Milton Friedman was right about Obama’s misguided view of stimulus many years ago
Milton Friedman knew it a long time ago that President Obama was wrong when he blamed the ATM for unemployment. Take a look at this video clip below. He exposes the falacy that ignoring the principle of efficency will help create jobs. This is the misguided view that Obama has that led him to the failed stimulus two years ago too.
Sen. Ron Johnson (R-WI) spent 31 years in manufacturing before his election to Congress last November. He’s not letting that experience go to waste.
“This is a depressing display of economic ignorance,” Johnson says. He adds: “Technological innovations create jobs. They drive our economy forward, by helping workers be more productive. That raises everyone’s living standards.”
Johnson recounts a story of Milton Friedman’s visit to China. Upon seeing Chinese workers digging with shovels, he asked, “Why not use bulldozers?”. Freidman was told that workers using shovels would create more jobs. He replied, “Then why not use spoons, instead of shovels?”
Heritage is currently seeking stories from business owners who have encountered government regulations that harm business. If you would like to share your story, please send an email to scribe@heritage.org
Here is the video clip and transcript of the film series FREE TO CHOOSE episode “What is wrong with our schools?” Part 1 of 6.
Volume 6 – What’s Wrong with our Schools
Transcript:
Friedman: These youngsters are beginning another day at one of America’s public schools, Hyde Park High School in Boston. What happens when they pass through those doors is a vivid illustration of some of the problems facing America’s schools.
They have to pass through metal detectors. They are faced by security guards looking for hidden weapons. They are watched over by armed police. Isn’t that awful. What a way for kids to have to go to school, through metal detectors and to be searched. What can they conceivably learn under such circumstances. Nobody is happy with this kind of education. The taxpayers surely aren’t. This isn’t cheap education. After all, those uniformed policemen, those metal detectors have to be paid for.
What about the broken windows, the torn school books, and the smashed school equipment. The teachers who teach here don’t like this kind of situation. The students don’t like to come here to go to school, and most of all, the parents __ they are the ones who get the worst deal __ they pay taxes like the rest of us and they are just as concerned about the kind of education that their kids get as the rest of us are. They know their kids are getting a bad education but they feel trapped. Many of them can see no alternative but to continue sending their kids to schools like this.
To go back to the beginning, it all started with the fine idea that every child should have a chance to learn his three R’s. Sometimes in June when it gets hot, the kids come out in the yard to do their lessons, all 15 of them, ages 5 to 13, along with their teacher. This is the last one-room schoolhouse still operating in the state of Vermont. That is the way it used to be. Parental control, parents choosing the teacher, parents monitoring the schooling, parents even getting together and chipping in to paint the schoolhouse as they did here just a few weeks ago. Parental concern is still here as much in the slums of the big cities as in Bucolic, Vermont. But control by parents over the schooling of their children is today the exception, not the rule.
Increasingly, schools have come under the control of centralized administration, professional educators deciding what shall be taught, who shall do the teaching, and even what children shall go to what school. The people who lose most from this system are the poor and the disadvantaged in the large cities. They are simply stuck. They have no alternative.
Of course, if you are well off you do have a choice. You can send your child to a private school or you can move to an area where the public schools are excellent, as the parents of many of these students have done. These students are graduating from Weston High School in one of Boston’s wealthier suburbs. Their parents pay taxes instead of tuition and they certainly get better value for their money than do the parents in Hyde Park. That is partly because they have kept a good deal of control over the local schools, and in the process, they have managed to retain many of the virtues of the one-room schoolhouse.
Students here, like Barbara King, get the equivalent of a private education. They have excellent recreational facilities. They have a teaching staff that is dedicated and responsive to parents and students. There is an atmosphere which encourages learning, yet the cost per pupil here is no higher than in many of our inner city schools. The difference is that at Weston, it all goes for education that the parents still retain a good deal of control.
Unfortunately, most parents have lost control over how their tax money in spent. Avabelle goes to Hyde Park High. Her parents too want her to have a good education, but many of the students here are not interested in schooling, and the teachers, however dedicated, soon lose heart in an atmosphere like this. Avabelle’s parents are certainly not getting value for their tax money.
Caroline Bell, Parent: I think it is a shame, really, that parents are being ripped off like we are. I am talking about parents like me that work every day, scuffle to try to make ends meet. We send our kids to school hoping that they will receive something that will benefit them in the future for when they go out here and compete in the job market. Unfortunately, none of that is taking place at Hyde Park.
Friedman: Children like Ava are being shortchanged by a system that was designed to help. But there are ways to help give parents more say over their children’s schooling.
This is a fundraising evening for a school supported by a voluntary organization, New York’s Inner City Scholarship Fund. The prints that have brought people here have been loaned by wealthy Japanese industrialist. Events like this have helped raise two million dollars to finance Catholic parochial schools in New York. The people here are part of a long American tradition. The results of their private voluntary activities have been remarkable.
This is one of the poorest neighborhoods in New York City: the Bronx. Yet this parochial school, supported by the fund, is a joy to visit. The youngsters here from poor families are at Saint John Christians because their parents have picked this school and their parents are paying some of the costs from their own pockets. The children are well behaved, eager to learn, the teachers are dedicated. The cost per pupil here is far less than in the public schools, yet on the average the children are two grades ahead. That is because teachers and parents are free to choose how the children shall be taught. Private money has replaced the tax money and so control has been taken away from the bureaucrats and put back where it belongs.
This doesn’t work just for younger children. In the 60’s, Harlem was devastated by riots. It was a hot bed of trouble. Many teenagers dropped out of school.
Next year is the 100th anniversary of Milton Friedman’s birth and I get on the computer today and read an article published today on the National Review Online and it quotes Milton Friedman.
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.
If you are looking for a single statement that defines the essence of the modern welfare state, look no further than Secretary of Energy Steven Chu’s defense of the administration’s efforts to ban incandescent light bulbs. “We are taking away a choice that continues to let people waste their own money,” Chu said, quite satisfied with government’s efforts to protect Americans from their own choices.
Contrast this with Milton Friedman’s view that
those of us who believe in freedom must believe also in the freedom of individuals to make their own mistakes. If a man knowingly prefers to live for today, to use his resources for current enjoyment, deliberately choosing a penurious old age, by what right do we prevent him from doing so? We may argue with him, seek to persuade him that he is wrong, but are we entitled to use coercion to prevent him from doing what he chooses to do? Is there not always the possibility that he is right and we are wrong? Humility is the distinguishing characteristic of the believer in freedom, arrogance of the paternalist.
For too long, both liberals and too many conservatives have attempted to impose on people the government’s standards of what is best for them rather than leaving them to their own decisions, merely because those decisions may be mistaken. That is the real legacy of the welfare state as expanded by President Obama and as it has been practiced on a bipartisan basis for the last half century or more: We are, quite simply, less free.
Once you accept the paternalistic premise, there is no end to government interference.
In some cases, the restrictions on liberty are tangible and easily seen. As the economy becomes more and more socialized, so too do the consequences of individuals’ behavior. This, in turn, creates an incentive for the state to control that behavior. After all, if individual decisions impose a collective cost, it is only rational for those bearing that cost to demand input on those decisions. Thus, the nanny state seeks to restrict all manner of private consensual activity, whether it is eating fast foods and smoking or having consensual sex or driving without a seat belt.
But there are other equally important, if less obvious, ways that the welfare state restricts liberty. Government-run health-care systems, for example, impose a minimum amount that you must spend on health care, either through taxes or through insurance mandates, as with the Patient Protection and Affordable Care Act. They determine which medical conditions and eventualities you must insure against, even if you would prefer not to cover such conditions. Thus, they turn individual moral decisions, such as whether to buy insurance that covers abortion, contraception, or drug-abuse treatment, into political questions. And in some government-run systems they deny people the right to purchase the health care they want even with their own money.
By the same token, government-run anti-poverty programs limit your ability to support the charity of your choice. Money you pay in taxes to support government charity is money that you cannot donate to private charity. Yet the charitable activities chosen by the government may not be the ones that you would have chosen, or even the ones most needed. Indeed, the government’s charitable decisions are likely to be driven by politics, favoring those constituencies with the greatest voting power or those causes that capture the public imagination because they are on television or in the newspapers.
Government-run schools automatically pit the values of one group of parents against the values of other groups. How many textbook controversies or debates about what to teach about homosexuality, whether students may pray, or phonics versus whole language could be avoided if parents could choose the school their child attended?
Social Security may or may not be a Ponzi scheme, but it prevents people — especially poor people — from saving and investing for their own retirement in ways that would allow them to build real, inheritable wealth.
Beyond the programs themselves, there is the simple fact that every dollar that the welfare state consumes to pay for itself is one fewer dollar that individuals have to spend the way that they want to, however that may be. As the French economist Frederic Bastiat put it in his parable of the shopkeeper with the broken window, “He would, perhaps, have replaced his old shoes, or added another book to his library.” Or to put it in today’s context, he might have purchased health care, saved for his retirement, or donated to charity. He might have started a business and hired workers. Or he might have spent it entirely on pleasure or frivolities. He might even have bought energy-inefficient light bulbs.
Whatever he might have done, he is now deprived of that choice. He is, in fact, less free.
Once paternalism is accepted in principle, there is no limit to the actions that government may take in controlling our lives and restricting liberty. The ultimate result, as Friedman writes, is “dictatorship, benevolent and maybe majoritarian, but dictatorship nonetheless.”
As we debate the ever-expanding welfare state and all its consequences — joblessness, a crushing debt burden on our children and grandchildren, and the loss of opportunity for the neediest among us — let us not forget the other casualty of big government: freedom.
Among the most familiar passages in the Declaration of Independence is the section reading, “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.”
Matthew Pate
Who am I to dispute one of the key sentiments contained in the great foundational document of our republic?
Even so, I’m disputin’ it.
Namely, I have a problem with the idea that we are all created equal. Perhaps in some abstract sense of tabula rasa, we all emerge from the womb with approximately equal potential, but I am dubious of even that.
This said, Ireadily, wholly and unequivocally believe we should all be treated as though we were equal, but facts being what they are, we are not all equal.
As someone whose job requires the issuance of class grades, I can fully attest that not all snowflakes are special. They all may be unique and valuable, but some are bright white and some appear to have been visited by sled dogs. Like it or not, we are a people of standards, rankings and competitions.
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The answer to this question of what equality is can be found in the first part of the episode “Created Equal” in the film series FREE TO CHOOSE by Milton Friedman.
Milton Friedman and Ronald Reagan
Liberals like President Obama (and John Brummett) want to shoot for an equality of outcome. That system does not work. In fact, our free society allows for the closest gap between the wealthy and the poor. Unlike other countries where free enterprise and other freedoms are not present. This is a seven part series.
Created Equal [1/7]. Milton Friedman’s Free to Choose (1980)
In this program, Milton Friedman visits India, the U.S., and Britain, examining the question of equality. He points out that our society traditionally has embraced two kinds of equality: equality before God and equality of opportunity. The first of these implies that human beings enjoy a certain dignity simply because they are members of the human community. The second suggests societies should allow the talents and inclinations of individuals to unfold, free from arbitrary barriers. Both of these concepts of equality are consistent with the goal of personal freedom.
In recent years, there has been growing support for a third type of equality, which Dr. Friedman calls “equality of outcome.” This concept of equality assumes that justice demands a more equal distribution of the economic fruits of society. While admitting the good intentions of those supporting the idea of equality of outcome, Dr. Friedman points out that government policies undertaken in support of this objective are inconsistent with the ideal of personal freedom. Advocates of equality of outcome typically argue that consumers must be protected by government from the insensitivities of the free market place.
Dr. Friedman demonstrates that in countries where governments have pursued the goal of equality of outcome, the differences in wealth and well being between the top and the bottom are actually much greater than in countries that have relied on free markets to coordinate economic activity. Indeed, says Dr. Friedman, it is the ordinary citizen who benefits most from the free market system. Dr. Friedman concludes that any society that puts equality ahead of freedom will end up with neither. But the society that puts freedom before equality will end up with both greater freedom and great equality.
Friedman: From the Victorian novelists to modern reformers, a favorite device to stir our emotions is to contrast extremes of wealth and of poverty. We are expected to conclude that the rich are responsible for the deprivations of the poor __ that they are rich at the expense of the poor.
Whether it is in the slums of New Delhi or in the affluence of Las Vegas, it simply isn’t fair that there should be any losers. Life is unfair __ there is nothing fair about one man being born blind and another man being born with sight. There is nothing fair about one man being born of a wealthy parent and one of an indigenous parent. There is nothing fair about Mohammed Ali having been born with a skill that enables him to make millions of dollars one night. There is nothing fair about Marleena Detrich having great legs that we all want to watch. There is nothing fair about any of that. But on the other hand, don’t you think a lot of people who like to look at Marleena Detrich’s legs benefited from nature’s unfairness in producing a Marleena Detrich. What kind of a world would it be if everybody was an absolute identical duplicate of anybody else. You might as well destroy the whole world and just keep one specimen left for a museum. In the same way, it’s unfair that Muhammed Ali should be a great fighter and should be able to earn millions. But would it not be even more unfair to the people who like to watch him if you said that in the pursuit of some abstract idea of equality we’re not going to let Muhammed Ali get more for one nights fight than the lowest man on the totem pole can get for a days unskilled work on the docks. You can do that but the result of that would be to deny people the opportunity to watch Mohammad Ali. I doubt very much he would be willing to subject himself to the kind of fights he’s gone through if he were to get the pay of an unskilled docker.
This beautiful estate, its manicured lawns, its trees, its shrubs, was built by men and women who were taken by force in Africa and sold as slaves in America. These kitchen gardens were planted and tended by them to furnish food for themselves and their master, Thomas Jefferson, the Squire of Monticello. It was Jefferson who wrote these words: We hold these truths to be self-evident that all men are created equal. That they are endowed by their creator with certain inalienable rights, that among these are life, liberty and the pursuit of happiness. These words penned by Thomas Jefferson at the age of 33 when he wrote the Declaration of Independence, have served to define a basic ideal of the United States throughout its history.
Much of our history has revolved about the definition and redefinition of the concept of equality, about the intent to translate it into practice. What did Thomas Jefferson mean by the words all men are created equal? He surely did not mean that they were equal and/or identical in what they could do and what they believed. After all, he was himself a most remarkable person. At the age of 26, he designed this beautiful house of Monticello, supervised its construction and indeed is said to have worked on it with his own hands. He was an inventor, a scholar, an author, a statesman, governor of Virginia, President of the United States, minister to France, he helped shape and create the United States. What he meant by the word “equal” can be seen in the phrase “endowed by their creator”. To Thomas Jefferson, all men are equal in the eyes of God. They all must be treated as individuals who have each separately a right to life, liberty and the pursuit of happiness.
Of course, practice did not conform to the ideals. In Jefferson’s life or in ours as a nation, he agonized repeatedly during his lifetime about the conflict between the institution of slavery and the fine words of the declaration. Yet, during his whole life, he was a slave owner.
This is the City Palace in Jaipur, the capitol of the Indian state of Rajasthan, is just one of the elegant houses that were built here 150 years ago by the prince who ruled this land. There are no more princes, no more Maharajas in India today. All titles were swept away by the government of India in its quest for equality. But as you can see, there are still some people here who live a very privileged life. The descendants of the Maharajas financed this kind of life partly by using other palaces as hotels for tourists __ tourists who come to India to see how the other half lives. This side of India, the exotic glamorous side, is still very real. Everywhere in the world there are gross inequalities of income and wealth. They offend most of us.
A myth has grown up that free market capitalism increases such inequalities, that the rich benefit at the expense of the poor. Nothing could be further from the truth. Wherever the free market has been permitted to operate, the ordinary man has been able to attain levels of living never dreamed of before. Nowhere is the gap between rich and poor. Nowhere are the rich richer and the poor poorer than in those societies that do not permit the free market to operate, whether they be feudal societies where status determines position, or modern, centrally-planned economies where access to government determines position.
Central planning was introduced in India in considerable part in the name of equality. The tragedy is that after 30 years, it is hard to see any significant improvement in the lot of the ordinary person.
Friedman Friday” Free to Choose by Milton Friedman: Episode “Created Equal” (Part 3 of transcript and video) Liberals like President Obama want to shoot for an equality of outcome. That system does not work. In fact, our free society allows for the closest gap between the wealthy and the poor. Unlike other countries where free enterprise and other […]
Free to Choose by Milton Friedman: Episode “Created Equal” (Part 2 of transcript and video) Liberals like President Obama want to shoot for an equality of outcome. That system does not work. In fact, our free society allows for the closest gap between the wealthy and the poor. Unlike other countries where free enterprise and other freedoms are […]
Milton Friedman and Ronald Reagan Liberals like President Obama (and John Brummett) want to shoot for an equality of outcome. That system does not work. In fact, our free society allows for the closest gap between the wealthy and the poor. Unlike other countries where free enterprise and other freedoms are not present. This is a seven part series. […]
The Center for Freedom and Prosperity has released another “Economics 101″ video, and this one has a very powerful message about the federal government’s so-called War on Poverty.
As explained by Hadley Heath of the Independent Women’s Forum, the various income redistribution schemes being imposed by Washington are bad for taxpayers — and bad for poor people.
Free Markets, Not Redistribution, Is Best Way to Reduce Poverty
The so-called War on Poverty has failed. Making government bigger and creating more federal redistribution programs has been bad news for taxpayers. But the welfare state also has been a disaster for the less fortunate, creating a flypaper effect that makes it difficult for people to lead independent and self-reliant lives. This Center for Freedom and Prosperity Foundation video shows how the poverty rate was falling after World War II — but then stagnated once the federal government got involved. www.freedomandprosperity.org
Another remarkable finding in the video is that poor people in America rarely suffer from material deprivation. Indeed, they have wide access to consumer goods that used to be considered luxuries – and they also have more housing space than the average European (and with Europe falling apart, the comparisons presumably will become even more noteworthy).
The most important message of the video, however, is that small government and economic freedom are the best answers for poverty. As Hadley explains, poor people can be liberated to live meaningful, self-reliant lives if we can reduce the heavy burden of the federal government.
Last but not least, the video doesn’t address every issue in great detail, and there are three additional points that should be added to any discussion of poverty.
This last point is worth emphasizing because it is also one of the core messages of the video. The federal government has done a terrible job dealing with poverty. The time has come to get Washington out of the racket of income redistribution.
Friedman Friday” Free to Choose by Milton Friedman: Episode “Created Equal” (Part 3 of transcript and video) Liberals like President Obama want to shoot for an equality of outcome. That system does not work. In fact, our free society allows for the closest gap between the wealthy and the poor. Unlike other countries where free enterprise and other […]
Free to Choose by Milton Friedman: Episode “Created Equal” (Part 2 of transcript and video) Liberals like President Obama want to shoot for an equality of outcome. That system does not work. In fact, our free society allows for the closest gap between the wealthy and the poor. Unlike other countries where free enterprise and other freedoms are […]
I am currently going through his film series “Free to Choose” which is one the most powerful film series I have ever seen. PART 4 of 7 The massive growth of central government that started after the depression has continued ever since. If anything, it has even speeded up in recent years. Each year there […]
If you would like to see the first three episodes on inflation in Milton Friedman’s film series “Free to Choose” then go to a previous post I did. Ep. 9 – How to Cure Inflation [4/7]. Milton Friedman’s Free to Choose (1980) Uploaded by investbligurucom on Jun 16, 2010 While many people have a fairly […]
Ep. 9 – How to Cure Inflation [1/7]. Milton Friedman’s Free to Choose (1980) Cochrane’s Kinky Curves Posted by Jim Powell The doctrine that inflation can cure unemployment, implicit in the Obama administration’s spending blowout, goes way back. The modern version originated with William Phillips, a New Zealand-born economist who, in 1958, wrote a paper […]
I am currently going through his film series “Free to Choose” which is one the most powerful film series I have ever seen. PART 3 OF 7 Worse still, America’s depression was to become worldwide because of what lies behind these doors. This is the vault of the Federal Reserve Bank of New York. Inside […]
Milton Friedman and Ronald Reagan Liberals like President Obama (and John Brummett) want to shoot for an equality of outcome. That system does not work. In fact, our free society allows for the closest gap between the wealthy and the poor. Unlike other countries where free enterprise and other freedoms are not present. This is a seven part series. […]
The third monthly luncheon with featured speaker Ernest Istook was excellent. First, we got to hear from Dave Elswick of KARN who came up with the idea of this luncheon, and then from Teresa Crossland of Americans for Prosperity. Below is a portion of Istook’s biography from the Heritage Foundation: Ernest Istook Distinguished Fellow Government Studies Ernest […]
I am currently going through his film series “Free to Choose” which is one the most powerful film series I have ever seen. For the past 7 years Maureen Ramsey has had to buy food and clothes for her family out of a government handout. For the whole of that time, her husband, Steve, hasn’t […]
I love Milton Friedman’s film series “Free to Choose.” In that film series over and over it is shown that the ability to move from poor to rich is more abundant here than any other country in the world. This article below reminded me of that that. Are Poor Really Helpless Without Government? By Michael […]
Friedman Friday” Free to Choose by Milton Friedman: Episode “Created Equal” (Part 3 of transcript and video)
Liberals like President Obama want to shoot for an equality of outcome. That system does not work. In fact, our free society allows for the closest gap between the wealthy and the poor. Unlike other countries where free enterprise and other freedoms are not present. This is a seven part series.
Created Equal [1/7]. Milton Friedman’s Free to Choose (1980)
This is his busines3 headquarters in Las Vegas, empty except for the idea that he shares with his partner who will handle the production end of the venture when things really get going.
Lance von Allmen: Well, the idea is that if you have an oil spill in the ocean or in the river, you want to try to get it under control. What I am going to simulate here __ I am going to put some of this oil down __ there is your oil spill of major proportions. This product, what I can do is unfortunately what I can’t show you here is if you put this product down with an application system, you ring the oil spill in such a manner. The application system will make it much finer and it will control this. I don’t know if you can see what is happening to the oil yet, but it is just literally being drawn into this stuff as I spray it across the top. It is starting to draw it in. I have way more than I need. This controls ten times its weight in oil and it will not sink. It has been chemically treated __ it is cellulose __ it has been chemically treated so that it will in fact not do anything with the water __it hates water but it loves oil. I don’t know if you can see we have containment devices and that is what we are going to use this with. You can see that it has just taken a very little amount of this oil absorbing product which we call Oileater, to pick this up. The nice thing about it is that after that oil spill, we have the system to do what I am doing with my hand and that is pick all this up. There is the oil out of the product.
Now, if you want the oil back, that is not a big problem, if I can keep it all under control. The oil will come out and there we go, allowing it, I don’t know if you can see. What I have done is I have quit my regular job, I have mortgaged everything I’ve got, and it is quite a risk to do this, but the product works. You can see it works.
And when it goes I am going to make millions. It’s compatible with a lot of other products and a lot of other systems that are on the market. So, the money factor is the main thing. Its the kind of thing that when you see it you want to take the risk, it’s just that kind of thing. You know you’re going to make a lot of money. People talk to me and they will say, yeah, but you are crazy, you don’t have a job; you don’t know where the next pay check is going to come from; as a matter of fact, I think I have $10.00 in my pocket right now, but I don’t worry about it. I get up in the morning and it is my world. I own it. I can sit back and say I am losing, or I can sit back and say I am winning. I can go out and change the odds in my favor.
Friedman: People who are afraid, make their own choices. These two men do a dangerous, noisy, filthy job. They don’t do it because they like it. They do it because it is well paid. That is their choice.
This young man has given up any thought of a steady, well paid career in order to take a job on a golf course. He wants to become a professional golfer. It is a big gamble but it is one that he has decided to take.
When people are free, they are able to use their own resources most effectively and you will have a great deal of productivity, a great deal of opportunity. The major beneficiaries are always the small man. The man who has power who is at the top of society, he is going to do well whatever kind of society you have. It is the society which gives the small man the opportunity to go his way which is going to benefit him the most. That is why if you ask where in the world do ordinary people have the greatest opportunity for themselves and their children, it is not in Russian, it is not on the other hand in India __ it is in places like the United States, like Hong Kong, like Britain as it was, not so clearly Britain as it is.
For much of this century, the British have tried to use the law to impose equality, with very indifferent results. The failure of the drive for equality is not because the wrong measures were adopted; not because they were badly administered; not because the wrong people administered it. The failure is much more fundamental. It is because that drive goes against the most basic instinct of all human beings.
In the words of Adam Smith, the uniform, constant, and uninterrupted effort of every man to better his condition, to improve his own lot and to make a better world for his children and his children’s children. When the law interferes with that pursuit, everyone will try to find a way around. He will try to evade the law. He will break the law or he will emigrate from the country. All of those things have happened in Great Britain. There is no moral code that justifies laws fixing prices or fixing wages, or preventing a man from earning a living unless he joins a union and submits himself to the disciplines of the union, or forcing you to buy more expensive goods at home when cheaper goods are available from abroad. When the law prohibits things that most people regard as moral and proper, they are going to break the law. Only fear of punishment, not a sense of justice will cause them to obey the law and when people start breaking one set of laws, there’s a strong tendency for the lack of respect for the law to extend to all. Even to those which everyone regards as moral and proper. Laws against violence, theft, and vandalism. Hard as it may be to believe. The growth of crude criminality in Britain owes much to the drive for equality. In addition, that has driven some of the ablest, best trained, most vigorous people out of Britain much to the benefit of the United States and other countries that have given them a greater opportunity to use their talents for their own benefit. And finally, who can doubt the effect which the drive for equality has had on efficiency and productivity. Surely that is one of the main reasons why Britain has fallen so far behind its continental neighbors, the United States, Japan and other countries in the improvement of the economic lot of the ordinary man over the past 30 years.
Everywhere and at all times, economic progress has meant far more to the poor than to the rich. Wherever progress has been achieved, it has relieved the poor from backbreaking toil. It has also enabled them to enjoy the comforts and conveniences that have always been available to the rich.
Free to Choose by Milton Friedman: Episode “Created Equal” (Part 2 of transcript and video)
Liberals like President Obama want to shoot for an equality of outcome. That system does not work. In fact, our free society allows for the closest gap between the wealthy and the poor. Unlike other countries where free enterprise and other freedoms are not present. This is a seven part series.
Created Equal [2/7]. Milton Friedman’s Free to Choose (1980)
___________________________
Ever since the end of World War II, British domestic policy has been dominated by the search for greater equality. Measure after measure has been adopted, designed to take from the rich and give to the poor. Unfortunately, the results have been very different from those that were intended by the high-minded people who were quite properly offended by the class structure that dominated Britain for centuries. There have been vast redistributions of wealth but it is very hard to say that the end result has been a more equitable distribution. Instead, new classes of privilege have been created to replace or supplement the old. The bureaucracy, secure in their jobs protected against inflation both when they work and after they retire. The trade unions, who profess to represent the most down-trodden workers but who in fact consist of the highest paid laborers in the land. The aristocrats of the labor movement and the new millionaires the people who have been cleverest most ingenious at finding ways around the rules, the regulations, the laws that have emanated from over there, who have found ways to avoid paying tax on the income they have acquired. To get their wealth and their money overseas beyond the hands of the tax collector. A vast reshuffling, yes. A greater equity, hardly.
The Hoonde Menuhin school in the south of England is also a place of privilege. Musically talented children from all over the world compete for a chance to come here to study.
Much of the moral fervor behind the drive for equality comes from the widespread belief that it is not fair that some children should have a great advantage over others simply because they happen to have wealthy parents. Of course it is not fair, but is there any distinction between the inheritance of property and the inheritance of what, at first sight, looks very different. These youngsters have inherited wealth, not in the form of bonds or stocks, but in the form of talent. That 15_year_old is an accomplished cellist. His father is a distinguished violinist. It is no accident that most of the children at this school come from musical families. The inheritance of talent is no different from an ethical point of view from the inheritance of other forms of property, of bonds, of stocks, of houses, or of factories. Yet, many people resent the one but not the other.
Or look at the same issues from the point of view of the parent __ if you want to give your child a special chance, there are different ways you can do it. You can buy them an education __ an education that will give him skills enabling him to earn a higher income. Or, you can buy him a business or you can leave him property, the income from which will enable him to live better. Is there any ethical difference between these three ways of using your property, or again, if the state leaves you any money to spend over and above taxes, should you be permitted to spend it on riotous living but not permitted to leave it to your children? The ethical issues involved are subtle and complex. They are not to be resolved by resort to such simplistic formulas as fair shares for all. Indeed, if you took that seriously, it is the youngsters with less musical skills, not those with more, who should be sent to this school in order to compensate for their inherited disadvantage.
When the evening started, all of these players had about the same number of chips in front of them. But as the play progressed they surely didn’t __ some won and some lost. By the end of the evening, some of them will have a big pile of chips, others will have small ones. There will be big winners; there will be big losers. In the name of equality, should the winnings be redistributed to the losers so that everybody ends up where he started? That would take all the fun out of the game, even the losers wouldn’t like that. They might like it tonight, but would they come back again to play if they knew that whatever happened, they would end up exactly where they had started?
What does Las Vegas have to do with the real world? A great deal more than you might think. It is one very important part of our life in highly concentrated form. Every day, all of us are making decisions that involve gambles. Sometimes, they are big gambles, as when we decide what occupation to pursue or whom to marry. More often, they are small gambles as when we decide whether to cross the street against the traffic. But each time, the question is who shall make the decision __ we or somebody else. We can make the decision only if we bear the consequences. That is the economic system that has transformed our society in the past century and more. That is what gave the Henry Fords, the Thomas Alva Edisons, the Christian Barnards, the incentives to produce the miracles that have benefited us all. It’s what gave other people the incentive to provide them with the finance for their ventures. Of course, there were lots of losers along the way. We don’t remember their names, but remember, they went in with their eyes open; they knew what they were doing; and win or lose, we society benefited from their willingness to take a chance.
Lance von Allmen has an idea, he is taking a chance. Who knows, I suppose it is possible that we might all benefit from it one day, but that isn’t why he is taking a chance. He is doing it just because he wants to get rich.
I am currently going through his film series “Free to Choose” which is one the most powerful film series I have ever seen.
PART 4 of 7
The massive growth of central government that started after the depression has continued ever since. If anything, it has even speeded up in recent years. Each year there are more buildings in Washington occupied by more bureaucrats administering more laws. The Great Depression persuaded the public that private enterprise was a fundamentally unstable system. That the depression represented a failure of free market capitalism, that the government had to step in to perform the essential function of stabilizing the economy, of providing security for its citizens. The widespread acceptance of these views, sparked the enormous growth in the power of government that has occurred in the decade since and that is still going on. We now know as many economists knew then that the truth about the depression was very different. The depression was produced or at the very least, made far worse by perverse monetary policies followed by the U.S. authorities.
Far from being a failure of free market capitalism, the depression was a failure of government. Unfortunately, that failure did not end with The Great Depression. Ever since, government has been attempting to fine tune the economy. In practice, just as during the depression, far from promoting stability, the government has itself, been the major single source of instability.
DISCUSSION
Participants: Robert McKenzie, Moderator; Milton Friedman; Robert Lekachman, Professor of Economics, City University, New York; Nicholas Von Hoffman, Syndicated Columnist; Peter Temin, Professor of Economics, MIT; Peter Jay, British Ambassador to the United States, 1977_1979
MCKENZIE: And now we join the invited guests here at the University of Chicago, as they discuss Friedman’s interpretation of those events and their implications for today.
LEKACHMAN: The 1929 crash, the succeeding calamities, were not the first of their kind. Capitalism has been subject to severe depressions since the beginning of the industrial revolution. This was the first time, however, government tried to intervene seriously. It did it very badly. The lesson I would draw is a very simple one: Government is unavoidable; the expectations of the public are proper; government ought to do better oddly enough the government did do better until very, very recently. Until, I would say, October 1973, even, government did reasonably well in fulfilling the expectations of the public. I’m an unrepentant proponent of government intervention, intelligent government intervention. But I would describe much of the intervention which has followed the great 1929 crash as quite intelligent.
MCKENZIE: Let’s take a further look, though, at this argument that just as during the depression, far from promoting stability, the government has itself been the major single source of instability.
VON HOFFMAN: I_I don’t think there is any stability this side of the graveyard. I mean, I think __ I don’t think it matters what system you’re working under, you are not going to __ you are not going to have a level and hold it under any system with living human beings.
TEMIN: Governments are larger now and therefore more of a source of an influence for good and for bad. And I think like Mr. Von Hoffman that you can’t get perfect stability, given that you’re going to have governments, given that there are legitimate functions of governments, there are also risks in having the government be as active as it is.
MCKENZIE: Peter Jay.
JAY: I think that government is a god that has failed. I think that we have too much of it and need less of it. I think it has failed to prevent both the modern forms of economic instability and the prewar ones. I do not, however, think that government is the original or primary source of that instability, and I do not think that simply getting rid of the government, or greatly reducing it, which I’m in favor of, will, by itself, remove the instability.
LEKACHMAN: I would put it this way: There was __ there was a great economist, with a suitably esoteric doctrine, which could nevertheless be translated as Dr. Friedman did in the film, into simple English, at the same time as there was the widespread hardship of The Great Depression and the natural yearning of human beings not to repeat anything like it. So you have a coincidence of an appropriate theory, with an appropriate public sentiment, and I suppose the symbol in the United States was the passage of 1946 of the Employment Act of that year. Which, it was a weak measure, but it was nevertheless a public declaration of an obligation of government to do something about employment, and economic prosperity, and a good thing, too.
MCKENZIE: Now that’s the __ really the crux of the matter. Do you agree it was a good thing too, that obligation was accepted by government at that stage?
JAY: I think it’s very important here to distinguish two completely different issues. There is the rather narrow issue as to whether Keynes was right or wrong in believing that you could stabilize the economy with regard to really one essential variable _ unemployment _ by a certain technique which he talked about. We may now think that he was wrong, but that’s a quite separate issue from the broad political philosophical issue associated with socialism, associated with social democrats, and many other so-called left wing political thinkers, that the duty of government, so far as it can, is to concern itself not only with defense and law and order and the traditional things, but also with the social welfare and the economic welfare of a society. Now that’s a broad philosophical __
MCKENZIE: Is that a disaster, as Milton seemed to be implying, or was it a good and helpful, useful thing to happen?
JAY: Well, that is one of the great __ perhaps the greatest of all debates in political philosophy, as to whether or not it is right or is not right to believe that a society, collectively, should concern itself with these things and has the right, having concerned itself, through law and through government and in other ways, to move to try to correct these things.
VON HOFFMAN: Well I just __ it seems to me that Americans have believed that for the last century. I mean William McKinley ran on the slogan of a full dinner pail, so that the notion that this is a government responsibility for prosperity dates from the 1930’s I think is erroneous. What I wonder about after having seen that film is this: We have in 1929 __ we have the man who could have saved it dead two years and in 1946 we’ve got the man who might have saved it dying. So what I have to ask is: Are we doomed to find out the right answer only too late? Is it possible that our __
TEMIN: Or should we just look for somebody who’s recently died.
VON HOFFMAN: Exactly. Rummage the morgues. (Laughter)
MCKENZIE: Well, you asked the question __
FRIEDMAN: No, and I think the question is a very different one. And it goes to much of the discussion to this point. Everybody looks for the right man. You say, “Government __
VON HOFFMAN: You brought’em up.
FRIEDMAN: Those men at that time. Quite right. But a system which depends on the right man is a bad system. The Federal Reserve was a bad system because it depended on the right man working it. The idea of demand management, of the kind of thing we’re talking about where Keynes’ death mattered, was a bad system because it depended on a particular man working it. The notion that the problem that Bob Lekachman brought up, that the problem is not the government interferes, but it does it unintelligently, is again a demand for the right man, the man on the white horse who will know what to do. My whole view is very different. It is that it’s the system that’s wrong, and that we’ve got to have a system that the right way to accomplish these objectives is to have a system which doesn’t depend on whether you happen to have the right man pushing the buttons at the right time.
TEMIN: The problem is somebody has to __
FRIEDMAN: Which relies on the __ on establishing a framework within which an invisible hand, within which the activities of people all over are jointly to produce the kind of result. It won’t produce perfect stability; but it’ll produce a far higher degree of stability, a far greater level of freedom, and a far greater level of prosperity than the kind of thing we’ve had with these governmental interventions.
TEMIN: Somebody still has to design the system. You can’t take the people out of it entirely.
FRIEDMAN: Of course.
TEMIN: Unless you’re in the grave as it says.
FRIEDMAN: Of course, but the __ that doesn’t __
TEMIN: But the question is __ I mean it’s said that generals always fight the last war. How do we know that the system won’t fight the last war? We probably won’t have another depression exactly like 1929 to ’33.
MCKENZIE: But, but __
TEMIN: But that doesn’t say we won’t have another depression or another stagflation or another crisis of some other source.
MCKENZIE: But is this process reversible? Because you argued that the public, having been appalled by The Great Depression, in effect demanded of government that they accept responsibility for wellbeing of the economy, for management of the society and so on. Now, that expectation having been raised, can it be reversed?
VON HOFFMAN: Let me answer a question you didn’t ask and say that it seems to me that what we’re getting here is the question of sort of social astrophysics. And that is, do we have an unseen hand, or are we on the war star where we are trying to design a computer that is going to take care of the navigation of this thing. In other words, it seems to me that’s our central question. Is there a mechanism that you can put right in the center of the spaceship that will operate regardless of who is the captain on the quarterdeck at any one moment in time? I don’t think that’s an economic question. I think that’s a question that goes to religion.
While many people have a fairly good grasp of what inflation is, few really understand its fundamental cause. There are many popular scapegoats: labor unions, big business, spendthrift consumers, greed, and international forces. Dr. Friedman explains that the actual cause is a government that has exclusive control of the money supply.
Friedman says that the solution to inflation is well known among those who have the power to stop it: simply slow down the rate at which new money is printed. But government is one of the primary beneficiaries of inflation. By inflating the currency, tax revenues rise as families are pushed into higher income tax brackets. Thus, inflation transfers wealth and resources from the private to the public sector. In short, inflation is attractive to government because it is a way of increasing taxes without having to pass new legislation to raise tax rates. Inflation is in fact taxation without representation.
Wage and price controls are not the cure for inflation because they treat only the symptom (rising prices) and not the disease (monetary expansion). History records that such controls do not work; instead, they have perverse effects on both prices and economic growth and undermine the fundamental productivity of the economy. There is only one cure for inflation: slow the printing presses. But the cure produces the painful side effects of a temporary increase in unemployment and reduced economic growth. It takes considerable political courage to undergo the cure.
Friedman cites the example of Japan, which successfully underwent the cure in the mid-seventies but took five years to squeeze inflation out of the system. Inflation is a social disease that has the potential for destroying a free society if it is unchecked. Prolonged inflation undermines belief in the basic equity of the free market system because it tends to destroy the link between effort and reward. And it tears the social fabric because it divides society into winners and losers and sets group against group.
The doctrine that inflation can cure unemployment, implicit in the Obama administration’s spending blowout, goes way back.
The modern version originated with William Phillips, a New Zealand-born economist who, in 1958, wrote a paper modestly titled “The Relation between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861‑1957.” Phillips suggested that when inflation went up, unemployment went down. Keynesian economists Paul Samuelson and Robert Solow popularized Phillips’ idea as a reason to ratchet up government spending and inflate the money supply. That’s what the Kennedy and Johnson administrations did during the 1960s.
In 1967, Milton Friedman expressed a skeptical view about what had come to be known as the Phillips Curve, launching an extended debate. Then in 1973, President Richard Nixon, who had famously declared “I am now a Keynesian,” leaned hard on Fed Chairman Arthur Burns to inflate the money supply and drive down unemployment, hopefully to improve Nixon’s prospects for re-election. Well, as those of us who were around back then recall, both inflation and unemployment went up! This was a bit of a problem for Phillips Curve aficionados.
As if the stubborn stagflation of the 1970s wasn’t bad enough, subsequent efforts by new Fed Chairman Paul Volcker and President Ronald Reagan to stop inflation cold delivered another hammer blow against the Phillips Curve: both inflation and unemployment went down!
Now fast-forward to January 2009: President Obama levitated the Phillips Curve from the dead when he repeatedly declared that it was urgent to enact his $825 billion stimulus bill so unemployment would go down. But both spending and unemployment went up! It became harder to deny that the stimulus spending flopped, though the New York Times’ Keynesian columnist Paul Krugman tried valiantly. He claimed stimulus spending flopped because Obama didn’t spend enough. Accordingly, several weeks ago, Obama proposed still more stimulus spending to fight unemployment, and he begged people to support it: “If you love me, pass this bill!”
There shouldn’t have been any surprise about Obama’s flop, since the underlying idea – the Phillips Curve – proved to be a dud long ago. This would be a good time to review experience with the Phillips Curve.
Thankfully, Cato Adjunct Scholar John H. Cochrane, the AQR Capital Management Distinguished Service Professor of Finance at the University of Chicago Booth School of Business, has done just that. He focused on the period from 1966 to the present. That year, President Lyndon Johnson was going full bore, promoting runaway spending on new entitlement programs and on the Vietnam war simultaneously, and inflation reared its ugly head.
Cochrane charted what happened year-by-year to inflation and unemployment. The result wasn’t a nice smooth curve dreamed about by Keynesians. Rather, there was a kinky curve. One year, inflation went up, and unemployment went down. Next year, inflation went up again, and unemployment went up. Then when inflation went down, unemployment went up again. On and on as if we followed a drunk stumbling around a street. Since a single chart would have become an unreadable tangle if it tried to cover the entire 45-year period, Cochrane developed two charts, 1966-1984 and 1985-2011. Clearly, what we see is a random relationship between inflation and unemployment, that makes the Phillips Curve worthless as a policy tool.
The charts appear in an insightful article Cochrane wrote, published in the Fall 2011 National Affairs. The article is important quite apart from the Phillips Curve charts. Although the prevailing view seems to be that high inflation is most likely to occur if and when the Fed increases the money supply, Cochrane warns high inflation could occur as a consequence of soaring government debt. Such inflation would amount to a default. It would be triggered by a run on dollar-denominated assets, if and when investors conclude that the government cannot pay its debts. Runs occur without warning, often after a succession of events have undermined investor confidence.
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