It’s important to understand why House Republicans’ proposal on the debt ceiling would be an excellent step toward restoring fiscal sanity to the Washington swamp. Pictured: President Joe Biden presents a copy of his State of the Union speech Feb. 7 to House Speaker Kevin McCarthy, R-Calif., before delivering the address to a joint session of Congress. (Photo: Jacquelyn Martin/Pool/Getty Images)
House Speaker Kevin McCarthy, R-Calif., releasedtext April 19 of legislation dubbed the Limit, Save, Grow Act. The bill, a focus of internal negotiationsamong House Republicans, would provide an increase in the federal debt ceiling lasting into next spring in exchange for a package of reforms aimed at lowering future deficits and boosting economic growth.
This approach of pairing debt ceiling increases with fiscally responsible reforms has public support, but Washington has an uneven track record of doing the right thing. In recent years, Congress has tended to punt and allow huge increases to the federal debt limit without any meaningful reforms.
Kicking the can down the road is exactly what Senate Majority Leader Chuck Schumer, R-N.Y., wants.
A “clean” debt limit increase such as Democrats seek would mean ignoring the stark reality of what America’s financial trajectory looks like:
McCarthy has criticized President Joe Biden for an unwillingness to negotiate a debt limit deal, which puts Biden to the left of former Presidents Bill Clinton and Barack Obama, both fellow Democrats. Even House Democrats are concerned about Biden’s approach.
Although there is no telling how the debt standoff drama will play out, it’s important to understand why House Republicans’ proposal would be an excellent step toward restoring fiscal sanity to the Washington swamp.
In turn, deficit reduction also would go a long way toward slowing the inflation that has punished hardworking families since the start of the Biden administration.
Bringing Spending Back to Earth, Repealing Unspent COVID-19 Cash
On the spending side, the most significant proposal in House Republicans’ Limit, Save, Grow Act is a reduction in discretionary spending, which covers most federal activity outside of major benefit programs.
The bill would reduce budget authority for fiscal year 2024 to the level of fiscal year 2022, then allow increases of 1% per year moving forward.
Although this might seem like a modest change—reverting to spending levels passed less than two years ago—it would lead to big savings.
That’s because Congress passed a bloated, pork-filled spending frenzy to cover fiscal year 2023, which began Oct. 1. Merely undoing the spending increases from that one-year period would save taxpayers $131.3 billion.
Holding spending growth to 1% per year, rather than the almost 9% growth in the last bill, would lead directly to even larger savings every year thereafter, as well as significantly reduced net interest costs.
The Congressional Budget Office estimates that this approach would save $3.2 trillion over a decade, or about $25,000 per household.
If Congress enacts a long-term discretionary spending limit, it’s vital for taxpayers to hold their representatives’ feet to the fire. The Budget Control Act of 2011 led to spending caps that saved hundreds of billions of dollars, but the caps eventually were undone in a series of bipartisan deals.
Americans must remember that members of Congress will not do the right thing with public funds unless they know that there will be consequences for irresponsibility. As the tea party movement waned, Washington’s big spenders went hog wild.
Another way the Republican savings package would address reckless spending is by rescinding leftover funds passed during the COVID-19 spending spree, saving tens of billions of dollars.
Ending Biden’s Student Loan Bailouts
The next-largest amount of savings in the Limit, Save, Grow Act, worth $460 billion, would target the Biden administration’s outrageous attempt to cancel student loan debt for those who haven’t felt like repaying what they owe.
This attempted power grab is politically corrupt, so unconstitutional that even then-House Speaker Nancy Pelosi said in 2021 that it would be illegal. It’s an insult to both those who repaid their student debt and to the tens of millions of taxpayers who never took out student loans in the first place.
The House package also would end the loan repayment pause that began in March 2020 as a result of the COVID-19 pandemic. Biden repeatedly has extended the pause, which now will last through June 30 even though the administration belatedly ended the national emergency two weeks ago.
Trading ‘Green New Deal’ for Low-Cost American Energy
The Limit, Save, Grow Act includes two sections devoted to energy policy:
Repeal of a swath of hyper-expensive “green” energy and electric vehicle tax credits passed by Democrats last year.
The entirety of HR 1, the Lower Energy Costs Act, which the House passed March 30. It primarily serves to enable more domestic energy production by reforming outdated and cumbersome regulations that impose massive costs for minimal environmental effects.
Although the two sections are not explicitly linked, they flow from the same stream of thought.
Rather than using a mix of taxes, subsidies, and regulations to micromanage the nation’s energy and transportation sectors—the approach of Biden and other progressives—House Republicans would empower Americans to produce and consume energy in ways that best suit them.
This one-two punch has many benefits. It would help prevent energy dependence on China (which controls much of the supply chain for many “green” products such as batteries and rare minerals), grow the economy through increased energy production and lower energy prices, create hundreds of thousands of jobs, and reduce future deficits by hundreds of billions (or even trillions) of dollars.
These provisions would do more to combat inflation than anything Congress has done in decades.
Rescinding That Huge Funding Boost for IRS
The so-called Inflation Reduction Act of 2022 provided the Internal Revenue Service with almost $80 billion of supplemental funding through fiscal year 2031. These funds were in addition to the agency’s regular annual appropriations, which stood at $12.6 billion as of fiscal 2022.
The Limit, Save, Grow Act would rescind most of the unspent portion of the supplemental IRS funding, but would leave in place funding set aside for taxpayer services, business systems modernization (technology improvements), and agency oversight. The new House bill potentially would prevent IRS outlays of more than $45 billion on enforcement and nearly $25 billion on operations between fiscal 2024 and 2031.
The enforcement portion of the IRS funding was perhaps the most controversial element of the biggest tax-and-spend bill of 2022. Enforcement almost entirely consists of new audit examinations and collections.
Repeal of the extra IRS funding would save honest taxpayers in at least three ways, by: (1) reducing direct taxpayer funding to the IRS, (2) reducing the number of costly and time-consuming audits Americans face, and (3) lowering consumer prices by reducing company overhead, especially for small businesses that can ill afford to pay high-priced accountants and lawyers for tax and audit services.
On April 19, the IRS submitted a compendium of its strategic operating plan to the Senate Finance Committee, and that document shows that the IRS plans to amass an enormous enforcement apparatus, more than tripling its spending on enforcement from about $5.4 billion in 2022 to about $16.9 billion in 2031.
If IRS employees assigned to enforcement were to increase at the same rate as enforcement funding, that would allow the IRS to hire more than 76,000 more full-time employees in enforcement by 2031. If the IRS averaged 50 audits of households per year per new full-time employee in enforcement (less than one audit per week per new employee), that would mean 3.8 million additional audits in 2031 alone.
(Incidentally, fewer than 3.8 million American households reported adjusted gross income of greater than $400,000 as of 2020.)
The coming wave of new IRS audits would impose a huge cost on Americans, regardless of whether they themselves were selected for an audit. The $144.5 billion accounting industry would benefit, but everyday Americans would pay the price if labor and scarce resources were diverted from producing the goods and services they need and shifted to the IRS, accountants, and lawyers.
By constraining the IRS and freeing American workers and small businesses from excessive audits, the Limit, Save, Grow Act wouldn’t just save Americans money, it also would limit the expansion of government and grow the economy.
Work Requirements: Good for Welfare Recipients and Taxpayers
An aspect of the Limit, Save, Grow Act that is receiving outsize attention considering its budgetary impact is adding and strengthening work requirements for federal programs such as Medicaid and food stamps.
The estimated savings, in the neighborhood of $100 billion over a decade, are certainly helpful. However, what matters more is the beneficial effect that work requirements have in rescuing families from the trap of dependency on government.
Welfare reform made great strides in the 1990s by steering the able-bodied into the workforce, which in turn dramatically reduced poverty in single-parent households. Unfortunately, some of that progress has been lost in recent years, and millions of open jobs are available to adults who are languishing in the welfare system.
While the Left portrays work requirements as a harmful burden, keeping adults in the workforce actually has a variety of positive effects beyond improved household financials, including better mental and physical health. That means these reforms would be worth passing even if they didn’t reduce future deficits—which they do.
Protecting the Economy from Regulatory Strangulation
Although discussions about the federal budget typically focus on spending and taxes, Congress has another method to reduce long-term deficits: increasing economic growth by reducing burdensome regulations.
The Limit, Save, Grow Act contains the contents of the REINS (Regulations from the Executive in Need of Scrutiny) Act, a measure that would force presidential administrations to receive approval from Congress before implementing major regulations.
This would prevent administrations from abusing executive authority and also make it more difficult for Washington to entangle businesses in additional layers of red tape. Such protections are badly needed due to the radical bend of the Biden administration, which has pushed statutes to a breaking point in pursuit of increasing its control over the economy.
While the REINS Act is only one of many necessary actions Congress should take regarding regulation, it would help bolster economic growth, which in turn would help the nation’s bottom line.
Conclusion: This Can’t Wait
The debate over the debt limit is likely to take center stage in the coming months. Hopefully, Democrats will put aside demagoguery long enough to participate in good faith negotiations.
In the meantime, House and Senate Republicans must stand their ground and make it clear to the public that tackling Washington’s unsustainable, inflationary spending can’t wait.
Have an opinion about this article? To sound off, please email letters@DailySignal.com and we’ll consider publishing your edited remarks in our regular “We Hear You” feature. Remember to include the url or headline of the article plus your name and town and/or state.
March 31, 2021
President Biden c/o The White House
1600 Pennsylvania Avenue NW
Washington, DC 20500
Dear Mr. President,
Please explain to me if you ever do plan to balance the budget while you are President? I have written these things below about you and I really do think that you don’t want to cut spending in order to balance the budget. It seems you ever are daring the Congress to stop you from spending more.
“The credit of the United States ‘is not a bargaining chip,’ Obama said on 1-14-13. However, President Obama keeps getting our country’s credit rating downgraded as he raises the debt ceiling higher and higher!!!!
Washington Could Learn a Lot from a Drug Addict
Just spend more, don’t know how to cut!!! Really!!! That is not living in the real world is it?
Making more dependent on government is not the way to go!!
Why is our government in over 16 trillion dollars in debt? There are many reasons for this but the biggest reason is people say “Let’s spend someone else’s money to solve our problems.” Liberals like Max Brantley have talked this way for years. Brantley will say that conservatives are being harsh when they don’t want the government out encouraging people to be dependent on the government. The Obama adminstration has even promoted a plan for young people to follow like Julia the Moocher.
Imagine standing a baby carrot up next to the 25-story Stephens building in Little Rock. That gives you a picture of the impact on the national debt that federal spending in Arkansas on Medicaid expansion would have, while here at home expansion would give coverage to more than 200,000 of our neediest citizens, create jobs, and save money for the state.
Here’s the thing: while more than a billion dollars a year in federal spending would represent a big-time stimulus for Arkansas, it’s not even a drop in the bucket when it comes to the national debt.
Currently, the national debt is around $16.4 trillion. In fiscal year 2015, the federal government would spend somewhere in the neighborhood of $1.2 billion to fund Medicaid expansion in Arkansas if we say yes. That’s about 1/13,700th of the debt.
It’s hard to get a handle on numbers that big, so to put that in perspective, let’s get back to the baby carrot. Imagine that the height of the Stephens building (365 feet) is the $16 trillion national debt. That $1.2 billion would be the length of a ladybug. Of course, we’re not just talking about one year if we expand. Between now and 2021, the federal government projects to contribute around $10 billion. The federal debt is projected to be around $25 trillion by then, so we’re talking about 1/2,500th of the debt. Compared to the Stephens building? That’s a baby carrot.
______________
Here is how it will all end if everyone feels they should be allowed to have their “baby carrot.”
How sad it is that liberals just don’t get this reality.
While living in Europe in the 1760s, Franklin observed: “in different countries … the more public provisions were made for the poor, the less they provided for themselves, and of course became poorer. And, on the contrary, the less was done for them, the more they did for themselves, and became richer.”
Alexander Fraser Tytler, Lord Woodhouselee(15 October 1747 – 5 January 1813) was a Scottish lawyer, writer, and professor. Tytler was also a historian, and he noted, “A democracy cannot exist as a permanent form of government. It can only exist until the majority discovers it can vote itself largess out of the public treasury. After that, the majority always votes for the candidate promising the most benefits with the result the democracy collapses because of the loose fiscal policy ensuing, always to be followed by a dictatorship, then a monarchy.”
[Jefferson affirms that the main purpose of society is to enable human beings to keep the fruits of their labor.— TGW]
To take from one, because it is thought that his own industry and that of his fathers has acquired too much, in order to spare to others, who, or whose fathers have not exercised equal industry and skill, is to violate arbitrarily the first principle of association, “the guarantee to every one of a free exercise of his industry, and the fruits acquired by it.” If the overgrown wealth of an individual be deemed dangerous to the State, the best corrective is the law of equal inheritance to all in equal degree; and the better, as this enforces a law of nature, while extra taxation violates it.
[From Writings of Thomas Jefferson, ed. Albert E. Bergh (Washington: Thomas Jefferson Memorial Association, 1904), 14:466.]
_______
Jefferson pointed out that to take from the rich and give to the poor through government is just wrong. Franklin knew the poor would have a better path upward without government welfare coming their way. Milton Friedman’s negative income tax is the best method for doing that and by taking away all welfare programs and letting them go to the churches for charity.
_____________
_________
Thank you so much for your time. I know how valuable it is. I also appreciate the fine family that you have and your commitment as a father and a husband.
Sincerely,
Everette Hatcher III, 13900 Cottontail Lane, Alexander, AR 72002, ph 501-920-5733
We got to act fast and get off this path of socialism. Morning Bell: Welfare Spending Shattering All-Time Highs Robert Rector and Amy Payne October 18, 2012 at 9:03 am It’s been a pretty big year for welfare—and a new report shows welfare is bigger than ever. The Obama Administration turned a giant spotlight […]
We need to cut Food Stamp program and not extend it. However, it seems that people tell the taxpayers back home they are going to Washington and cut government spending but once they get up there they just fall in line with everyone else that keeps spending our money. I am glad that at least […]
Government Must Cut Spending Uploaded by HeritageFoundation on Dec 2, 2010 The government can cut roughly $343 billion from the federal budget and they can do so immediately. __________ Liberals argue that the poor need more welfare programs, but I have always argued that these programs enslave the poor to the government. Food Stamps Growth […]
Milton Friedman – The Negative Income Tax Published on May 11, 2012 by LibertyPen In this 1968 interview, Milton Friedman explained the negative income tax, a proposal that at minimum would save taxpayers the 72 percent of our current welfare budget spent on administration. http://www.LibertyPen.com Source: Firing Line with William F Buckley Jr. ________________ Milton […]
Dan Mitchell Commenting on Obama’s Failure to Propose a Fiscal Plan Published on Aug 16, 2012 by danmitchellcato No description available. ___________ After the Welfare State Posted by David Boaz Cato senior fellow Tom G. Palmer, who is lecturing about freedom in Slovenia and Tbilisi this week, asked me to post this announcement of his […]
Is President Obama gutting the welfare reform that Bill Clinton signed into law? Morning Bell: Obama Denies Gutting Welfare Reform Amy Payne August 8, 2012 at 9:15 am The Obama Administration came out swinging against its critics on welfare reform yesterday, with Press Secretary Jay Carney saying the charge that the Administration gutted the successful […]
Thomas Sowell – Welfare Welfare reform was working so good. Why did we have to abandon it? Look at this article from 2003. The Continuing Good News About Welfare Reform By Robert Rector and Patrick Fagan, Ph.D. February 6, 2003 Six years ago, President Bill Clinton signed legislation overhauling part of the nation’s welfare system. […]
Uploaded by ForaTv on May 29, 2009 Complete video at: http://fora.tv/2009/05/18/James_Bartholomew_The_Welfare_State_Were_In Author James Bartholomew argues that welfare benefits actually increase government handouts by ‘ruining’ ambition. He compares welfare to a humane mousetrap. —– Welfare reform was working so good. Why did we have to abandon it? Look at this article from 2003. In the controversial […]
Thomas Sowell If the welfare reform law was successful then why change it? Wasn’t Bill Clinton the president that signed into law? Obama Guts Welfare Reform Robert Rector and Kiki Bradley July 12, 2012 at 4:10 pm Today, the Obama Department of Health and Human Services (HHS) released an official policy directive rewriting the welfare […]
I have been writing President Obama letters and have not received a personal response yet. (He reads 10 letters a day personally and responds to each of them.) However, I did receive a form letter in the form of an email on July 10, 2012. I don’t know which letter of mine generated this response so I have […]
The Wall Street Journalopined on a crazy proposal from Biden’s team a few days ago. Here are some excerpts.
Income redistribution is an abiding value of the Biden Administration, and now it wants to spread that to mortgage lending. A new rule will raise mortgage fees for borrowers with good credit to subsidize higher-risk borrowers. Under the rule, which goes into effect May 1, home buyers with a good credit score over 680 will pay about $40 more each month on a $400,000 loan, and upward depending on the size of the loan.Those who make down payments of 20% on their homes will pay the highest fees. Those payments will then be used to subsidize higher-risk borrowers through lower fees. This is the socialization of risk, and it flies against every rational economic model, while encouraging housing market dysfunction and putting taxpayers at risk for higher default rates. …selling people houses they can’t afford has never been a good idea. See the subprime loan collapse of 2008. …the Federal Housing Administration…want[s] to punish those who have maintained good credit while rewarding those who haven’t.
The editors of National Review are similarly disgusted by the Biden Administration’s scheme.
The federal government props up the housing market in too many ways to count. The U.S. is unique among rich countries in having the national government insure mortgages, guarantee mortgage securities, and finance mortgages with government-sponsored enterprises. …When government isn’t getting the results it wanted with all of its previous involvement, it tries a little more intervention to “fix” its previous interventions.To help out homebuyers with poor credit scores, the Federal Housing Finance Agency has decided that homebuyers with good credit scores will pay a little more for their mortgages. …FHFA director Sandra Thompson said the new rules…would “increase pricing support for purchase borrowers limited by income or by wealth.” But income and wealth are and should be limiting factors in lending. It’s not good for borrowers to take on loans that may prove beyond their means to pay back. …this policy reduces the incentive to be responsible…and…has the added twist of penalizing people with high credit scores. …That’s one way to get more poor decisions and fewer good ones.
For all intents and purposes, the Biden Administration wants more redistribution.
P.S. Some of my left-wing friends say the 2008 crisis was caused by “Wall Street greed.” I respond by asking them whether there was greed on Wall Street in the 1980s and 1990s, or at other times. They usually have to admit that greed is always present, so I then tell them greed only becomes a big problem when mixed with upside-down government policies.
In his book “Capitalism and Freedom” (1962) Milton Friedman (1912-2006) advocated minimizing the role of government in a free market as a means of creating political and social freedom.
An excerpt from an interview with Phil Donahue in 1979.
“Well first of all, tell me: Is there some society you know that doesn’t run on greed? You think Russia doesn’t run on greed? You think China doesn’t run on greed? What is greed? Of course, none of us are greedy, it’s only the other fellow who’s greedy. The world runs on individuals pursuing their separate interests. The great achievements of civilization have not come from government bureaus. Einstein didn’t construct his theory under order from a bureaucrat. Henry Ford didn’t revolutionize the automobile industry that way. In the only cases in which the masses have escaped from the kind of grinding poverty you’re talking about, the only cases in recorded history, are where they have had capitalism and largely free trade. If you want to know where the masses are worse off, worst off, it’s exactly in the kinds of societies that depart from that. So that the record of history is absolutely crystal clear, that there is no alternative way so far discovered of improving the lot of the ordinary people that can hold a candle to the productive activities that are unleashed by the free-enterprise system.” ― Milton Friedman
Many of my left-leaning friends, by contrast, assert that “Wall Street greed” was the real culprit.
I have no problem with the notion that greed plays a role in financial markets, but people on Wall Street presumably were equally greedy in the 1980s and 1990s. So why didn’t we also have financial crises during those decades?
Isn’t it more plausible to think that one-off factorsmay have caused markets to go awry?
I took that trip down Memory Lane because of a rather insipid tweet from my occasionalsparringpartner, Robert Reich. He wants his followers to think that inflation is caused by “corporate greed.”
For what it’s worth, I agree that corporations are greedy. I’m sure that they are happy when they can charge more for their products.
But that’s hardly an explanation for today’s inflation.
After all, corporations presumably were greedy back in 2015. And in 2005. And in 1995. So why didn’t we also have high inflation those years as well?
If Reich understood economics, he could have pointed out that today’s inflation was caused by the Federal Reserve and also absolved Biden by explaining that the Fed’s big mistake occurred when Trump was in the White House.
I don’t expect Reich to believe me, so perhaps he’ll listen to Larry Summers, who also served in Bill Clinton’s cabinet.
But I won’t hold my breath.
As Don Boudreaux has explained, Reich is not a big fan of economic rigor and accuracy.
P.S. Reich also blamed antitrust policy, but we have had supposedly “weak antitrust enforcement” since the 1980s. So why did inflation wait until 2021 to appear?
P.P.S. In addition to being wrong about the cause of the 2008 crisis, my left-leaning friends also were wrong about the proper response to the crisis.
If you don’t want to spend two minutes to watch the video, all you need to know is that I’m worried that more redistribution will lead to more dependency and less work.
This is captured in this Wizard-of-Id parody, with the only difference being that UBI is a big handout for everything rather than a set of handouts for specific reasons (food stamps, welfare, housing subsidies, etc).
There’s already academic evidence against UBI, as I wrote in 2021 and 2022.
Now we have new evidence this year. Three European academics – Timo Verlaat, Federico Todeschini, and Xavier Ramos – produced a studyon the consequences of an experiment in Barcelona.
Here are their main findings, published by the Germany-based Institute of Labor Economics, all of which confirm that a basic income would be bad news.
…we aim to advance the literature on unconditional transfer programs by describing their employment effects in the context of an advanced welfare state. Our analysis uses data from a field experiment in Barcelona (Spain), trialing a generous and unconditional municipal cash transfer program. …we find strong evidence for sizeable negative labor supply effects. After two years, households assigned to the cash transfer were 14 percent less likely to have at least one member working compared to households assigned to the control group; main recipients were 20 percent less likely to work. …Another important finding concerns the persistence of effects. Employment rates in the treatment group remain lower even six months after the last transfer, indicating that households’ labor supply decisions may be hard to reverse.
I have to give credit to Matt Weidinger of the American Enterprise Institute. I did not know about this new study until I saw his article, which also merits a few excerpts.
That program is similar in many respects to universal basic income (UBI) programs proposed in Congress and being tested in multiple locations across the US. It also bears similarities to the unconditional expanded child tax credit payments temporarily made to tens of millions of households with children in 2021, which President Joe Biden’s latest proposed budget seeks to revive. Those similarities suggest American policymakers should take heed of the study’s findings… As Jon Baron, a longtime expert on evidence-based policy, recently described, the findings of the “high-quality” randomized control trial reflected in the study “suggest a need for caution in the design of anti-poverty programs, to avoid discouraging work effort.”
Since I’m a policy wonk rather than an academic, I don’t need qualifiers such as “a need for caution.” I can bluntly state that redistribution programs have a very negative impact on labor supply.
Instead of moving in the wrong direction, existing redistribution programs need to be scaled back. But that’s just part of the solution. The federal government should get out of the way.
P.S. Back in 2017, Joe Biden said some sensible things about work and dependency. Given what he’s now pushing, he obviously was not being sincere back then. Or maybe he doesn’t remember.
P.P.S. I can’t claim perfect memory. Regarding the Swiss referendum on basic income, I was wrong about the margin of victory (77 percent rather than 78 percent), wrong about the year (it was in 2016 not 2015), and the proposed handouts were even bigger than I remembered.
In the spirit of bipartisanship, I also applaud when Donald Trump does the same thing, and that part of what we’re going to discuss today.
First, some background: The ongoing battle over Donald Trump’s personal tax information has finally ended. If you’re curious, the New York Times has a detailed report on what Trump earned (or lost) in recent years.
And the NYT also tells us how much tax he paid during those years.
When I look at these numbers, my first thought is that Trump is not a very good businessman since he has a negative income most years.
My second thought is that I’m glad he paid a low tax rate of about 3 percent in 2018 and approximately 4 percent in 2019, the two years when his income was positive.
Why am I glad? Because money in private hands is far more likely to be utilized wisely than money that gets diverted to the IRS and then spent by the politicians in Washington.
That’s the first part of today’s column.
The second part of today’s column is to use Trump’s tax return to show why the tax system would be much better if we junked the internal revenue code and replaced it with a simple and fair flat tax.
A tax system based on equality also means radical simplicity. The hundreds of different tax forms in today’s tax code would get dumped in the garbage.
All that would be left is a simple tax form for households.
And a simple tax form for businesses.
What would this mean for Trump’s tax returns? I’m sure the implications would be enormous, but I want to focus on just two issues.
First, under the flat tax, business losses can not be used to lower taxes on household income (wages, salaries, and pensions). So that would probably mean a higher tax burden for Trump.
Second, the tax treatment of business changes in ways that would both help Trump and hurt Trump. The most important thing to realize is that the convoluted corporate income tax (as well as parts of the personal income tax such as Schedule C) are replaced by a very simple cash-flow system.
Here’s how Professors Robert Hall and Alvin Rabushka describe the business portion of the flat tax.
The business tax is a giant, comprehensive withholding tax on all types of income other than wages, salaries, and pensions. It is carefully designed to tax every bit of income outside of wages, but to tax it only once. The business tax does not have deductions for interest payments, dividends, or any other type of payment to the owners of the business. As a result, all income that people receive from business activity has already been taxed. …The resulting simplification and improvement in the tax system is enormous. …Eliminating the deduction for interest paid by businesses is a central part of our general plan to tax business income at the source.
One very important implication of this approach is there there no longer would be a bias for debt. This would not be good news for people like Trump who usually rely on debt to finance their businesses.
On the other hand, the net result would be a tax code more favorable to investment and entrepreneurship. So if Trump is a good businessman, he will benefit.
In this episode “How to Stay Free” Friedman makes the statement “What we need is widespread public recognition that the central government should be limited to its basic functions: defending the nation against foreign enemies, preserving order at home, and mediating our disputes. We must come to recognize that voluntary cooperation through the market and in other ways is a far better way to solve our problems than turning them over to the government.”
In this episode Milton Friedman makes the point, “There was no widespread public demand for Social Security programs… it had to be sold to the American people primarily by the group of reformers, intellectuals, new dealers, the people associated with FDR. The Social Security is one of the most misleading programs. It has been sold as an insurance program. It’s not an insurance program. It’s a program which combines a bad tax, a flat tax on wages up to a maximum with a very inequitable and uneven system of giving benefits under which some people get much, some people get little.”
Pt 5
Lawrence E. Spivak: I know, I believe, I say I know, I think I know, but I’ll say I believe that you felt, you blame the government for the Great Depression of 1929 through 1933 and of course, you had to blame FDR for all he did, but most people feel that he saved this free economy of ours.
Friedman: Given the catastrophe of the Great Depression, there is no doubt in my mind that emergency government measures were necessary. The government had made a mess. Not FDR’s government, it was the government that preceded him. Although it was mainly the Federal Reserve System which really wasn’t subject to election. But once FDR came in he did two very different kinds of things.
Lawrence E. Spivak: Well, had the government made a mess by what it did or but by what it didn’t do.
Friedman: By what it did. By it’s monetary policies which forced and produced a sharp decline in the total quantity of money. It was a mismanagement of the monetary apparatus. If there had been no federal reserve system, in my opinion, there would not have been a Great Depression at that time. But given that the depression had occurred, and it was a catastrophe of almost unimaginable kind, I do not fault at all, indeed on the contrary I commend Roosevelt for some of emergency measures he took. They obviously weren’t of the best, but they were emergency measures and you had an emergency you had to deal with. And the emergency measure such as relief programs, even the WPA which was a make work program, these served a very important function. He also served a very important function by giving people confidence in themselves. His great speech about the only thing we have to fear is fear itself was certainly a very important element in restoring confidence to the public at large. But he went much beyond that, he also started to change, under public pressure, the kind of government system we had. If you go beyond the emergency measures to the, what he regarded as reform measures, things like NRA and AAA, which were declared unconstitutional, but then from there on to the Social Security system, to the …
Lawrence E. Spivak: Take the Social Security System for a minute. The people wanted that, they wanted that protection. They were frightened, they wanted welfare.
Friedman: Not at all.
Lawrence E. Spivak: When you said pressure, who, pressure from whom?
Friedman: Pressure from people who were expressing what they thought the public ought to have. There was no widespread public demand for Social Security programs. The demands…….
Lawrence E. Spivak: No demand for welfare with 13 million people …….
Friedman: There was a demand for welfare and assistance I was separating out the emergency measures from the permanent measures. Social Security in the first 10 years of its existence, helped almost no one. It only took in money. Very few people qualified for benefits. It wasn’t an emergency measure. It was a long term measure. And it had to be sold to the American people primarily by the group of reformers, intellectuals, new dealers, the people associated with FDR. The Social Security is one of the most misleading programs. It has been sold as an insurance program. It’s not an insurance program. It’s a program which combines a bad tax, a flat tax on wages up to a maximum with a very inequitable and uneven system of giving benefits under which some people get much, some people get little. So that Social Security….
Lawrence E. Spivak: Would you now abolish Social Security?
Friedman: I would not go back on any of the commitments that the government has made. But I would certainly reform Social Security in a way that would end in its ultimate elimination.
Lawrence E. Spivak: If you’re not afraid then of the free market under any circumstances, where cooperation which you find necessary which you believe all to come, fails to come, where competition becomes so fierce and becomes very frequently corrupt and where, all where it becomes stupid. Take for example what’s happening in today’s market, the conglomerates. Which have been seizing up all sorts of, we happen to live in a hotel that’s run by a conglomerate. Why should ITT, for example, run a hotel and how are you going to stop that.
Friedman: Well in the first place, once again,
Lawrence E. Spivak: Without government, without…..
Friedman: Once again, it’s government measures that have promoted the conglomerates. The only major reason we have conglomerates is because they are a very effective way to get around a whole batch of tax legislation. Let me ask a different question. Who is more effected by government regulations, by government controls?
Lawrence E Spivak: I thought I was supposed to ask the questions. But I was warned that you might turn these on me.
Friedman: Well tell me, whose more effected the big fellow who can deal with it or that have a separated department to handle the red tape, or the poor fellow?
Lawrence E. Spivak: The big fellow can always take care of himself under any system.
Friedman: Right, and therefore he’ll want a system which gives the big fellow the least advantage. And the system under which he can get government to help him out, gives him the most advantage, not the least. You say am I afraid of greed, of lack of cooperation. Of course. But we always have to compare the real with the real. What are the real alternatives? And if we look at the record of history, if we go back to the 19th century which everybody always points to as the era of the robber baron who strode around the land and ground the poor under his heel, what do we find? The greatest outpouring of voluntary charitable activity in the history of the world. This University, this University of Chicago is an example. It was founded by contributions by John D. Rockefeller and other people. The colleges and universities throughout the Midwest. If you go back and ask when was the Red Cross founded, when was the Salvation Army founded, when were the Boy Scouts founded, you’ll discover all of that came during the 19th century in the era of unregulated rapacious capitalism.
Lawrence E. Spivak: I’d like to go back for a minute to the question of conglomerates. Granted that what you say that the government policies concentration on central government if you will, or whatever you want to call it, are responsible for the growth of conglomerates. What would we, what should we do about them now? Government try to undue them? Or should anybody try to undue them?
Friedman: No.
Lawrence E. Spivak: Or should you just let them fail?
Friedman: You should let them fail, of course. I am strongly opposed to government bailing any of them out. You should let them fail. The best things you can do in my opinion, are first to have complete free trade so you can have conglomerates in other countries compete with conglomerates in this country. We may have only two or three automobile companies, but there’s Toyota, there’s Volkswagen, competition from abroad is effective. But in the second place…
Lawrence E. Spivak: When do you say complete free trade you mean all over the world?
Friedman: No sir. I mean the U.S. all by itself unilaterally should eliminate all trade barriers. We would be better off if all the countries did the same.
Lawrence E. Spivak: What do you think would happen if we just did it though?
Friedman: I think we’d be very much better off and a lot others would then follow our example. That’s what happened in the 19th Century when Great Britain in 1846 completed removed, unilaterally, all trade barriers so that…..
Lawrence E. Spivak: You don’t think this country would be flooded with goods of all kinds from all over the world, maybe cheaper in that we wouldn’t have great unemployment in this country?
Friedman: What would the people who sold us goods do with their money? They’d get dollars, what would they do with the dollars? Eat them. If they want to send us goods and take dollars in return, we’re delighted to have them. No. That’s not a problem as long as you have a free exchange rate. Because we cannot export without importing, we cannot import without exporting. You would not have a reduction in employment, what you’d have would be a different pattern of employment. You’d have more employment in export industries and less employment in those industries that compete with import. But go back to conglomerates, Larry for a moment. I just want to ask a very different kind of a question. Conglomerates are not very attractive, I would much rather have a lot of small enterprises. But there’s all the difference in the world between a private conglomerate and a government conglomerate. In general, the government conglomerate can get money from you without your agreeing to give it to him. You and I pay for Amtrak and for the postal deficit whether we use the services of Amtrak or the postal deficit or not. I don’t pay your conglomerate unless I rent one of their apartments. I get something for my money. So bad as private conglomerates are, they’re less bad than one of the alternatives.
Milton Friedman The Power of the Market 1-5 How can we have personal freedom without economic freedom? That is why I don’t understand why socialists who value individual freedoms want to take away our economic freedoms. I wanted to share this info below with you from Milton Friedman who has influenced me greatly over the […]
Milton Friedman: Free To Choose – The Failure Of Socialism With Ronald Reagan (Full) Published on Mar 19, 2012 by NoNationalityNeeded Milton Friedman’s writings affected me greatly when I first discovered them and I wanted to share with you. We must not head down the path of socialism like Greece has done. Abstract: Ronald Reagan […]
Worse still, America’s depression was to become worldwide because of what lies behind these doors. This is the vault of the Federal Reserve Bank of New York. Inside is the largest horde of gold in the world. Because the world was on a gold standard in 1929, these vaults, where the U.S. gold was stored, […]
George Eccles: Well, then we called all our employees together. And we told them to be at the bank at their place at 8:00 a.m. and just act as if nothing was happening, just have a smile on their face, if they could, and me too. And we have four savings windows and we […]
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. […]
Friedman Friday” 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 […]
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 […]
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 […]
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. […]
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 […]
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 […]
Friedman Friday:(“Free to Choose” episode 4 – From Cradle to Grave, Part 1 of 7) Volume 4 – From Cradle to Grave Abstract: Since the Depression years of the 1930s, there has been almost continuous expansion of governmental efforts to provide for people’s welfare. First, there was a tremendous expansion of public works. The Social Security Act […]
_________________________ Pt3 Nowadays there’s a considerable amount of traffic at this border. People cross a little more freely than they use to. Many people from Hong Kong trade in China and the market has helped bring the two countries closer together, but the barriers between them are still very real. On this side […]
Aside from its harbor, the only other important resource of Hong Kong is people __ over 4_ million of them. Like America a century ago, Hong Kong in the past few decades has been a haven for people who sought the freedom to make the most of their own abilities. Many of them are […]
“FREE TO CHOOSE” 1: The Power of the Market (Milton Friedman) Free to Choose ^ | 1980 | Milton Friedman Posted on Monday, July 17, 2006 4:20:46 PM by Choose Ye This Day FREE TO CHOOSE: The Power of the Market Friedman: Once all of this was a swamp, covered with forest. The Canarce Indians […]
Milton Friedman: Free To Choose – The Failure Of Socialism With Ronald Reagan (Full) Published on Mar 19, 2012 by NoNationalityNeeded Milton Friedman’s writings affected me greatly when I first discovered them and I wanted to share with you. We must not head down the path of socialism like Greece has done. Abstract: Ronald Reagan […]
Interestingly, many folks on the left also recognize that the NHS has problems. But they claim that long waiting lines and needless deaths are the result of too little money.
For example, in a column for the New York Times, Allyson Pollock and Peter Roderick complain that their country’s government-run health system is being starved of funding.
…you don’t have to work in a hospital to know that Britain’s N.H.S. is in the most serious crisis of its history; you just have to be injured, or ill. Thousands of people are estimated to have died in the last year because of overwhelmed ambulance and emergency services. There are 7.2 million people in England, more than 10 percent of the population,on waiting lists for treatments… That the flagship health care service of one of the wealthiest countries in the world is in such a state is shocking, but not without explanation. Decades of marketization, 10 years of Conservative austerity and a pandemic have hollowed out the N.H.S… A government-commissioned report released last year called the years between 2010 and 2020 the N.H.S.’s “decade of neglect.” …The N.H.S. as Britons have known it — accessible, free at the point of use, cherished — is becoming something else. But as long as there are still people willing to fight for it, it’s not too late to save it.
If you read the full column, you might notice something very odd.
The authors share lots of data about the poor performance of the U.K.’s government-run system. And they share some good data about patient dissatisfaction.
But when they complain about how this is the fault of austerity, they don’t share any numbers.
So I want to the website for the U.K. Office of National Statistics and found the data showing the breakdown of annual government spending and I looked at the numbers for health expenditures.
Lo and behold, there was no austerity.
If you look closely, there was a very brief slowdown in the rate of growth starting in about 2010, but there were never budget cuts.
Indeed, the burden of NHS spending grew by an average of more than 6.7 percent over the past 25 years – much faster than inflation over the same period.
The moral of the story is that the NHS is doing a lousy job, but it’s not because of a shrinking budget.
P.S. I mentioned at the start of the column that I don’t like the current health system in America and that I also don’t like the idea of a British-style system. If you want to know the better approach, click here, here, here, here, here, here, and here.
Senate Majority Leader Chuck Schumer, D-N.Y., exults at a news conference after Senate passage of the Inflation Reduction Act at the Capitol on Sunday after a marathon session. The entirely party-line vote was 51-50, with the tie-breaking vote being cast by Vice President Kamala Harris. (Photo: Drew Angerer/Getty Images)
As Senate Democrats achieve their goal of jamming through the so-called Inflation Reduction Act, reality is becoming clear: The bill will likely increase near-term inflation, depress household incomes, and produce the long-term deficits that fuel long-term inflation.
Using the Congressional Budget Office’s latest scoring, estimates of the most recent changes, and accounting for very expensive gimmicks, it’s likely that the bill will produce deficits.
The cumulative deficit would be around $52.5 billion over the next four years, at least $110 billion through fiscal year 2031, and more beyond. That would mean adding to near-term and long-term inflationary pressures, in contrast to what proponents such as Sen. Joe Manchin, D-W.Va., claim.
In short, the bill is about as far away from a genuine Inflation Reduction Act as possible. Though it would be harmful under any circumstances, signing it into law during a period of stagflation would be the worst possible timing.
The Inflation Reduction Act utilizes three major sets of common congressional gimmicks to mask its true costs: cherry-picked expiration dates, ignoring net interest costs, and indirect tax burdens.
As one very costly example, the bill would extend for three more years “temporary” Obamacare subsidies that were supposed to expire this year. That brings to mind the wisdom of the late economist Milton Friedman, who once observed, “Nothing is so permanent as a temporary government program.”
Despite the Obamacare subsidies being peddled as temporary, extending them was among the first provisions of the Inflation Reduction Act that Senate Democrats committed to voting for. It just goes to prove something the everyone knows: There are certain taxpayer-funded handouts and giveaways that seem to always get extended in perpetuity.
To keep the reported cost of the provision down, a three-year expansion was chosen because it is what they could afford on paper. However, accounting for political reality, these subsidies will likely cost at least $146.5 billion more than what is being reported through fiscal year 2031.
That would be further compounded by Congress yet again delaying implementation of the Trump-era Medicare rebate rule, a move that shifts federal costs further into the future and arbitrarily reduces the portion of the costs included in the budgetary window. While the future costs would remain real, they would conveniently slip under the radar of the formal score.
Yet another overestimation of savings presented by the bill’s authors is a claim to $204 billion in increased revenues from cracking down on tax fraud.
While increased enforcement activity might result in higher revenue collections, estimates are highly speculative. Because the actual results are so uncertain, such revenues are not included in official cost estimates under the bipartisan scorekeeping guidelines.
The deficits created by the bill, and the fact that they are front-loaded, would increase federal net interest costs by more than $14 billion—a fact that is not reflected in the formal CBO estimates.
In total, the bill would add at least $110 billion to the federal deficit through fiscal 2031.
To put that level of spending in perspective, $110 billion is roughly four-and-a-half times NASA’s annual budget, or nearly the cost of the ships in six U.S. Carrier Strike Groups. In this case, however, the $110 billion will be used to buy more inflation.
When the federal government runs a deficit, it eventually must be paid back. That’s either done through job- and wage-killing taxes or by way of the Federal Reserve printing new money to finance the deficits.
During the height of the COVID-19 pandemic, the Fed financed 56% of new federal debt with trillions upon trillions of newly created dollars. Those dollars devalued paychecks and Americans’ lifetime savings.
When the federal government attempts to print its way out of fiscal irresponsibility, it does so by imposing an inflation tax on every American household.
With that precedent, no one can be certain of how much the federal government will use new taxes or new money creation to cover deficits. The expectation of future money printing causes immediate inflationary pressures as people act now to mitigate such future possibilities.
As such, the deficits created by the Inflation Reduction Act would simply be the newest addition to the current inflation tax.
To add insult to injury, almost every provision of the bill will bleed the bank accounts of American families. Tragically, the deficit- and inflation-increasing aspects of the Inflation Reduction Act are only the beginning of its burdens.
In these provisions we find the third set of gimmicks; namely, indirect tax burdens. Despite President Joe Biden’s assurances, the tax and price-control burdens of the Inflation Reduction Act will fall squarely on families trying to make ends meet.
Companies are combinations of workers, tools, and institutional knowledge that when brought together can produce the goods and services we need and enjoy. As such, companies can’t absorb a tax. They only direct how American households will feel it.
The bill’s business-tax hike will leave companies with no choice but to cut wages, increase consumer prices, or cut future investments in a growing and prosperous economy. The bill’s requirement that the government get a deal on drug prices will simply mean that drug prices will go up for families and that research budgets for new lifesaving drugs will be slashed.
In reality, this bill is a litany of policies aimed at scoring political points that has been recklessly and hurriedly slapped together. If it’s signed into law as expected, long after the press conferences and congressional pats on the back have faded into distant memory, it’s inflationary, tax, and other burdens will continue to haunt every American household.
Have an opinion about this article? To sound off, please email letters@DailySignal.com and we’ll consider publishing your edited remarks in our regular “We Hear You” feature. Remember to include the url or headline of the article plus your name and town and/or state.
Milton Friedman’s FREE TO CHOOSE “How to Stay Free,” Transcript and Video (60 Minutes)
In 1980 I read the book FREE TO CHOOSE by Milton Friedman and it really enlightened me a tremendous amount. I suggest checking out these episodes and transcripts of Milton Friedman’s film series FREE TO CHOOSE: “The Failure of Socialism” and “The Anatomy of a Crisis” and “What is wrong with our schools?” and “Created Equal” and From Cradle to Grave, and – Power of the Market. In this episode “How to Stay Free” Friedman makes the statement “What we need is widespread public recognition that the central government should be limited to its basic functions: defending the nation against foreign enemies, preserving order at home, and mediating our disputes. We must come to recognize that voluntary cooperation through the market and in other ways is a far better way to solve our problems than turning them over to the government.”
— On Mon, 12/6/10, Everette Hatcher <lowcostsqueegees@yahoo.com>wrote:
From: Everette Hatcher <lowcostsqueegees@yahoo.com>
Subject: Vol 10 How to stay Free,Videos and Transcript Free to Choose
To:
Date: Monday, December 6, 2010, 8:50 AM
The Great Depression of the 1930s changed the public philosophy regarding the appropriate role of government in American life. Before the Depression, government was not assumed to have special responsibilities for individual or business welfare. The severity of the economic tragedy of the 1930s resulted in a dramatic change in public attitudes. Many believed the Depression represented a “failure of capitalism.” Because of this alleged failure, government has ever since been expanding its power and the scope of its control. Government growth has resulted in waste, inefficiency, and a loss of personal freedom. Intended to serve the interests of the people, many governmental programs have been revealed to serve primarily the interests of the bureaucrats. Many government programs serve at cross purposes. For example, different agencies attempt, on the one hand, to discourage use of tobacco as potentially dangerous to good health and, on the other hand, to encourage production of tobacco through subsidies to tobacco farmers. The list of government inconsistencies and inefficiencies goes on and on. Dr. Friedman, however, says that there is reason for optimism. Today, he notes, the public is better informed about these matters and is increasingly willing to take a stand against further unnecessary expansion of government services. He suggests the most fruitful approach is to remove discretionary budget power from the government. Friedman favors passage of a Constitutional amendment limiting the government’s budget and forcing government to work within that budget. But this is only the first step. As Dr. Friedman points out, “What we need is widespread public recognition that the central government should be limited to its basic functions: defending the nation against foreign enemies, preserving order at home, and mediating our disputes. We must come to recognize that voluntary cooperation through the market and in other ways is a far better way to solve our problems than turning them over to the government.”
_____________________________________________
Milton Friedman makes the point: “If power were really concentrated in monolithic in a few hands, it would be hopeless to reform the system. But because it’s fragmented, because it’s split up, we can see how much waste there is, we can see how inefficient it is, how the left hand seldom knows what the right hand is doing.” IN OTHER WORDS A DICTATOR IS NOT RUNNING THE GOVERNMENT WE HAVE A CHANCE TO CHANGE WHAT IS GOING ON!!!
Volume 10 – How to Stay Free
Transcript:
Friedman: Every day hundreds of people flock to the capital in Washington, D.C. attracted only by power. That power has accumulated here over the past 50 years at the seat of government of the most powerful nation on Earth.
Worker: How do you do? Glad to meet you. How are you? How’s it going? What are you talking about? Guns?
Warren Richardson: Hello, this is Warren Richardson. Oh Mary, yes, what’s on your mind?
Friedman: Warren Richardson makes his living by knowing who has power and influence to trade.
Warren Richardson: I’ll be waiting for you.
Friedman: He’s a lobbyist.
Warren Richardson: Thanks a lot. Bye.
Unidentified Member of the House: The official administration position on this bill, however, is that its consideration would be premature in view of the President’s….
Friedman: He trades with people like these. Members of the House Committee on Agriculture. They make some of the laws and regulations that among other things, control the food we eat. They are elected officials who have the power to spend billions of dollars of our tax money.
Mr. Baldus: It’s all of page two. It takes all of page three.
Friedman: Naturally, lots of people would like to get their hands on that money.
Mr. Baldus: That’s the kind of stuff that ought never go into the statute books. And I think anybody who’s practicing justice court knows it.
Unidentified Member of the House: Bill, the way you get common sense administration is by having common sense administrators. And it seems like there’s more common sense administration in agriculture.
Michael Masterson (Congressional Aide): Access is all important and how you gain access. It used to be there were only a few hundred lobbyists in this town, now we record up to 15,000 lobbyists plus ancillary personnel, secretaries, receptionists and typists and the researchers that go with that. They are calling upon all the law firms imaginable. So there is a tremendous support base out there for the lobbying effort.
Friedman: You don’t have to walk these corridors for very long before you begin to realize that the concentration of power in the hands of a few people, however well intentioned, is a real threat to the freedom of the individual. Of course, Warren Richardson doesn’t see it that way. Over the years he’s successfully lobbied for special interest groups in energy, environment, wages and prices. Today he’s arguing the case for another special interest. The National Action Committee on Labor Law Reform, hoping to swing influence his way.
Warren Richardson: When the bill goes overboard in terms…much, much too far.
Friedman:There’s hardly a time when the corridors of Congressional Office buildings are not peppered with people waiting for their chance to see and influence the elected man at the center of power.
Unidentified Member of the House: Within that legislation for funds for communities of 50,000 and under, the goals of the existing law and certain statutory paperwork requirements are often very unrealistic for smaller communities.
Friedman: The deals made here effect all of us and sometimes in ways we don’t like. But don’t blame the people making the deals. They’re just pursuing their own self-interest which may be as narrow as making a buck or as broad as trying to reform the world. We, the citizens, are to blame because we’ve handed over much of our lives of personal decision making to government. And we now find that was government does severely limits our freedom.
The leather and wood paneled official offices of a Congressman in Washington, D.C. It’s the mecca of those who try for behind the scenes influence. Weaving his way between special interest groups can be tough for a politician. To stay in office he needs votes. To get votes he often has to make deals.
Unidentified Politician: The chances of our party regaining the White House. Republicans. If the President sends the policies to the public …..
Friedman: It’s frequently a frustrating business.
Michael Masterson: When you have people who are coming in not for purposes of debate and dialogue and discussion on something, but merely they demand their special interest or their single issue concern. That’s where it becomes extremely difficult because there might be an equal number on the opposite side of the coin.
Friedman: Every time I come to Washington I’m impressed all over again with how much power is concentrated in this city. But we must understand the character of that power. It is not monolithic power in a few hands like the way it is in countries like the Soviet Union or Red China. It is fragmented into lots of little bits and pieces and with every special group around the country trying to get its hand on whatever bits and pieces it can. The result is that there’s hardly an issue in which you won’t find government on both sides. For example, in one of these massive buildings spread, scattering all through this town filled to the bursting with government employees, so of them are sitting around trying to figure out how to spend our money to discourage us from smoking cigarettes. In another of the massive building, maybe far away from the first, some other employees, equally dedicated, equally hardworking, are sitting around figuring out how to spend our money to subsidize farmers to grow more tobacco. In one building they’re figuring out how to hold down prices, in another building they’ve got schemes for raising prices. The prices the farmers receive or import prices or keeping out cheap foreign goods. We set up an enormous Department of Energy with 20,000 employees to encourage us to save energy. We set up an enormous Department of Environmental Protection to figure out ways to get cleaner air involving our using more energy.
Now, many of these effects cancel out but that doesn’t mean that these programs don’t do a great deal of harm and that there aren’t some very bad things about it. One thing you can be sure of, the costs don’t cancel out, they add together. Each of these programs spends money taken from our pockets that we could be using to buy goods and services to meet our separate needs. All of these programs use very able, very skilled people who could be doing productive things. They, all of them, grind out rules, regulations, red tape, forms to fill-in. I doubt that there’s a person in this country who doesn’t violate one or another of those rules or regulations or laws everyday. Not because he wants to or intends to, but simply because it’s impossible for anybody to know what they all are. Those are the bad things. But there’s something good about this fragmentation of power too. And that is, that it enables us to do something about it.
If power were really concentrated in monolithic in a few hands, it would be hopeless to reform the system. But because it’s fragmented, because it’s split up, we can see how much waste there is, we can see how inefficient it is, how the left hand seldom knows what the right hand is doing.
It wasn’t always like this. The armies of bureaucrats administering our lives making our decisions spending our money, all supposedly for our good. Our nation was founded with something fundamentally different in mind.
___________________________________________
In this episode Milton Friedman makes the point, “From regarding government as a threat to our freedom, we have come more and more to regard government as a benefactor from which all good things flow. We have assigned increasing tasks of great importance to government. We have turned over to government a larger and larger fraction of our income to be spent on our behalf and the results are plain for all the same they are disappointing.”
Pt 2
Almost 200 years ago a remarkable group of men gathered in this room to write a Constitution for the new nation that they had helped to create a few years earlier. They were a wise and learned group of people. They had learned the lesson of history. The great danger to freedom is the concentration of power, especially in the hands of a government. They were determined to protect the citizens of the new United States of America from that danger. And they crafted their Constitution with that in mind. That Constitution has served us well. It has enabled us to preserve our freedom for close on to 200 years. But in the past 50 years, we have been forgetting the lesson that these wise men knew so well. From regarding government as a threat to our freedom, we have come more and more to regard government as a benefactor from which all good things flow. We have assigned increasing tasks of great importance to government. We have turned over to government a larger and larger fraction of our income to be spent on our behalf and the results are plain for all the same they are disappointing. The great expectations have not been achieved and our freedoms have suffered in the process.
Where did it all go wrong? Government began to take an increasing part in our personal affairs nearly 50 years ago. It was 1933, at the lowest point of the worst depression in history. The idea took root that capitalism had failed and that failure was responsible for the human and economic tragedy. In the early 30’s, Franklin Delano Roosevelt and his advisors met here to devise programs to meet the problems of the depression. Their answer was to give central government more power. Out of that beginning came today’s welfare state.
This Empire State Plaza in Albany, NY is a fine example of the difference between public political power and private economic power. It was constructed while Nelson Rockefeller was Governor of the state of New York. The Rockefeller family has spent millions of its private money on good causes. It has endowed universities like my own, at the University of Chicago, financed medical research, reconstructed Williamsburg, yet not all the private money of the Rockefeller family gave them anything like the amount of power that Nelson Rockefeller was able to have as Governor of the State of New York. He constructed monuments like this all over the state, using every expedient he could think of to finance them. When he left office, taxes per persons in New York State were higher than in any other state in the country excepting only Alaska. And there was a monumental debt besides. So much so, that his successor, who had the reputation as a Democratic congressman of being a big spender, had to use his inaugural speech to preach the virtues of austerity and to say the time of wine and roses is over.
Look at this skyline. It’s Chicago and I think it’s very beautiful. Much of it is less than 20 years old. Those tall buildings were built by private enterprise for use by private enterprise. Not by government for use by government bureaucrats. These are productive monuments, not a burden on the taxpayer, a burden that has almost bankrupted New York City. The irony is that for the most part it was good intentions that led us to where we are today, a nation governed by bureaucratic empires. I wonder whether when they built this building, they realized that it was going to come out looking like a fortress. From modest beginnings in 1953, the Department of Health, Education and Welfare has grown into a veritable empire. Only a small part of its total staff is housed in this headquarters building, a mere 2,000 bureaucrats. Its budget is the third largest budget in the whole world exceeded only by the entire budget of the United States and of the Soviet Union. It employs directly 150,000 full time people and the empire it rules employs another million. More than one out of every 100 people in the U.S. works in the HEW empire.
As we have seen in this series, the Department of Health, Education and Welfare is spending increasing amounts of our money each year on health. One effect is simply to raise the fees and prices for medical and hospital services without a corresponding improvement in the quality of medical care that we receive. It is controlling more and more of the food and drugs we buy. In the process, discouraging the development and preventing the marketing of new drugs that could be saving tens of thousands of lives a year. In the field of education the sums being spent are skyrocketing. Yet by common consent, the quality of education is declining. More and more money is being spent and increasingly rigid controls imposed to promote racial integration. Yet our society is becoming more fragmented. In the field of welfare, billions of dollars are being spent each year, yet at a time when the standard of life of the average American is higher than it has ever been in history, the number of people on welfare roles is growing. Social Security, the budget is colossal, yet it is in deep financial trouble. The young complain and with considerable justice about the high taxes they must pay and those taxes are needed to finance the benefits that are going to the old, yet the old complain and also with justice that it is difficult for them to maintain the standard of life that they were led to expect. A system that was enacted to make sure that the old never became objects of charity sees an increasing number of our older folk on the welfare roles. By its own accounting, HEW in one year lost through fraud, abuse and waste and amount of money that would have built well over 100,000 houses costing $50,000 a piece. Little wondered that those initials are increasing coming to stand for “How to encourage waste.”
Martin Anderson: We found in some cities that upwards of 20_25% of all the people currently receiving welfare are either totally ineligible for welfare or are receiving more than they should be receiving. And it appears in looking into this that the main reason for this is not the welfare laws themselves, but the way they are administered. They are administered in a very lax and loose manner. One of the most famous cases, in fact it just happened last week, they arrested a woman in southern California, they referred to her as the Welfare Queen. And over the past six or seven years she has received $300,000 in welfare payments. Which of course is on an after tax basis, so if you put her on a before tax basis, it might be equivalent to over a million dollars in before tax income. And, she and her husband were living in a nice $170,000 home, nice cars, and she used a very simple technique. She just used alias, used false names, and signed up to get countless different welfare agencies and departments and drove around and collected her checks.
Friedman: Something had to be done about this scandalous state of affairs. What better bureaucratic decision than to set up a special department crammed with computers and civil servants all dedicated to tracking down waste using taxpayers money, of course, in the process. $27.5 million in the first year.
When there is a high rate of taxation then you have people cheating on their taxes and you can see that in England today.
Pt 3
As Adam Smith wrote over 200 years ago, in the economic market people who intend to serve only their own private interests are led by an invisible hand to serve public interests where there was no part of their intention to promote. In the political market, there is an invisible hand operating as well. But unfortunately it operates in the opposite direction. People who intend only to serve the public interest are led by an invisible hand to serve private interests that was not part of their intention to promote. The reason is simple, as we have seen in case after case, the general interest is diffused among millions and millions of people with special interest its concentrated. When reformers get a measure through they go on to their next crusade leaving no one behind to protect the public interest. But they do leave behind some money and some power and the special interests that can benefit from that money and from that power are quick to gain it at the expense of most of the rest of us. By now, after 50 years of experience, it is clear that it doesn’t really matter who lives in that house. Government will continue to grow so long as the rest of us believe that the way to solve our problems is to turn them over to government.
Yet there are many people who want to solve their own problems, who want to use their own skills and energy and resources. We found such a person here in southern California.
John McCalm, a fireman, was planning his retirement. He decided to fulfill his life’s ambition, he built his own house with his own hands. He bought a site with a magnificent view, cleared the ground and realized that he was the first man who ever cultivated this land. It made him feel good. He pulled a trailer on to the edge of his plot and moved in with his wife to live there while they worked on the house. He made his own adobe bricks, he planted avocado trees, learned about carpentry and plumbing. It was going well when one day a local official arrived with a warning. It was alright to build a house he said, but it was against regulations to live in the trailer any longer. The McCalms thought that the rules were bureaucratic and foolish and they resented them. They decided to leave the trailer exactly where it was and defy the authorities.
Pat Brennan became something of a celebrity in 1978 because she was delivering mail in competition with the United States Post Office. With her husband she set up business in a basement in Rochester, NY. Soon it was thriving. They charged less than the post office and they guaranteed delivery the same day of parcels and letters in downtown Rochester. There is no doubt now that they were breaking the law as it stood. The post office took them to court. The case against them was simply that they should not be handling letters. The Brennan’s decided to fight and local businessmen provided the financial backing.
Pat Brennan: I think there’s going to be a quiet revolt and perhaps we’re the beginning of it. That you see people bucking the bureaucrats where years ago you wouldn’t dream of doing that because you’d be squelched. Now, with tax revolts and with what we’re doing, people are deciding that their fates are their own and not up to somebody in Washington who has no interest in them whatsoever. So, it’s not a question of anarchy, but it’s a questions of people rethinking the power of the bureaucrats and rejecting it.
Friedman: The Brennan customers were clear about one thing. After all, the Brennan’s service was cheaper than the regular mail.
Thomas O’Donaghue (storekeeper): We’re not sure that they have done anything illegal and I’d like to know more about this and I hope that this gets further into the courts than it has already. And someone will listen to their appeal because when we use the Brennan’s we know for a fact that same day delivery is going to be happening day after day after day, whereas with the other guy, you’re not sure and you’re sure what kind of shape it’s going to get there in. So I am behind the Brennan’s 100% and anything I can do to help them, I will.
Pat Brennan: Well, the questions of freedom comes up in any kind of a business. Whether you have the right to pursue it and the right to decide what you are going to do. There is also the question of the freedom of the consumers to utilize the service that they find is inexpensive and far superior. And according to the federal government and the body of laws called the Private Express Statutes, I don’t have a freedom to start a business and the consumer does not have the freedom to use it. Which seems very strange in a country like this that the entire context of the country is based on freedom and free enterprise.
Friedman: The post office won the case. It went all the way to the State Supreme Court and the Brennan’s were closed down. Put out of the business of delivering mail.
What we’ve been looking at is a natural human reaction to the attempt by other people to control your life when you think it’s none of their business. The first reaction is resentment. The second is to attempt to get around it. And finally there comes a decline in respect for law in general. There’s nothing especially American about this. It happens all over the world whenever some people try to control other people. For example, take a look at what’s happening to the British.
For most of the past century Britain was known throughout the world for the respect which its citizens gave to the law, but no longer. Graham Turner (Author “Business in Britain) Nothing is perfect that we have become in the course of the last ten or fifteen years, a nation of fiddlers. How do they do it? They do it in a colossal variety of ways. Lets take it right at the lowest level. Take a small grocer in a country area, say Devon. Very small turnover. How does he make money? He finds out that by buying through regular wholesalers he’s always got to use invoices. But if he goes to the cash and carry and buys his goods from there, and the profit margin on those goods can be untaxed because the tax inspector simply don’t know he’s had those goods. That’s the way he does it. Then if you take it to the top end, if you take a company director, well there’s all kinds of ways they can do it. They buy their food through the company, they have their holidays on the company, the put their wives as company directors even though they never visit the factory. They build their houses on the company by a very simple device of building a factory at the same time as a house, it goes absolutely right through the range from the ordinary person, the ordinary working class person, doing quite menial jobs right to the top end, businessmen, senior politicians, members of the Cabinet, members of the Shadow Cabinet, they all do it. I think almost everybody now feels the tax system is basically unfair. And, everybody who can tries to find a way around that tax system. Now, once that happens, once there is a consensus that the tax system is unfair, the country in effect becomes a kind of conspiracy. And everybody helps each other to fiddle. You’ve no difficulty fiddling in this country because other people actually want to help you. Now 15 years ago that would have been quite different. People would have said, hey, you know, this is not quite as it should be. So that’s the first reason. A very high level of taxation. But I think personally there’s another fact that comes into it. And that is that over the years we’ve had a huge growth in bureaucracy, government expenditure, cotton wool, if you like, to protect people from the slings and arrow of ordinary life, you know, health service, all kinds of benefits of one sort or another. And I think this comes into the consciousness of people almost a sort of new factor feeling that things don’t quite have the value that they did that money is not a thing of value, if your short you get it from some government body or other
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In this episode Milton Friedman makes the point:
“It will be no easy task to cut government down to size. Today in country after country the strongest special interest has become the entrenched bureaucracy. Whether at the national or at the local level. In addition, each of us gets special benefits from one or another governmental program. The temptation is to try to cut down government at someone else’s expense while retaining our own special privileges. That was a stalemate.”
Ep. 10 – How to Stay Free [4/7]. Milton Friedman’s Free to Choose (1980)
Friedman: Criminal tax evasion in Britain, laws and regulations defied in the U.S. It’s nothing to celebrate. The hopeful thing is that throughout the free world the public is coming to recognize the dangers of big government and is taking steps to control it. But it will be no easy task to cut government down to size. Today in country after country the strongest special interest has become the entrenched bureaucracy. Whether at the national or at the local level. In addition, each of us gets special benefits from one or another governmental program. The temptation is to try to cut down government at someone else’s expense while retaining our own special privileges. That was a stalemate. The right approach is to tackle head on the explosive growth in government spending. Lets give the government a budget the way each of us has a budget. A movement in this direction is already underway in the U.S. with the many proposals for Constitutional Amendments limiting government spending. Several states have already adopted such an amendment. There is strong pressure for a similar amendment at the federal level. Those amendments would force government to operate within a strict budget. Each special interest would have to compete with other special interests for a larger share of a fixed pie instead of all of them being able to join forces at the expense of the taxpayer.
This is an important step, but it is only a first step. No piece of paper by itself can solve our problems for us.
What we need is widespread public recognition that the central government should be limited to its basic functions. Defending the nation against foreign enemies. Preserving order at home. Mediating our dispute. We must come to recognize that voluntary cooperation through the market and in other ways is a far better way to solve our problem than turning them over to the government.
This is where much of the future strength of the United States lies. In places like Utuma, Iowa where ordinary hardworking American people live. People of all economic levels live in Utuma, but there are no extremes of either wealth or poverty. All are part of a community. Each part of which depends on the others for a stable and happy life worth living. This is a kind of community that formed the character of democratic America.
We began this series by stressing two ideas, the idea of human freedom as embodied in Thomas Jefferson’s Declaration of Independence, the idea of economic freedom as embodied in Adam Smith’s Wealth of Nations. Those two ideas working together, came to their greatest fruition here in the heartland of America. But the basic character of the society that they created has been changing as a result of the rise of another set of ideas.
We have forgotten the basic truth that the founders of this country knew so well. That the greatest threat to human freedom is a concentration of power whether in the hands of government or anyone else. Throughout the Western world, more and more of us are coming to recognize the dangers of an over-governed society. But it will take more than a recognition of danger. Freedom is not the natural state of mankind. It is a rare and wonderful achievement. It will take an understanding of what freedom is, of where the dangers to freedom come from. It will take the courage to act on that understanding if we are not only to preserve the freedoms that we have, but to realize the full potential of a truly free society.
Lawrence E. Spivak: Milton, all through your discussions, you hammer away at two things, the theories of Adam Smith on the free market and of Thomas Jefferson on central power. One thing that troubled me a little bit about your discussions is that it seemed to me that you are little bit the way psychoanalysts used to talk about Freud. That you believe they had given us the word and that even thought 200 years have gone by, it was still in the world, that circumstances had not changed the meaning anyway. Are you that fixed about their ideas?
Friedman: There’s a great difference between principles and the application of principles. The application of a principle has to take account of circumstances. But the principles that explain how it is that an automobile operates, are no different from the principles that explain how a horse and buggy operated or how a bow and arrow operated. The principles that Adam Smith enunciated, the philosophy that Thomas Jefferson enunciated, are every bit as valid today as they were then. But the circumstances are different and therefore the applications in many cases are very different. In addition, there has been a great deal of work and study and scholarly activity that has gone on since then. We know a great deal more about the way in which an economy works than Adam Smith knew. He was wrong in many individual details of his theory but his overall vision, his conception of how it was that without any central body planning it, millions of people could coordinate their activities in a way that was mutually beneficial to all of them. That central concept is every bit as valid today as it was then, and indeed, we have more reason to be confident in it now than he had because we’ve had 200 years more experience to observe how it works.
Lawrence E. Spivak: Let’s go back to Jefferson. You say cut the functions of central government to the basic functions advocated by Jefferson which was what? Defense against foreign enemies, preserve order at home, and mediate our disputes. Now, can we do that in the complicated, the complex world we live in today, without getting into very serious trouble.
Friedman: Suppose we look at the activities of government in the complex world of today. And ask to what extent has the growth of government arisen because of those complexities? And the answer is, very little indeed. What is the area of government that has grown most rapidly? The taking of money from some people and the giving of it to others. The transfer area. HEW, a budget 1_1/2 times as large as a whole defense budget. That’s the area where government has grown. Now, in that area, the way in which technology has entered has not been by making certain functions of government necessary, but by making it possible for government to do things they couldn’t have done before. Without the modern computers, without modern methods of communication and transportation, it would be utterly impossible to administer the kind of big government we have now. So I would say that the relation between technology and government has been that technology has made possible big government in many areas, but it’s not required it.
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In this episode Milton Friedman makes the point, “There was no widespread public demand for Social Security programs… it had to be sold to the American people primarily by the group of reformers, intellectuals, new dealers, the people associated with FDR. The Social Security is one of the most misleading programs. It has been sold as an insurance program. It’s not an insurance program. It’s a program which combines a bad tax, a flat tax on wages up to a maximum with a very inequitable and uneven system of giving benefits under which some people get much, some people get little.”
Pt 5
Lawrence E. Spivak: I know, I believe, I say I know, I think I know, but I’ll say I believe that you felt, you blame the government for the Great Depression of 1929 through 1933 and of course, you had to blame FDR for all he did, but most people feel that he saved this free economy of ours.
Friedman: Given the catastrophe of the Great Depression, there is no doubt in my mind that emergency government measures were necessary. The government had made a mess. Not FDR’s government, it was the government that preceded him. Although it was mainly the Federal Reserve System which really wasn’t subject to election. But once FDR came in he did two very different kinds of things.
Lawrence E. Spivak: Well, had the government made a mess by what it did or but by what it didn’t do.
Friedman: By what it did. By it’s monetary policies which forced and produced a sharp decline in the total quantity of money. It was a mismanagement of the monetary apparatus. If there had been no federal reserve system, in my opinion, there would not have been a Great Depression at that time. But given that the depression had occurred, and it was a catastrophe of almost unimaginable kind, I do not fault at all, indeed on the contrary I commend Roosevelt for some of emergency measures he took. They obviously weren’t of the best, but they were emergency measures and you had an emergency you had to deal with. And the emergency measure such as relief programs, even the WPA which was a make work program, these served a very important function. He also served a very important function by giving people confidence in themselves. His great speech about the only thing we have to fear is fear itself was certainly a very important element in restoring confidence to the public at large. But he went much beyond that, he also started to change, under public pressure, the kind of government system we had. If you go beyond the emergency measures to the, what he regarded as reform measures, things like NRA and AAA, which were declared unconstitutional, but then from there on to the Social Security system, to the …
Lawrence E. Spivak: Take the Social Security System for a minute. The people wanted that, they wanted that protection. They were frightened, they wanted welfare.
Friedman: Not at all.
Lawrence E. Spivak: When you said pressure, who, pressure from whom?
Friedman: Pressure from people who were expressing what they thought the public ought to have. There was no widespread public demand for Social Security programs. The demands…….
Lawrence E. Spivak: No demand for welfare with 13 million people …….
Friedman: There was a demand for welfare and assistance I was separating out the emergency measures from the permanent measures. Social Security in the first 10 years of its existence, helped almost no one. It only took in money. Very few people qualified for benefits. It wasn’t an emergency measure. It was a long term measure. And it had to be sold to the American people primarily by the group of reformers, intellectuals, new dealers, the people associated with FDR. The Social Security is one of the most misleading programs. It has been sold as an insurance program. It’s not an insurance program. It’s a program which combines a bad tax, a flat tax on wages up to a maximum with a very inequitable and uneven system of giving benefits under which some people get much, some people get little. So that Social Security….
Lawrence E. Spivak: Would you now abolish Social Security?
Friedman: I would not go back on any of the commitments that the government has made. But I would certainly reform Social Security in a way that would end in its ultimate elimination.
Lawrence E. Spivak: If you’re not afraid then of the free market under any circumstances, where cooperation which you find necessary which you believe all to come, fails to come, where competition becomes so fierce and becomes very frequently corrupt and where, all where it becomes stupid. Take for example what’s happening in today’s market, the conglomerates. Which have been seizing up all sorts of, we happen to live in a hotel that’s run by a conglomerate. Why should ITT, for example, run a hotel and how are you going to stop that.
Friedman: Well in the first place, once again,
Lawrence E. Spivak: Without government, without…..
Friedman: Once again, it’s government measures that have promoted the conglomerates. The only major reason we have conglomerates is because they are a very effective way to get around a whole batch of tax legislation. Let me ask a different question. Who is more effected by government regulations, by government controls?
Lawrence E Spivak: I thought I was supposed to ask the questions. But I was warned that you might turn these on me.
Friedman: Well tell me, whose more effected the big fellow who can deal with it or that have a separated department to handle the red tape, or the poor fellow?
Lawrence E. Spivak: The big fellow can always take care of himself under any system.
Friedman: Right, and therefore he’ll want a system which gives the big fellow the least advantage. And the system under which he can get government to help him out, gives him the most advantage, not the least. You say am I afraid of greed, of lack of cooperation. Of course. But we always have to compare the real with the real. What are the real alternatives? And if we look at the record of history, if we go back to the 19th century which everybody always points to as the era of the robber baron who strode around the land and ground the poor under his heel, what do we find? The greatest outpouring of voluntary charitable activity in the history of the world. This University, this University of Chicago is an example. It was founded by contributions by John D. Rockefeller and other people. The colleges and universities throughout the Midwest. If you go back and ask when was the Red Cross founded, when was the Salvation Army founded, when were the Boy Scouts founded, you’ll discover all of that came during the 19th century in the era of unregulated rapacious capitalism.
Lawrence E. Spivak: I’d like to go back for a minute to the question of conglomerates. Granted that what you say that the government policies concentration on central government if you will, or whatever you want to call it, are responsible for the growth of conglomerates. What would we, what should we do about them now? Government try to undue them? Or should anybody try to undue them?
Friedman: No.
Lawrence E. Spivak: Or should you just let them fail?
Friedman: You should let them fail, of course. I am strongly opposed to government bailing any of them out. You should let them fail. The best things you can do in my opinion, are first to have complete free trade so you can have conglomerates in other countries compete with conglomerates in this country. We may have only two or three automobile companies, but there’s Toyota, there’s Volkswagen, competition from abroad is effective. But in the second place…
Lawrence E. Spivak: When do you say complete free trade you mean all over the world?
Friedman: No sir. I mean the U.S. all by itself unilaterally should eliminate all trade barriers. We would be better off if all the countries did the same.
Lawrence E. Spivak: What do you think would happen if we just did it though?
Friedman: I think we’d be very much better off and a lot others would then follow our example. That’s what happened in the 19th Century when Great Britain in 1846 completed removed, unilaterally, all trade barriers so that…..
Lawrence E. Spivak: You don’t think this country would be flooded with goods of all kinds from all over the world, maybe cheaper in that we wouldn’t have great unemployment in this country?
Friedman: What would the people who sold us goods do with their money? They’d get dollars, what would they do with the dollars? Eat them. If they want to send us goods and take dollars in return, we’re delighted to have them. No. That’s not a problem as long as you have a free exchange rate. Because we cannot export without importing, we cannot import without exporting. You would not have a reduction in employment, what you’d have would be a different pattern of employment. You’d have more employment in export industries and less employment in those industries that compete with import. But go back to conglomerates, Larry for a moment. I just want to ask a very different kind of a question. Conglomerates are not very attractive, I would much rather have a lot of small enterprises. But there’s all the difference in the world between a private conglomerate and a government conglomerate. In general, the government conglomerate can get money from you without your agreeing to give it to him. You and I pay for Amtrak and for the postal deficit whether we use the services of Amtrak or the postal deficit or not. I don’t pay your conglomerate unless I rent one of their apartments. I get something for my money. So bad as private conglomerates are, they’re less bad than one of the alternatives.
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Milton Friedman in this episode makes this point, ” If you compare the conditions of people in a place like Singapore with the conditions of people in a place like Red China, or for that matter, Indonesia, you will see that the economic freedom is a very important component of total freedom”
Pt 6
Lawrence E. Spivak: Milton, suppose I agree with almost everything you say and say it would be wonderful if we … starting from scratch
Friedman:….If you agree with everything I say, you are a unique human being.
Lawrence E. Spivak: I don’t say I do agree, but I said suppose I agree for the sake of argument. We can’t start from scratch. How do we undo what we have done? How would you undo it, not me?
Friedman: That’s the hardest problem and I agree that is the real question. How do we get from where we are to where we want to go? And we can’t get there overnight, we cannot get there by simply eliminating the things that should not have been done. As in the case of Social Security, we have it. And we’ve got to live up to our obligations. So we do have to develop a series of policies which will enable us gradually to move from where we are to where we want to be. The first and most important step in my opinion, is to stop moving in the wrong direction.
Lawrence E. Spivak: Milton, you said a few minutes ago that throughout the free world, the public is coming to recognize the danger of big government and is taking steps to control it. But how with the example of what freedom does before them, how do you explain the new countries that have been coming up, all going in the direction of dictatorship?
Friedman: The climate, the intellectual climate of opinion has an enormous influence on what happens and the popular intellectual attitude within the free countries for the poor countries has been that they have to have centralized government. And that has served the interests of small elite groups within those countries. In one backward country after another what has happened is they’ve gotten their freedom supposedly from colonial rule, you’ve had a small elite take over and they have run that country for their own benefit and at the expense of the poor. It’s a tragedy of the modern era. Change the climate of opinion in the major countries. As the climate of opinion is changing, as the philosophy, the attitude what’s being taught at the universities is different, and you will see that these other countries, these backward countries will follow it and there are, there is some evidence that way. If you look at the countries where the backward countries which are doing best for themselves, they are places like Hong Kong, like Singapore, like Taiwan, like Korea, they’re not free countries in our sense of the term but they have much larger elements of freedom. Much greater scope for individual initiative. Many other countries of the world which have gone much further in the Communist centralized controlled direction.
Lawrence E. Spivak: How, for example, Singapore in Taiwan, have had you say very free economies. Now how do there economies, remain free but their politics and their human freedom is still curtailed. And as I understand in many cases, rather severely curtailed. They don’t have any of the freedoms we have. Press, religion,
Friedman: Economic freedom is a necessary condition for a human, all humans, but it is not a sufficient condition. You can have an economy that is largely free with large elements of restrictions. For example, let me take the American experience before the Civil War. We had a mixture of a largely free economy, with a segment of the population, the slaves, held in the condition of involuntary servitude. But even where you don’t have complete political freedom in the case of a Singapore or a Taiwan, human beings are much freer than they are in those societies where there is no economic freedom either. If you compare the conditions of people in a place like Singapore with the conditions of people in a place like Red China, or for that matter, Indonesia, you will see that the economic freedom is a very important component of total freedom. It’s not something different, it’s not something separate. Economic freedom is part of total freedom and for most people it’s the most important part. Freedom doesn’t mean very much to a starving man. And if a free society could not help the starving man, it would be very difficult for, to remain free very long. That’s why the ability of a free society to improve the lot of the ordinary person is a very, very necessary condition for its remaining free but it’s not the fundamental reason why I want a free society. I want a free society for the human and ethically and moral values that you stressed as pertaining to freedom. Freedom really rests, the value of freedom.
Lawrence E. Spivak: But suppose the moral values mean a lot to me. But, again, as I say, they mean nothing to the man who is hungry. It means absolutely nothing to him. What are you going to…. well do you think it does mean something to him.
Friedman: No. At first I think it means something to many of them. Of course, many men have died for their moral values, have put those moral values much above life itself. But I, you and I are citizens of a free society, will not stand the sight of…
Lawrence E. Spivak: … Well let me put it a different way, suppose you turn and you made a speech to all the people on welfare and you said to them, look there are, freedom is much more important than the welfare money that you are getting. Their ethical concepts, their spiritual things about the, men have died for this things. What if you told them all that and then said and we’re going to withdraw welfare now. What do you think would happen now?
Friedman: Would tell them something else. I would tell them.
Lawrence E. Spivak: I know also what you’d do.
Friedman: I tell them both what I would do and what I would tell them. I would tell them welfare has been corrupting you. Look at what it is doing to you. Look at what it’s doing to your children. You would be far better off in every respect….
Lawrence E. Spivak: But suppose they said to you, I don’t see that at all. Without that welfare we’d be in an awful mess.
Friedman: Your wrong, you wouldn’t be in an awful mess, but I understand your feeling and I do not propose to withdraw assistance from you like that all at once. I think it would be intolerable to throw the millions of people who are now depending on welfare on to the streets. We’ve got to go gradually from here to there. That’s why I proposed a negative income tax as a transitional device. That it would enable us to give help to people who really need help while not at the same time having the kind of mess we have now where most of the benefits go to people who are not but look at the way in which the welfare system has been corrupting the very fabric of our society. We have put people in a trap which is of no part of your own making. I don’t blame them, but they’ve been put in a trap where we are inducing them to become dependents, to become children, not to become independent human beings. The virtue and the desire of freedom is for what people can do with their freedom. Freedom is not an individual value, it’s a social value. A Robinson Caruso on an island, freedom is a meaningless concept to him.
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Milton Friedman says this in the following episode:
I believe that there is a strong enough component of freedom in our society that we will be able to preserve it, that we’re going to turn this trend back, that we are going to cut government down to size, we’re going to lay the ground work for a resurgence for a, a flowering, of that diversity which has been the real product of our free society.
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Pt 7
Lawrence E. Spivak: Milton, how bad is the state of freedom in this country today?
Friedman: It’s a mixed bag. In some areas we have more freedom than we’ve ever had before. In some other areas our freedom has been drastically reduced. Our freedom to spend our own money as we want has been cut sharply. Our freedom to go into whatever occupation we want has been reduced sharply. Our freedom to have various businesses has been reduced sharply. And these restrictions in our economic freedoms have carried over to restrictions on the freedom with which we speak and we talk, the activities we carry on, our attitudes toward governmental officials and all the rest. In those areas, our freedoms have been very seriously restricted.
Lawrence E. Spivak: What about your yourself? You as an individual and we really have to do with, deal with millions of hundreds, two hundred million, two hundred twenty million individuals. What about you? What freedom do you think you’ve lost?
Friedman: Well, I have been a very fortunate individual. I always have…
Lawrence E. Spivak: That sounds like a cop out.
Friedman: No, it’s not a cop out because I’m going to add to it. I’ve always said about the only people who have effective freedom of speech these days in the United States are tenured professors at private universities who are on the verge of retirement or have retired. And that’s been my situation in these recent years. Consider the freedom of, for example, a professor of medicine at any one of our great institutions. He’s almost certainly having his research financed by the Federal Government. Don’t you suppose he’d think two or three times before he gave a lecture on the evils of socialized medicine? Or consider one of my colleagues at the University who happens to be getting grants of money from the National Science Foundation. Do you think he really feels free to speak out on the issue of whether government ought to be financing such research. Of course, you ought not to have freedom without costs. But the costs ought to be reasonable. They ought not to be disproportionate, there’s no businessmen in this country today who can speak out. Why is it, why is it that the businessmen today are so mealy-mouthed in what they say? There are very few of them who are willing to come out and say openly what they believe. Why?
Lawrence E. Spivak: About what?
Friedman: About anything. Take for example the recent attempts by President Carter to impose voluntary wage and price controls. There’s hardly a businessman in this country who doesn’t think it’s terrible. There are only about two or three businessmen who have had the courage to stand up and say something about that. But again, as I say, go to my academic colleagues. Many of them feel as I do that government is devoting altogether too much money. That there’s been altogether too much subsidization of state universities and colleges all along the line. Yet very few of them are willing to speak out.
Lawrence E. Spivak: What about the generation that doesn’t know what freedom is as you knew it, and therefore, doesn’t mind so much what has happened. Just takes for granted what he’s living under now.
Friedman: I think that’s a very real problem. I think we’re living on our inheritance. We have inherited a philosophy and a set of attitudes and they tend to be eroded. People get accustomed to what they know. There’s an enormous tear in the status quote and most people, most of the time, accept the circumstances that are around them. There’s a natural human drive for freedom which always expresses itself. But, its stronger or weaker and I think a great danger in continuing along the path that we’ve been going on is that we will lose still more of our inheritance, still more of our basic values of our basic beliefs in freedom and that we will have still less protest as more and more freedoms are taken away. The real value of freedom is that it provides diversity and diversity is in turn the real protection of freedom. People who like to live in small cities, can live in small cities. People who like the impersonality of the metropolis can live in a metropolis. We have loyalties to our churches, we have loyalties to our universities, to our schools, to our clubs, to our cities, to our states. It’s this diversity. That fact that there isn’t a monolithic conformity imposed on us, that is, the source of protection for our freedom and also the fruit of freedom. It’s because freedom protects diversity, allows, you will remember the phrase when Mao said he was going to allow a 100 flowers to bloom. But of course he didn’t. As soon as people spoke out and 100 flowers bloomed, he cut them off. But it’s the blooming of many flowers, the fact that you have all of these different expressions of people’s individuality and produces the great achievements of civilization and that provides the great hope a protection of our freedom.
Lawrence E. Spivak: Why are you saying that there are pockets of freedom still existing in the countries?
Friedman: As I said before, the picture’s a mixed bag. In certain respects we have more freedom than we’ve ever had, but in other respects we’ve had very much less freedom. Of course there are great pockets of freedom, this is predominantly still a free country. We must not confuse the trend with the situation. We have been moving away from freedom. Our freedom is in jeopardy but by no means has been completely destroyed. I believe that there is a strong enough component of freedom in our society that we will be able to preserve it, that we’re going to turn this trend back, that we are going to cut government down to size, we’re going to lay the ground work for a resurgence for a, a flowering, of that diversity which has been the real product of our free society.
Milton Friedman The Power of the Market 1-5 How can we have personal freedom without economic freedom? That is why I don’t understand why socialists who value individual freedoms want to take away our economic freedoms. I wanted to share this info below with you from Milton Friedman who has influenced me greatly over the […]
Milton Friedman: Free To Choose – The Failure Of Socialism With Ronald Reagan (Full) Published on Mar 19, 2012 by NoNationalityNeeded Milton Friedman’s writings affected me greatly when I first discovered them and I wanted to share with you. We must not head down the path of socialism like Greece has done. Abstract: Ronald Reagan […]
Worse still, America’s depression was to become worldwide because of what lies behind these doors. This is the vault of the Federal Reserve Bank of New York. Inside is the largest horde of gold in the world. Because the world was on a gold standard in 1929, these vaults, where the U.S. gold was stored, […]
George Eccles: Well, then we called all our employees together. And we told them to be at the bank at their place at 8:00 a.m. and just act as if nothing was happening, just have a smile on their face, if they could, and me too. And we have four savings windows and we […]
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. […]
Friedman Friday” 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 […]
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 […]
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 […]
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. […]
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 […]
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 […]
Friedman Friday:(“Free to Choose” episode 4 – From Cradle to Grave, Part 1 of 7) Volume 4 – From Cradle to Grave Abstract: Since the Depression years of the 1930s, there has been almost continuous expansion of governmental efforts to provide for people’s welfare. First, there was a tremendous expansion of public works. The Social Security Act […]
_________________________ Pt3 Nowadays there’s a considerable amount of traffic at this border. People cross a little more freely than they use to. Many people from Hong Kong trade in China and the market has helped bring the two countries closer together, but the barriers between them are still very real. On this side […]
Aside from its harbor, the only other important resource of Hong Kong is people __ over 4_ million of them. Like America a century ago, Hong Kong in the past few decades has been a haven for people who sought the freedom to make the most of their own abilities. Many of them are […]
“FREE TO CHOOSE” 1: The Power of the Market (Milton Friedman) Free to Choose ^ | 1980 | Milton Friedman Posted on Monday, July 17, 2006 4:20:46 PM by Choose Ye This Day FREE TO CHOOSE: The Power of the Market Friedman: Once all of this was a swamp, covered with forest. The Canarce Indians […]
Milton Friedman: Free To Choose – The Failure Of Socialism With Ronald Reagan (Full) Published on Mar 19, 2012 by NoNationalityNeeded Milton Friedman’s writings affected me greatly when I first discovered them and I wanted to share with you. We must not head down the path of socialism like Greece has done. Abstract: Ronald Reagan […]
Last week, I wrote about Biden’s proposed budget, focusing on the aggregate increase in the fiscal burden.
Today, let’s take a closer look at his class-warfare tax proposals. Consider this Part VI in a series (Parts I-V can be found here, here, here, here, and here), and we’ll use data from the folks at the Tax Foundation.
We’ll start with this map, which shows each state’s top marginal tax rate on household income if Biden’s budget is enacted.
The main takeaway is that five state would have combined top tax rates of greater than 50 percent if Biden is successful in pushing the top federal rate from 37 percent to 39.6 percent.
While it is a very bad idea to have high marginal tax rates, it’s also important to look at whether the government is taxing some types of income more than one time.
That’s already a pervasive problem.
Yet the Tax Foundation shows that Biden wants to make the problem worse. Much worse.
His proposed increase in the corporate tax rate is awful, but his proposal to nearly double the tax burden on capital gains is incomprehensiblyfoolish.
I guess we should be happy that Biden didn’t propose to also increase the 40 percent rate imposed by the death tax.
But that’s not much solace considering what Biden would do to American competitiveness. Here’s our final visual for today.
I’ll close by observing that some of my leftist friends defend these taxes since they target the “evil rich.”
I have a moral disagreement with their view that people should be punished simply because they are successful investors, entrepreneurs, or business owners.
President Biden c/o The White House
1600 Pennsylvania Avenue NW
Washington, DC 20500
Dear Mr. President,
Please explain to me if you ever do plan to balance the budget while you are President? I have written these things below about you and I really do think that you don’t want to cut spending in order to balance the budget. It seems you ever are daring the Congress to stop you from spending more.
“The credit of the United States ‘is not a bargaining chip,’ Obama said on 1-14-13. However, President Obama keeps getting our country’s credit rating downgraded as he raises the debt ceiling higher and higher!!!!
Washington Could Learn a Lot from a Drug Addict
Just spend more, don’t know how to cut!!! Really!!! That is not living in the real world is it?
Making more dependent on government is not the way to go!!
Why is our government in over 16 trillion dollars in debt? There are many reasons for this but the biggest reason is people say “Let’s spend someone else’s money to solve our problems.” Liberals like Max Brantley have talked this way for years. Brantley will say that conservatives are being harsh when they don’t want the government out encouraging people to be dependent on the government. The Obama adminstration has even promoted a plan for young people to follow like Julia the Moocher.
Imagine standing a baby carrot up next to the 25-story Stephens building in Little Rock. That gives you a picture of the impact on the national debt that federal spending in Arkansas on Medicaid expansion would have, while here at home expansion would give coverage to more than 200,000 of our neediest citizens, create jobs, and save money for the state.
Here’s the thing: while more than a billion dollars a year in federal spending would represent a big-time stimulus for Arkansas, it’s not even a drop in the bucket when it comes to the national debt.
Currently, the national debt is around $16.4 trillion. In fiscal year 2015, the federal government would spend somewhere in the neighborhood of $1.2 billion to fund Medicaid expansion in Arkansas if we say yes. That’s about 1/13,700th of the debt.
It’s hard to get a handle on numbers that big, so to put that in perspective, let’s get back to the baby carrot. Imagine that the height of the Stephens building (365 feet) is the $16 trillion national debt. That $1.2 billion would be the length of a ladybug. Of course, we’re not just talking about one year if we expand. Between now and 2021, the federal government projects to contribute around $10 billion. The federal debt is projected to be around $25 trillion by then, so we’re talking about 1/2,500th of the debt. Compared to the Stephens building? That’s a baby carrot.
______________
Here is how it will all end if everyone feels they should be allowed to have their “baby carrot.”
How sad it is that liberals just don’t get this reality.
While living in Europe in the 1760s, Franklin observed: “in different countries … the more public provisions were made for the poor, the less they provided for themselves, and of course became poorer. And, on the contrary, the less was done for them, the more they did for themselves, and became richer.”
Alexander Fraser Tytler, Lord Woodhouselee(15 October 1747 – 5 January 1813) was a Scottish lawyer, writer, and professor. Tytler was also a historian, and he noted, “A democracy cannot exist as a permanent form of government. It can only exist until the majority discovers it can vote itself largess out of the public treasury. After that, the majority always votes for the candidate promising the most benefits with the result the democracy collapses because of the loose fiscal policy ensuing, always to be followed by a dictatorship, then a monarchy.”
[Jefferson affirms that the main purpose of society is to enable human beings to keep the fruits of their labor.— TGW]
To take from one, because it is thought that his own industry and that of his fathers has acquired too much, in order to spare to others, who, or whose fathers have not exercised equal industry and skill, is to violate arbitrarily the first principle of association, “the guarantee to every one of a free exercise of his industry, and the fruits acquired by it.” If the overgrown wealth of an individual be deemed dangerous to the State, the best corrective is the law of equal inheritance to all in equal degree; and the better, as this enforces a law of nature, while extra taxation violates it.
[From Writings of Thomas Jefferson, ed. Albert E. Bergh (Washington: Thomas Jefferson Memorial Association, 1904), 14:466.]
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Jefferson pointed out that to take from the rich and give to the poor through government is just wrong. Franklin knew the poor would have a better path upward without government welfare coming their way. Milton Friedman’s negative income tax is the best method for doing that and by taking away all welfare programs and letting them go to the churches for charity.
_____________
_________
Thank you so much for your time. I know how valuable it is. I also appreciate the fine family that you have and your commitment as a father and a husband.
Sincerely,
Everette Hatcher III, 13900 Cottontail Lane, Alexander, AR 72002, ph 501-920-5733
We got to act fast and get off this path of socialism. Morning Bell: Welfare Spending Shattering All-Time Highs Robert Rector and Amy Payne October 18, 2012 at 9:03 am It’s been a pretty big year for welfare—and a new report shows welfare is bigger than ever. The Obama Administration turned a giant spotlight […]
We need to cut Food Stamp program and not extend it. However, it seems that people tell the taxpayers back home they are going to Washington and cut government spending but once they get up there they just fall in line with everyone else that keeps spending our money. I am glad that at least […]
Government Must Cut Spending Uploaded by HeritageFoundation on Dec 2, 2010 The government can cut roughly $343 billion from the federal budget and they can do so immediately. __________ Liberals argue that the poor need more welfare programs, but I have always argued that these programs enslave the poor to the government. Food Stamps Growth […]
Milton Friedman – The Negative Income Tax Published on May 11, 2012 by LibertyPen In this 1968 interview, Milton Friedman explained the negative income tax, a proposal that at minimum would save taxpayers the 72 percent of our current welfare budget spent on administration. http://www.LibertyPen.com Source: Firing Line with William F Buckley Jr. ________________ Milton […]
Dan Mitchell Commenting on Obama’s Failure to Propose a Fiscal Plan Published on Aug 16, 2012 by danmitchellcato No description available. ___________ After the Welfare State Posted by David Boaz Cato senior fellow Tom G. Palmer, who is lecturing about freedom in Slovenia and Tbilisi this week, asked me to post this announcement of his […]
Is President Obama gutting the welfare reform that Bill Clinton signed into law? Morning Bell: Obama Denies Gutting Welfare Reform Amy Payne August 8, 2012 at 9:15 am The Obama Administration came out swinging against its critics on welfare reform yesterday, with Press Secretary Jay Carney saying the charge that the Administration gutted the successful […]
Thomas Sowell – Welfare Welfare reform was working so good. Why did we have to abandon it? Look at this article from 2003. The Continuing Good News About Welfare Reform By Robert Rector and Patrick Fagan, Ph.D. February 6, 2003 Six years ago, President Bill Clinton signed legislation overhauling part of the nation’s welfare system. […]
Uploaded by ForaTv on May 29, 2009 Complete video at: http://fora.tv/2009/05/18/James_Bartholomew_The_Welfare_State_Were_In Author James Bartholomew argues that welfare benefits actually increase government handouts by ‘ruining’ ambition. He compares welfare to a humane mousetrap. —– Welfare reform was working so good. Why did we have to abandon it? Look at this article from 2003. In the controversial […]
Thomas Sowell If the welfare reform law was successful then why change it? Wasn’t Bill Clinton the president that signed into law? Obama Guts Welfare Reform Robert Rector and Kiki Bradley July 12, 2012 at 4:10 pm Today, the Obama Department of Health and Human Services (HHS) released an official policy directive rewriting the welfare […]
I have been writing President Obama letters and have not received a personal response yet. (He reads 10 letters a day personally and responds to each of them.) However, I did receive a form letter in the form of an email on July 10, 2012. I don’t know which letter of mine generated this response so I have […]
Because the central bank’s easy-money policycreated artificially low interest rates, but those policies also produced high inflation, and now interest rates are going up as the Fed tries to undo its mistake.
By the way, the center box (higher prices) also includes asset bubble since bad monetary policy sometimes leads to financial bubbles instead of (or in addition to) higher consumer prices.
And higher interest rates can occur for two reasons. Most people focus on the Federal Reserve tightening monetary policy as it tries to reverse its original mistake of easy money. But don’t forget that interest rates also rise once lenders feel the pinch of inflation and insist on higher rates to compensate for the falling value of the dollar.
But let’s not digress too much. The focus of today’s column is that the Fed goofed by creating too much money in 2020 and 2021. That’s what set the stage for big price increases in 2022 and now economic instability in 2023.
Joakim Book of Reason shares my perspective. Here are excerpts from his article.
The Federal Reserve is in the unenviable position of achieving its mandate by crashing the economy. …it’s something that happens as an unavoidable outcome of slowing down an economy littered with excess money and inflation. …This hiking cycle, the fastest that the Fed has embarked upon in a generation, was always likely to break something. And break something they did over the weekend…Silicon Valley Bank (SVB), which faced the second-largest bank run in U.S. history. …this pushes the Fed into a very delicate position: risk systemic bank runs, or roll back the hikes and quantitative tightening that caused this mess, printing money for an even hotter inflation.
The Wall Street Journal also has the right perspective, editorializing that the current mess was largely caused by bad monetary policy.
Cracks in the financial system emerge whenever interest rates rise quickly after an easy-credit mania, and the surprise is that it took so long. …This week’s bank failures are another painful lesson in the costs of a credit mania fed by bad monetary policy. The reckoning always arrives when the Fed has to correct its mistakes. …We saw the first signs of panic in last year’s crypto crash and the liquidity squeeze at British pension funds. …nobody, least of all central bank oracles, should be surprised that there are now bodies washing up on shore as the tide goes out.
Finally, I can’t resist sharing some excerpts from Tyler Cowen’s Bloombergcolumn. He pointed out last November that the Austrian School has some insights with regards to the current mess.
The Austrian theory…works something like this: Investors expected that very low real interest rates would hold. They committed resources accordingly, and now forthcoming rates are likely to be much higher. That means the economy is stuck with malinvestment and will need to reconfigure in a painful manner.…The basic story here fits with the work of two economists from Austria, Ludwig Mises and Nobel laureate Friedrich von Hayek, and thus it is called the Austrian theory of the business cycle. The Austrian theory stresses how mistaken expectations about interest rates, brought on by changes in the rate of inflation, will lead to bad and abandoned investment projects. The Austrian theory has often been attacked by Keynesians, but in one form or another it continues to resurface in the economic data.
Senate Majority Leader Chuck Schumer, D-N.Y., exults at a news conference after Senate passage of the Inflation Reduction Act at the Capitol on Sunday after a marathon session. The entirely party-line vote was 51-50, with the tie-breaking vote being cast by Vice President Kamala Harris. (Photo: Drew Angerer/Getty Images)
As Senate Democrats achieve their goal of jamming through the so-called Inflation Reduction Act, reality is becoming clear: The bill will likely increase near-term inflation, depress household incomes, and produce the long-term deficits that fuel long-term inflation.
Using the Congressional Budget Office’s latest scoring, estimates of the most recent changes, and accounting for very expensive gimmicks, it’s likely that the bill will produce deficits.
The cumulative deficit would be around $52.5 billion over the next four years, at least $110 billion through fiscal year 2031, and more beyond. That would mean adding to near-term and long-term inflationary pressures, in contrast to what proponents such as Sen. Joe Manchin, D-W.Va., claim.
In short, the bill is about as far away from a genuine Inflation Reduction Act as possible. Though it would be harmful under any circumstances, signing it into law during a period of stagflation would be the worst possible timing.
The Inflation Reduction Act utilizes three major sets of common congressional gimmicks to mask its true costs: cherry-picked expiration dates, ignoring net interest costs, and indirect tax burdens.
As one very costly example, the bill would extend for three more years “temporary” Obamacare subsidies that were supposed to expire this year. That brings to mind the wisdom of the late economist Milton Friedman, who once observed, “Nothing is so permanent as a temporary government program.”
Despite the Obamacare subsidies being peddled as temporary, extending them was among the first provisions of the Inflation Reduction Act that Senate Democrats committed to voting for. It just goes to prove something the everyone knows: There are certain taxpayer-funded handouts and giveaways that seem to always get extended in perpetuity.
To keep the reported cost of the provision down, a three-year expansion was chosen because it is what they could afford on paper. However, accounting for political reality, these subsidies will likely cost at least $146.5 billion more than what is being reported through fiscal year 2031.
That would be further compounded by Congress yet again delaying implementation of the Trump-era Medicare rebate rule, a move that shifts federal costs further into the future and arbitrarily reduces the portion of the costs included in the budgetary window. While the future costs would remain real, they would conveniently slip under the radar of the formal score.
Yet another overestimation of savings presented by the bill’s authors is a claim to $204 billion in increased revenues from cracking down on tax fraud.
While increased enforcement activity might result in higher revenue collections, estimates are highly speculative. Because the actual results are so uncertain, such revenues are not included in official cost estimates under the bipartisan scorekeeping guidelines.
The deficits created by the bill, and the fact that they are front-loaded, would increase federal net interest costs by more than $14 billion—a fact that is not reflected in the formal CBO estimates.
In total, the bill would add at least $110 billion to the federal deficit through fiscal 2031.
To put that level of spending in perspective, $110 billion is roughly four-and-a-half times NASA’s annual budget, or nearly the cost of the ships in six U.S. Carrier Strike Groups. In this case, however, the $110 billion will be used to buy more inflation.
When the federal government runs a deficit, it eventually must be paid back. That’s either done through job- and wage-killing taxes or by way of the Federal Reserve printing new money to finance the deficits.
During the height of the COVID-19 pandemic, the Fed financed 56% of new federal debt with trillions upon trillions of newly created dollars. Those dollars devalued paychecks and Americans’ lifetime savings.
When the federal government attempts to print its way out of fiscal irresponsibility, it does so by imposing an inflation tax on every American household.
With that precedent, no one can be certain of how much the federal government will use new taxes or new money creation to cover deficits. The expectation of future money printing causes immediate inflationary pressures as people act now to mitigate such future possibilities.
As such, the deficits created by the Inflation Reduction Act would simply be the newest addition to the current inflation tax.
To add insult to injury, almost every provision of the bill will bleed the bank accounts of American families. Tragically, the deficit- and inflation-increasing aspects of the Inflation Reduction Act are only the beginning of its burdens.
In these provisions we find the third set of gimmicks; namely, indirect tax burdens. Despite President Joe Biden’s assurances, the tax and price-control burdens of the Inflation Reduction Act will fall squarely on families trying to make ends meet.
Companies are combinations of workers, tools, and institutional knowledge that when brought together can produce the goods and services we need and enjoy. As such, companies can’t absorb a tax. They only direct how American households will feel it.
The bill’s business-tax hike will leave companies with no choice but to cut wages, increase consumer prices, or cut future investments in a growing and prosperous economy. The bill’s requirement that the government get a deal on drug prices will simply mean that drug prices will go up for families and that research budgets for new lifesaving drugs will be slashed.
In reality, this bill is a litany of policies aimed at scoring political points that has been recklessly and hurriedly slapped together. If it’s signed into law as expected, long after the press conferences and congressional pats on the back have faded into distant memory, it’s inflationary, tax, and other burdens will continue to haunt every American household.
Have an opinion about this article? To sound off, please email letters@DailySignal.com and we’ll consider publishing your edited remarks in our regular “We Hear You” feature. Remember to include the url or headline of the article plus your name and town and/or state.
Milton Friedman’s FREE TO CHOOSE “How to Stay Free,” Transcript and Video (60 Minutes)
In 1980 I read the book FREE TO CHOOSE by Milton Friedman and it really enlightened me a tremendous amount. I suggest checking out these episodes and transcripts of Milton Friedman’s film series FREE TO CHOOSE: “The Failure of Socialism” and “The Anatomy of a Crisis” and “What is wrong with our schools?” and “Created Equal” and From Cradle to Grave, and – Power of the Market. In this episode “How to Stay Free” Friedman makes the statement “What we need is widespread public recognition that the central government should be limited to its basic functions: defending the nation against foreign enemies, preserving order at home, and mediating our disputes. We must come to recognize that voluntary cooperation through the market and in other ways is a far better way to solve our problems than turning them over to the government.”
— On Mon, 12/6/10, Everette Hatcher <lowcostsqueegees@yahoo.com>wrote:
From: Everette Hatcher <lowcostsqueegees@yahoo.com>
Subject: Vol 10 How to stay Free,Videos and Transcript Free to Choose
To:
Date: Monday, December 6, 2010, 8:50 AM
The Great Depression of the 1930s changed the public philosophy regarding the appropriate role of government in American life. Before the Depression, government was not assumed to have special responsibilities for individual or business welfare. The severity of the economic tragedy of the 1930s resulted in a dramatic change in public attitudes. Many believed the Depression represented a “failure of capitalism.” Because of this alleged failure, government has ever since been expanding its power and the scope of its control. Government growth has resulted in waste, inefficiency, and a loss of personal freedom. Intended to serve the interests of the people, many governmental programs have been revealed to serve primarily the interests of the bureaucrats. Many government programs serve at cross purposes. For example, different agencies attempt, on the one hand, to discourage use of tobacco as potentially dangerous to good health and, on the other hand, to encourage production of tobacco through subsidies to tobacco farmers. The list of government inconsistencies and inefficiencies goes on and on. Dr. Friedman, however, says that there is reason for optimism. Today, he notes, the public is better informed about these matters and is increasingly willing to take a stand against further unnecessary expansion of government services. He suggests the most fruitful approach is to remove discretionary budget power from the government. Friedman favors passage of a Constitutional amendment limiting the government’s budget and forcing government to work within that budget. But this is only the first step. As Dr. Friedman points out, “What we need is widespread public recognition that the central government should be limited to its basic functions: defending the nation against foreign enemies, preserving order at home, and mediating our disputes. We must come to recognize that voluntary cooperation through the market and in other ways is a far better way to solve our problems than turning them over to the government.”
_____________________________________________
Milton Friedman makes the point: “If power were really concentrated in monolithic in a few hands, it would be hopeless to reform the system. But because it’s fragmented, because it’s split up, we can see how much waste there is, we can see how inefficient it is, how the left hand seldom knows what the right hand is doing.” IN OTHER WORDS A DICTATOR IS NOT RUNNING THE GOVERNMENT WE HAVE A CHANCE TO CHANGE WHAT IS GOING ON!!!
Volume 10 – How to Stay Free
Transcript:
Friedman: Every day hundreds of people flock to the capital in Washington, D.C. attracted only by power. That power has accumulated here over the past 50 years at the seat of government of the most powerful nation on Earth.
Worker: How do you do? Glad to meet you. How are you? How’s it going? What are you talking about? Guns?
Warren Richardson: Hello, this is Warren Richardson. Oh Mary, yes, what’s on your mind?
Friedman: Warren Richardson makes his living by knowing who has power and influence to trade.
Warren Richardson: I’ll be waiting for you.
Friedman: He’s a lobbyist.
Warren Richardson: Thanks a lot. Bye.
Unidentified Member of the House: The official administration position on this bill, however, is that its consideration would be premature in view of the President’s….
Friedman: He trades with people like these. Members of the House Committee on Agriculture. They make some of the laws and regulations that among other things, control the food we eat. They are elected officials who have the power to spend billions of dollars of our tax money.
Mr. Baldus: It’s all of page two. It takes all of page three.
Friedman: Naturally, lots of people would like to get their hands on that money.
Mr. Baldus: That’s the kind of stuff that ought never go into the statute books. And I think anybody who’s practicing justice court knows it.
Unidentified Member of the House: Bill, the way you get common sense administration is by having common sense administrators. And it seems like there’s more common sense administration in agriculture.
Michael Masterson (Congressional Aide): Access is all important and how you gain access. It used to be there were only a few hundred lobbyists in this town, now we record up to 15,000 lobbyists plus ancillary personnel, secretaries, receptionists and typists and the researchers that go with that. They are calling upon all the law firms imaginable. So there is a tremendous support base out there for the lobbying effort.
Friedman: You don’t have to walk these corridors for very long before you begin to realize that the concentration of power in the hands of a few people, however well intentioned, is a real threat to the freedom of the individual. Of course, Warren Richardson doesn’t see it that way. Over the years he’s successfully lobbied for special interest groups in energy, environment, wages and prices. Today he’s arguing the case for another special interest. The National Action Committee on Labor Law Reform, hoping to swing influence his way.
Warren Richardson: When the bill goes overboard in terms…much, much too far.
Friedman:There’s hardly a time when the corridors of Congressional Office buildings are not peppered with people waiting for their chance to see and influence the elected man at the center of power.
Unidentified Member of the House: Within that legislation for funds for communities of 50,000 and under, the goals of the existing law and certain statutory paperwork requirements are often very unrealistic for smaller communities.
Friedman: The deals made here effect all of us and sometimes in ways we don’t like. But don’t blame the people making the deals. They’re just pursuing their own self-interest which may be as narrow as making a buck or as broad as trying to reform the world. We, the citizens, are to blame because we’ve handed over much of our lives of personal decision making to government. And we now find that was government does severely limits our freedom.
The leather and wood paneled official offices of a Congressman in Washington, D.C. It’s the mecca of those who try for behind the scenes influence. Weaving his way between special interest groups can be tough for a politician. To stay in office he needs votes. To get votes he often has to make deals.
Unidentified Politician: The chances of our party regaining the White House. Republicans. If the President sends the policies to the public …..
Friedman: It’s frequently a frustrating business.
Michael Masterson: When you have people who are coming in not for purposes of debate and dialogue and discussion on something, but merely they demand their special interest or their single issue concern. That’s where it becomes extremely difficult because there might be an equal number on the opposite side of the coin.
Friedman: Every time I come to Washington I’m impressed all over again with how much power is concentrated in this city. But we must understand the character of that power. It is not monolithic power in a few hands like the way it is in countries like the Soviet Union or Red China. It is fragmented into lots of little bits and pieces and with every special group around the country trying to get its hand on whatever bits and pieces it can. The result is that there’s hardly an issue in which you won’t find government on both sides. For example, in one of these massive buildings spread, scattering all through this town filled to the bursting with government employees, so of them are sitting around trying to figure out how to spend our money to discourage us from smoking cigarettes. In another of the massive building, maybe far away from the first, some other employees, equally dedicated, equally hardworking, are sitting around figuring out how to spend our money to subsidize farmers to grow more tobacco. In one building they’re figuring out how to hold down prices, in another building they’ve got schemes for raising prices. The prices the farmers receive or import prices or keeping out cheap foreign goods. We set up an enormous Department of Energy with 20,000 employees to encourage us to save energy. We set up an enormous Department of Environmental Protection to figure out ways to get cleaner air involving our using more energy.
Now, many of these effects cancel out but that doesn’t mean that these programs don’t do a great deal of harm and that there aren’t some very bad things about it. One thing you can be sure of, the costs don’t cancel out, they add together. Each of these programs spends money taken from our pockets that we could be using to buy goods and services to meet our separate needs. All of these programs use very able, very skilled people who could be doing productive things. They, all of them, grind out rules, regulations, red tape, forms to fill-in. I doubt that there’s a person in this country who doesn’t violate one or another of those rules or regulations or laws everyday. Not because he wants to or intends to, but simply because it’s impossible for anybody to know what they all are. Those are the bad things. But there’s something good about this fragmentation of power too. And that is, that it enables us to do something about it.
If power were really concentrated in monolithic in a few hands, it would be hopeless to reform the system. But because it’s fragmented, because it’s split up, we can see how much waste there is, we can see how inefficient it is, how the left hand seldom knows what the right hand is doing.
It wasn’t always like this. The armies of bureaucrats administering our lives making our decisions spending our money, all supposedly for our good. Our nation was founded with something fundamentally different in mind.
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In this episode Milton Friedman makes the point, “From regarding government as a threat to our freedom, we have come more and more to regard government as a benefactor from which all good things flow. We have assigned increasing tasks of great importance to government. We have turned over to government a larger and larger fraction of our income to be spent on our behalf and the results are plain for all the same they are disappointing.”
Pt 2
Almost 200 years ago a remarkable group of men gathered in this room to write a Constitution for the new nation that they had helped to create a few years earlier. They were a wise and learned group of people. They had learned the lesson of history. The great danger to freedom is the concentration of power, especially in the hands of a government. They were determined to protect the citizens of the new United States of America from that danger. And they crafted their Constitution with that in mind. That Constitution has served us well. It has enabled us to preserve our freedom for close on to 200 years. But in the past 50 years, we have been forgetting the lesson that these wise men knew so well. From regarding government as a threat to our freedom, we have come more and more to regard government as a benefactor from which all good things flow. We have assigned increasing tasks of great importance to government. We have turned over to government a larger and larger fraction of our income to be spent on our behalf and the results are plain for all the same they are disappointing. The great expectations have not been achieved and our freedoms have suffered in the process.
Where did it all go wrong? Government began to take an increasing part in our personal affairs nearly 50 years ago. It was 1933, at the lowest point of the worst depression in history. The idea took root that capitalism had failed and that failure was responsible for the human and economic tragedy. In the early 30’s, Franklin Delano Roosevelt and his advisors met here to devise programs to meet the problems of the depression. Their answer was to give central government more power. Out of that beginning came today’s welfare state.
This Empire State Plaza in Albany, NY is a fine example of the difference between public political power and private economic power. It was constructed while Nelson Rockefeller was Governor of the state of New York. The Rockefeller family has spent millions of its private money on good causes. It has endowed universities like my own, at the University of Chicago, financed medical research, reconstructed Williamsburg, yet not all the private money of the Rockefeller family gave them anything like the amount of power that Nelson Rockefeller was able to have as Governor of the State of New York. He constructed monuments like this all over the state, using every expedient he could think of to finance them. When he left office, taxes per persons in New York State were higher than in any other state in the country excepting only Alaska. And there was a monumental debt besides. So much so, that his successor, who had the reputation as a Democratic congressman of being a big spender, had to use his inaugural speech to preach the virtues of austerity and to say the time of wine and roses is over.
Look at this skyline. It’s Chicago and I think it’s very beautiful. Much of it is less than 20 years old. Those tall buildings were built by private enterprise for use by private enterprise. Not by government for use by government bureaucrats. These are productive monuments, not a burden on the taxpayer, a burden that has almost bankrupted New York City. The irony is that for the most part it was good intentions that led us to where we are today, a nation governed by bureaucratic empires. I wonder whether when they built this building, they realized that it was going to come out looking like a fortress. From modest beginnings in 1953, the Department of Health, Education and Welfare has grown into a veritable empire. Only a small part of its total staff is housed in this headquarters building, a mere 2,000 bureaucrats. Its budget is the third largest budget in the whole world exceeded only by the entire budget of the United States and of the Soviet Union. It employs directly 150,000 full time people and the empire it rules employs another million. More than one out of every 100 people in the U.S. works in the HEW empire.
As we have seen in this series, the Department of Health, Education and Welfare is spending increasing amounts of our money each year on health. One effect is simply to raise the fees and prices for medical and hospital services without a corresponding improvement in the quality of medical care that we receive. It is controlling more and more of the food and drugs we buy. In the process, discouraging the development and preventing the marketing of new drugs that could be saving tens of thousands of lives a year. In the field of education the sums being spent are skyrocketing. Yet by common consent, the quality of education is declining. More and more money is being spent and increasingly rigid controls imposed to promote racial integration. Yet our society is becoming more fragmented. In the field of welfare, billions of dollars are being spent each year, yet at a time when the standard of life of the average American is higher than it has ever been in history, the number of people on welfare roles is growing. Social Security, the budget is colossal, yet it is in deep financial trouble. The young complain and with considerable justice about the high taxes they must pay and those taxes are needed to finance the benefits that are going to the old, yet the old complain and also with justice that it is difficult for them to maintain the standard of life that they were led to expect. A system that was enacted to make sure that the old never became objects of charity sees an increasing number of our older folk on the welfare roles. By its own accounting, HEW in one year lost through fraud, abuse and waste and amount of money that would have built well over 100,000 houses costing $50,000 a piece. Little wondered that those initials are increasing coming to stand for “How to encourage waste.”
Martin Anderson: We found in some cities that upwards of 20_25% of all the people currently receiving welfare are either totally ineligible for welfare or are receiving more than they should be receiving. And it appears in looking into this that the main reason for this is not the welfare laws themselves, but the way they are administered. They are administered in a very lax and loose manner. One of the most famous cases, in fact it just happened last week, they arrested a woman in southern California, they referred to her as the Welfare Queen. And over the past six or seven years she has received $300,000 in welfare payments. Which of course is on an after tax basis, so if you put her on a before tax basis, it might be equivalent to over a million dollars in before tax income. And, she and her husband were living in a nice $170,000 home, nice cars, and she used a very simple technique. She just used alias, used false names, and signed up to get countless different welfare agencies and departments and drove around and collected her checks.
Friedman: Something had to be done about this scandalous state of affairs. What better bureaucratic decision than to set up a special department crammed with computers and civil servants all dedicated to tracking down waste using taxpayers money, of course, in the process. $27.5 million in the first year.
When there is a high rate of taxation then you have people cheating on their taxes and you can see that in England today.
Pt 3
As Adam Smith wrote over 200 years ago, in the economic market people who intend to serve only their own private interests are led by an invisible hand to serve public interests where there was no part of their intention to promote. In the political market, there is an invisible hand operating as well. But unfortunately it operates in the opposite direction. People who intend only to serve the public interest are led by an invisible hand to serve private interests that was not part of their intention to promote. The reason is simple, as we have seen in case after case, the general interest is diffused among millions and millions of people with special interest its concentrated. When reformers get a measure through they go on to their next crusade leaving no one behind to protect the public interest. But they do leave behind some money and some power and the special interests that can benefit from that money and from that power are quick to gain it at the expense of most of the rest of us. By now, after 50 years of experience, it is clear that it doesn’t really matter who lives in that house. Government will continue to grow so long as the rest of us believe that the way to solve our problems is to turn them over to government.
Yet there are many people who want to solve their own problems, who want to use their own skills and energy and resources. We found such a person here in southern California.
John McCalm, a fireman, was planning his retirement. He decided to fulfill his life’s ambition, he built his own house with his own hands. He bought a site with a magnificent view, cleared the ground and realized that he was the first man who ever cultivated this land. It made him feel good. He pulled a trailer on to the edge of his plot and moved in with his wife to live there while they worked on the house. He made his own adobe bricks, he planted avocado trees, learned about carpentry and plumbing. It was going well when one day a local official arrived with a warning. It was alright to build a house he said, but it was against regulations to live in the trailer any longer. The McCalms thought that the rules were bureaucratic and foolish and they resented them. They decided to leave the trailer exactly where it was and defy the authorities.
Pat Brennan became something of a celebrity in 1978 because she was delivering mail in competition with the United States Post Office. With her husband she set up business in a basement in Rochester, NY. Soon it was thriving. They charged less than the post office and they guaranteed delivery the same day of parcels and letters in downtown Rochester. There is no doubt now that they were breaking the law as it stood. The post office took them to court. The case against them was simply that they should not be handling letters. The Brennan’s decided to fight and local businessmen provided the financial backing.
Pat Brennan: I think there’s going to be a quiet revolt and perhaps we’re the beginning of it. That you see people bucking the bureaucrats where years ago you wouldn’t dream of doing that because you’d be squelched. Now, with tax revolts and with what we’re doing, people are deciding that their fates are their own and not up to somebody in Washington who has no interest in them whatsoever. So, it’s not a question of anarchy, but it’s a questions of people rethinking the power of the bureaucrats and rejecting it.
Friedman: The Brennan customers were clear about one thing. After all, the Brennan’s service was cheaper than the regular mail.
Thomas O’Donaghue (storekeeper): We’re not sure that they have done anything illegal and I’d like to know more about this and I hope that this gets further into the courts than it has already. And someone will listen to their appeal because when we use the Brennan’s we know for a fact that same day delivery is going to be happening day after day after day, whereas with the other guy, you’re not sure and you’re sure what kind of shape it’s going to get there in. So I am behind the Brennan’s 100% and anything I can do to help them, I will.
Pat Brennan: Well, the questions of freedom comes up in any kind of a business. Whether you have the right to pursue it and the right to decide what you are going to do. There is also the question of the freedom of the consumers to utilize the service that they find is inexpensive and far superior. And according to the federal government and the body of laws called the Private Express Statutes, I don’t have a freedom to start a business and the consumer does not have the freedom to use it. Which seems very strange in a country like this that the entire context of the country is based on freedom and free enterprise.
Friedman: The post office won the case. It went all the way to the State Supreme Court and the Brennan’s were closed down. Put out of the business of delivering mail.
What we’ve been looking at is a natural human reaction to the attempt by other people to control your life when you think it’s none of their business. The first reaction is resentment. The second is to attempt to get around it. And finally there comes a decline in respect for law in general. There’s nothing especially American about this. It happens all over the world whenever some people try to control other people. For example, take a look at what’s happening to the British.
For most of the past century Britain was known throughout the world for the respect which its citizens gave to the law, but no longer. Graham Turner (Author “Business in Britain) Nothing is perfect that we have become in the course of the last ten or fifteen years, a nation of fiddlers. How do they do it? They do it in a colossal variety of ways. Lets take it right at the lowest level. Take a small grocer in a country area, say Devon. Very small turnover. How does he make money? He finds out that by buying through regular wholesalers he’s always got to use invoices. But if he goes to the cash and carry and buys his goods from there, and the profit margin on those goods can be untaxed because the tax inspector simply don’t know he’s had those goods. That’s the way he does it. Then if you take it to the top end, if you take a company director, well there’s all kinds of ways they can do it. They buy their food through the company, they have their holidays on the company, the put their wives as company directors even though they never visit the factory. They build their houses on the company by a very simple device of building a factory at the same time as a house, it goes absolutely right through the range from the ordinary person, the ordinary working class person, doing quite menial jobs right to the top end, businessmen, senior politicians, members of the Cabinet, members of the Shadow Cabinet, they all do it. I think almost everybody now feels the tax system is basically unfair. And, everybody who can tries to find a way around that tax system. Now, once that happens, once there is a consensus that the tax system is unfair, the country in effect becomes a kind of conspiracy. And everybody helps each other to fiddle. You’ve no difficulty fiddling in this country because other people actually want to help you. Now 15 years ago that would have been quite different. People would have said, hey, you know, this is not quite as it should be. So that’s the first reason. A very high level of taxation. But I think personally there’s another fact that comes into it. And that is that over the years we’ve had a huge growth in bureaucracy, government expenditure, cotton wool, if you like, to protect people from the slings and arrow of ordinary life, you know, health service, all kinds of benefits of one sort or another. And I think this comes into the consciousness of people almost a sort of new factor feeling that things don’t quite have the value that they did that money is not a thing of value, if your short you get it from some government body or other
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In this episode Milton Friedman makes the point:
“It will be no easy task to cut government down to size. Today in country after country the strongest special interest has become the entrenched bureaucracy. Whether at the national or at the local level. In addition, each of us gets special benefits from one or another governmental program. The temptation is to try to cut down government at someone else’s expense while retaining our own special privileges. That was a stalemate.”
Ep. 10 – How to Stay Free [4/7]. Milton Friedman’s Free to Choose (1980)
Friedman: Criminal tax evasion in Britain, laws and regulations defied in the U.S. It’s nothing to celebrate. The hopeful thing is that throughout the free world the public is coming to recognize the dangers of big government and is taking steps to control it. But it will be no easy task to cut government down to size. Today in country after country the strongest special interest has become the entrenched bureaucracy. Whether at the national or at the local level. In addition, each of us gets special benefits from one or another governmental program. The temptation is to try to cut down government at someone else’s expense while retaining our own special privileges. That was a stalemate. The right approach is to tackle head on the explosive growth in government spending. Lets give the government a budget the way each of us has a budget. A movement in this direction is already underway in the U.S. with the many proposals for Constitutional Amendments limiting government spending. Several states have already adopted such an amendment. There is strong pressure for a similar amendment at the federal level. Those amendments would force government to operate within a strict budget. Each special interest would have to compete with other special interests for a larger share of a fixed pie instead of all of them being able to join forces at the expense of the taxpayer.
This is an important step, but it is only a first step. No piece of paper by itself can solve our problems for us.
What we need is widespread public recognition that the central government should be limited to its basic functions. Defending the nation against foreign enemies. Preserving order at home. Mediating our dispute. We must come to recognize that voluntary cooperation through the market and in other ways is a far better way to solve our problem than turning them over to the government.
This is where much of the future strength of the United States lies. In places like Utuma, Iowa where ordinary hardworking American people live. People of all economic levels live in Utuma, but there are no extremes of either wealth or poverty. All are part of a community. Each part of which depends on the others for a stable and happy life worth living. This is a kind of community that formed the character of democratic America.
We began this series by stressing two ideas, the idea of human freedom as embodied in Thomas Jefferson’s Declaration of Independence, the idea of economic freedom as embodied in Adam Smith’s Wealth of Nations. Those two ideas working together, came to their greatest fruition here in the heartland of America. But the basic character of the society that they created has been changing as a result of the rise of another set of ideas.
We have forgotten the basic truth that the founders of this country knew so well. That the greatest threat to human freedom is a concentration of power whether in the hands of government or anyone else. Throughout the Western world, more and more of us are coming to recognize the dangers of an over-governed society. But it will take more than a recognition of danger. Freedom is not the natural state of mankind. It is a rare and wonderful achievement. It will take an understanding of what freedom is, of where the dangers to freedom come from. It will take the courage to act on that understanding if we are not only to preserve the freedoms that we have, but to realize the full potential of a truly free society.
Lawrence E. Spivak: Milton, all through your discussions, you hammer away at two things, the theories of Adam Smith on the free market and of Thomas Jefferson on central power. One thing that troubled me a little bit about your discussions is that it seemed to me that you are little bit the way psychoanalysts used to talk about Freud. That you believe they had given us the word and that even thought 200 years have gone by, it was still in the world, that circumstances had not changed the meaning anyway. Are you that fixed about their ideas?
Friedman: There’s a great difference between principles and the application of principles. The application of a principle has to take account of circumstances. But the principles that explain how it is that an automobile operates, are no different from the principles that explain how a horse and buggy operated or how a bow and arrow operated. The principles that Adam Smith enunciated, the philosophy that Thomas Jefferson enunciated, are every bit as valid today as they were then. But the circumstances are different and therefore the applications in many cases are very different. In addition, there has been a great deal of work and study and scholarly activity that has gone on since then. We know a great deal more about the way in which an economy works than Adam Smith knew. He was wrong in many individual details of his theory but his overall vision, his conception of how it was that without any central body planning it, millions of people could coordinate their activities in a way that was mutually beneficial to all of them. That central concept is every bit as valid today as it was then, and indeed, we have more reason to be confident in it now than he had because we’ve had 200 years more experience to observe how it works.
Lawrence E. Spivak: Let’s go back to Jefferson. You say cut the functions of central government to the basic functions advocated by Jefferson which was what? Defense against foreign enemies, preserve order at home, and mediate our disputes. Now, can we do that in the complicated, the complex world we live in today, without getting into very serious trouble.
Friedman: Suppose we look at the activities of government in the complex world of today. And ask to what extent has the growth of government arisen because of those complexities? And the answer is, very little indeed. What is the area of government that has grown most rapidly? The taking of money from some people and the giving of it to others. The transfer area. HEW, a budget 1_1/2 times as large as a whole defense budget. That’s the area where government has grown. Now, in that area, the way in which technology has entered has not been by making certain functions of government necessary, but by making it possible for government to do things they couldn’t have done before. Without the modern computers, without modern methods of communication and transportation, it would be utterly impossible to administer the kind of big government we have now. So I would say that the relation between technology and government has been that technology has made possible big government in many areas, but it’s not required it.
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In this episode Milton Friedman makes the point, “There was no widespread public demand for Social Security programs… it had to be sold to the American people primarily by the group of reformers, intellectuals, new dealers, the people associated with FDR. The Social Security is one of the most misleading programs. It has been sold as an insurance program. It’s not an insurance program. It’s a program which combines a bad tax, a flat tax on wages up to a maximum with a very inequitable and uneven system of giving benefits under which some people get much, some people get little.”
Pt 5
Lawrence E. Spivak: I know, I believe, I say I know, I think I know, but I’ll say I believe that you felt, you blame the government for the Great Depression of 1929 through 1933 and of course, you had to blame FDR for all he did, but most people feel that he saved this free economy of ours.
Friedman: Given the catastrophe of the Great Depression, there is no doubt in my mind that emergency government measures were necessary. The government had made a mess. Not FDR’s government, it was the government that preceded him. Although it was mainly the Federal Reserve System which really wasn’t subject to election. But once FDR came in he did two very different kinds of things.
Lawrence E. Spivak: Well, had the government made a mess by what it did or but by what it didn’t do.
Friedman: By what it did. By it’s monetary policies which forced and produced a sharp decline in the total quantity of money. It was a mismanagement of the monetary apparatus. If there had been no federal reserve system, in my opinion, there would not have been a Great Depression at that time. But given that the depression had occurred, and it was a catastrophe of almost unimaginable kind, I do not fault at all, indeed on the contrary I commend Roosevelt for some of emergency measures he took. They obviously weren’t of the best, but they were emergency measures and you had an emergency you had to deal with. And the emergency measure such as relief programs, even the WPA which was a make work program, these served a very important function. He also served a very important function by giving people confidence in themselves. His great speech about the only thing we have to fear is fear itself was certainly a very important element in restoring confidence to the public at large. But he went much beyond that, he also started to change, under public pressure, the kind of government system we had. If you go beyond the emergency measures to the, what he regarded as reform measures, things like NRA and AAA, which were declared unconstitutional, but then from there on to the Social Security system, to the …
Lawrence E. Spivak: Take the Social Security System for a minute. The people wanted that, they wanted that protection. They were frightened, they wanted welfare.
Friedman: Not at all.
Lawrence E. Spivak: When you said pressure, who, pressure from whom?
Friedman: Pressure from people who were expressing what they thought the public ought to have. There was no widespread public demand for Social Security programs. The demands…….
Lawrence E. Spivak: No demand for welfare with 13 million people …….
Friedman: There was a demand for welfare and assistance I was separating out the emergency measures from the permanent measures. Social Security in the first 10 years of its existence, helped almost no one. It only took in money. Very few people qualified for benefits. It wasn’t an emergency measure. It was a long term measure. And it had to be sold to the American people primarily by the group of reformers, intellectuals, new dealers, the people associated with FDR. The Social Security is one of the most misleading programs. It has been sold as an insurance program. It’s not an insurance program. It’s a program which combines a bad tax, a flat tax on wages up to a maximum with a very inequitable and uneven system of giving benefits under which some people get much, some people get little. So that Social Security….
Lawrence E. Spivak: Would you now abolish Social Security?
Friedman: I would not go back on any of the commitments that the government has made. But I would certainly reform Social Security in a way that would end in its ultimate elimination.
Lawrence E. Spivak: If you’re not afraid then of the free market under any circumstances, where cooperation which you find necessary which you believe all to come, fails to come, where competition becomes so fierce and becomes very frequently corrupt and where, all where it becomes stupid. Take for example what’s happening in today’s market, the conglomerates. Which have been seizing up all sorts of, we happen to live in a hotel that’s run by a conglomerate. Why should ITT, for example, run a hotel and how are you going to stop that.
Friedman: Well in the first place, once again,
Lawrence E. Spivak: Without government, without…..
Friedman: Once again, it’s government measures that have promoted the conglomerates. The only major reason we have conglomerates is because they are a very effective way to get around a whole batch of tax legislation. Let me ask a different question. Who is more effected by government regulations, by government controls?
Lawrence E Spivak: I thought I was supposed to ask the questions. But I was warned that you might turn these on me.
Friedman: Well tell me, whose more effected the big fellow who can deal with it or that have a separated department to handle the red tape, or the poor fellow?
Lawrence E. Spivak: The big fellow can always take care of himself under any system.
Friedman: Right, and therefore he’ll want a system which gives the big fellow the least advantage. And the system under which he can get government to help him out, gives him the most advantage, not the least. You say am I afraid of greed, of lack of cooperation. Of course. But we always have to compare the real with the real. What are the real alternatives? And if we look at the record of history, if we go back to the 19th century which everybody always points to as the era of the robber baron who strode around the land and ground the poor under his heel, what do we find? The greatest outpouring of voluntary charitable activity in the history of the world. This University, this University of Chicago is an example. It was founded by contributions by John D. Rockefeller and other people. The colleges and universities throughout the Midwest. If you go back and ask when was the Red Cross founded, when was the Salvation Army founded, when were the Boy Scouts founded, you’ll discover all of that came during the 19th century in the era of unregulated rapacious capitalism.
Lawrence E. Spivak: I’d like to go back for a minute to the question of conglomerates. Granted that what you say that the government policies concentration on central government if you will, or whatever you want to call it, are responsible for the growth of conglomerates. What would we, what should we do about them now? Government try to undue them? Or should anybody try to undue them?
Friedman: No.
Lawrence E. Spivak: Or should you just let them fail?
Friedman: You should let them fail, of course. I am strongly opposed to government bailing any of them out. You should let them fail. The best things you can do in my opinion, are first to have complete free trade so you can have conglomerates in other countries compete with conglomerates in this country. We may have only two or three automobile companies, but there’s Toyota, there’s Volkswagen, competition from abroad is effective. But in the second place…
Lawrence E. Spivak: When do you say complete free trade you mean all over the world?
Friedman: No sir. I mean the U.S. all by itself unilaterally should eliminate all trade barriers. We would be better off if all the countries did the same.
Lawrence E. Spivak: What do you think would happen if we just did it though?
Friedman: I think we’d be very much better off and a lot others would then follow our example. That’s what happened in the 19th Century when Great Britain in 1846 completed removed, unilaterally, all trade barriers so that…..
Lawrence E. Spivak: You don’t think this country would be flooded with goods of all kinds from all over the world, maybe cheaper in that we wouldn’t have great unemployment in this country?
Friedman: What would the people who sold us goods do with their money? They’d get dollars, what would they do with the dollars? Eat them. If they want to send us goods and take dollars in return, we’re delighted to have them. No. That’s not a problem as long as you have a free exchange rate. Because we cannot export without importing, we cannot import without exporting. You would not have a reduction in employment, what you’d have would be a different pattern of employment. You’d have more employment in export industries and less employment in those industries that compete with import. But go back to conglomerates, Larry for a moment. I just want to ask a very different kind of a question. Conglomerates are not very attractive, I would much rather have a lot of small enterprises. But there’s all the difference in the world between a private conglomerate and a government conglomerate. In general, the government conglomerate can get money from you without your agreeing to give it to him. You and I pay for Amtrak and for the postal deficit whether we use the services of Amtrak or the postal deficit or not. I don’t pay your conglomerate unless I rent one of their apartments. I get something for my money. So bad as private conglomerates are, they’re less bad than one of the alternatives.
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Milton Friedman in this episode makes this point, ” If you compare the conditions of people in a place like Singapore with the conditions of people in a place like Red China, or for that matter, Indonesia, you will see that the economic freedom is a very important component of total freedom”
Pt 6
Lawrence E. Spivak: Milton, suppose I agree with almost everything you say and say it would be wonderful if we … starting from scratch
Friedman:….If you agree with everything I say, you are a unique human being.
Lawrence E. Spivak: I don’t say I do agree, but I said suppose I agree for the sake of argument. We can’t start from scratch. How do we undo what we have done? How would you undo it, not me?
Friedman: That’s the hardest problem and I agree that is the real question. How do we get from where we are to where we want to go? And we can’t get there overnight, we cannot get there by simply eliminating the things that should not have been done. As in the case of Social Security, we have it. And we’ve got to live up to our obligations. So we do have to develop a series of policies which will enable us gradually to move from where we are to where we want to be. The first and most important step in my opinion, is to stop moving in the wrong direction.
Lawrence E. Spivak: Milton, you said a few minutes ago that throughout the free world, the public is coming to recognize the danger of big government and is taking steps to control it. But how with the example of what freedom does before them, how do you explain the new countries that have been coming up, all going in the direction of dictatorship?
Friedman: The climate, the intellectual climate of opinion has an enormous influence on what happens and the popular intellectual attitude within the free countries for the poor countries has been that they have to have centralized government. And that has served the interests of small elite groups within those countries. In one backward country after another what has happened is they’ve gotten their freedom supposedly from colonial rule, you’ve had a small elite take over and they have run that country for their own benefit and at the expense of the poor. It’s a tragedy of the modern era. Change the climate of opinion in the major countries. As the climate of opinion is changing, as the philosophy, the attitude what’s being taught at the universities is different, and you will see that these other countries, these backward countries will follow it and there are, there is some evidence that way. If you look at the countries where the backward countries which are doing best for themselves, they are places like Hong Kong, like Singapore, like Taiwan, like Korea, they’re not free countries in our sense of the term but they have much larger elements of freedom. Much greater scope for individual initiative. Many other countries of the world which have gone much further in the Communist centralized controlled direction.
Lawrence E. Spivak: How, for example, Singapore in Taiwan, have had you say very free economies. Now how do there economies, remain free but their politics and their human freedom is still curtailed. And as I understand in many cases, rather severely curtailed. They don’t have any of the freedoms we have. Press, religion,
Friedman: Economic freedom is a necessary condition for a human, all humans, but it is not a sufficient condition. You can have an economy that is largely free with large elements of restrictions. For example, let me take the American experience before the Civil War. We had a mixture of a largely free economy, with a segment of the population, the slaves, held in the condition of involuntary servitude. But even where you don’t have complete political freedom in the case of a Singapore or a Taiwan, human beings are much freer than they are in those societies where there is no economic freedom either. If you compare the conditions of people in a place like Singapore with the conditions of people in a place like Red China, or for that matter, Indonesia, you will see that the economic freedom is a very important component of total freedom. It’s not something different, it’s not something separate. Economic freedom is part of total freedom and for most people it’s the most important part. Freedom doesn’t mean very much to a starving man. And if a free society could not help the starving man, it would be very difficult for, to remain free very long. That’s why the ability of a free society to improve the lot of the ordinary person is a very, very necessary condition for its remaining free but it’s not the fundamental reason why I want a free society. I want a free society for the human and ethically and moral values that you stressed as pertaining to freedom. Freedom really rests, the value of freedom.
Lawrence E. Spivak: But suppose the moral values mean a lot to me. But, again, as I say, they mean nothing to the man who is hungry. It means absolutely nothing to him. What are you going to…. well do you think it does mean something to him.
Friedman: No. At first I think it means something to many of them. Of course, many men have died for their moral values, have put those moral values much above life itself. But I, you and I are citizens of a free society, will not stand the sight of…
Lawrence E. Spivak: … Well let me put it a different way, suppose you turn and you made a speech to all the people on welfare and you said to them, look there are, freedom is much more important than the welfare money that you are getting. Their ethical concepts, their spiritual things about the, men have died for this things. What if you told them all that and then said and we’re going to withdraw welfare now. What do you think would happen now?
Friedman: Would tell them something else. I would tell them.
Lawrence E. Spivak: I know also what you’d do.
Friedman: I tell them both what I would do and what I would tell them. I would tell them welfare has been corrupting you. Look at what it is doing to you. Look at what it’s doing to your children. You would be far better off in every respect….
Lawrence E. Spivak: But suppose they said to you, I don’t see that at all. Without that welfare we’d be in an awful mess.
Friedman: Your wrong, you wouldn’t be in an awful mess, but I understand your feeling and I do not propose to withdraw assistance from you like that all at once. I think it would be intolerable to throw the millions of people who are now depending on welfare on to the streets. We’ve got to go gradually from here to there. That’s why I proposed a negative income tax as a transitional device. That it would enable us to give help to people who really need help while not at the same time having the kind of mess we have now where most of the benefits go to people who are not but look at the way in which the welfare system has been corrupting the very fabric of our society. We have put people in a trap which is of no part of your own making. I don’t blame them, but they’ve been put in a trap where we are inducing them to become dependents, to become children, not to become independent human beings. The virtue and the desire of freedom is for what people can do with their freedom. Freedom is not an individual value, it’s a social value. A Robinson Caruso on an island, freedom is a meaningless concept to him.
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Milton Friedman says this in the following episode:
I believe that there is a strong enough component of freedom in our society that we will be able to preserve it, that we’re going to turn this trend back, that we are going to cut government down to size, we’re going to lay the ground work for a resurgence for a, a flowering, of that diversity which has been the real product of our free society.
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Pt 7
Lawrence E. Spivak: Milton, how bad is the state of freedom in this country today?
Friedman: It’s a mixed bag. In some areas we have more freedom than we’ve ever had before. In some other areas our freedom has been drastically reduced. Our freedom to spend our own money as we want has been cut sharply. Our freedom to go into whatever occupation we want has been reduced sharply. Our freedom to have various businesses has been reduced sharply. And these restrictions in our economic freedoms have carried over to restrictions on the freedom with which we speak and we talk, the activities we carry on, our attitudes toward governmental officials and all the rest. In those areas, our freedoms have been very seriously restricted.
Lawrence E. Spivak: What about your yourself? You as an individual and we really have to do with, deal with millions of hundreds, two hundred million, two hundred twenty million individuals. What about you? What freedom do you think you’ve lost?
Friedman: Well, I have been a very fortunate individual. I always have…
Lawrence E. Spivak: That sounds like a cop out.
Friedman: No, it’s not a cop out because I’m going to add to it. I’ve always said about the only people who have effective freedom of speech these days in the United States are tenured professors at private universities who are on the verge of retirement or have retired. And that’s been my situation in these recent years. Consider the freedom of, for example, a professor of medicine at any one of our great institutions. He’s almost certainly having his research financed by the Federal Government. Don’t you suppose he’d think two or three times before he gave a lecture on the evils of socialized medicine? Or consider one of my colleagues at the University who happens to be getting grants of money from the National Science Foundation. Do you think he really feels free to speak out on the issue of whether government ought to be financing such research. Of course, you ought not to have freedom without costs. But the costs ought to be reasonable. They ought not to be disproportionate, there’s no businessmen in this country today who can speak out. Why is it, why is it that the businessmen today are so mealy-mouthed in what they say? There are very few of them who are willing to come out and say openly what they believe. Why?
Lawrence E. Spivak: About what?
Friedman: About anything. Take for example the recent attempts by President Carter to impose voluntary wage and price controls. There’s hardly a businessman in this country who doesn’t think it’s terrible. There are only about two or three businessmen who have had the courage to stand up and say something about that. But again, as I say, go to my academic colleagues. Many of them feel as I do that government is devoting altogether too much money. That there’s been altogether too much subsidization of state universities and colleges all along the line. Yet very few of them are willing to speak out.
Lawrence E. Spivak: What about the generation that doesn’t know what freedom is as you knew it, and therefore, doesn’t mind so much what has happened. Just takes for granted what he’s living under now.
Friedman: I think that’s a very real problem. I think we’re living on our inheritance. We have inherited a philosophy and a set of attitudes and they tend to be eroded. People get accustomed to what they know. There’s an enormous tear in the status quote and most people, most of the time, accept the circumstances that are around them. There’s a natural human drive for freedom which always expresses itself. But, its stronger or weaker and I think a great danger in continuing along the path that we’ve been going on is that we will lose still more of our inheritance, still more of our basic values of our basic beliefs in freedom and that we will have still less protest as more and more freedoms are taken away. The real value of freedom is that it provides diversity and diversity is in turn the real protection of freedom. People who like to live in small cities, can live in small cities. People who like the impersonality of the metropolis can live in a metropolis. We have loyalties to our churches, we have loyalties to our universities, to our schools, to our clubs, to our cities, to our states. It’s this diversity. That fact that there isn’t a monolithic conformity imposed on us, that is, the source of protection for our freedom and also the fruit of freedom. It’s because freedom protects diversity, allows, you will remember the phrase when Mao said he was going to allow a 100 flowers to bloom. But of course he didn’t. As soon as people spoke out and 100 flowers bloomed, he cut them off. But it’s the blooming of many flowers, the fact that you have all of these different expressions of people’s individuality and produces the great achievements of civilization and that provides the great hope a protection of our freedom.
Lawrence E. Spivak: Why are you saying that there are pockets of freedom still existing in the countries?
Friedman: As I said before, the picture’s a mixed bag. In certain respects we have more freedom than we’ve ever had, but in other respects we’ve had very much less freedom. Of course there are great pockets of freedom, this is predominantly still a free country. We must not confuse the trend with the situation. We have been moving away from freedom. Our freedom is in jeopardy but by no means has been completely destroyed. I believe that there is a strong enough component of freedom in our society that we will be able to preserve it, that we’re going to turn this trend back, that we are going to cut government down to size, we’re going to lay the ground work for a resurgence for a, a flowering, of that diversity which has been the real product of our free society.
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Back in 2011, I shared a chart comparing economic growth in Chile, Argentina, and Venezuela between 1980 and 2008.
My simple goal was to show that market-oriented nations enjoy very fast growth compared to nations with “mixed economies or socialist economies.
Over the past dozen years, I’ve repeatedly shared that chart and featured it in the “anti-convergence club.”
Having written yesterday about the ongoing economic misery of Venezuela, it dawned on me that is it probably time to update the numbers.
So I went to the International Monetary Fund’s World Economic Outlookdatabase.
What did I find? As you can see from the chart, everything I wrote back in 2011 is still true. Except Chile looks even better and Venezuela looks even worse.
The obvious takeaway is that the longer a nation follows good policy, the better the results. And the longer a nation is subjected to socialism, the worse the results.
If you want numbers, inflation-adjusted per-capita output has nearly tripled in Chile over the past four decades. Call that a reward for good policy.
By contrast, economic growth in Argentina has been very anemic, just 21 percent in 42 years. Call that the price of bad policy.
But Argentina’s anemia looks great compared to Venezuela, where per-capita GDP has suffered a 70 percent collapse. I’m not sure there’s a word to describe such a cataclysmic decline. For lack of a better alternative, we’ll say that’s the “reward” for socialism.
I always challenge my leftist friends to respond to my never-answered question. Maybe I should simplify things and simply ask if they still thinkVenezuela is a role model.
P.P.S. While Venezuela is the main focus of today’s column, I can’t resist sharing my concerns about Chile. As documented in my six-part series in 2021, Chile elected a socialist president. It is therefore possible that a future version of his chart will show grim news. But hope is not lost. Chilean voters overwhelmingly rejected a proposal for a new constitution based on socialism. And just a few days ago, the legislature rejected a huge, class-warfare tax increase.
José Niño is a graduate student based in Santiago, Chile. A citizen of the world, he has lived in Venezuela, Colombia, and the United States. He is currently an international research analyst with the Acton Circle of Chile. Follow@JoseAlNino.
EspañolThe power of ideas to help shape political movements has been grossly underestimated over the years. In truth, some of the largest political transformations in human history have come from ideas that were developed in the secluded confines of an intellectual’s home or in obscure academic institutes. Regardless of the origins, ideas can snowball into powerful vehicles of social change.+
As Friedrich Hayek noted in one of his most powerful works, Intellectuals and Socialism,the triumph of socialist ideas can largely be attributed to the ideas first put forward by various intellectuals. They began with relatively well-off intellectuals and then made their way to “second-hand dealers” — journalists, scientists, doctors, teachers, ministers, lecturers, radio commentators, fiction writers, cartoonists, and artists — who then spread those ideas to the masses.+
Intellectuals like Milton Friedman took it upon themselves to reverse this trend and create an environment that was more favorable to free markets. Steadfast in his beliefs in the power of ideas, Friedman knew that big changes usually start out in small venues.+
It was in Chile where Friedman’s vision was first implemented on a large scale. The results were nothing short of spectacular, as Chile was able to escape a veritable economic collapse and experience an unprecedented boom.+
Chile’s economic success was no mere coincidence; it was the product of ideas that Milton Friedman put forward in the 1950s. To understand how such a radical change was brought about, one must first look at the origins of the Chicago Boys, the group of Chilean economists that played a pivotal role in the transformation of Chile’s economy during the 1970s and 1980s.+
The Chicago Boys
Under the tutelage of the United States Agency for International Development (USAID), the University of Chicago signed a modest agreement with the Pontifical Catholic University of Chile in the 1950s to provide a group of Chilean students training in economics.+
In exchange, the University of Chicago would send four faculty members to help the Catholic University build up their economics department. Of these four faculty members, Arnold Harberger would serve as the Chicago Boys’ principal mentor.+
What at first looked liked just another exchange program between universities would play a substantial role in Chile’s economic rise.+
A Country Mired By Statism
At the start of this program, Chile’s economy was in the doldrums. Another victim of Raúl Prebisch’s Import Substitution Industrialization (ISI) policy, Chile had a very loose central banking policy, featured 15 different exchange rates, heavy tariffs, and a number of import and export controls. Subsequent governments maintained the same neo-mercantilist structure up until the 1970s.+
During this era of economic malaise, the Chicago Boys constructed El Ladrillo(The Brick), a text primarily shaped by economist Sergio de Castro which advocated for economic liberalization in all sectors of the Chilean economy. Sadly, this text was largely ignored at that time.+
It wasn’t until the presidency of Salvador Allende that the Chicago Boys’ talents would be desperately needed.+
On the Road to Cuba 2.0
Though democratically elected by a narrow margin in 1970, Salvador Allende was determined to turn Chile into the next Cuba by undermining all of its democratic institutions. Through price controls, arbitrary expropriations, and lax monetary policy, Allende put the Chilean economy on the verge of collapse. By 1973, inflation reached 606 percent and per capita GDP dropped 7.14 percent.+
Under the command of General Augusto Pinochet, the military deposed Allende’s government. Despite this tumultuous change, the military ruler did not have a clear economic vision for Chile.+
Enter Milton Friedman
Milton Friedman’s visit to Chile in March 1975 proved to be quite fateful. Friedman was on a week-long lecture tour for various think thanks. Eventually, Friedman sat down with the general himself for 45 minutes. Right off the bat, Friedman recognized that Pinochet had very little knowledge of economics. After their meeting, Friedman sent Pinochet a letter with a list of policy recommendations.+
Friedman was blunt is his diagnosis of Chile’s economy: for the country to recover, it had to truly embrace free-market measures.+
Ideas Put in Action
Cooler heads prevailed and Pinochet let the Chicago School disciples occupy various posts in the military government. In April 1975, El Plan de Recuperación Económica (The Economic Recovery Plan) was implemented. Soon Chile curbed its inflation, opened up its markets, privatized state-owned industries, and cut government spending. By the 1990s, Chile was experiencing the largest economic boom in its history.+
A principled libertarian, Friedman criticized Pinochet’s repressive political measures. Friedman understood that economic and political freedoms are not mutually exclusive. The principles laid in Friedman’s book Capitalism and Freedom inspired José Piñera, a notable Chilean reformer, to become a part of Chile’s classical liberal revolution.+
Like Friedman, Piñera understood the link between economic and political freedom. This motivated him to help ratify the Chilean Constitution of 1980. The most classically liberal constitution in Latin America’s history, it established the transition towards free elections and Chile’s return to democracy.+
Additionally, Piñera was the architect of Chile’s private social security system that empowered millions of workers and has fostered the growth of an ownership society. This model has been exported to dozens of countries abroad and has served as a market-based alternative to government-run pension systems.+
The “Chilean Miracle” represented the first major triumph against communism during the Cold War. Chile’s classical-liberal revolution subsequently inspired the Thatcher Revolution of 1979 and the Reagan Revolution of 1980. These ideas had resounding effects all over the globe and marked the beginning of the end for Soviet-style models of economic organization.+
There is still much work to do, as the illegitimate children of Marxist and Keynesian thought still run loose these days throughout Latin America. But one thing is absolutely certain: an idea whose time has come is unstoppable.+
RIP Milton Friedman
Milton Friedman is the short one!!!
Milton Friedman’s Free to Choose (1980), episode 3 – Anatomy of a Crisis. part 1
Milton Friedman The Power of the Market 5-5 How can we have personal freedom without economic freedom? That is why I don’t understand why socialists who value individual freedoms want to take away our economic freedoms. I wanted to share this info below with you from Milton Friedman who has influenced me greatly over the […]
By the way, if you somehow think IMF data is suspect, you can also look at the UN’s Human Development Index. Over the past couple of decades, only Syria, Libya, and Yemen performed worse than Venezuela.
In his column for the Miami Herald, Andres Oppenheimer documents Venezuela’s descent into misery.
As Venezuelan dictator Nicolás Maduro celebrates his 10th year in office this week, a reality check shows that his presidency has been much more disastrous than people think. Maduro…has performed an economic miracle in reverse: He has turned what used to be one of Latin America’s richest countries into the poorest one, alongside Haiti.…Venezuela’s gross domestic product has plummeted from $350 billion in 2013 to $60 billion today… Venezuela’s poverty rate has soared from 40% of the population in 2013 to 94% today… Venezuela’s annual inflation rate has risen to nearly 350% this year from 56% in 2013… More than 7.2 million Venezuelans have fled the country during the past decade, according to United Nations estimates. That’s the biggest mass exodus in Latin America’s history.
That’s a depressing indictment.
But there’s more bad news to share. Here are some excerpts from an article by Dominic Wightman for the U.K.-based Critic.
Caracas has grown into one such city from hell. …there’s all-round cynicism, the pongs of death and dank deprivation ubiquitous. …The capital city is flatlining, the flatline only spiked by oases of ill-gotten gains underwritten by Russian gangsters, by wannabe Cuban puppet masters and the Chavistas themselves,whose grip on Venezuela has been transitorily perpetuated by narcodollars… No politics class or textbook can prepare a man for fifteen years viewing first-hand this latest chapter in the failure of socialist doctrine. The descent to hell in Venezuela has been swift and gruesome. …Too often in the West we have discussed Socialism as if it were a cheese on a cheeseboard, some kind of edible mushroom from which we might find nourishment, even as a side dish in a broader menu of political possibilities. The truth is that Socialism is poison, whichever way it is prepared or digested. It is appropriate — no, it is vital — to be so black and white about it.
Wightman’s analysis is particularly persuasive since he is married to a Venezuelan woman and has personally witnessed the nation’s decline over many years.
By the way, if you somehow think IMF data is suspect, you can also look at the UN’s Human Development Index. Over the past couple of decades, only Syria, Libya, and Yemen performed worse than Venezuela.
In his column for the Miami Herald, Andres Oppenheimer documents Venezuela’s descent into misery.
As Venezuelan dictator Nicolás Maduro celebrates his 10th year in office this week, a reality check shows that his presidency has been much more disastrous than people think. Maduro…has performed an economic miracle in reverse: He has turned what used to be one of Latin America’s richest countries into the poorest one, alongside Haiti.…Venezuela’s gross domestic product has plummeted from $350 billion in 2013 to $60 billion today… Venezuela’s poverty rate has soared from 40% of the population in 2013 to 94% today… Venezuela’s annual inflation rate has risen to nearly 350% this year from 56% in 2013… More than 7.2 million Venezuelans have fled the country during the past decade, according to United Nations estimates. That’s the biggest mass exodus in Latin America’s history.
That’s a depressing indictment.
But there’s more bad news to share. Here are some excerpts from an article by Dominic Wightman for the U.K.-based Critic.
Caracas has grown into one such city from hell. …there’s all-round cynicism, the pongs of death and dank deprivation ubiquitous. …The capital city is flatlining, the flatline only spiked by oases of ill-gotten gains underwritten by Russian gangsters, by wannabe Cuban puppet masters and the Chavistas themselves,whose grip on Venezuela has been transitorily perpetuated by narcodollars… No politics class or textbook can prepare a man for fifteen years viewing first-hand this latest chapter in the failure of socialist doctrine. The descent to hell in Venezuela has been swift and gruesome. …Too often in the West we have discussed Socialism as if it were a cheese on a cheeseboard, some kind of edible mushroom from which we might find nourishment, even as a side dish in a broader menu of political possibilities. The truth is that Socialism is poison, whichever way it is prepared or digested. It is appropriate — no, it is vital — to be so black and white about it.
Wightman’s analysis is particularly persuasive since he is married to a Venezuelan woman and has personally witnessed the nation’s decline over many years.
The shift toward free markets, which began in the mid-1970s, was especially beneficial for the less fortunate (see here, here, and here).
But it’s quite common for critics to assert that Chile is a bad example because many of the reforms were enacted by General Augusto Pinochet, a dictator who seized power in 1973. And some of those critics also attack Milton Friedman for urging Pinochet to liberalize the economy and reduce the burden of government.
Are these critics right?
To answer that question, I very much recommend the following cartoon strip by Peter Bagge. Published by Reason, it accurately depicts the efforts of reformers to get good reforms from a bad government.
It starts in 1973, with a group of Chilean economists, known as the “Chicago Boys,” who wanted free markets.
In 1975, they invited Milton Friedman to help make the case for economic reform.
This 1982 strip shows some of the controversies that materialized.
But by the time we got to the 21st century, everything Friedman said turned out to be true.
First, I’ll be able to share it with people who want to delegitimize Chile’s transition to a market-oriented democracy (ranked #14 according to the most-recent edition of Economic Freedom of the World). Simply stated, it was bad that Chile had a dictatorship, but it was good that the dictatorship allowed pro-market reforms (particularly when compared to the alternative of a dictatorship with no reforms). And it was great that Chile became a democracy (a process presumably aided by mass prosperity).
Second, we should encourage engagement with distasteful governments. I certainly don’t endorse China’s government or Russia’s government, but I’ve advised government officials from both nations. Heck, I would even give advice to Cuba’s government or North Korea’s government (not that I’m expecting to be asked). My goal is to promote more liberty and it would make me very happy if I could have just a tiny fraction of Friedman’s influence in pursuing that goal.
P.S. Here’s Milton Friedman discussing his role in Chile.
P.P.S. While I disagree, it’s easy to understand why some people try to delegitimize Chile’s reforms by linking them to Pinochet. What baffles me are the folks who try to argue that the reforms were a failure. See, for instance, Prof. Dani Rodrik and the New York Times.
José Niño is a graduate student based in Santiago, Chile. A citizen of the world, he has lived in Venezuela, Colombia, and the United States. He is currently an international research analyst with the Acton Circle of Chile. Follow@JoseAlNino.
EspañolThe power of ideas to help shape political movements has been grossly underestimated over the years. In truth, some of the largest political transformations in human history have come from ideas that were developed in the secluded confines of an intellectual’s home or in obscure academic institutes. Regardless of the origins, ideas can snowball into powerful vehicles of social change.+
As Friedrich Hayek noted in one of his most powerful works, Intellectuals and Socialism,the triumph of socialist ideas can largely be attributed to the ideas first put forward by various intellectuals. They began with relatively well-off intellectuals and then made their way to “second-hand dealers” — journalists, scientists, doctors, teachers, ministers, lecturers, radio commentators, fiction writers, cartoonists, and artists — who then spread those ideas to the masses.+
Intellectuals like Milton Friedman took it upon themselves to reverse this trend and create an environment that was more favorable to free markets. Steadfast in his beliefs in the power of ideas, Friedman knew that big changes usually start out in small venues.+
It was in Chile where Friedman’s vision was first implemented on a large scale. The results were nothing short of spectacular, as Chile was able to escape a veritable economic collapse and experience an unprecedented boom.+
Chile’s economic success was no mere coincidence; it was the product of ideas that Milton Friedman put forward in the 1950s. To understand how such a radical change was brought about, one must first look at the origins of the Chicago Boys, the group of Chilean economists that played a pivotal role in the transformation of Chile’s economy during the 1970s and 1980s.+
The Chicago Boys
Under the tutelage of the United States Agency for International Development (USAID), the University of Chicago signed a modest agreement with the Pontifical Catholic University of Chile in the 1950s to provide a group of Chilean students training in economics.+
In exchange, the University of Chicago would send four faculty members to help the Catholic University build up their economics department. Of these four faculty members, Arnold Harberger would serve as the Chicago Boys’ principal mentor.+
What at first looked liked just another exchange program between universities would play a substantial role in Chile’s economic rise.+
A Country Mired By Statism
At the start of this program, Chile’s economy was in the doldrums. Another victim of Raúl Prebisch’s Import Substitution Industrialization (ISI) policy, Chile had a very loose central banking policy, featured 15 different exchange rates, heavy tariffs, and a number of import and export controls. Subsequent governments maintained the same neo-mercantilist structure up until the 1970s.+
During this era of economic malaise, the Chicago Boys constructed El Ladrillo(The Brick), a text primarily shaped by economist Sergio de Castro which advocated for economic liberalization in all sectors of the Chilean economy. Sadly, this text was largely ignored at that time.+
It wasn’t until the presidency of Salvador Allende that the Chicago Boys’ talents would be desperately needed.+
On the Road to Cuba 2.0
Though democratically elected by a narrow margin in 1970, Salvador Allende was determined to turn Chile into the next Cuba by undermining all of its democratic institutions. Through price controls, arbitrary expropriations, and lax monetary policy, Allende put the Chilean economy on the verge of collapse. By 1973, inflation reached 606 percent and per capita GDP dropped 7.14 percent.+
Under the command of General Augusto Pinochet, the military deposed Allende’s government. Despite this tumultuous change, the military ruler did not have a clear economic vision for Chile.+
Enter Milton Friedman
Milton Friedman’s visit to Chile in March 1975 proved to be quite fateful. Friedman was on a week-long lecture tour for various think thanks. Eventually, Friedman sat down with the general himself for 45 minutes. Right off the bat, Friedman recognized that Pinochet had very little knowledge of economics. After their meeting, Friedman sent Pinochet a letter with a list of policy recommendations.+
Friedman was blunt is his diagnosis of Chile’s economy: for the country to recover, it had to truly embrace free-market measures.+
Ideas Put in Action
Cooler heads prevailed and Pinochet let the Chicago School disciples occupy various posts in the military government. In April 1975, El Plan de Recuperación Económica (The Economic Recovery Plan) was implemented. Soon Chile curbed its inflation, opened up its markets, privatized state-owned industries, and cut government spending. By the 1990s, Chile was experiencing the largest economic boom in its history.+
A principled libertarian, Friedman criticized Pinochet’s repressive political measures. Friedman understood that economic and political freedoms are not mutually exclusive. The principles laid in Friedman’s book Capitalism and Freedom inspired José Piñera, a notable Chilean reformer, to become a part of Chile’s classical liberal revolution.+
Like Friedman, Piñera understood the link between economic and political freedom. This motivated him to help ratify the Chilean Constitution of 1980. The most classically liberal constitution in Latin America’s history, it established the transition towards free elections and Chile’s return to democracy.+
Additionally, Piñera was the architect of Chile’s private social security system that empowered millions of workers and has fostered the growth of an ownership society. This model has been exported to dozens of countries abroad and has served as a market-based alternative to government-run pension systems.+
The “Chilean Miracle” represented the first major triumph against communism during the Cold War. Chile’s classical-liberal revolution subsequently inspired the Thatcher Revolution of 1979 and the Reagan Revolution of 1980. These ideas had resounding effects all over the globe and marked the beginning of the end for Soviet-style models of economic organization.+
There is still much work to do, as the illegitimate children of Marxist and Keynesian thought still run loose these days throughout Latin America. But one thing is absolutely certain: an idea whose time has come is unstoppable.+
RIP Milton Friedman
Milton Friedman is the short one!!!
Milton Friedman’s Free to Choose (1980), episode 3 – Anatomy of a Crisis. part 1
Milton Friedman The Power of the Market 5-5 How can we have personal freedom without economic freedom? That is why I don’t understand why socialists who value individual freedoms want to take away our economic freedoms. I wanted to share this info below with you from Milton Friedman who has influenced me greatly over the […]
The United States Trade Representative (USTR) is conducting a four‐year review of the Section 301 tariffs imposed on imports from China. In 2018, the USTR initiated an investigation into China’s technology and intellectual property practices and concluded that they adversely affected U.S. businesses. As a result, the U.S. imposed punitive tariffs up to 25 percent on over $300 billion worth of imports from China.
As part of the review process, interested Americans could provide comments to the USTR. The almost 1,500 comments filed paint an ugly picture—higher costs and prices, and less investment in workers and capital.
A new study on the impact on American businesses and consumers of Section 301 tariffs specifically on imports of apparel, footwear, travel goods, and furniture paints a similarly bleak picture. All of these goods except furniture are subject to most favored nation (MFN) tariffs—a preferential tariff rate for all World Trade Organization members, except Cuba, and Russia (whose preferential treatment was revoked by Congress in response to the war in Ukraine). Chart 1 illustrates the new total tariffs on these products.
Traditionally, tariffs are paid by importers, so these new rates immediately hit American businesses importing apparel, footwear, travel goods, and furniture. U.S. firms needed to consider whether to share or totally pass on the tariff cost to their customers. In many cases, companies calculated that passing on the tariffs would lose customers. However, absorbing these costs was not sustainable and in order to stay afloat, firms began passing some or all of the new tariff costs to consumers. Table 1 illustrates the direct costs to Americans for apparel, footwear, travel goods, and furniture between 2018 and 2022 as a result of the Section 301 tariffs. The overall cost of the tariffs amounted to over $166 billion.
In response to the tariffs, many businesses tried to change sourcing from China and some succeeded in switching suppliers to other foreign manufacturers. However, most apparel, footwear, and travel goods companies could not change their sourcing.
Some apparel sourcing changed from China to other foreign manufacturers but no manufacturing moved to the U.S. For a variety of reasons, it is not straightforward (or cheap) to shift sourcing. These decisions consider price factors, but other non‐price factors are also part of the equation. For apparel, so much of the specialized supply chain simply does not exist outside of China, including the skilled labor required to make certain apparel items. Clothing is also often subject to “minimum quantity orders” and for small businesses that need lower quantity orders, alternative sources like Vietnam do not accept small orders.
The United States imports almost all shoes sold in the U.S. market. The tariffs forced some U.S. companies to find new suppliers in other countries (though again, not in the U.S.) but most businesses could not find alternative sources. Similar to apparel, Chinese footwear producers are skilled and have specialized machinery that does not exist elsewhere.
Many travel goods benefitted from the Generalized System of Preferences (GSP), which provided duty‐free treatment to specific goods from certain countries. However, the GSP expired at the end of 2020. U.S. firms importing travel goods from GSP countries had to choose whether to pay MFN tariffs or source from China and pay MFN tariffs plus Section 301 tariffs. Even with Section 301 tariffs, the expiration of GSP made China a more competitive place to source from. As a result, since 2020 imports of travel goods from China increased.
American furniture companies importing from China are the unique case and more than the other industries, changed sourcing to other foreign suppliers (though again, not to the U.S.). However, changing suppliers was a difficult endeavor, many U.S. retailers explained that Chinese manufacturers are the best for high volume orders and specialty orders where the furniture is custom built with individual selections for fabrics and materials. Moreover, children’s furniture is subject to more onerous U.S. health and safety standards. Changing sources lengthened the time for new suppliers to become certified with U.S. authorities, increasing wait times for orders. While some of these American companies were able to move production away from China, it came at a cost and required these companies to raise prices to consumers.
In the cases of apparel, footwear, travel goods, and furniture imports (though the same story is true for most other products impacted by Section 301 tariffs), American businesses reported that the tariffs cost them and their customers. On the other hand, Chinese firms managed to maintain much of their business with their American customers. Despite the tariffs, as illustrated in Chart 2, U.S. imports of apparel, footwear, travel goods, and furniture increased since 2020.
Finally, apparel, footwear, and furniture are essential products and an unfortunate fact that is seemingly ignored by policymakers is how tariffs disproportionately affect those earning less. While tariffs are broadly regressive (those at the lower end of the wage scale are unduly burdened), the essential nature of apparel, footwear, and furniture means that Americans tend to consume roughly the same amounts of them each month, regardless of whether prices fall or rise (though differences across households surely exist). Tables 2 and 3 illustrate the differences in shares of expenditure on apparel, footwear, and furniture between those in the top and bottom income quintiles before and after the imposition of Section 301 tariffs on these products.
Section 301 tariffs on imports from China harmed American businesses, workers, and the U.S. economy, costing the poorest the most. Moreover, the tariffs do not target those engaging in unfair practices and therefore have been ineffective at achieving the alleged intended goal of changing China’s economic policies.
As the USTR moves through the review process, there is little hope that it concludes to eliminate these tariffs. The Biden administration already maintained the othertwo tranches of tariffs imposed during the Trump presidency, even swapping some tariffs for complicated tariff‐rate quotas. However, the evidence is clear and it is past timetoremovethesetariffs.
If you don’t have a spare seven minutes to watch the video, it addresses three specific points.
Does cross-border trade destroy manufacturing jobs?
Did liberalizing trade with China take American jobs?
Does trade make us vulnerable because of supply chains?
Plenty of good material, but I also would have challenged protectionists to provide a successful example of protectionism. Today or in the past.
Did protectionism work for Herbert Hoover – or anyone else – in the 1930s?
Did protectionism work for Juan Peron in Argentina in the 1940s and 1950s?
Is protectionism working for India’s economy in the 21st century?
Did protectionism work for Donald Trump between 2017 and 2020?
The answer is no in every single case. So it is no surprise that scholarly research (see here, here, here, here, here, here, here, here, and here) shows that free trade is a better approach if a nation wants more jobs and higher income.
But protectionists make one accurate point. While free trade increases overall employment, that does not mean every worker in every industry benefits.
In his New York Timescolumn, Peter Coy explores this topic.
The skepticism about free markets…has gotten only stronger…only 44 percent of Republican voters…viewed free trade mainly as an opportunity for growth through increased exports. …the standard Econ 101 argument for free trade… First, assert that trade increases prosperity by allowing each country to specialize in what it’s best at. …Second, acknowledge that not everyone wins from free trade… Third, state that this problem can be easily solved: Everyone in society can be made better off if the winners share some of their gains with the losers. …In reality, the winners from trade rarely share much of their gains with the losers. The losers remain losers, and they often vote for candidates who put up tariff walls. …the free traders have failed to deliver on their promises to make free trade and open markets work for all.
A reasonably fair article, but I don’t think “free traders have failed” for reasons I explained in one of my videos from earlier this year.
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If you don’t want to spend three minutes watching the video, I explain that all trade destroys jobs. And that includes trade within a nation.
Millions of jobs get destroyed every year, in part because new technology, new competitors, and new innovations.
That’s bad news for many people, but it’s also the process that creates even more new jobs.
And it’s the process that has made all of us so much richer than our ancestors. And that includes the ancestors of people who lost jobs because of domestic or international trade.
The pandemic has shocked every sector of the economy. Trade restrictions enacted by the Trump administration and maintained by President Biden have rippled through the U.S. economy but have particularly impacted U.S. ports. The pandemic highlighted that American ports have broader efficiency problems and could use some serious policy and management reforms.
On the west coast in particular, ship congestion has caused severe delays, wreaking havoc on the supply chain. While factories and ports in Asia are working 24/7 to supply American consumers with valuable goods, U.S. ports have been open for far fewer hours because labor union contractsdictate the hourly terms. However, after months of backlog, the ports of Los Angeles (LA) and Long Beach (LB) are finally switching to 24/7 shifts to move goods more quickly.
As a result of these union contracts, government offices are also not open 24/7. The ports of LA and LB account for almost half of all U.S. imports. The Customs and Border Protection (CBP) officials who must clear and admit goods do not work nights or weekends. These limits create additional pressure to have goods shipped to the United States during a prohibitive time frame, or leave ships idling around the ports until they can get in. The latter is the most common response. Recently, ships have been waiting an average of 12.5 days to enter the LA port. Ship idling has caused other problems too. Orange County, CA was affected by an oil spill that is suspected to have been caused by a pipeline hit with idling ship anchors. These differences in operating hours have caused huge ports efficiency losses that are felt across the country.
While it is positive that retailers, couriers, and the International Longshore and Warehouse Union (ILWU) are making changes to run ports more efficiently, permanent trade policy changes would help ease America’s coastal shipping problems.
The best policy would be to unilaterally remove tariffs by the United States. Simply eliminating tariffs would reduce an administrative burden both for traders and CBP officials. Duty‐free trade would increase imports and exports but all other things equal, the freed‐up CBP resources would help to move goods more swiftly through the ports.
However, a few smaller reforms could be implemented now that would considerably help the efficiency of U.S. ports. Removing Section 232 tariffs on steel and aluminum imports could temper the current domestic scarcity of some transportation‐related goods, including chassis (the frame of a vehicle that holds containers). Thesematerials are vital inputs for such products and the Section 232 tariffs are affecting American manufacturers’ ability to meet domestic demand. Eliminating duties and tariffs on transportation‐related goods, including the 221 percent antidumping and countervailing (AD/CVD) duties and 25 percent Section 301 tariffs on Chinese chassis, could help increase the U.S. supply of chassis. While some freighters are paying the higher prices for Chinese chassis, the supply of transportation is still constrained, which has resulted in higher sticker prices on consumer goods.
As LA and LB move to 24/7 shifts, CBP offices should also be open 24/7. Given the sheer volume of trade these two ports process, it would seem sensible to make staffing 24/7 a permanent change at these ports, and at others depending on trade volumes.
Reforming the Jones Act could also help. All freight moved between U.S. ports mustuseU.S.-built, -crewed, and -flagged ships. As a result, traders circumvent these regulations by using alternative modes like trucks and trains. It would be prudent to reform the Jones Act to allow ships not in compliance with the Jones Act to pick up shipments in one U.S. port and unload at another. This would reduce pressure on inland transit that is currently being impacted by the aforementioned tariffs.
These bottlenecks have provided insight into the problems that exist at U.S. ports and with coastal shipping more broadly. Improvements in trade policy have a role to play and policymakers would be remiss not to consider permanent changes that would be beneficial now and could preempt pressures during future economic shocks.
Milton Friedman – Free Trade vs. Protectionism
Free to Choose Part 2: The Tyranny of Control (Featuring Milton Friedman
Larry Elder rebuts candidate’s ‘they’re taking our jobs’ claim
Published: 02/03/2016 at 6:39 PM
One of Donald Trump’s talking points and biggest applause lines is how “they” – Japan, China and Mexico – are “beating us in trade” and are “taking our jobs.” He proposes tariffs, for example, on Chinese goods in retaliation for that country’s alleged “cheating.”
To someone who is out of work in an industry where foreign workers do what he or she once did, Trump-like protectionism sounds appealing. But Trump actually proposes punishing the American consumer. As economist Milton Friedman says, protectionism discriminates against low prices.
It is certainly true that many countries prop up or subsidize companies or even whole industries by providing capital or special privileges. This allows them to produce goods and services “below cost” – or at prices below what a competitor could charge and still make a profit. But doing so also means that taxes in that country, which could have gone to a more productive use, are squandered to keep a company in business that otherwise wouldn’t exist or would have gone out of business. This means consumers in other countries with which the “cheater” country trades can buy those imported goods at a cheaper price.
Trump proposes to retaliate by placing tariffs on those imported goods. But this prevents American consumers from benefiting from the “cheater” country’s folly of propping up companies that would not survive but for the taxes spent to keep it alive. Why compound the stupidity?
Another justification for this kind of protectionism is that a foreign country “exploits” America through the use of “slave labor” which, as to wages, causes a “race to the bottom.” Certainly forced labor, as when “blood diamonds” are mined by workers with guns pointed to their heads, is criminal and immoral. But free laborers offering to work for less money than others is how poor countries become wealthier – by allowing other countries to buy goods more cheaply.
NAFTA, the North American Free Trade Agreement, established in 1994, has become exhibit A on how “we lose” on trade. After all, many American jobs have been “outsourced” to Mexico. But that looks at but one side of the ledger. That an American pays less for certain things frees up capital to spend on something or on someone else. A machinist sees his job “shipped to Mexico,” but the planner or analyst hired by a company with the “savings” might not see the direct relationship between free trade and the fact that he or she has this new job. When NAFTA was debated, businessman and presidential candidate Ross Perot predicted “a giant sucking sound” as jobs and incomes would be lost to Mexico.
The American Enterprise Institute writes: “It is an article of faith among protectionists that NAFTA harmed American workers. … The justification may be that NAFTA went into force at the beginning of 1994 and the U.S. trade balance with Canada and Mexico, two of our top partners, then deteriorated.
“But the American job market improved as these trade deficits grew. Unemployment fell more than two points from the beginning of 1994 through the middle of 2000. Already high labor force participation edged higher to its all-time record by early 2000. Manufacturing employment rose until mid-1998 and was above its pre-NAFTA level until April 2001. Manufacturing wages rose. The strength in the American job market from 1994 to 1999 is not due primarily to NAFTA, but it is plain that the job market, including manufacturing, strengthened after NAFTA.”
Trump is also schizophrenic on this issue. On the one hand, he opposes illegal immigration, which most often is an economic decision where, for example, a poor, unskilled worker from Mexico sneaks into America to make money. On the other hand, Trump deems it unfair and a form of “cheating” if an American company relocates to or builds a factory in Mexico to take advantage of that unskilled Mexican worker’s willingness to work for less.
If Trump were talking about the excessive taxes or regulations that induce American companies to leave the U.S. or to put factories in foreign countries, that would be one thing. The U.S. general top marginal corporate income tax rate is the highest in the industrialized world – and, worldwide, is only exceeded by Chad and the United Arab Emirates. Unnecessary regulations also increase the cost of doing business stateside. But this is not Trump’s argument.
About free trade, the father of modern economics, Adam Smith, in 1776 wrote in “The Wealth of Nations”: “In every country it always is and must be in the interest of the great body of the people to buy whatever they want of those who sell it cheapest. The proposition is so very manifest that it seems ridiculous to take any pains to prove it; nor could it ever have been called in question had not the interested sophistry of merchants and manufacturers confounded the common sense of mankind. Their interest is, in this respect, directly opposite to that of the great body of the people.”
Milton Friedman’s FREE TO CHOOSE “The Tyranny of Control” Transcript and Video (60 Minutes) In 1980 I read the book FREE TO CHOOSE by Milton Friedman and it really enlightened me a tremendous amount. I suggest checking out these episodes and transcripts of Milton Friedman’s film series FREE TO CHOOSE: “The Failure of Socialism” and […]
In 1980 I read the book FREE TO CHOOSE by Milton Friedman and it really enlightened me a tremendous amount. I suggest checking out these episodes and transcripts of Milton Friedman’s film series FREE TO CHOOSE: “The Failure of Socialism” and “What is wrong with our schools?” and “Created Equal” and From Cradle to Grave, […]
In 1980 I read the book FREE TO CHOOSE by Milton Friedman and it really enlightened me a tremendous amount. I suggest checking out these episodes and transcripts of Milton Friedman’s film series FREE TO CHOOSE: “The Failure of Socialism” and “What is wrong with our schools?” and “Created Equal” and From Cradle to Grave, […]
In 1980 I read the book FREE TO CHOOSE by Milton Friedman and it really enlightened me a tremendous amount. I suggest checking out these episodes and transcripts of Milton Friedman’s film series FREE TO CHOOSE: “The Failure of Socialism” and “What is wrong with our schools?” and “Created Equal” and From Cradle to Grave, […]
In 1980 I read the book FREE TO CHOOSE by Milton Friedman and it really enlightened me a tremendous amount. I suggest checking out these episodes and transcripts of Milton Friedman’s film series FREE TO CHOOSE: “The Failure of Socialism” and “What is wrong with our schools?” and “Created Equal” and From Cradle to Grave, […]
In 1980 I read the book FREE TO CHOOSE by Milton Friedman and it really enlightened me a tremendous amount. I suggest checking out these episodes and transcripts of Milton Friedman’s film series FREE TO CHOOSE: “The Failure of Socialism” and “What is wrong with our schools?” and “Created Equal” and From Cradle to Grave, […]
In 1980 I read the book FREE TO CHOOSE by Milton Friedman and it really enlightened me a tremendous amount. I suggest checking out these episodes and transcripts of Milton Friedman’s film series FREE TO CHOOSE: “The Failure of Socialism” and “What is wrong with our schools?” and “Created Equal” and From Cradle to Grave, […]
In 1980 I read the book FREE TO CHOOSE by Milton Friedman and it really enlightened me a tremendous amount. I suggest checking out these episodes and transcripts of Milton Friedman’s film series FREE TO CHOOSE: “The Failure of Socialism” and “What is wrong with our schools?” and “Created Equal” and From Cradle to Grave, […]
Open letter to President Obama (Part 654) (Emailed to White House on July 22, 2013) President Obama c/o The White House 1600 Pennsylvania Avenue NW Washington, DC 20500 Dear Mr. President, I know that you receive 20,000 letters a day and that you actually read 10 of them every day. I really do respect you […]
Open letter to President Obama (Part 650) (Emailed to White House on July 22, 2013) President Obama c/o The White House 1600 Pennsylvania Avenue NW Washington, DC 20500 Dear Mr. President, I know that you receive 20,000 letters a day and that you actually read 10 of them every day. I really do respect you […]
Milton Friedman in 2004. (Friedman Foundation for Educational Choice/Public Domain/via Wikimedia)
The specter of inflation haunts Joe Biden’s presidency.
Treasury Secretary Janet Yellen got into trouble Tuesday for telling the truth. That morning, at a conference sponsored by the Atlantic, she raised the possibility that one day the Federal Reserve may raise interest rates “to make sure our economy doesn’t overheat.”
Anyone with a basic understanding of economics knew what she was talking about. The combination of President Joe Biden’s gargantuan spending and the accelerating economic recovery may well lead to a rise in consumer prices and hikes in interest rates. But an end to the Federal Reserve’s program of easy money would hurt asset prices and possibly employment as well.
Which is not what most investors want to hear. When Yellen’s words reached Wall Street, the market tanked. By the afternoon she was in retreat, telling the Wall Street Journal CEO summit that she had been misunderstood. “So let me be clear,” she said. “That’s not something I’m predicting or recommending.”
No, of course not. But it still might happen anyway.
A specter is haunting the Biden administration — the specter of inflation. Past inflations have not only harmed consumers, savers, and people on fixed incomes. They have also brought down politicians. Among the risks to the Democratic congressional majority is a rise in prices that lifts inflation to near the top of voters’ concerns, coupled by the type of Fed rate increase that hits stocks and housing. Inflation is one more signpost on the road to Republican revival, along with illegal immigration, crime, and semi-closed public schools embracing far-left critical race theory.
The classic definition of inflation is too much money chasing too few goods. That might also describe America sometime soon — if not already. The economy has started its post-virus comeback. Jobs and growth are on the upswing. U.S. households sit on a trillion-dollar pile of savings. Over the last year, on top of its regular spending, the federal government has appropriated a mind-boggling amount of money: a $2 trillion CARES Act, a $900 billion COVID-19 relief bill, and a $2 trillion American Rescue Plan. And President Biden wants to spend about $4 trillion more.
Surging this incredible amount of cash into an economy that is rapidly approaching capacity may have unintended and harmful consequences. But the Biden administration is either unconcerned about inflation or afraid of bringing it up in public.
Why? Well, one reason is that earlier warnings, after the global financial crisis in particular, didn’t seem to come true. (The inflation may have shown up in the dramatic ascent in prices of stocks and bonds, as well as in odd places such as the market for high-end art.) Another reason is that some economists think a little bit of inflation would be a good thing. But the main explanation may be related to status-quo bias: Inflation hasn’t been a driving force in our economic and public life for decades, and so we blithely assume it won’t be in the future.
Which is why an experienced leader worries about repeating the mistakes of the past. And yet, for a politician who came to Washington in 1973, Joe Biden has a lackadaisical attitude toward inflationary fiscal and monetary policy. Was he paying attention? It was the great inflation of the ’60s and ’70s, caused in part by high spending, the Arab oil embargo, and spiraling wages and prices in a heavily regulated and unionized economy, that helped ruin the presidencies of Gerald Ford and Jimmy Carter.
Inflation led to bracket creep, with voters propelled into higher income-tax brackets by monetary forces over which they had no control. And bracket creep inspired the tax revolt, supply-side economics, and the Reaganite idea that, “in this present crisis, government is not the solution to our problem; government is the problem.” The eventual cure for inflation was the painful “shock therapy” administered by Federal Reserve chairman Paul Volcker and what at the time was the worst recession since the Great Depression.
Why anyone would want to repeat this experiment in the dismal science is a mystery. Biden, however, is fixated not on inflation but on repudiating the legacy of the man known for describing it as “always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”
Milton Friedman, whose empiricism led him to embrace free-market public policy, was the most influential economist of the second half of the 20th century. But Biden has a weird habit of treating Friedman as a devilish spirit who must be exorcised from the nation’s capital. For Biden, Friedman represents deregulation, low taxes, and the idea that a corporation’s primary responsibility is not to a group of politicized “stakeholders” but to its shareholders. “Milton Friedman isn’t running the show anymore,” Biden toldPolitico last year. “When did Milton Friedman die and become king?” Biden asked in 2019. The truth is that Friedman, who died in 2006, has held little sway over either Democrats or Republicans for almost two decades. But Biden wants to mark the definitive end of Friedman and the “neoliberal” economics he espoused by unleashing a tsunami of dollars into the global economy and inundating Americans with new entitlements.
The irony is that Biden’s rejection of Friedman’s teachings on money, taxes, and spending may bring about the same circumstances that established Friedman’s preeminence. In a year or two, the American economy and Biden’s political fortunes may look considerably different than when Janet Yellen blurted out the obvious about inflation. Voters won’t like the combination of rising prices and declining assets. Biden’s experts might rediscover that it is difficult to control or stop inflation once it begins. And Milton Friedman will have his revenge.
Milton Friedman’s FREE TO CHOOSE “How to cure inflation” Transcript and Video (60 Minutes)
In 1980 I read the book FREE TO CHOOSE by Milton Friedman and it really enlightened me a tremendous amount. I suggest checking out these episodes and transcripts of Milton Friedman’s film series FREE TO CHOOSE: “The Failure of Socialism” and “What is wrong with our schools?” and “Created Equal” and From Cradle to Grave, and – Power of the Market.“If we could just stop the printing presses, we would stop inflation,” Milton Friedman says in “How to Cure Inflation” from the Free To Choose series. Now as then, there is only one cause of inflation, and that is when governments print too much money. Milton explains why it is that politicians like inflation, and why wage and price controls are not solutions to the problem.
http://www.freetochoosemedia.org/freetochoose/detail_ftc1980_transcript.php?page=9While 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.(Taxation without representation: Getting knocked up to higher tax brackets because of inflation pt 1)http://www.youtube.com/watch?v=b1dTWDNKH3c
Volume 9 – How to Cure Inflation
Transcript:
Friedman: The Sierra Nevada’s in California 10,000 feet above sea level, in the winter temperatures drop to 40 below zero, in the summer the place bakes in the thin mountain air. In this unlikely spot the town of Body sprang up. In its day Body was filled with prostitutes, drunkards and gamblers part of a colorful history of the American West.
A century ago, this was a town of 10,000 people. What brought them here? Gold. If this were real gold, people would be scrambling for it. The series of gold strikes throughout the West brought people from all over the world, all kinds of people. They came here for one purpose and one purpose only, to strike it rich, quick. But in the process, they built towns, cities, in places where nobody would otherwise have dreamed of building a city. Gold built these cities and when the gold was exhausted, the cities collapsed and became ghost towns. Many of the people who came here ended up the way they began, broke and unhappy. But a few struck it rich. For them, gold was real wealth. But was it for the world as a whole. People couldn’t eat the gold, they couldn’t wear the gold, they couldn’t live in houses made of gold. Because there was more gold, they had to pay a little more gold to buy goods and services. The prices of things in terms of gold went up.
At tremendous cost, at sacrifice of lives, people dug gold out of the bowels of the earth. What happened to that gold? Eventually, at long last, it was transported to distant places only to be buried again under the ground. This time in the vaults of banks throughout the world. There is hardly anything that hasn’t been used for money; rock salt in Ethiopia, brass rings in West Africa, Calgary shells in Uganda, even a toy cannon. Anything can be used as money. Crocodile money in Malaysia, absurd isn’t it?
That beleaguered minority of the population that still smokes may recognize this stuff as the raw material from which their cigarettes are made. But in the early days of the colonies, long before the U.S. was established, this was money. It was the common money of Virginia, Maryland and the Carolinas. It was used for all sorts of things. The legislature voted that it could be used legally to pay taxes. It was used to buy food, clothing and housing. Indeed, one of the most interesting sites was to see the husky young fellows at that time, lug 100 pounds of it down to the docks to pay the costs of the passage of the beauteous young ladies who had come over from England to be their brides.
Now you know how money is. There’s a tendency for it to grow, for more and more of it to be produced and that’s what happened with this tobacco. As more tobacco was produced, there was more money. And as always when there’s more money, prices went up. Inflation. Indeed, at the very end of the process, prices were 40 times as high in terms of tobacco as they had been at the beginning of the process. And as always when inflation occurs, people complained. And as always, the legislature tried to do something. And as always, to very little avail. They prohibited certain classes of people from growing tobacco. They tried to reduce the total amount of tobacco grown, they required people to destroy part of their tobacco. But it did no good. Finally, many people took it into their own hands and they went around destroying other people’s tobacco fields. That was too much. Then they passed a law making it a capital offense, punishable by death, to destroy somebody else’s tobacco. Grecian’s Law, one of the oldest laws in economics, was well illustrated. That law says that cheap money drives out dear money and so it was with tobacco. Anybody who had a debt to pay, of course, tried to pay it in the worst quality of tobacco he had. He saved the good tobacco to sell overseas for hard money. The result was that bad money drove out good money.
Finally, almost a century after they had started using tobacco as money, they established warehouses in which tobacco was deposited in barrels, certified by an inspector according to his views as to it’s quality and quantity. And they issued warehouse certificates which people gave from one to another to pay for the bills that they accumulated.
These pieces of green printed paper are today’s counterparts of those tobacco certificates. Except that they bear no relation to any commodity. In this program I want to take you to Britain to see how inflation weakens the social fabric of society. Then to Tokyo, where the Japanese have the courage to cure inflation. To Berlin, where there is a lesson to be learned from the West Germans and how so called cures are often worse than the disease. And to Washington where our government keeps these machines working overtime. And I am going to show you how inflation can be cured.
The fact is that most people enjoy the early stages of the inflationary process. Britain, in the swinging 60’s, there was plenty of money around, business was brisk, jobs were plentiful and prices had not yet taken off. Everybody seemed happy at first. But by the early 70’s, as the good times rolled along, prices started to rise more and more rapidly. Soon, some of these people are going to lose their jobs. The party was coming to an end.
The story is much the same in the U.S. Only the process started a little later. We’ve had one inflationary party after another. Yet we still can’t seem to avoid them. How come?
Before every election our representatives would like to make us think we are getting a tax break. When they are able to do it, while at the same time actually raising our taxes because of a bit of magic they have in their kit bag. That magic is inflation. They reduced the tax rates but the taxes we have to pay go up because we are automatically shoved into higher brackets by the effective inflation. A neat trick. Taxation without representation.
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Pt 2 Many a political leader has been tempted to turn to wage and price controls despite their repeated failure in practice. On this subject they never seem to learn. But some lessons may be learned. That happened to British P
Bob Crawford: The more I work, it seems like the more they take off me. I know if I work an extra day or two extra days, what they take in federal income tax alone is almost doubled because apparently it puts you in a higher income tax bracket and it takes more off you.
Friedman: Bob Crawford lives with his wife and three children in a suburb of Pittsburgh. They’re a fairly average American family.
Mrs. Crawford: Don’t slam the door Daphne. Okay. Alright. What are you doing? Making your favorite dish.
Friedman: We went to the Crawford’s home after he had spent a couple of days working out his federal and state income taxes for the year. For our benefit, he tried to estimate all the other taxes he had paid as well. In the end, though, he didn’t discover much that would surprise anybody.
Bob Crawford: Inflation is going up, everything is getting more expensive. No matter what you do, as soon as you walk out of the house, everything went up. Your gas bills keep going up, electric bills, your gasoline, you can name a thousand things that are going up. Everything is going sky high. Your food. My wife goes to the grocery store. We used to live on say, $60 or $50 every two weeks just for our basic food. Now it’s $80 or $90 every two weeks. Things are just going out of sight as far as expense to live on. Like I say it’s getting tough. It seems like every month it gets worse and worse. And I don’t know where it’s going to end. At the end of the day that I spend nearly $6,000 of my earnings on taxes. That leaves me with a total of $12,000 to live on. It might seem like a lot of money, but five, six years ago I was earning $12,000.
Friedman: How does taxation without representation really effect how much the Crawford family has left to spend after it’s paid its income taxes. Well in 1972 Bob Crawford earned $12,000. Some of that income was not subject to income tax. After paying income tax on the rest he had this much left to spend. Six years later he was earning $18,000 a year. By 1978 the amount free from tax was larger. But he was now in a higher tax bracket so his taxes went up by a larger percentage than his income. However, those dollars weren’t worth anything like as much. Even his wages, let alone his income after taxes, hadn’t kept up with inflation. His buying power was lower than before. That is taxation without representation in practice.
Unnamed Individual: We have with us today you brothers that are sitting here today that were with us on that committee and I’d like to tell you….
Friedman: There are many traditional scapegoats blamed for inflation. How often have you heard inflation blamed on labor unions for pushing up wages. Workers, of course, don’t agree.
Unnamed Individual: But fellows this is not true. This is subterfuge. This is a myth. Your wage rates are not creating inflation.
Friedman: And he’s right. Higher wages are mostly a result of inflation rather than a cause of it. Indeed, the impression that unions cause inflation arises partly because union wages are slow to react to inflation and then there is pressure to catch up.
Worker: On a day to day basis, try to represent our own numbers. But that in fact is not the case. Not only can we not play catch up, we can’t even maintain a wage rate commensurate with the cost of living that’s gone up in this country.
Friedman: Another scapegoat for inflation is the cost of goods coming from abroad. Inflation, we’re told, is imported. Higher prices abroad driving up prices at home. It’s another way government can blame someone else for inflation. But this argument, too, is wrong. The prices of imports and the countries from which they come are not in terms of dollars, they are in terms of lira or yen or other foreign currencies. What happens to their prices in dollars depends on exchange rates which in turn reflect inflation in the United States.
Since 1973 some governments have had a field day blaming the Arabs for inflation. But if high oil prices were the cause of inflation, how is it that inflation has been less here in Germany, a country that must import every drop of oil and gas that it uses on the roads and in industry, then for example it is in the U.S. which produces half of its own oil. Japan has no oil of its own at all. Yet at the very time the Arabs were quadrupling oil prices, the Japanese people were bringing inflation down from 30 to less than 5% a year. The fallacy is to confuse particular prices like the price of oil, with prices in general. Back at home, President Nixon understood this.
Nixon: “Now here’s what I will not do. I will not take this nation down the road of wage and price controls however politically expedient that may seem. The pros of rationing may seem like an easy way out, but they are really an easy way in for more trouble. To the explosion that follows when you try to clamp a lid on a rising head of steam without turning down the fire under the pot, wage and price controls only postpone the day of reckoning. And in so doing, they rob every American of a very important part of his freedom.
Friedman: Now listen to this:
Nixon: “The time has come for decisive action. Action that will break the vicious circle of spiraling prices and costs. I am today ordering a freeze on all prices and wages throughout the United States for a period of 90 days. In addition, I call upon corporations to extend the wage price freeze to all dividends.”
Friedman: Many a political leader has been tempted to turn to wage and price controls despite their repeated failure in practice. On this subject they never seem to learn. But some lessons may be learned. That happened to British Prime Minister James Callahan who finally discovered that a very different economic myth was wrong. He told the Labor Party Conference about it in 1976.
James Callahan: “We used to think that you could use, spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you in all candor that option no longer exists. It only works on each occasion since the war by injecting a bigger dose of inflation into the economy followed by a higher level of unemployment as the next step. That’s the history of the last 20 years.”
Friedman: Well, it’s one thing to say it. One reason why inflation does so much harm is because it effects different groups differently. Some benefit and of course they attribute that to their own cleverness. Some are hurt, but of course they attribute that to the evil actions of other people. And the whole problem is made far worse by the false cures which government adopts, particularly wage and price control.
The garbage collectors in London felt justifiably aggrieved because their wages had not been permitted to keep pace with the cost of living. They struck, hurting not the people who impose the controls, but their friends and neighbors who had to live with mounting piles of rat infested garbage. Hospital attendants felt justifiably aggrieved because their wages had not been permitted to keep up with the cost of living. They struck, hurting not the people who impose the controls, but cancer patients who were turned out of hospital beds. The attendants behaved as a group in a way they never would have behaved as individuals. One group is set against another group. The social fabric of society is torn apart inflicting scars that it will take decades to heal and all to no avail because wage and price controls, far from being a cure for inflation, only make inflation worse.
Within the memory of most of our political leaders, there’s one vivid example of how economic ruin can be magnified by controls. And the classic demonstration of what to do when it happens.
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(Wage and Price Controls don’t work)
Inflation is just like alcoholism. In both cases when you start drinking or when you start printing too much money, the good effects come first. The bad effects only come later.
That’s why in both cases there is a strong temptation to overdo it. To drink too much and to print too much money. When it comes to the cure, it’s the other way around. When you stop drinking or when you stop printing money, the bad effects come first and the good effects only come later.
Pt 3
Germany, 1945, a devastated country. A nation defeated in war. The new governing body was the Allied Control Commission, representing the United States, Britain, France and the Soviet Union. They imposed strict controls on practically every aspect of life including wages and prices. Along with the effects of war, the results were tragic. The basic economic order of the country began to collapse. Money lost its value. People reverted to primitive barter where they used cameras, fountain pens, cigarettes, whiskey as money. That was less than 40 years ago.
This is Germany as we know it today. Transformed into a place a lot of people would like to live in. How did they achieve their miraculous recovery? What did they know that we don’t know?
Early one Sunday morning, it was June 20, 1948, the German Minister of Economics, Ludwig Earhardt, a professional economist, simultaneously introduced a new currency, today’s Deutsche Mark, and in one fell swoop, abolished almost all controls on prices and wages. Why did he do it on a Sunday morning? It wasn’t as you might suppose because the Stock Markets were closed on that day, it was, as he loved to confess, because the offices of the American, the British, and the French occupation authorities were closed that day. He was sure that if he had done it when they open they would have countermanded the order. It worked like a charm. Within days, the shops were full of goods. Within months, the German economy was humming along at full steam. Economists weren’t surprised at the results, after all, that’s what a price system is for. But to the rest of the world it seemed an economic miracle that a defeated and devastated country could in little more than a decade become the strongest economy on the continent of Europe.
In a sense this city, West Berlin, is something of a unique economic test tube. Set as it is deep in Communist East Germany. Two fundamentally different economic systems collide here in Europe. Ours and theirs, separated by political philosophies, definitions of freedom and a steel and concrete wall.
To digress from inflation, economic freedom does not stand alone. It is part of a wider order. I wanted to show you how much difference it makes by letting you see how the people live on the other side of that Berlin Wall. But the East German authorities wouldn’t let us. The people over there speak the same language as the people over here. They have the same culture. They have the same for bearers. They are the same people. Yet you don’t need me to tell you how differently they live. There is one simple explanation. The political system over there cannot tolerate economic freedom. The political system over here could not exist without it.
But political freedom cannot be preserved unless inflation is kept in bounds. That’s the responsibility of government which has a monopoly over places like this. The reason we have inflation in the United States or for that matter anywhere in the world is because these pieces of paper and the accompanying book entry or their counterparts in other nations are growing more rapidly than the quantity of goods and services produced. The truth is inflation is made in one place and in one place only. Here in Washington. This is the only place were there are presses like this that turn out these pieces of paper we call money. This is the place where the power resides to determine how rapidly the amount of money shall increase.
What happened to all that noise? That’s what would happen to inflation if we stop letting the amount of money grow so rapidly. This is not a new idea. It’s not a new cure. It’s not a new problem. It’s happened over and over again in history. Sometimes inflation has been cured this way on purpose. Sometimes it’s happened by accident. During the Civil War the North, late in the Civil War, overran the place in the South where the printing presses were sitting up, where the pieces of paper were being turned out. Prior to that point, the South had a very rapid inflation. If my memory serves me right, something like 4% a month. It took the Confederacy something over two weeks to find a new place where they could set up their printing presses and start them going again. During that two week period, inflation came to a halt. After the two week period, when the presses started running again, inflation started up again. It’s that clear, that straightforward. More recently, there’s another dramatic example of the only effective way to deal with rampant inflation.
In 1973, Japanese housewives going to market were faced with an unpleasant fact. The cash in their purses seemed to be losing its value. Prices were starting to sore as the awful story of inflation began to unfold once again. The Japanese government knew what to do. What’s more, they were prepared to do it. When it was all over, economists were able to record precisely what had happened. In 1971 the quantity of money started to grow more rapidly. As always happens, inflation wasn’t affected for a time. But by late 1972 it started to respond. In early 73 the government reacted. It started to cut monetary growth. But inflation continued to soar for a time. The delayed reaction made 1973 a very tough year of recession. Inflation tumbled only when the government demonstrated its determination to keep monetary growth in check. It took five years to squeeze inflation out of the system. Japan attained relative stability. Unfortunately, there’s no way to avoid the difficult road the Japanese had to follow before they could have both low inflation and a healthy economy. First they had to live through a recession until slow monetary growth had its delayed effect on inflation.
Inflation is just like alcoholism. In both cases when you start drinking or when you start printing too much money, the good effects come first. The bad effects only come later.
That’s why in both cases there is a strong temptation to overdo it. To drink too much and to print too much money. When it comes to the cure, it’s the other way around. When you stop drinking or when you stop printing money, the bad effects come first and the good effects only come later. That’s why it’s so hard to persist with the cure. In the United States, four times in the 20 years after 1957, we undertook the cure. But each time we lacked the will to continue. As a result, we had all the bad effects and none of the good effects. Japan on the other hand, by sticking to a policy of slowing down the printing presses for five years, was by 1978 able to reap all the benefits, low inflation and a recovering economy. But there is nothing special about Japan. Every country that has had the courage to persist in a policy of slow monetary growth has been able to cure inflation and at the same time achieve a healthy economy.
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Pt 4
The job of the Federal Reserve is not to run government spending; it’s not to run government taxation. The job of the Federal Reserve is to control the money supply and I believe, frankly, I have always believed as you know, that these are excuses and not reasons for the performance.
DISCUSSION
Participants: Robert McKenzie, Moderator; Milton Friedman; Congressman Clarence J. Brown; William M. Martin, Chairman of Federal Reserve 1951_1970; Beryl W. Sprinkel, Executive Vice President, Harris Bank, Chicago; Otmar Emminger, President, Ieutsche Bundesbank, Frankfurt West Germany
MCKENZIE: And here at the Harper Library of the University of Chicago, our distinguished guests have their own ideas, too. So, lets join them now.
BROWN: If you could control the money supply, you can certainly cut back or control the rate of inflation. I’d have to say that that prescription is a little bit easier to write than it is to fill. I think there are some other ways to do it and I would relate the money supply __ I think inflation is a measure of the relationship between money and the goods and services that money is meant to cover. And so if you can stimulate the goods, the production of goods and services, it’s helpful. It’s a little tougher to control the money supply, although I think it can be done, than just saying that you should control it, because we’ve got the growth of credit cards, which is a form of money; created, in effect, by the free enterprise system. It isn’t all just printed in Washington, but that may sound too defensive. I think he was right in saying that the inflation is Washington based.
MCKENZIE: Mr. Martin, nobody has been in the firing line longer than you, 17 years head of the Fed. Could you briefly comment on that and we’ll go around the group.
MARTIN: I want to say 19 years.
(Laughter)
MARTIN: I wouldn’t be out here if it weren’t for Milton Friedman, today. He came down and gave us advice from time to time.
FRIEDMAN: You’ve never taken it.
(Laughter)
MCKENZIE: He’s going to do some interviewing later, I warn you.
MARTIN: And I’m rather glad we didn’t take it __
(Laughter)
MARTIN: __ all the time.
SPRINKEL: In your 19 years as Chairman of the Federal Reserve, Bill, the average growth in the money supply was 3.1 percent per year. The inflation rate was 2.2 percent. Since you left, the money supply has exactly doubled. The inflation rate is average over 7 percent, and, of course, in recent times the money supply has been growing in double-digit territory as has our inflation rate.
EMMINGER: May I, first of all, confirm two facts which have been so vividly brought out in the film of Professor Friedman; namely, that at the basis of the relatively good performance of Western Germany were really two events. One, the establishment of a new sound money which we try to preserve sound afterwards. And, secondly, the jump overnight into a free market economy without any controls over prices and wages. These are the two fundamental facts. We have tried to preserve monetary stability by just trying to follow this prescription of Professor Friedman; namely, monetary discipline. Keeping monetary growth relatively moderate. I must, however, warn you it’s not so easy as it looks. If you just say, governments have to have the courage to persist in that course.
FRIEDMAN: Nobody does disagree with the proposition that excessive growth in money supply is an essential element in the inflationary process and that the real problem is not what to do, but how to have the courage and the will to do it. And I want to go and start, if I may, on that subject; because I think that’s what we ought to explore. Why is it we haven’t had the courage and don’t, and under what circumstances will we? And I want to start with Bill Martin because his experience is a very interesting experience. His 19 years was divided into different periods. In the first period, that average that Beryl Sprinkel spoke about, averaged two very different periods. An early period of very slow growth and slow inflation; a later period of what at the time was regarded as creeping inflation __ now we’d be delighted to get back to it. People don’t remember that at the time that Mr. Nixon introduced price and wage controls in 1971 to control an outrageous inflation, the rate of inflation was four-and-a-half percent per year. Today we’d regard that as a major achievement; but the part of the period when you were Chairman, was a period when the inflation rate was starting to creep up and money growth rate was also creeping up. Now if I go from your period, you were eloquent in your statements to the public, to the press, to everyone, about the evils of inflation, and about the determination on the Federal Reserve not to be the architect of inflation. Your successor, Arthur Burns, was just as eloquent. Made exactly the same kinds of statements as effectively, and again over and over again said the Federal Reserve will not be the architect of inflation. His successor, Mr. G. William Miller, made the same speeches, and the same statements, and the same protestations. His successor, Paul Volcker, he is making the same statements. Now my question to you is: Why is it that there has been such a striking difference between the excellent pronouncements of all Chairmen of the Fed, therefore it’s not personal on you. You have a lot of company, unfortunately for the country. Why is it that there has been such a wide diversion between the excellent pronouncements on the one hand and what I regard as a very poor performance on the other?
MARTIN: Because monetary policy is not the only element. Fiscal policy is equally important.
FRIEDMAN: You’re shifting the buck to the Treasury.
MARTIN: Yes.
FRIEDMAN: To the Congress. We’ll get to Mr. Brown, don’t worry.
MARTIN: Yeah, that’s right.
(Laughter)
MARTIN: The relationship of fiscal policy to monetary policy is one of the important things.
MCKENZIE: Would you remind us, the general audience, when you say “fiscal policy”, what you mean in distinction to “monetary policy”?
MARTIN: Well, taxation.
MCKENZIE: Yeah.
MARTIN: The raising revenue.
FRIEDMAN: And spending.
MARTIN: And spending.
FRIEDMAN: And deficits.
MARTIN: And deficits, yes, exactly. And I think that you have to realize that when I’ve talked for a long time about the independence of the Federal Reserve. That’s independence within the government, not independence of the government. And I’ve worked consistently with the Treasury to try to see that the government is financed. Now this gets back to spending. The government says they’re gonna spend a certain amount, and then it turns out they don’t spend that amount. It doubles.
FRIEDMAN: The job of the Federal Reserve is not to run government spending; it’s not to run government taxation. The job of the Federal Reserve is to control the money supply and I believe, frankly, I have always believed as you know, that these are excuses and not reasons for the performance.
MARTIN: Well that’s where you and I differ, because I think we would be irresponsible if we didn’t take into account the needs and what the government is saying and doing. I think if we just went on our own, irresponsibly, I say it on this, because I was in the Treasury before I came to this __
FRIEDMAN: I know. I know.
MARTIN: __ go to the Fed; and I know the other side of the picture. I think we’d be rightly condemned by the American people and by the electorate.
FRIEDMAN: Every central bank in this world, including the German Central Bank, including the Federal Reserve System, has the technical capacity to make the money supply do over a period of two or three or four months, not daily, but over a period, has the technical capacity to control it.
(Several people talking at once.)
FRIEDMAN: I cannot explain the kind of excessive money creation that has occurred, in terms of the technical incapacity of the Federal Reserve System or of the German Central Bank, or of the Bank of England, or any other central bank in the world.
EMMINGER: I wouldn’t say technically we are incapable of doing that, although we have never succeeded in controlling the money supply month that way. But I would say we can, technically, control it half yearly, from one half-year period to the next and that would be sufficient __
FRIEDMAN: That would be sufficient.
EMMINGER: __ for controlling inflation. But however I __
VOICE OFF SCREEN: It doesn’t move.
FRIEDMAN: I’m an economic scientist, and I’m trying to observe phenomena, and I observe that every Federal Reserve Chairman says one thing and does another. I don’t mean he does, the system does.
MCKENZIE: Yeah. How different is your setup in Germany? You’ve heard this problem of governments getting committed to spending and the Fed having, one way or the other, to accommodate itself to it. Now what’s your position on this very interesting problem?
EMMINGER: We are very independent of the government, from the government, but, on the other hand, we are an advisor of the government. Also on the budget deficits and they would not easily go before Parliament with a deficit which much of it is openly criticized and disapproved by the same bank. Why because we have a tradition in our country that we can also publicly criticize the government on his account. And second, as if happened in our case too, the government goes beyond what is tolerable for the sake of moral equilibrium. We have let it come through in the capital markets. That is to say they have enough interest rates that has drawn public criticism and that has had some effect on their attitude.
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Pt 5
I think that is a very important point that Dr. Emminger just made because there is not a one-to-one relationship between government deficits and what happens to the money supply at all. The pressure on the Federal Reserve comes indirectly. It comes because large government deficits, if they are financed in the general capital market, will drive up interest rates and then we have the right patents in Congress and their successors pressuring the Federal Reserve to enter in and finance the deficit by printing money as a way of supposedly holding down interest rates. Now before I turn to Mr. Brown and ask him that, I just want to make one point which is very important. The Federal Reserve’s activities in trying to hold down interest rates have put us in a position where we have the highest interest rates in history. It’s another example of how, of the difference between the announced intentions of a policy, and the actual results. But now I want to come to Clarence Brown and ask him, shift the buck to him, and put him on the hot seat for a bit. The government spending has been going up rapidly, Republican administration or Democratic administration. This is a nonpartisan issue, it doesn’t matter. Government deficits have been going up rapidly. Republican administration or Democratic administration. Why is it that here again you have the difference between pronouncements and performance? There is no Congressman, no Senator, who will come out and say, “I am in favor of inflation.” There is not a single one who will say, “I am in favor of big deficits.” They’ll all say we want to balance the budget, we want to hold down spending, we want an economical government. How do you explain the difference between performance and talk on the side of Congress?
BROWN:
FRIEDMAN: I think that is a very important point that Dr. Emminger just made because there is not a one-to-one relationship between government deficits and what happens to the money supply at all. The pressure on the Federal Reserve comes indirectly. It comes because large government deficits, if they are financed in the general capital market, will drive up interest rates and then we have the right patents in Congress and their successors pressuring the Federal Reserve to enter in and finance the deficit by printing money as a way of supposedly holding down interest rates. Now before I turn to Mr. Brown and ask him that, I just want to make one point which is very important. The Federal Reserve’s activities in trying to hold down interest rates have put us in a position where we have the highest interest rates in history. It’s another example of how, of the difference between the announced intentions of a policy, and the actual results. But now I want to come to Clarence Brown and ask him, shift the buck to him, and put him on the hot seat for a bit. The government spending has been going up rapidly, Republican administration or Democratic administration. This is a nonpartisan issue, it doesn’t matter. Government deficits have been going up rapidly. Republican administration or Democratic administration. Why is it that here again you have the difference between pronouncements and performance? There is no Congressman, no Senator, who will come out and say, “I am in favor of inflation.” There is not a single one who will say, “I am in favor of big deficits.” They’ll all say we want to balance the budget, we want to hold down spending, we want an economical government. How do you explain the difference between performance and talk on the side of Congress?
BROWN: Well, first I think we have to make one point. I’m not so much with the government as I am against it.
FRIEDMAN: I understand.
BROWN: As you know, I’m a minority member of Congress.
FRIEDMAN: Again, I’m not __ I’m not directing this at you personally.
BROWN: I understand, of course; and while the administrations, as you’ve mentioned, Republican and Democratic administrations, have both been responsible for increases in spending, at least in terms of their recommendations. It is the Congress and only the Congress that appropriates the funds and determines what the taxes are. The President has no authority to do that and so one must lay it at the feet of the U.S. Congress. Now, I guess we’d have to concede that it’s a little bit more fun to give away things than it is to withhold them. And this is the reason that the Congress responds to a general public that says, “I want you to cut everybody else’s program but the one in which I am most particularly interested. Save money, but incidentally, my wife is taking care of the orphanages and so lets try to help the orphanages,” or whatever it is. Let me try to make a point, if I can, however, on what I think is a new spirit moving within the Congress and that is that inflation, as a national affliction, is beginning to have an impact on the political psychology of many Americans. Now the Germans, the Japanese and others have had this terrific postwar inflation. The Germans have been through it twice, after World War I and World War II, and it’s a part of their national psyche. But we are affected in this country by the depression. Our whole tax structure is built on the depression. The idea of the tax structure in the past has been to get the money out of the mattress where it went after the banks failed in this country and jobs were lost, and out of the woodshed or the tin box in the back yard, get it out of there and put it into circulation. Get it moving, get things going. And one of the ways to do that was to encourage inflation. Because if you held on to it, the money would depreciate; and the other way was to tax it away from people and let the government spend it. Now there’s a reaction to that and people are beginning to say, “Wait just a minute. We’re not afflicted as much as we were by depression. We’re now afflicted by inflation, and we’d like for you to get it under control.” Now you can do that in another way and that without reducing the money supply radically. I think the Joint Economic Committee has recommended that we do it gradually. But the way that you can do it is to reduce taxes and the impact of government, that is the weight of government and increase private savings so that the private savings can finance some of the debt that you have.
FRIEDMAN: There is no way you can do it without reducing, in my opinion, the rate of monetary growth. And I, recognizing the facts, even though they ought not to be that way, I wonder whether you can reduce the rate of monetary growth unless Congress actually does reduce government spending as well as government taxes.
BROWN: The problem is that every time we use demand management, we get into a kind of an iron maiden kind of situation. We twist this way and one of the spikes grabs us here, so we twist that way and a spike over here gets us. And every recession has had higher basic unemployment rates than the previous recession in the last several years and every inflation has had higher inflation. We’ve got to get that tilt out of the society.
MCKENZIE: Wouldn’t it be fair to say, though, that a fundamental difference is the Germans are more deeply fearful of a return to inflation, having had the horrifying experience between the wars, especially. We tend to be more afraid of recession turning into depression.
EMMINGER: I think there is something in it and in particular in Germany the government would have to fear very much in their electoral prospects if they went into such an election period with a high inflation rate. But there is another important difference.
MARTIN: We fear unemployment more than inflation it seems.
EMMINGER: You fear unemployment, but unemployment is feared with us, too, but inflation is just as much feared. But there is another difference; namely, once you have got into that escalating inflation, every time the base, the plateau is higher, it’s extremely difficult to get out of it. You must avoid getting into that, now that’s very cheap advice from me because you are now.
(Laughing)
EMMINGER: But we had, for the last fifteen, twenty years, always studied foreign experiences, and told ourselves we never must get into this vicious circle. Once you are in, it takes a long time to get out of it. That is what I am preaching now, that we should avoid at all costs to get again into this vicious circle as we had it already in ’73_’74. It took us, also, four years to get out of it, although we were only at eight percent inflation. Four years to get down to three percent. So you __
MCKENZIE: Those were __ yes.
EMMINGER: You have, I think, the question of whether you can do if in a gradualist way over many, many years, or whether you don’t need a sort of shock treatment.
____________________________________
her we go into a period of still higher unemployment later on and have it to do all over again. That’s the only choice we face. And when the public at large recognizes that, they will then elect people to Congress, and a President to office who is committed to less government spending and to less government printing of money and until that happens we will not cure inflation
Pt 6
SPRINKEL: The film said it took the Japanese _ what _ four years?
FRIEDMAN: Five years.
SPRINKEL: Five years. But one of my greatest concerns is that we haven’t suffered enough yet. Most of the nations that have finally got their inflations __
BROWN: Bad election speech.
SPRINKEL: __ well, I’m not running for office, Clarence.
(Laughter)
SPRINKEL: Most countries that finally got their inflation under control had 20, 30 percent or worse inflation. Germany had much worse and the public supports them. We live in a Democracy, and we’re getting constituencies that gain from inflation. You look at people that own real estate, they’ve done very well.
MCKENZIE: Yes.
SPRINKEL: And how can we get there without going through even more pain, and I doubt that we will.
FRIEDMAN: If you ask who are the constituencies that have benefited most from inflation there are no doubt, it is the homeowners.
SPRINKEL: Yes.
FRIEDMAN: But it’s also the __ it’s also the Congressmen who have been able to vote higher spending without having to vote higher taxes. They have in fact __
BROWN: That’s right.
FRIEDMAN: __ Congress has in fact voted for inflation. But you have never had a Congressman on record to that effect. It’s the government civil servants who have their own salaries are indexed and tied to inflation. They have a retirement benefit, a retirement pension that’s tied to inflation. They qualify, a large fraction of them, for Social Security as well, which is tied to inflation. So that the beneficial __
BROWN: Labor contracts that are indexed and many pricing things that are tied to it.
FRIEDMAN: But the one thing that isn’t tied to inflation and here I want to come back and ask why Congress has been so __ so bad in this area, is our taxes. It has been impossible to get Congress to index the tax system so that you don’t have the present effect where every one percent increase in inflation pushes people up into higher brackets and forces them to pay higher taxes.
BROWN: Well, as you know, I’m an advocate of that.
FRIEDMAN: I know you are.
MCKENZIE: Some countries do that, of course.
FRIEDMAN: Oh, of course.
MCKENZIE: Canada does that. Indexes the __
BROWN: And I went up to Canada on a little weekend seminar program on indexing and came back an advocate of indexing because I found out that the people who are delighted with indexing are the taxpayers.
FRIEDMAN: Absolutely.
BROWN: Because as the inflation rate goes up their tax level either maintains at the same level or goes down. The people who are least __ well, the people who are very unhappy with it are the people who have to plan government spending because it is reducing the amount of money that the government has rather than watching it go up by ten or twelve billion. You get a little dividend to spend in this country, the bureaucrats do every year, but the politicians are unhappy with it too, as Dr. Friedman points out because, you see, politicians don’t get to vote a tax reduction, it happens automatically.
MCKENZIE: Yeah.
BROWN: And so you can’t go back and in a praiseworthy way tell your constituents that I am for you, I voted a tax reduction. And I think we ought to be able to index the tax system so that tax reduction is automatic, rather than have what we’ve had in the past, and that is an automatic increase in the taxes. And the politicians say, “Well, we’re sorry about inflation, but __”.
FRIEDMAN: You’re right and I want to __ I want to go and make a very different point. I sit here and berate you and you as government officials, and so on, but I understand very well that the real culprits are not the politicians, are not the central bankers, but it’s I and my fellow citizens. I always say to people when I talk about this, “If you want to know who’s responsible for inflation, look in the mirror.” It’s not because of the way you spend you money. Inflation doesn’t arise because you got consumers who are spendthrifts; they’ve always been spendthrifts. It doesn’t arise because you’ve got businessmen who are greedy. They’ve always been greedy. Inflation arises because we as citizens have been asking you as politicians to perform an impossible task. We’ve been asking you to spend somebody else’s money on us, but not to spend our money on anybody else.
BROWN: You don’t want us to cut back those dollars for education, right?
FRIEDMAN: Right. And, therefore, __ well, no, I do.
MCKENZIE: We’ve already had a program on that.
FRIEDMAN: We’ve already had a program on that and there’s no viewer of these programs who will be in any doubt about my position on that. But the public at large has not and this is where we come to the political will that Dr. Emminger quite properly talked about. It is __ everybody talks against inflation, but what he means is that he wants the prices of the things he sells to go up and the prices of the things he buys to go down. But, sooner or later, we come to the point where it will be politically profitable to end inflation. This is the point that __
SPRINKEL: Yes.
FRIEDMAN: __ I think you were making.
SPRINKEL: The suffering idea.
FRIEDMAN: Where do you think the __ you know, what do you think the rate of inflation has to be and judged by the experience of other countries before we will be in that position and when do you think that will happen?
SPRINKEL: Well, the evidence says it’s got to be over 20 percent. Now you would think we could learn from others rather than have to repeat mistakes.
FRIEDMAN: Apparently nobody can learn from history.
SPRINKEL: But at the present time we’re going toward higher and not lower inflation.
MCKENZIE: You said earlier, if you want to see who causes inflation look in the mirror.
FRIEDMAN: Right.
MCKENZIE: Now, for everybody watching and taking part in this, there must be some moral to that. What does need __ what has to be the change of attitude of the man in the mirror you’re looking at before we can effectively implement what you call a tough policy that takes courage?
FRIEDMAN: I think that the man in the mirror has to come to recognize that inflation is the most destructive disease known to modern society. There is nothing which will destroy a society so thoroughly and so fully as letting inflation run riot. He must come to recognize that he doesn’t have any good choices. That there are no easy answers. That once you get in this situation where the economy is sick of this insidious disease, there’s gonna be no miracle drug which will enable them to be well tomorrow. That the only choices he has, do I go through a tough period for four or five years of relatively high unemployment, relatively low growth or do I try to push it off by taking some more of the hair of the dog that bit me and get around it now at the cost of still higher unemployment, as Clarence Brown said, later on. The only choice this country faces, is whether we have temporary unemployment for a short period, as a side effect of curling inflation or whether we go into a period of still higher unemployment later on and have it to do all over again. That’s the only choice we face. And when the public at large recognizes that, they will then elect people to Congress, and a President to office who is committed to less government spending and to less government printing of money and until that happens we will not cure inflation.
____________________________________
FRIEDMAN: And therefore the crucial thing is to cut down total government spending from the point of view of inflation. From the point of view of productivity, some of the other measures you were talking about are far more important.
BROWN
Pt 7
BROWN: But, Dr. Friedman, let me __
(Applause)
BROWN: Let me differ with you to this extent. I think it is important that at the time you are trying to get inflation out of the economy that you also give the man in the street, the common man, the opportunity to have a little bit more of his own resources to spend. And if you can reduce his taxes at that time and then reduce government in that process, you give him his money to spend rather than having to yield up all that money to government. If you cut his taxes in a way to encourage it, to putting that money into savings, you can encourage the additional savings in a private sense to finance the debt that you have to carry, and you can also encourage the stimulation of growth in the society, that is the investment into the capital improvements of modernization of plant, make the U.S. more competitive with other countries. And we can try to do it without as much painful unemployment as we can get by with. Don’t you think that has some merit?
FRIEDMAN: The only way __ I am all in favor, as you know, of cutting government spending. I am all in favor of getting rid of the counterproductive government regulation that reduces productivity and disrupts investment. But __
BROWN: And we do that, we can cut taxes some, can we not?
FRIEDMAN: We should __ taxes __ but you are introducing a confusion that has confused the American people. And that is the confusion between spending and taxes. The real tax on the American people is not what you label taxes. It’s total spending. If Congress spends fifty billion dollars more than it takes in, if government spends fifty billion dollars, who do you suppose pays that fifty billion dollars?
BROWN: Of course, of course.
FRIEDMAN: The Arab Sheiks aren’t paying it. Santa Claus isn’t paying it. The Tooth Fairy isn’t paying it. You and I as taxpayers are paying it indirectly through hidden taxation.
MCKENZIE: Your view __
FRIEDMAN: And therefore the crucial thing is to cut down total government spending from the point of view of inflation. From the point of view of productivity, some of the other measures you were talking about are far more important.
BROWN: But if you concede that inflation and taxes are both part and parcel of the same thing, and if you cut spending __
FRIEDMAN: They’re not part and parcel of the same thing.
BROWN: If you cut spending you __ well, but, you take the money from them in one way or another. The average citizen.
FRIEDMAN: Absolutely.
BROWN: To finance the growth of government.
FRIEDMAN: That’s right.
BROWN: So if you cut back the size of government, you can cut both their inflation and their taxes.
FRIEDMAN: That’s right.
BROWN: If you __
FRIEDMAN: I am all in favor of that.
BROWN: All right.
FRIEDMAN: All I am saying is don’t kid yourself into thinking that there is some painless way to do it. There just is not.
BROWN: One other way is productivity. If you can __ if you can increase production, then the impact of inflation is less because you have more goods chasing __
FRIEDMAN: Absolutely, but you have to have a sense of proportion. From the point of view of the real income of the American people, nothing is more important than increasing productivity. But from the point of view of inflation, it’s a bit actor. It would be a miracle if we could raise our productivity from three to five percent a year, that would reduce inflation by two percent.
BROWN: No question, it won’t happen overnight, but it’s part of the __ it’s part of a long range squeezing out of inflation.
FRIEDMAN: There is only one way to ease the __ in my opinion there is only one way to ease the pains of curing inflation and that way is not available. That way is to make it credible to the American people that you are really going to follow the policy you say you’re going to follow. Unfortunately I don’t see any way we can do that.
(Several people talking at once.)
EMMINGER: Professor Friedman, that’s exactly the point which I wanted to illustrate by our own experience. We also had to squeeze out inflation and there was a painful time of one-and-a-half years, but after that we had a continuous lowering of the inflation rate with a slow upward movement in the economy since 1975. Year by year inflation went down and we had a moderate growth rate which has led us now to full employment.
FRIEDMAN: That’s what __
EMMINGER: So you can shorten this period by just this credibility and by a consensus you must have, also with the trade unions, with the whole population that they acknowledge that policy and also play their part in it. Then the pains will be much less.
SPRINKEL: You see in our case, expectations are that inflation’s going to get worse because it always has. This means we must disappoint in a very painful way those expectations and it’s likely to take longer, at least the first time around. Now our real problem has not been that we haven’t tried. We have tried and brought inflation down. Our real problem was, we didn’t stick to it. And then you have it all to do over.
BROWN: Well I would __ I would concede that psychology plays a great, perhaps even the major part, but I do believe that if you have private savings stimulated by your tax system, rather than discouraged by your tax system, you can finance some of that public debt by private savings rather than by inflation and the result will be to ease to some degree the paint of that heavy unemployment that you seem to suggest is the only way to deal with the problem.
FRIEDMAN: The talk is fine, but the problem is that it’s used to evade the key issue: How do you make it credible to the public that you are really going to stick to a policy? Four times we’ve tried it and four times we’ve stopped before we’ve run the course.
(Several people talking at once.)
MCKENZIE: There we leave the matter for tonight, and next week’s concluding program in this series is not to be missed.
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