regulation. The failure of government to produce the full employment and the stable prices that was promised is another. You know what is __ who are we kidding? Is there anybody around any more who really believes that government knows how to prevent by its present methods inflation or unemployment? We’ve had increasing inflation. We’ve had increasing unemployment. Not only in the United States __
VON HOFFMAN: Well we __ we know that this government doesn’t __
VOICE OFF SCREEN: Wait, wait.
LEKACHMAN: It seems to me that we’re talking about at least four kinds of government intervention of different popularity among the public. One is redistributive __ via the Social Security System and so on __ and lots of that is popular. Welfare is unpopular, but Social Security is quite popular. Medicare has a mixed reputation, Medicaid a bad reputation. The redistributive system is a mixed bag from the public’s standpoint. Another kind of intervention deals with unemployment; a third kind deals with prices; and a fourth kind deals with regulation. Now, again, there is a cry about regulation which itself breaks down, it seems to me, into two parts: Partly a safety kind of thing, partly an economic kind of thing. I doubt that the public is prepared, for example, to eliminate the Food and Drug Administration.
FRIEDMAN: Take the way of trying to smooth out the business cycle.
LEKACHMAN: All right, now wait on that. I think that the record of doing this, in its clumsy way, Republicans, Democrats, assorted administrations in England and elsewhere, between 1945 and 1973 was quite good. Average unemployment during this considerable span of years was lower than had been probably in any previous spell of modern economic history. Inflation was not a persistent problem in this. Now I would say, putting the claim at a very modest one, that Keynesian intervention, if we use that as a label,
By Everette Hatcher III | Comments (0)

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

October 6, 2011 – 9:13 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 [4/7]. Milton Friedman’s Free to Choose (1980)

During the 19th century, and especially after the Civil War and on into the 20th century, the idea of equality came to have a much more definite and specific meaning than the abstract concept of equality before God. It came more and more to mean that everyone should have the same opportunity to make what he could of his capacities; that all careers should be open to people on the basis of their talents, independently of the race, or religion, or belief, or social class that characterize them. This concept of equality of opportunity offers no conflict at all with the concept of freedom. On the contrary, they reinforce one another. It is no doubt that the concept, even today, is the most widely held.

But in the 20th century, beginning especially abroad and at a later date in this country, a very different concept, a very different ideal has begun to emerge. That is the ideal that everyone should be equal in income and level of living in what he has. The idea that the economic race should be so arranged that everybody ends at the finish line at the same time rather than that everyone starts at the beginning line at the same time.

This concept raises a very serious problem for freedom. It is clearly in conflict with it, since it requires the freedom of some be restricted in order to provide greater benefits to others.

The society that puts equality before freedom will end up with neither. The society that puts freedom before equality will end up with a great measure of both.

DISCUSSION

Participants: Robert McKenzie, Moderator; Milton Friedman; Frances Fox Piven, British Ambassador to the United States, 1977_1979; Thomas Sowell, Professor of Economics, UCLA

MCKENZIE: We now join our guests here at the University of Chicago.

PIVEN: Mr. Friedman is right, that all over the world people are beginning to stir and are striving for a measure of equality for a measure of justice, but I think he demeans and trivializes those struggles when he tells us all that we can’t all have Marlene Dietrich’s legs. Moreover he confuses us by using the term “freedom”. I think what Mr. Friedman means by the term “freedom” is economic license. And economic license __ the economic license of those who control property and those who control capital, has in fact been a threat not only to equality, but a threat to the freedom of peoples all over the world, and not only in Europe and in the United States, but in Africa, in Asia, and in Latin America.

MCKENZIE:Let me get two other reactions now to that idea that this new ideal of equality, equality in this world’s goods, represents a very serious threat to freedom. Peter Jay.

JAY: Well first, as the only British person on this panel, perhaps you would like _ allow me to say in passing that I think that many of the things which Professor Friedman says about the British experience in the last thirty years are a gross distortion and a gross travesty of what’s actually gone on in Britain, and I hope that we’ll have an opportunity to come back in the course of the discussion.

MCKENZIE: Very much.

JAY: But I think that your question brings up what is to me the absolute central confusion in the exposition that we saw in the film, and I’m a great admirer of Professor Friedman, I’ve studied him, I’ve listened to him, I’ve debated with him, and always before I’ve found him at least clear, even when he’s been wrong. Today I found him grossly confused, and in this specific and all important respect: Is he telling us that absolute equality is a mistaken objective, in which case I think he’s tilting at windmills, he is attacking a straw man, there is almost nobody on the other side of that argument. Or is he saying that any concern at all by societies and governments with reducing inequality is mistaken, and is not only in conflict with freedom and efficiency and other human objectives, but is absolutely wrong, in which case I think he is talking absolute nonsense. His arguments tend to support the first rather platitudinous proposition that absolute equality, still there’s absolute sameness, is a foolish and exaggerated objective. His arguments do not at all support the second claim that it is wrong to concern oneself with distribution of income and wealth and reducing in equality at all.

SOWELL: First of all, I would disagree violently with the notion that the people are stirring. A very small handful of intellectuals have generated an enormous amount of noise. When I look at opinion polls of blacks in the United States, most blacks in the United States do not take any strong position in favor of equality of results. In fact, most of the polls that I’ve seen of blacks put them, if you want to use this expression, very well to the right of most intellectuals on most of these social issues. It is not the people who are stirring, it is a handful of intellectuals.

The question is not absolute equality; it’s a question of what concept of equality you’re aiming at, whether you’re getting it absolutely or to one degree or the other. Are you aiming at a concept of equality of opportunity at the outlet, or are you aiming at a concept of equality of results? It’s also not a question of whether it’s material goods only. Whether it’s material goods, status, or what not, again the same question comes back: Are you thinking about equality of opportunity, prospective equality, or are you thinking about retrospective results at the finish line? And I think that’s the crucial distinction.

FRIEDMAN: What I mean by equality is the concept I would like to see pursued is the concept that Tom Sowell just discussed of equality of opportunity. The concept that increasingly is being taken up by the intellectual community is equality of results. Now nobody __ and I agree with Peter __ nobody means identity. Nobody __

JAY: You said so. On the film you said so yourself, absolutely.

FRIEDMAN: Excuse me. Nobody__

JAY: All that argument about we can produce one human prototype and put him in a museum.

FRIEDMAN: Right.

JAY: That’s exactly what you said.

FRIEDMAN: Nobody, when you press him, will say he means identity. And yet if I take the logic of their argument, almost all the logic of such arguments proceeds as if identity were achievable, as if there were some way in which you could measure individual equality, as, again, as Tom Sowell was saying. You have to ask: In what direction are they moving? See, the fundamental distinction between you and me on this, I believe, is a very different one. I think there’s all the difference in the world between a social or governmental system in which ninety percent of the people tax themselves to help ten percent who are in distress, and a system in which eighty percent of the people in the middle try to tax the ten percent on the top in order to help the ten percent at the bottom. What you end up doing is you end up Mr. A and B and the, you know, the ancient story of the forgotten man. You end up with A and B imposing taxes on C to help D, and some of it, after all, in the process gets in the hands of A and B.

JAY: You’re dodging the fundamental issue which was brought up by Tom Sowell. Are you saying to us that the only form of equality that one’s entitled as a society, in your view, to be concerned with is equality of opportunity and any concern with inequalities of result is illegitimate. That any inequality, however great, thrown up by __ provided it’s thrown up by a free market system and not by a caste system or a feudal system, of which kind you disapprove, that any concern with that is wrong. Are you saying that or aren’t you saying it because it’s all important.

FRIEDMAN: Concern with whom? By whom?

JAY: Concern by the society.

FRIEDMAN: The society doesn’t have concern, only people.

JAY: It has governments, it has laws, it has parliaments.

FRIEDMAN: Only people have concerns. People do certain things through government and I’m not gonna talk about society having values. Society doesn’t have values. People have values.

JAY: All right, is it wrong for people to be concerned about inequality?

FRIEDMAN: It is not wrong for individuals in their private capacity to be concerned. Anybody who is really concerned can do something about it on his own.

JAY: Is it wrong for them to elect governments which do something about it. You yourself__

PIVEN: Individuals act __

FRIEDMAN: It is not wrong for them to elect governments.

JAY: You yourself have supported a negative income tax which is a way of doing something about inequality.

FRIEDMAN: It’s not wrong for us to do something through government about distress.

MCKENZIE: Yeah.

FRIEDMAN: But there’s a fundamental distinction between relieving distress and doing something about inequality. I see no justification whatsoever for cutting down all the tall trees in order that there be no tree in the forest that is taller than the other.

PIVEN: Mr. Friedman, when you say it could be that, when you say that it is wrong for government to intervene in the free enterprise system to do something about inequality, you evoke a model of a free enterprise system which does not exist and has never existed to a significant extent in history or anywhere in the world. That so-called free enterprise system has always used government. The entrepreneurs of that free enterprise system have always used government and the question that you raise is whether other people can use government to achieve their ends.

FRIEDMAN: That is not the point __

PIVEN: The free enterprise system as it has spread around the world, as it has spread to Asia and Africa and Latin America has spread through the force of arms among other things and those arms were wielded by government. That was government intervention under the name of the free enterprise system, but a government intervention which destroyed the freedoms of many people not least of which are the people of Chile.

By Everette Hatcher III | Comments (0)