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tariff rate for all World Trade Organization members, except Cuba, and Russia (whose preferential treatment was revoked by Congress in response to the war in Ukraine).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 […]
As our new School Choice Timeline shows, calls for public funding to follow students to a variety of educational options date back centuries. However, Nobel Prize‐winning economist Milton Friedman is often considered the father of the modern school choice movement.
In a 1955 essay, The Role of Government in Education, Friedman acknowledged some justifications for government mandates and funding when it comes to education. However, he said it’s difficult to justify government administration of education. He suggested governments could provide parents with vouchers worth a specified maximum sum per child per year to be spent on “approved” educational services.
Friedman would return to this idea repeatedly over the years in his writings and his popular Free to Choose television series. But he did more than just write and talk about his idea. In 1996, he and his wife Rose, who was also a noted economist, started the Milton and Rose D. Friedman Foundation for Educational Choice. Their original plan included the eventual removal of their name from the foundation, which happened in 2016; the organization is now known as EdChoice and is the go‐to source for up‐to‐date information on school choice in America.
Milton Friedman had a remarkable life. He was born in Brooklyn in 1912 to parents who emigrated to the U.S. from eastern Europe. His father died during his senior year in high school, leaving his mother and older sisters to support the family. He managed to attend Rutgers University through a combination of scholarships and various jobs. After earning a degree in economics, he was awarded a scholarship to pursue a graduate degree at the University of Chicago, where he met his future wife, Rose. The Friedmans had two children, a son and a daughter.
Friedman’s list of accomplishments is astonishingly long. In addition to his 1976 Nobel Prize for Economic Science, he was awarded the Presidential Medal of Freedom and the National Medal of Science in 1988. He was a Senior Research Fellow at Stanford University’s Hoover Institution from 1977 to 2006, a distinguished economics professor at the University of Chicago from 1946 to 1976, and a researcher at the National Bureau of Economic Research from 1937 to 1981. He was a prolific writer of newspaper and magazine columns, essays, and books.
Milton Friedman’s focus on education choice made perfect sense in light of his other work. He had a consistent focus on preserving and expanding individual freedom. He saw parental control and the ability to choose the environment that worked best for individual children as essential to a quality education. His 1962 book Capitalism and Freedom included chapters on economic and political freedom, trade, fiscal policy, occupational licenses, and poverty, along with his earlier essay on the role of government in education.
In 1980, Milton and Rose released Free to Choose, a discussion of economics and freedom, as a book and a television series. One segment/chapter asked, “What’s Wrong with Our Schools?” and then explained the importance of parents being able to choose what works for their individual children.
When the Friedman Foundation was launched, there were five education choice programs in the U.S. with fewer than 10,000 students participating. Today, according to EdChoice, there are 74 programs in 32 states, Washington, D.C., and Puerto Rico, with 670,000 students participating.
While there is a long and deep history of individuals and organizations calling for various forms of school choice, it is clear that Milton Friedman played an enormous role in its advance in the U.S. He helped lay the intellectual groundwork for the programs in place today, and his relatable writings and videos helped explain his ideas to parents, policymakers, and thought leaders. As we celebrate National School Choice Week—and Cato’s new School Choice Timeline—it’s a great time to commemorate Milton Friedman’s important contributions to the movement.
Now Utah has joined the club, with Governor Spencer Cox approving a new law that will give families greater freedom to choose the best educational options for their children.
Here are some details from Marjorie Cortez, reporting for the Deseret News.
The Utah Senate gave final passage to legislation that will provide $8,000 scholarships to qualifying families for private schools and other private education options…The bill passed by a two-thirds margin in each legislative house, which means it cannot be challenged by referendum. …The bill creates the Utah Fits All Scholarship, which can then be used for education expenses like curriculum, textbooks, education, software, tutoring services, micro-school teacher salaries and private school tuition.
…the Utah Education Association…opposed HB215… The bill was also opposed by the Utah State Board of Education, Utah PTA, school superintendents, business administrators and school boards. The Alliance for a Better Utah was pointed in its reaction… “Conservative lawmakers just robbed our neighborhood schools of $42 million. Private school vouchers have been and continue to be opposed by Utahns but these lawmakers are instead pursuing a national agenda to ‘destroy public education.’
The Wall Street Journalopined on this great development.
School choice is gaining momentum across the country, and this week Utah joined Iowa in advancing the education reform cause. …Utah’s bill, which the Senate passed Thursday, 20-8, makes ESAs of $8,000 available to every student. There’s no income cap on families who can apply, though lower-income families receive preference and the program is capped at $42 million. The funds can be used for private school tuition, home-schooling expenses, tutoring, and more.
But the best part of the editorial is the look at other states that may be poised to expand educational freedom.
About a dozen other state legislatures have introduced bills to create new ESA programs, and several want to expand the ones they have. In Florida a Republican proposal would extend the state’s already robust scholarship programs to any student in the state. The bill would remove income limits that are currently in place for families who want to apply, though lower-income applicants would receive priority. …South Carolina legislators are mulling a new ESA program for lower-income students. In Indiana, a Senate bill would make state ESAs available to more students. An Ohio bill would remove an income cap and other eligibility rules for the state’s school vouchers. Two Oklahoma Senate bills propose new ESA programs… ESA bills are in some stage of moving in Nebraska, New Hampshire, Texas and Virginia.
Let’s hope there is more progress.
School choice is a win-win for both students and taxpayers.
P.S. Here’s a must-see chart showing how more and more money for the government school monopoly has produced zero benefit.
P.P.P.S. Getting rid of the Department of Education would be a good idea, but the battle for school choice is largely going to be won and lost on the state and local level.
America’s public education system is failing. We’re spending more money on education but not getting better results for our children.
That’s because the machine that runs the K-12 education system isn’t designed to produce better schools. It’s designed to produce more money for unions and more donations for politicians.
For decades, teachers’ unions have been among our nation’s largest political donors. As Reason Foundation’s Lisa Snell has noted, the National Education Association (NEA) alone spent $40 million on the 2010 election cycle (source: http://reason.org/news/printer/big-education-and-big-labor-electio). As the country’s largest teachers union, the NEA is only one cog in the infernal machine that robs parents of their tax dollars and students of their futures.
Students, teachers, parents, and hardworking Americans are all victims of this political machine–a system that takes money out of taxpayers’ wallets and gives it to union bosses, who put it in the pockets of politicians.
No one did more to advance the cause of school vouchers than Milton and Rose Friedman. Friedman made it clear in his film series “Free to Choose” how sad he was that young people who live in the inner cities did not have good education opportunities available to them.
I have posted often about the voucher system and how it would solve our education problems. What we are doing now is not working. Milton Friedman’s idea of implementing school vouchers was hatched about 50 years ago.
Poor families are most affected by this lack of choice. As Friedman noted, “There is no respect in which inhabitants of a low-income neighborhood are so disadvantaged as in the kind of schooling they can get for their children.” It is a sad statement quantified by data on low levels of academic achievement and attainment. Take a look at this article below.
Reading scores on the SAT for the high school class of 2012 reached a four-decade low, putting a punctuation mark on a gradual decline in the ability of college-bound teens to read passages and answer questions about sentence structure, vocabulary and meaning on the college entrance exam.
The decline over the decades has been significant. The average reading (verbal) score is down 34 points since 1972. Sadly, the historically low SAT scores are only the latest marker of decline. Graduation rates have been stagnant since the 1970s, reading and math achievement has been virtually flat over the same time period, and American students still rank in the middle of the pack compared to their international peers.
On the heels of the news about the SAT score decline, President Obama filmed a segment with NBC’s Education Nation earlier today. The President notably praised the concept of charter schools and pay for performance for teachers.
But those grains of reform were dwarfed by his support of the status quo. During the course of the interview, President Obama suggested hiring 100,000 new math and science teachers and spending more money on preschool. He also stated that No Child Left Behind had good intentions but was “under-resourced.”
Efforts by the federal government to intervene in preschool, most notably through Head Start, have failed—despite a $160 billion in spending on the program since 1965. And No Child Left Behind is far from “under-resourced.” The $25 billion, 600-page law has been on the receiving end of significant new spending every decade since the original law was first passed nearly half a century ago.
President Obama was also pressed on the issue of education unions by host Savannah Guthrie:
Some people think, President Obama gets so much support from the teachers’ unions, he can’t possibly have an honest conversation about what they’re doing right or wrong. Can you really say that teachers’ unions aren’t slowing the pace of reform?
President Obama responded: “You know, I just really get frustrated when I hear teacher-bashing as evidence of reform.”
Criticizing education unions for standing in the way of reform should not be conflated with criticizing teachers, as the President does in the interview. The unions have blocked reforms such as performance pay and charter schools (which the President supports), have opposed alternative teacher certification that would help mid-career professionals enter the classroom, and have consistently fought the implementation of school choice options for children.
If we ever hope to move the needle on student achievement—or see SAT scores turn in the right direction again—we’ll need to implement many of those exact reforms, particularly school choice.
And as he has in the past, President Obama stated that his Administration wants to “use evidenced-based approaches and find out what works.” We know what works: giving families choices when it comes to finding schools that best meet their children’s needs. Instead of continuing to call for more spending and more Washington intervention in education, let’s try something new: choice and freedom.
I ran across this very interesting article about Milton Friedman from 2002: Friedman: Market offers poor better learningBy Tamara Henry, USA TODAY By Doug Mills, AP President Bush honors influential economist Milton Friedman for his 90th birthday earlier this month. About an economist Name:Milton FriedmanAge: 90Background: Winner of the 1976 Nobel Prize for economic science; […]
Milton Friedman videos and transcripts Part 11 On my blog http://www.thedailyhatch.org I have an extensive list of posts that have both videos and transcripts of MiltonFriedman’s interviews and speeches. Here below is just small list of those and more can be accessed by clicking on “Milton Friedman” on the side of this page or searching […]
Milton Friedman videos and transcripts Part 10 On my blog http://www.thedailyhatch.org I have an extensive list of posts that have both videos and transcripts of MiltonFriedman’s interviews and speeches. Here below is just small list of those and more can be accessed by clicking on “Milton Friedman” on the side of this page or searching […]
Milton Friedman videos and transcripts Part 9 On my blog http://www.thedailyhatch.org I have an extensive list of posts that have both videos and transcripts of MiltonFriedman’s interviews and speeches. Here below is just small list of those and more can be accessed by clicking on “Milton Friedman” on the side of this page or searching […]
Biography Part 2 In 1977, when I reached the age of 65, I retired from teaching at the University of Chicago. At the invitation of Glenn Campbell, Director of the Hoover Institution at Stanford University, I shifted my scholarly work to Hoover where I remain a Senior Research Fellow. We moved to San Francisco, purchasing […]
Milton Friedman at Hillsdale College 2006 July 2006 Free to Choose: A Conversation with Milton Friedman Milton Friedman Economist Milton Friedman is a senior research fellow at the Hoover Institution at Stanford University and a professor emeritus of economics at the University of Chicago, where he taught from 1946-1976. Dr. Friedman received the Nobel Memorial […]
Milton Friedman videos and transcripts Part 8 On my blog http://www.thedailyhatch.org I have an extensive list of posts that have both videos and transcripts of MiltonFriedman’s interviews and speeches. Here below is just small list of those and more can be accessed by clicking on “Milton Friedman” on the side of this page or searching […]
Testing Milton Friedman – Preview Uploaded by FreeToChooseNetwork on Feb 21, 2012 2012 is the 100th anniversary of Milton Friedman’s birth. His work and ideas continue to make the world a better place. As part of Milton Friedman’s Century, a revival of the ideas featured in the landmark television series Free To Choose are being […]
Charlie Rose interview of Milton Friedman My favorite economist: Milton Friedman : A Great Champion of Liberty by V. Sundaram Milton Friedman, the Nobel Prize-winning economist who advocated an unfettered free market and had the ear of three US Presidents – Nixon, Ford and Reagan – died last Thursday (16 November, 2006 ) in San Francisco […]
Free or Equal?: Johan Norberg Updates Milton & Rose Friedman’s Free to Choose I got this below from Reason Magazine: Swedish economist Johan Norberg is the host of the new documentary Free or Equal, which retraces and updates the 1980 classic Free to Choose, featuring Milton and Rose Friedman. Like the Friedmans, Norberg travels the globe […]
I must say that I have lots of respect for Reason Magazine and for their admiration of Milton Friedman. However, I do disagree with one phrase below. At the end of this post I will tell you what sentence it is. Uploaded by ReasonTV on Jul 28, 2011 There’s no way to appreciate fully the […]
Milton Friedman on Hayek’s “Road to Serfdom” 1994 Interview 1 of 2 Uploaded by PenguinProseMedia on Oct 25, 2011 Says Federal Reserve should be abolished, criticizes Keynes. One of Friedman’s best interviews, discussion spans Friedman’s career and his view of numerous political figures and public policy issues. ___________________ Two Lucky People by Milton and Rose Friedman […]
What a great man Milton Friedman was. The Legacy of Milton Friedman November 18, 2006 Alexander Tabarrok Great economist by day and crusading public intellectual by night, Milton Friedman was my hero. Friedman’s contributions to economics are profound, the permanent income hypothesis, the resurrection of the quantity theory of money, and his magnum opus with […]
Milton Friedman videos and transcripts Part 7 On my blog http://www.thedailyhatch.org I have an extensive list of posts that have both videos and transcripts of MiltonFriedman’s interviews and speeches. Here below is just small list of those and more can be accessed by clicking on “Milton Friedman” on the side of this page or searching […]
Below is a discussion from Milton Friedman on Bill Clinton and Ronald Reagan. February 10, 1999 | Recorded on February 10, 1999 audio, video, and blogs » uncommon knowledge PRESIDENTIAL REPORT CARD: Milton Friedman on the State of the Union with guest Milton Friedman Milton Friedman, Senior Research Fellow, Hoover Institution and Nobel Laureate in […]
Milton Friedman and Chile – The Power of Choice Uploaded by FreeToChooseNetwork on May 13, 2011 In this excerpt from Free To Choose Network’s “The Power of Choice (2006)”, we set the record straight on Milton Friedman’s dealings with Chile — including training the Chicago Boys and his meeting with Augusto Pinochet. Was the tremendous […]
From Milton Friedman (1962/1982), Capitalism and Freedom (Chicago, IL: University of Chicago Press); earlier version (1955) in Robert A. Solo (Ed.), Economics and the Public Interest, pp. 123-144 (New Brunswick, NJ: Rutgers University Press).
The general trend in our times toward increasing intervention by the state in economic affairs has led to a concentration of attention and dispute on the areas where new intervention is proposed and to an acceptance of whatever intervention has so far occurred as natural and unchangeable. The current pause, perhaps reversal, in the trend toward collectivism offers an opportunity to re-examine the existing activities of government and to make a fresh assessment of the activities that are and those that are not justified. This paper attempts such a re-examination for education.
Education is today largely paid for and almost entirely administered by governmental bodies or non-profit institutions. This situation has developed gradually and is now taken so much for granted that little explicit attention is any longer directed to the reasons for the special treatment of education even in countries that are predominantly free enterprise in organization and philosophy. The result has been an indiscriminate extension of governmental responsibility.
The role assigned to government in any particular field depends, of course, on the principles accepted for the organization of society in general. In what follows, I shall assume a society that takes freedom of the individual, or more realistically the family, as its ultimate objective, and seeks to further this objective by relying primarily on voluntary exchange among individuals for the organization of economic activity. In such a free private enterprise exchange economy, government’s primary role is to preserve the rules of the game by enforcing contracts, preventing coercion, and keeping markets free. Beyond this, there are only three major grounds on which government intervention is to be justified. One is “natural monopoly” or similar market imperfection which makes effective competition (and therefore thoroughly voluntary exchange) impossible. A second is the existence of substantial “neighborhood effects,” i.e., the action of one individual imposes significant costs on other individuals for which it is not feasible to make him compensate them or yields significant gains to them for which it is not feasible to make them compensate him — circumstances that again make voluntary exchange impossible. The third derives from an ambiguity in the ultimate objective rather than from the difficulty of achieving it by voluntary exchange, namely, paternalistic concern for children and other irresponsible individuals. The belief in freedom is for “responsible” units, among whom we include neither children nor insane people. In general, this problem is avoided by regarding the family as the basic unit and therefore parents as responsible for their children; in considerable measure, however, such a procedure rests on expediency rather than principle. The problem of drawing a reasonable line between action justified on these paternalistic grounds and action that conflicts with the freedom of responsible individuals is clearly one to which no satisfactory answer can be given.
In applying these general principles to education, we shall find it helpful to deal separately with (1) general education for citizenship, and (2) specialized vocational education, although it may be difficult to draw a sharp line between them in practice. The grounds for government intervention are widely different in these two areas and justify very different types of action.
General Education for Citizenship
A stable and democratic society is impossible without widespread acceptance of some common set of values and without a minimum degree of literacy and knowledge on the part of most citizens. Education contributes to both. In consequence, the gain from the education of a child accrues not only to the child or to his parents but to other members of the society; the education of my child contributes to other people’s welfare by promoting a stable and democratic society. Yet it is not feasible to identify the particular individuals (or families) benefited or the money value of the benefit and so to charge for the services rendered. There is therefore a significant “neighborhood effect.”
What kind of governmental action is justified by this particular neighborhood effect? The most obvious is to require that each child receive a minimum amount of education of a specified kind. Such a requirement could be imposed upon the parents without further government action, just as owners of buildings, and frequently of automobiles, are required to adhere to specified standards to protect the safety of others. There is, however, a difference between the two cases. In the latter, individuals who cannot pay the costs of meeting the required standards can generally divest themselves of the property in question by selling it to others who can, so the requirement can readily be enforced without government subsidy — though even here, if the cost of making the property safe exceeds its market value, and the owner is without resources, the government may be driven to paying for the demolition of a dangerous building or the disposal of an abandoned automobile. The separation of a child from a parent who cannot pay for the minimum required education is clearly inconsistent with our reliance on the family as the basic social unit and our belief in the freedom of the individual.
Yet, even so, if the financial burden imposed by such an educational requirement could readily be met by the great bulk of the families in a community, it might be both feasible and desirable to require the parents to meet the cost directly.
Extreme cases could be handled by special provisions in much the same way as is done now for housing and automobiles. An even closer analogy is provided by present arrangements for children who are mistreated by their parents. The advantage of imposing the costs on the parents is that it would tend to equalize the social and private costs of having children and so promote a better distribution of families by size.1
Differences among families in resources and in number of children — both a reason for and a result of the different policy that has been followed — plus the imposition of a standard of education involving very sizable costs have, however, made such a policy hardly feasible. Instead, government has assumed the financial costs of providing the education. In doing so, it has paid not only for the minimum amount of education required of all but also for additional education at higher levels available to youngsters but not required of them — as for example in State and municipal colleges and universities. Both steps can be justified by the “neighborhood effect” discussed above — the payment of the costs as the only feasible means of enforcing the required minimum; and the financing of additional education, on the grounds that other people benefit from the education of those of greater ability and interest since this is a way of providing better social and political leadership.
Government subsidy of only certain kinds of education can be justified on these grounds. To anticipate, they do not justify subsidizing purely vocational education which increases the economic productivity of the student but does not train him for either citizenship or leadership. It is clearly extremely difficult to draw a sharp line between these two types of education. Most general education adds to the economic value of the student — indeed it is only in modern times and in a few countries that literacy has ceased to have a marketable value. And much vocational education broadens the student’s outlook. Yet it is equally clear that the distinction is a meaningful one. For example, subsidizing the training of veterinarians, beauticians, dentists, and a host of other specialized skills — as is widely done in the United States in governmentally supported educational institutions — cannot be justified on the same grounds as subsidizing elementary education or, at a higher level, liberal education. Whether it can be justified on quite different grounds is a question that will be discussed later in this paper.
The qualitative argument from the “neighborhood effect” does not, of course, determine the specific kids of education that should be subsidized or by how much they should be subsidized. The social gain from education is presumably greatest for the very lowest levels of education, where there is the nearest approach to unanimity about the content of the education, and declines continuously as the level of education rises. But even this statement cannot be taken completely for granted — many governments subsidized universities long before they subsidized lower education. What forms of education have the greatest social advantage and how much of the community’s limited resources should be spent on them are questions to be decided by the judgment of the community expressed through its accepted political channels. The role of an economist is not to decide these questions for the community but rather to clarify the issues to be judged by the community in making a choice, in particular, whether the choice is one that it is appropriate or necessary to make on a communal rather than individual basis.
We have seen that both the imposition of a minimum required level of education and the financing of education by the state can be justified by the “neighborhood effects” of education. It is more difficult to justify in these terms a third step that has generally been taken, namely, the actual administration of educational institutions by the government, the “nationalization,” as it were, of the bulk of the “education industry.” The desirability of such nationalization has seldom been faced explicitly because governments have in the main financed education by paying directly the costs of running educational institutions, so that this step has seemed required by the decision to subsidize education. Yet the two steps could readily be separated. Governments could require a minimum level of education which they could finance by giving parents vouchers redeemable for a specified maximum sum per child per year if spent on “approved” educational services.
Parents would then be free to spend this sum and any additional sum on purchasing educational services from an “approved” institution of their own choice. The educational services could be rendered by private enterprises operated for profit, or by non-profit institutions of various kinds. The role of the government would be limited to assuring that the schools met certain minimum standards such as the inclusion of a minimum common content in their programs, much as it now inspects restaurants to assure that they maintain minimum sanitary standards. An excellent example of a program of this sort is the United States educational program for veterans after World War II. Each veteran who qualified was given a maximum sum per year that could be spent at any institution of his choice, provided it met certain minimum standards. A more limited example is the provision in Britain whereby local authorities pay the fees of some students attending nonstate schools (the so-called “public schools”). Another is the arrangement in France whereby the state pays part of the costs for students attending non-state schools.
One argument from the “neighborhood effect” for nationalizing education is that it might otherwise be impossible to provide the common core of values deemed requisite for social stability. The imposition of minimum standards on privately conducted schools, as suggested above, might not be enough to achieve this result. The issue can be illustrated concretely in terms of schools run by religious groups. Schools run by different religious groups will, it can be argued, instill sets of values that are inconsistent with one another and with those instilled in other schools; in this way they convert education into a divisive rather than a unifying force.
Carried to its extreme, this argument would call not only for governmentally administered schools, but also for compulsory attendance at such schools. Existing arrangements in the United States and most other Western countries are a halfway house. Governmentally administered schools are available but not required. However, the link between the financing of education and its administration places other schools at a disadvantage: they get the benefit of little or none of the governmental funds spent on education — a situation that has been the source of much political dispute, particularly, of course, in France. The elimination of this disadvantage might, it is feared, greatly strengthen the parochial schools and so render the problem of achieving a common core of values even more difficult.
This argument has considerable force. But it is by no means clear either that it is valid or that the denationalizing of education would have the effects suggested. On grounds of principle, it conflicts with the preservation of freedom itself; indeed, this conflict was a major factor retarding the development of state education in England. How draw a line between providing for the common social values required for a stable society on the one hand, and indoctrination inhibiting freedom of thought and belief on the other? Here is another of those vague boundaries that it is easier to mention than to define.
In terms of effects, the denationalization of education would widen the range of choice available to parents. Given, as at present, that parents can send their children to government schools without special payment, very few can or will send them to other schools unless they too are subsidized.
Parochial schools are at a disadvantage in not getting any of the public funds devoted to education; but they have the compensating advantage of being funded by institutions that are willing to subsidize them and can raise funds to do so, whereas there are few other sources of subsidies for schools.
Let the subsidy be made available to parents regardless where they send their children — provided only that it be to schools that satisfy specified minimum standards — and a wide variety of schools will spring up to meet the demand. Parents could express their views about schools directly, by withdrawing their children from one school and sending them to another, to a much greater extent than is now possible. In general, they can now take this step only by simultaneously changing their place of residence.
For the rest, they can express their views only through cumbrous political channels. Perhaps a somewhat greater degree of freedom to choose schools could be made available also in a governmentally administered system, but it is hard to see how it could be carried very far in view of the obligation to provide every child with a place. Here, as in other fields, competitive private enterprise is likely to be far more efficient in meeting consumer demands than either nationalized enterprises or enterprises run to serve other purposes. The final result may therefore well be less rather than more parochial education.
Another special case of the argument that governmentally conducted schools are necessary to keep education a unifying force is that private schools would tend to exacerbate class distinctions. Given greater freedom about where to send their children, parents of a kind would flock together and so prevent a healthy intermingling of children from decidedly different backgrounds. Again, whether or not this argument is valid in principle, it is not at all clear that the stated results would follow. Under present arrangements, particular schools tend to be peopled by children with similar backgrounds thanks to the stratification of residential areas. In addition, parents are not now prevented from sending their children to private schools. Only a highly limited class can or does do so, parochial schools aside, in the process producing further stratification. The widening of the range of choice under a private system would operate to reduce both kinds of stratification.
Another argument for nationalizing education is “natural monopoly.” In small communities and rural areas, the number of children may be too small to justify more than one school of reasonable size, so that competition cannot be relied on to protect the interests of parents and children. As in other cases of natural monopoly, the alternatives are unrestricted private monopoly, state-controlled private monopoly, and public operation — a choice among evils. This argument is clearly valid and significant, although its force has been greatly weakened in recent decades by improvements in transportation and increasing concentration of the population in urban communities.
The arrangement that perhaps comes closest to being justified by these considerations — at least for primary and secondary education — is a mixed one under which governments would continue to administer some schools but parents who chose to send their children to other schools would be paid a sum equal to the estimated cost of educating a child in a government school, provided that at least this sum was spent on education in an approved school. This arrangement would meet the valid features of the “natural monopoly” argument, while at the same time it would permit competition to develop where it could. It would meet the just complaints of parents that if they send their children to private nonsubsidized schools they are required to pay twice for education — once in the form of general taxes and once directly — and in this way stimulate the development and improvement of such schools. The interjection of competition would do much to promote a healthy variety of schools. It would do much, also, to introduce flexibility into school systems. Not least of its benefits would be to make the salaries of school teachers responsive to market forces. It would thereby give governmental educational authorities an independent standard against which to judge salary scales and promote a more rapid adjustment to changes in conditions of demand or supply.2
Why is it that our educational system has not developed along these lines? A full answer would require a much more detailed knowledge of educational history than I possess, and the most I can do is to offer a conjecture. For one thing, the “natural monopoly” argument was much stronger at an earlier date. But I suspect that a much more important factor was the combination of the general disrepute of cash grants to individuals (“handouts”) with the absence of an efficient administrative machinery to handle the distribution of vouchers and to check their use. The development of such machinery is a phenomenon of modern times that has come to full flower only with the enormous extension of personal taxation and of social security programs. In its absence, the administration of schools was regarded as the only possible way to finance education. Of course, as some of the examples cited above suggest, some features of the proposed arrangements are present in existing educational systems. And there has been strong and I believe increasing pressure for arrangements of this general kind in most Western countries, which is perhaps to be explained by the modern developments in governmental administrative machinery that facilitate such arrangements.
Many detailed administrative problems would arise in changing over from the present to the proposed system and in administering the proposed system. But these seem neither insoluble nor unique. As in the denationalization of other activities, existing premises and equipment could be sold to private enterprises that wanted to enter the field, so there would be no waste of capital in the transition. The fact that governmental units, at least in some areas, were going to continue to administer schools would permit a gradual and easy transition. The localized administration of education in the United States and some other countries would similarly facilitate the transition, since it would encourage experimentation on a small scale and with alternative methods of handling both these and other problems.
Difficulties would doubtless arise in determining eligibility for grants from a particular governmental unit, but this is identical with the existing problem of determining which unit is obligated to provide educational facilities for a particular child. Differences in size of grants would make one area more attractive than another just as differences in the quality of education now have the same effect.
The only additional complication is a possibly greater opportunity for abuse because of the greater freedom to decide where to educate children. Supposed difficulty of administration is a standard defense of the status quo against any proposed changes; in this particular case, it is an even weaker defense than usual because existing arrangements must master not only the major problems raised by the proposed arrangements but also the additional problems raised by the administration of the schools as a governmental function.
The preceding discussion is concerned mostly with primary and secondary education. For higher education, the case for nationalization on grounds either of neighborhood effects or of natural monopoly is even weaker than for primary and secondary education. For the lowest levels of education, there is considerable agreement, approximating unanimity, on the appropriate content of an educational program for citizens of a democracy — the three R’s cover most of the ground. At successively higher levels of education, there is less and less agreement. Surely, well below the level of the American college, one can expect insufficient agreement to justify imposing the views of a majority, much less a plurality, on all. The lack of agreement may, indeed, extend so far as to cast doubts on the appropriateness of even subsidizing education at this level; it surely goes far enough to undermine any case for nationalization on the grounds of providing a common core of values. Similarly, there can hardly be any question of “natural monopoly” at this level, in view of the distances that individuals can and do go to attend institutions of higher learning.
Governmental institutions in fact play a smaller role in the United States in higher education than at lower levels. Yet they grew greatly in importance until at least the 1920’s and now account for more than half the students attending colleges and universities.3 One of the main reasons for their growth was their relative cheapness: most State and municipal colleges and universities charge much lower tuition fees than private universities can afford to. Private universities have in consequence had serious financial problems, and have quite properly complained of “unfair” competition. They have wanted to maintain their independence from government, yet at the same time have felt driven by financial pressure to seek government aid.
The preceding analysis suggests the lines along which a satisfactory solution can be found. Public expenditure on higher education can be justified as a means of training youngsters for citizenship and for community leadership — though I hasten to add that the large fraction of current expenditure that goes for strictly vocational training cannot be justified in this way or, indeed, as we shall see, in any other. Restricting the subsidy to education obtained at a state-administered institution cannot be justified on these grounds, or on any other that I can derive from the basic principles outlined at the outset. Any subsidy should be granted to individuals to be spent at institutions of their own choosing, provided only that the education is of a kind that it is desired to subsidize. Any government schools that are retained should charge fees covering the cost of educating students and so compete on an equal level with non-government-supported schools. The retention of state schools themselves would, however, have to be justified on grounds other than those we have so far considered.4The resulting system would follow in its broad outlines the arrangements adopted in the United States after World War II for financing the education of veterans, except that the funds would presumably come from the States rather than the Federal government.
The adoption of such arrangements would make for more effective competition among various types of schools and for a more efficient utilization of their resources. It would eliminate the pressure for direct government assistance to private colleges and universities and thus preserve their full independence and diversity at the same time that it enabled them to grow relatively to State institutions. It might also have the ancillary advantage of causing a closer scrutiny of the purposes for which subsidies are granted. The subsidization of institutions rather than of people has led to an indiscriminate subsidization of whatever activities it is appropriate for such institutions to undertake, rather than of the activities it is appropriate for the state to subsidize. Even cursory examination suggests that while the two classes of activities overlap, they are far from identical.
Vocational or Professional Education
As noted above, vocational or professional education has no neighborhood effects of the kind attributed above to general education. It is a form of investment in human capital precisely analogous to investment in machinery, buildings, or other forms of nonhuman capital. Its function is to raise the economic productivity of the human being. If it does so, the individual is rewarded in a free enterprise society by receiving a higher return for his services than he would otherwise be able to command.5This difference is the economic incentive to acquire the specialized training, just as the extra return that can be obtained with an extra machine is the economic incentive to invest capital in the machine. In both cases, extra returns must be balanced against the costs of acquiring them. For vocational education, the major costs are the income foregone during the period of training, interest lost by postponing the beginning of the earning period, and special expenses of acquiring the training such as tuition fees and expenditures on books and equipment. For physical capital, the major costs are the expenses of constructing the capital equipment and the interest during construction.
In both cases, an individual presumably regards the investment as desirable if the extra returns, as he views them, exceed the extra costs, as he views them.6 In both cases, if the individual undertakes the investment and if the state neither subsidizes the investment nor taxes the return, the individual (or his parent, sponsor, or benefactor) in general bears all the extra cost and receives all the extra returns: there are no obvious unborne costs or unappropriable returns that tend to make private incentives diverge systematically from those that are socially appropriate. If capital were as readily available for investment in human beings as for investment in physical assets, whether through the market or through direct investment by the individuals concerned or their parents or benefactors, the rate of return on capital would tend to be roughly equal in the two fields: if it were higher on non-human capital, parents would have an incentive to buy such capital for their children instead of investing a corresponding sum in vocational training, and conversely. In fact, however, there is considerable empirical evidence that the rate of return on investment in training is very much higher than the rate of return on investment in physical capital.
According to estimates that Simon Kuznets and I have made elsewhere, professionally trained workers in the United States would have had to earn during the 1930s at most 70 percent more than other workers to cover the extra costs of their training, including interest at roughly the market rate on non-human capital. In fact, they earned on the average between two and three times as much.7
Some part of this difference may well be attributable to greater natural ability on the part of those who entered the professions: it may be that they would have earned more than the average non-professional worker if they had not gone into the professions. Kuznets and I concluded, however, that such differences in ability could not explain anything like the whole of the extra return of the professional workers.8Apparently, there was sizable underinvestment in human beings. The postwar period has doubtless brought changes in the relative earnings in different occupations.
It seems extremely doubtful, however, that they have been sufficiently great to reverse this conclusion. It is not certain at what level this underinvestment sets in. It clearly applies to professions requiring a long period of training, such as medicine, law, dentistry, and the like and probably to all occupations requiring a college training. At one time, it almost certainly extended to many occupations requiring much less training but probably no longer does, although the opposite has sometimes been maintained.9
This underinvestment in human capital presumably reflects an imperfection in the capital market: investment in human beings cannot be financed on the same terms or with the same ease as investment in physical capital. It is easy to see why there would be such a difference. If a fixed money loan is made to finance investment in physical capital, the lender can get some security for his loan in the form of a mortgage or residual claim to the physical asset itself, and he can count on realizing at least part of his investment in case of necessity by selling the physical asset. If he makes a comparable loan to increase the earning power of a human being, he clearly cannot get any comparable security; in a non-slave state, the individual embodying the investment cannot be bought and sold. But even if he could, the security would not be comparable. The productivity of the physical capital does not — or at least generally does not — depend on the co-operativeness of the original borrower. The productivity of the human capital quite obviously does — which is, of course, why, all ethical considerations aside, slavery is economically inefficient. A loan to finance the training of an individual who has no security to offer other than his future earnings is therefore a much less attractive proposition than a loan to finance, say, the erection of a building: the security is less, and the cost of subsequent collection of interest and principal is very much greater.
A further complication is introduced by the inappropriateness of fixed money loans to finance investment in training. Such an investment necessarily involves much risk. The average expected return may be high, but there is wide variation about the average. Death or physical incapacity is one obvious source of variation but is probably much less important than differences in ability, energy, and good fortune. The result is that if fixed money loans were made, and were secured only by expected future earnings, a considerable fraction would never be repaid. In order to make such loans attractive to lenders, the nominal interest rate charged on all loans would have to be sufficiently high to compensate for the capital losses on the defaulted loans. The high nominal interest rate would both conflict with usury laws and make the loans unattractive to borrowers, especially to borrowers who have or expect to have other assets on which they cannot currently borrow but which they might have to realize or dispose of to pay the interest and principal of the loan.10 The device adopted to meet the corresponding problem for other risky investments is equity investment plus limited liability on the part of shareholders. The counterpart for education would be to “buy” a share in an individual’s earning prospects: to advance him the funds needed to finance his training on condition that he agree to pay the lender a specified fraction of his future earnings. In this way, a lender would get back more than his initial investment from relatively successful individuals, which would compensate for the failure to recoup his original investment from the unsuccessful.
There seems no legal obstacle to private contracts of this kind, even though they are economically equivalent to the purchase of a share in an individual’s earning capacity and thus to partial slavery. One reason why such contracts have not become common, despite their potential profitability to both lenders and borrowers, is presumably the high costs of administering them, given the freedom of individuals to move from one place to another, the need for getting accurate income statements, and the long period over which the contracts would run. These costs would presumably be particularly high for investment on a small scale with a resultant wide geographical spread of the individuals financed in this way. Such costs may well be the primary reason why this type of investment has never developed under private auspices. But I have never been able to persuade myself that a major role has not also been played by the cumulative effect of such factors as the novelty of the idea, the reluctance to think of investment in human beings as strictly comparable to investment in physical assets, the resultant likelihood of irrational public condemnation of such contracts, even if voluntarily entered into, and legal and conventional limitation on the kind of investments that may be made by the financial intermediaries that would be best suited to engage in such investments, namely, life insurance companies. The potential gains, particularly to early entrants, are so great that it would be worth incurring extremely heavy administrative costs.11
But whatever the reason, there is clearly here an imperfection of the market that has led to underinvestment in human capital and that justifies government intervention on grounds both of “natural monopoly,” insofar as the obstacle to the development of such investment has been administrative costs, and of improving the operation of the market, insofar as it has been simply market frictions and rigidities.
What form should government intervention take? One obvious form, and the only form that it has so far taken, is outright government subsidy of vocational or professional education financed out of general revenues. Yet this form seems clearly inappropriate. Investment should be carried to the point at which the extra return repays the investment and yields the market rate of interest on it. If the investment is in a human being, the extra return takes the form of a higher payment for the individual’s services than he could otherwise command. In a private market economy, the individual would get this return as his personal income, yet if the investment were subsidized, he would have borne none of the costs. In consequence, if subsidies were given to all who wished to get the training, and could meet minimum quality standards, there would tend to be overinvestment in human beings, for individuals would have an incentive to get the training so long as it yielded any extra return over private costs, even if the return were insufficient to repay the capital invested, let alone yield any interest on it. To avoid such overinvestment, government would have to restrict the subsidies. Even apart from the difficulty of calculating the “correct” amount of investment, this would involve rationing in some essentially arbitrary way the limited amount of investment among more claimants than could be financed, and would mean that those fortunate enough to get their training subsidized would receive all the returns from the investment whereas the costs would be borne by the taxpayers in general. This seems an entirely arbitrary, if not perverse, redistribution of income.
The desideratum is not to redistribute income but to make capital available for investment in human beings on terms comparable to those on which it is available for physical investment. Individuals should bear the costs of investment in themselves and receive the rewards, and they should not be prevented by market imperfections from making the investment when they are willing to bear the costs. One way to do this is to have government engage in equity investment in human beings of the kind described above.
A governmental body could offer to finance or help finance the training of any individual who could meet minimum quality standards by making available not more than a limited sum per year for not more than a specified number of years, provided it was spent on securing training at a recognized institution. The individual would agree in return to pay to the government in each future year x percent of his earnings in excess of y dollars for each $1,000 that he gets in this way. This payment could easily be combined with payment of income tax and so involve a minimum of additional administrative expense. The base sum, $y, should be set equal to estimated average — or perhaps modal — earnings without the specialized training; the fraction of earnings paid, x , should be calculated so as to make the whole project self-financing. In this way the individuals who received the training would in effect bear the whole cost. The amount invested could then be left to be determined by individual choice. Provided this was the only way in which government financed vocational or professional training, and provided the calculated earnings reflected all relevant returns and costs, the free choice of individuals would tend to produce the optimum amount of investment. The second proviso is unfortunately not likely to be fully satisfied. In practice, therefore, investment under the plan would still be somewhat too small and would not be distributed in the optimum manner. To illustrate the point at issue, suppose that a particular skill acquired by education can be used in two different ways; for example, medical skill in research or in private practice. Suppose that, if money earnings were the same, individuals would generally prefer research. The non-pecuniary advantages of research would then tend to be offset by higher money earnings in private practice. These higher earnings would be included in the sum to which the fraction x was applied whereas the monetary equivalent of the non-pecuniary advantages of research would not be. In consequence, the earnings differential would have to be higher under the plan than if individuals could finance themselves, since it is the net monetary differential, not the gross, that individuals would balance against the non-pecuniary advantages of research in deciding how to use their skill. This result would be produced by a larger than optimum fraction of individuals going into research necessitating a higher value of x to make the scheme self-financing than if the value of the non-pecuniary advantages could be included in calculated earnings. The inappropriate use of human capital financed under the plan would in this way lead to a less than optimum incentive to invest and so to a less than optimum amount of investment.12
Estimation of the values of x and y clearly offers considerable difficulties, especially in the early years of operation of the plan, and the danger would always be present that they would become political footballs. Information on existing earnings in various occupations is relevant but would hardly permit anything more than a rough approximation to the values that would render the project self-financing. In addition, the values should in principle vary from individual to individual in accordance with any differences in expected earning capacity that can be predicted in advance — the problem is similar to that of varying life insurance premia among groups that have different life expectancy. For such reasons as these it would be preferable if similar arrangements could be developed on a private basis by financial institutions in search of outlets for investing their funds, non-profit institutions such as private foundations, or individual universities and colleges.
Insofar as administrative expense is the obstacle to the development of such arrangements on a private basis, the appropriate unit of government to make funds available is the Federal government in the United States rather than smaller units. Any one State would have the same costs as an insurance company, say, in keeping track of the people whom it had financed. These would be minimized for the Federal government. Even so, they would not be completely eliminated. An individual who migrated to another country, for example, might still be legally or morally obligated to pay the agreed-on share of his earnings, yet it might be difficult and expensive to enforce the obligation. Highly successful people might therefore have an incentive to migrate. A similar problem arises, of course, also under the income tax, and to a very much greater extent. This and other administrative problems of conducting the scheme on a Federal level, while doubtless troublesome in detail, do not seem serious. The really serious problem is the political one already mentioned: how to prevent the scheme from becoming a political football and in the process being converted from a self-financing project to a means of subsidizing vocational education.
But if the danger is real, so is the opportunity. Existing imperfections in the capital market tend to restrict the more expensive vocational and professional training to individuals whose parents or benefactors can finance the training required. They make such individuals a “non-competing” group sheltered from competition by the unavailability of the necessary capital to many individuals, among whom must be large numbers with equal ability. The result is to perpetuate inequalities in wealth and status. The development of arrangements such as those outlined above would make capital more widely available and would thereby do much to make equality of opportunity a reality, to “diminish inequalities of income and wealth, and to promote the full use of our human resources. And it would do so not, like the outright redistribution of income, by impeding competition, destroying incentive, and dealing with symptoms, but by strengthening competition, making incentives effective, and eliminating the causes of inequality.
Conclusion
This re-examination of the role of government in education suggests that the growth of governmental responsibility in this area has been unbalanced. Government has appropriately financed general education for citizenship, but in the process it has been led also to administer most of the schools that provide such education. Yet, as we have seen, the administration of schools is neither required by the financing of education, nor justifiable in its own right in a predominantly free enterprise society. Government has appropriately been concerned with widening the opportunity of young men and women to get professional and technical training, but it has sought to further this objective by the inappropriate means of subsidizing such education, largely in the form of making it available free or at a low price at governmentally operated schools.
The lack of balance in governmental activity reflects primarily the failure to separate sharply the question what activities it is appropriate for government to finance from the question what activities it is appropriate for government to administer — a distinction that is important in other areas of government activity as well. Because the financing of general education by government is widely accepted, the provision of general education directly by governmental bodies has also been accepted. But institutions that provide general education are especially well suited also to provide some kinds of vocational and professional education, so the acceptance of direct government provision of general education has led to the direct provision of vocational education. To complete the circle, the provision of vocational education has, in turn, meant that it too was financed by government, since financing has been predominantly of educational institutions not of particular kinds of educational services.
The alternative arrangements whose broad outlines are sketched in this paper distinguish sharply between the financing of education and the operation of educational institutions, and between education for citizenship or leadership and for greater economic productivity. Throughout, they center attention on the person rather than the institution. Government, preferably local governmental units, would give each child, through his parents, a specified sum to be used solely in paying for his general education; the parents would be free to spend this sum at a school of their own choice, provided it met certain minimum standards laid down by the appropriate governmental unit. Such schools would be conducted under a variety of auspices: by private enterprises operated for profit, nonprofit institutions established by private endowment, religious bodies, and some even by governmental units.
For vocational education, the government, this time however the central government, might likewise deal directly with the individual seeking such education. If it did so, it would make funds available to him to finance his education, not as a subsidy but as “equity” capital. In return, he would obligate himself to pay the state a specified fraction of his earnings above some minimum, the fraction and minimum being determined to make the program self-financing. Such a program would eliminate existing imperfections in the capital market and so widen the opportunity of individuals to make productive investments in themselves while at the same time assuring that the costs are borne by those who benefit most directly rather than by the population at large.
An alternative, and a highly desirable one if it is feasible, is to stimulate private arrangements directed toward the same end. The result of these measures would be a sizable reduction in the direct activities of government, yet a great widening in the educational opportunities open to our children. They would bring a healthy increase in the variety of educational institutions available and in competition among them. Private initiative and enterprise would quicken the pace of progress in this area as it has in so many others. Government would serve its proper function of improving the operation of the invisible hand without substituting the dead hand of bureaucracy.
Note: I am indebted to P. T. Bauer, A. R. Prest, and H. G. Johnson for helpful comments on an earlier draft of this paper.
Notes
1. It is by no means so fantastic as may at first appear that such a step would noticeably affect the size of families. For example. one explanation of the lower birth rate among higher than among lower socio-economic groups may well be that children are relatively more expensive to the former, thanks in considerable measure to the higher standards of education they maintain and the costs of which they bear.
2. Essentially this proposal — public financing but private operation of education has recently been suggested in several southern states as a means of evading the Supreme Court ruling against segregation. This fact came to my attention after this paper was essentially in its present form. My initial reaction — and I venture to predict, that of most readers — was that this possible use of the proposal was a count against it, that it was a particularly striking case of the possible defect — the exacerbating of class distinctions — referred to in the second paragraph preceding the one to which this note is attached.
Further thought has led me to reverse my initial reaction. Principles can be tested most clearly by extreme cases. Willingness to permit free speech to people with whom one agrees is hardly evidence of devotion to the principle of free speech; the relevant test is willingness to permit free speech to people with whom one thoroughly disagrees. Similarly, the relevant test of the belief in individual freedom is the willingness to oppose state intervention even when it is designed to prevent individual activity of a kind one thoroughly dislikes. I deplore segregation and racial prejudice; pursuant to the principles set forth at the outset of the paper, it is clearly an appropriate function of the state to prevent the use of violence and physical coercion by one group on another; equally clearly, it is not an appropriate function of the state to try to force individuals to act in accordance with my — or anyone else’s views, whether about racial prejudice or the party to vote for, so long as the action of anyone individual affects mostly himself. These are the grounds on which I oppose the proposed Fair Employment Practices Commissions; and they lead me equally to oppose forced nonsegregation. However, the same grounds also lead me to oppose forced segregation. Yet, so long as the schools are publicly operated, the only choice is between forced nonsegregation and forced segregation; and if I must choose between these evils, I would choose the former as the lesser.
The fact that I must make this choice is a reflection of the basic weakness of a publicly operated school system. Privately conducted schools can resolve the dilemma. They make unnecessary either choice. Under such a system, there can develop exclusively white schools, exclusively colored schools, and mixed schools. Parents can choose which to send their children to. The appropriate activity for those who oppose segregation and racial prejudice is to try to persuade others of their views; if and as they succeed, the mixed schools will grow at the expense of the nonmixed, and a gradual transition will take place. So long as the school system is publicly operated, only drastic change is possible; one must go from one extreme to the other; it is a great virtue of the private arrangement that it permits a gradual transition.
An example that comes to mind as illustrating the preceding argument is summer camps for children. Is there any objection to the simultaneous existence of some camps that are wholly Jewish, some wholly non-Jewish, and some mixed? One can — though many who would react quite differently to negro-white segregation — would not explore the existence of attitudes that lead to the three types; one can seek to propagate views that would tend to the growth of the mixed school at the expense of the extremes; but is it an appropriate function of the state to prohibit the unmixed camps?
The establishment of private schools does not of itself guarantee the desirable freedom of choice on the part of parents. The public funds could be made available subject to the condition that parents use them solely in segregated schools; and it may be that some such condition is contained in the proposals now under consideration by southern states. Similarly, the public funds could be made available for use solely in nonsegregated schools. The proposed plan is not therefore inconsistent with either forced segregation or forced nonsegregation. The point is that it makes available a third alternative.
3. See George J. Stigler. Employment and Compensation in Education, (National Bureau of Economic Research, Occasional Paper 1111, 1950). p. 1111.
4. The subsidizing of basic research for example. I have interpreted education narrowly so as to exclude considerations of this type which would open up an unduly wide field.
5. The increased return may be only partly in a monetary form; it may also consist of non-pecuniary advantages attached to the occupation for which the vocational training fits the individual. Similarly, the occupation may have nonpecuniary disadvantages, which would have to be reckoned among the costs of the investment.
6. For a more detailed and precise statement of the considerations entering into the choice of an occupation, see Milton Friedman and Simon Kuznets, Income from Independent Professional Practice, (National Bureau of Economic Research, N.Y., 1945). pp. 81-94, 118-37.
7. Ibid., pp. 68-69. 84. 148-51.
8. Ibid., pp. 88-94.
9. Education and Economic Well-Being in American Democracy , (Educational Policies Commission, National Education Association of United States and American Association of School Administrators, 1940).
10. Despite these obstacles to fixed money loans, I am told that they have been a very common means of financing university education in Sweden, where they have apparently been available at moderate rates of interest. Presumably a proximate explanation is a smaller dispersion of income among university graduates than in the United States. But this is no ultimate explanation and may not be the only or major reason for the difference in practice. Further study of Swedish and similar experience is highly desirable to test whether the reasons given above are adequate to explain the absence in the United States and other countries of a highly developed market in loans to finance vocational education, or whether there may not be other obstacles that could be removed more easily.
11. It is amusing to speculate on how the business could be done and on some ancillary methods of profiting from it. The initial entrants would be able to choose the very best investments, by imposing very high quality standards on the individuals they were willing to finance. If they did so, they could increase the profitability of their investment by getting public recognition of the superior quality of the individuals they financed: the legend, “Training financed by XYZ Insurance Company” could be made into an assurance of quality (like “Approved by Good Housekeeping”) that would attract custom. All sorts of other common services might be rendered by the XYZ company to “its” physicians, lawyers, dentists, and so on.
12. The point in question is familiar in connection with the disincentive effects of income taxation. An example that perhaps makes this clearer than the example in the text is to suppose that the individual can earn $5, say, by some extra work and would just be willing to do so if he could keep the whole $5 — that is, he values the non-pecuniary costs of the extra worth at just under $5. If x is say 0.10, he only keeps $4.50 and this will not be enough to induce him to do the extra work. It should be noted that a plan involving fixed money loans to individuals might be less seriously affected by differences among various uses of skills in non-pecuniary returns and costs than the plan for equity investment under consideration. It would not however be unaffected by them; such differences would tend to produce different frequencies of default depending on the use made of the skill and so unduly favor uses yielding relatively high non-pecuniary returns or involving relatively low non-pecuniary costs. I am indebted to Harry G. Johnson and Paul W. Cook, Jr., for suggesting the inclusion of this qualification. For a fuller discussion of the role of non-pecuniary advantages and disadvantages in determining earnings in different pursuits. See Friedman and Kuznets, loc. cit.
ADVICE FOR PRESIDENT TRUMP:Free to Choose Part 6: What’s Wrong With Our Schools Featuring Milton Friedman
Charlie Rose interview of Milton Friedman My favorite economist: Milton Friedman : A Great Champion of Liberty by V. Sundaram Milton Friedman, the Nobel Prize-winning economist who advocated an unfettered free market and had the ear of three US Presidents – Nixon, Ford and Reagan – died last Thursday (16 November, 2006 ) in San Francisco […]
Stearns Speaks on House Floor in Support of Balanced Budget Amendment Uploaded by RepCliffStearns on Nov 18, 2011 Speaking on House floor in support of Balanced Budget Resolution, 11/18/2011 ___________ Below are some of the main proposals of Milton Friedman. I highly respected his work. David J. Theroux said this about Milton Friedman’s view concerning […]
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 […]
What a great defense of Milton Friedman!!!! Defaming Milton Friedman by Johan Norberg This article appeared in Reason Online on September 26, 2008 PRINT PAGE CITE THIS Sans Serif Serif Share with your friends: ShareThis In the future, if you tell a student or a journalist that you favor free markets and limited government, there is […]
Milton Friedman on Hayek’s “Road to Serfdom” 1994 Interview 2 of 2 Uploaded by PenguinProseMedia on Oct 26, 2011 2nd half of 1994 interview. ________________ I have a lot of respect for the Friedmans.Two Lucky People by Milton and Rose Friedman reviewed by David Frum — October 1998. However, I liked this review below better. It […]
Milton Friedman on Hayek’s “Road to Serfdom” 1994 Interview 1 of 2 Uploaded by PenguinProseMedia on Oct 25, 2011 Says Federal Reserve should be abolished, criticizes Keynes. One of Friedman’s best interviews, discussion spans Friedman’s career and his view of numerous political figures and public policy issues. ___________________ Here is a review of “Two Lucky People.” […]
Charlie Rose interview of Milton Friedman My favorite economist: Milton Friedman : A Great Champion of Liberty by V. Sundaram Milton Friedman, the Nobel Prize-winning economist who advocated an unfettered free market and had the ear of three US Presidents – Nixon, Ford and Reagan – died last Thursday (16 November, 2006 ) in San Francisco […]
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 […]
And the European Union is pushing protectionist policies using global warming as an excuse.
More specifically, EU politicians and bureaucrats in Brussels have rammed through a so-called Carbon Border Adjustment Mechanism (CBAM), which is euro-speak for a new protectionist tax on imports that are not sufficiently green.
The Wall Street Journal‘s editorial summarizes some of the problems.
The European Parliament this week pulled the trigger on the opening shot in a new climate trade war. …Foreign companies that haven’t paid for carbon emissions at home will have to pay a tariff when exporting goods to Europe. …Climate coercion advocates say a tariff is needed to avoid “carbon leakage,” which is their term for the flight of manufacturing to countries with less onerous emissions restrictions.This is a tacit admission that Europe’s climate policies are failing. …European consumers won’t pay higher prices for greener goods unless the Brussels tax man forces them to. …Foreign companies and governments have raised concerns about the European carbon border tax, which imposes complex and costly compliance burdens and then imposes steep default tariffs on companies that don’t play along. China and India are in the crosshairs of this border tax, although companies from any country that doesn’t impose emissions taxes will have to pay. That includes U.S. firms. …Consumers will be the big losers, first in Europe and then elsewhere.
In his Bloomberg column, Professor Tyler Cowen pointed out some practical problems with the EU’s scheme.
There is a right and a wrong way to encourage the world to use greener energy. Unfortunately, the European Union’s move toward a carbon tax on imports — essentially a tariff on products made using too much dirty energy — is the latter. …Economic changes take place at the margin, and currently the EU is engaged in substitution toward coal, a very dirty energy source. …The tariffs will lead to more coal use and a dirtier energy supply. Be suspicious of green energy policies which at first make the problem worse. …So, despite about as strong an incentive as possible — a war — the EU made the harmful rather than the beneficial adjustment. Now it is expecting that much poorer nations, often with worse governance structures, to do better. Not only is this naïve, but it is also protectionist….it’s easy to imagine China and India not improving their energy policies as a result of EU tariffs. They, like the EU, have domestic pressure groups… In general, Western attempts to shape those nations have failed more than they have succeeded. So again the negative short-term results of the policy — more European coal use — could outweigh any longer-run benefits. Even the positive long-run effects are up for grabs. …the tariff hike…makes the exporting nations poorer than they otherwise would be. Poorer nations tend to be less interested in improving their environments… And extreme poverty worsens other global problems… Should EU policy make it more difficult for Africa to industrialize? …Once protectionist measures are in place, they are hard to reverse. The EU would be reaping tariff revenue, and domestic EU industries would be receiving trade protection. Any reclassification of the imports as fundamentally “greener” would require an investigation across borders and clearance through multiple levels of bureaucracy. Such changes will not be easy to accomplish, especially in an era increasingly enamored of trade restrictions. …the most likely scenario will play itself out: The EU will spin its wheels, indulging in protectionism and feeling good about itself — all at the expense of our planet’s future.
The part about “reclassification of imports” is especially worrisome. For all intents and purposes, the EU will have a corruption-enabling process where industries on all sides will have incentives to hire lots of lobbyists.
That will line the pockets of bureaucrats who “retire” and become facilitators, but it won’t be good for anyone else.
Last but not least, Tori Smith explained for American Action Forum that the EU’s protectionist approach is a violation of trade commitments.
International trade law and WTO experts such as Joel Trachtman of Tufts University and Jennifer Hillman of the Council on Foreign Relations have examined at length the areas where a CBAM might trigger a WTO violation… there do seem to be three principles to follow to have a “reduced risk of violating WTO law” when considering a CBAM: (1) the carbon tax must apply to domestic goods and imports; (2) imports from all WTO members must be treated the same; and (3) rebates for exports cannot exceed the carbon tax. …The EU’s CBAM could run afoul of these commitments because it gives special treatment to countries that already have a carbon price. … Compliance with WTO commitments should be a top priority when considering any new tariff or tax.
Sadly, the World Trade Organization already has been weakened, so I won’t be surprised if officials somehow decide to give a green light to the EU’s protectionism.
P.S. You won’t be surprised to learn that the Biden Administration also is interested in carbon protectionism. Indeed, there was plenty of green protectionism is his misnamedInflation Reduction Act.
If it wasn’t for Bernie Sanders, Donald Trump would win the title of most economically illiterate presidential candidate in the short history of the twenty-first century.
A prime example of why he’d earn this ignoble title is Trump’s opposition to free trade — a position which, not surprisingly, he shares with Sanders. The only real difference between Sanders and Trump on this issue is that no one trust that Trump would actually carry out his proposed destructive policies (he’d flip-flop on the issue like he does on everything else), while Sanders would be devastatingly consistent.
The video below compares and contrasts Trump’s ignorance about free trade with the wisdom of Milton Friedman, one of the greatest economists in American history.
If judged on substance, it’s obvious Friedman wins this debate. But in the long run Trump and other anti-free market politicians are likely to continue to convince the public to support their terrible, anti-trade policies. When it comes to economics, Americans have a tendency to reject policies that make our country more prosperous in favor of ignorant demagoguery that gives the appearance of punishing foreign nations.
JOE CARTER Joe Carter is a Senior Editor at the Acton Institute. Joe also serves as an editor at the The Gospel Coalition, a communications specialist for the Ethics and Religious Liberty Commission of the Southern Baptist Convention, and as an adjunct professor of journalism at Patrick Henry College. He is the editor of the NIV Lifehacks Bible and co-author of How to Argue like Jesus: Learning Persuasion from History’s Greatest Communicator (Crossway).
Michael Harrington: If you don’t have the expertise, the knowledge technology today, you’re out of the debate. And I think that we have to democratize information and government as well as the economy and society. FRIEDMAN: I am sorry to say Michael Harrington’s solution is not a solution to it. He wants minority rule, I […]
PETERSON: Well, let me ask you how you would cope with this problem, Dr. Friedman. The people decided that they wanted cool air, and there was tremendous need, and so we built a huge industry, the air conditioning industry, hundreds of thousands of jobs, tremendous earnings opportunities and nearly all of us now have air […]
Part 5 Milton Friedman: I do not believe it’s proper to put the situation in terms of industrialist versus government. On the contrary, one of the reasons why I am in favor of less government is because when you have more government industrialists take it over, and the two together form a coalition against the ordinary […]
The fundamental principal of the free society is voluntary cooperation. The economic market, buying and selling, is one example. But it’s only one example. Voluntary cooperation is far broader than that. To take an example that at first sight seems about as far away as you can get __ the language we speak; the words […]
_________________________ 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 […]
If you would like to see the first three episodes on inflation in Milton Friedman’s film series “Free to Choose” then go to a previous post I did. Ep. 9 – How to Cure Inflation [4/7]. Milton Friedman’s Free to Choose (1980) Uploaded by investbligurucom on Jun 16, 2010 While many people have a fairly […]
For today, I want to highlight what I said about monetary policy.
The above segment is less than three minutes, and I tried to make two points.
First, as I’ve previously explained, the Federal Reserve goofed by dramatically expanding its balance sheet (i.e., buying Treasury bonds and thus creating new money) in 2020 and 2021. That’s what produced the big uptick in consumer prices last year.
And it’s now why the Fed is raising interest rates. Part of the boom-bust cycle that you get with bad monetary policy.
Second, I speculate on why we got bad monetary policy.
I’ve always assumed that the Fed goofs because it wants to stimulate the economy (based on Keynesian monetary theory).
But I’m increasingly open to the idea that the Fed may be engaging in bad monetary policy in order to prop up bad fiscal policy.
To be more specific, what if the central bank is buying government bonds because of concerns that there otherwise won’t be enough buyers (which is the main reason why there’s bad monetary policy in places such as Argentina and Venezuela).
In the academic literature, this is part of the discussion about “fiscal dominance.” As shown in this visual, fiscal dominance exists when central banks decide (or are forced) to create money to finance government spending.
The visual is from a report by Eric Leeper for the Mercatus Center. Here’s some of what he wrote.
…a critical implication of fiscal dominance: it is a threat to central bank success. In each example, the central bank was free to choose not to react to the fiscal disturbance—central banks are operationally independent of fiscal policy. But that choice comes at the cost of not pursuing a central bank legislated mandate: financial stability or inflation control. Central banks are not economically independent of fiscal policy, a fact that makes fiscal dominance a recurring threat to the mission of central banks and to macroeconomic outcomes. …why does fiscal dominance strike fear in the hearts of economists and financial markets? Perhaps it does so because we can all point to extreme examples where fiscal policy runs the show and monetary policy is subjugated to fiscal needs. Outcomes are not pleasant. Germany’s hyperinflation in the early 1920s may leap to mind first. …The point of creating independent central banks tasked with controlling inflation…was to take money creation out of the hands of elected officials who may be tempted to use it for political gain instead of social wellbeing.
A working paper from the St. Louis Federal Reserve Bank, authored by Fernando Martin, also discusses fiscal dominance.
In recent decades, central banks around the world have gained independence from fiscal and political institutions. The proposition is that a disciplined monetary policy can put an effective brake on the excesses of political expediency.This is frequently achieved by endowing central banks with clear and simple goals (e.g., an inflation mandate or target), as well as sufficient control over specific policy instruments… Despite these institutional advances, the resolve of central banks is chronically put to the test. … the possibility of fiscal dominance arises only when the fiscal authority sets the debt level.
The bottom line is that budget deficits don’t necessarily lead to inflation. But if a government is untrustworthy, then it will have trouble issuing debt to private investors.
And that’s when politicians will have incentives to use the central bank as a printing press.
P.S. Pay attention to Italy. The European Central Bank has been subsidizing its debt. That bad policy supposedly is coming to an end and things could get interesting.
Neither of the techniques mentioned above is a very accurate way to measure each president’s impact on the national debtbecause the president doesn’t have much control over the national debt during their first year in office.
For example, President Donald Trump took office in January 2017. He submitted his first budget in May. It covered the 2018 fiscal year, which didn’t begin until October 1, 2017. Trump operated the first part of his term under President Barack Obama’s budget for fiscal year 2017, which ended on Sept. 30, 2017.2
fusing, Congress intentionally sets it up this way. An advantage of the federal fiscal year is that it gives the new president time to put together their budget during their first months in office.
The Best Way to Measure Debt by President
The best way to measure a president’s debt is to add up their budget deficits and compare that total to the debt level when they took office. A president’s budget reveals their administration’s priorities.
Note
Though they sound similar, deficit and debt are two different things. A deficit is a budget shortfall, whereas debt is the running total of all deficits and surpluses. Deficits add to the debt, while surpluses reduce it.
Top 5 Presidents Who Contributed to the Debt by Percentage
Franklin D. Roosevelt (1933-1945)
President Roosevelt added the largest percentage increase to the national debt. Although he only added $236 billion, this was an increase of about 1,048% from the $22.5 billion debt level left by President Herbert Hoover before him. The Great Depression and the New Deal contributed to FDR’s yearly deficits, but the biggest cost was World War II—it added $186.3 billion to the debt between 1942 and 1945.3
Woodrow Wilson (1913-1921)
President Wilson was the second-largest contributor to the debt, percentage-wise. He added about $21 billion, which was a 723% increase over the $2.9 billion debt of his predecessor. World War I contributed to the deficits that raised the national debt.3
Ronald Reagan (1981-1989)
President Reagan increased the debt by $1.86 trillion, or by 186%. Reagan’s supply-side economics didn’t grow the economy enough to offset the lost revenue from its tax cuts. Reagan also increased the defense budget by 35%.4
George W. Bush (2001-2009)
President Bush added $5.85 trillion to the national debt. That’s a 101% increase, putting him in fourth. Bush launched the War on Terror in response to the 9/11 attacks, which led to multi-trillion-dollar spending on the War in Afghanistan and the War in Iraq. Bush also dealt with the 2001 recession and the 2008 financial crisis.5
Barack Obama (2009-2017)
Under President Obama, the national debt grew the most in dollar terms ($8.6 trillion) and was fifth by percentage at 74%. Obama fought the Great Recession with an $831 billion economic stimulus package and added $858 billion through tax cuts. Even though the fiscal year 2009 budget was set by President Bush, Obama added to it with the Economic Stimulus Act in 2009.657
US Debt Increase by President Per Fiscal Year
The U.S. Treasury Department has historical tables that report the annual U.S. debt for each fiscal year (FY) since 1790. We’ve compiled this data from that source to create the figures used below.81
Joe Biden
In January 2023, the nation hit the $31.4 trillion debt limit Congress passed in 2021.9Republican lawmakers control the House of Representatives and said they won’t raise the debt limit unless Democrats, who control the Senate, agree to budget cuts.
On Oct. 1, 2021, at the end of fiscal year 2021, the national debt was $28.4 trillion. Between the end of fiscal year 2020 and the end of fiscal year 2021, the national debt grew $1.5 trillion, a 5.6% increase year over year. For fiscal year 2022, President Joe Biden’s budget included a deficit of $1.84 trillion, and by August 2022, the national debt had grown to $30.8 trillion.110
When Biden took office, the economy and household finances were still reeling from the pandemic, and Biden continued his predecessor’s policy of spending heavily to keep households afloat. In March 2021, Biden signed the American Rescue Plan, which showered taxpayers with pandemic relief cash in the form of stimulus checks and extra unemployment payments, and temporarily expanded child tax credits, plus other help. It all came with a cost to future budgets: The bill would add $1.9 trillion to the national debt by 2031, the Congressional Budget Office estimated.11
The bipartisan infrastructure bill, signed by Biden in November 2021, which provided new funding for highways, railways, broadband Internet expansion and other projects, added to the debt too, with estimates on its 10-year impact ranging from $374 billion to $400 billion, depending on how it’s calculated.1213
Some of Biden’s actions cut the other way. In August 2022, Biden signed the Inflation Reduction Act, an anti-climate change bill that spent money on new green energy programs and tax credits as well as to make drugs cheaper for patients, and paid for it by raising taxes on corporations and the ultra-wealthy. The bill should reduce the national debt by $102 billion by 2031, the CBO estimated.14
Biden followed up this bill with an executive action that forgave up to $10,000 of federal student loan debt per borrower, and $20,000 for those who received Pell Grants. He also proposed a new, cheaper income-driven student loan repayment program for future borrowers. However, he also announced that student loan interest and required payments, both of which had been frozen since the pandemic hit, would resume in January 2023.15
In August 2022, the government did not have an official estimate for how these measures would impact the national debt. One piece of it—forgiving $10,000 of debt per student loan borrower—would cost $329.7 billion over 10 years, according to an estimate by the Wharton School of Business.16
Donald Trump
At the end of fiscal year 2020, the debt was $26.9 trillion. Trump added $6.7 trillion to the debt between fiscal year 2017 and fiscal year 2020, a 33.1% increase, largely due to the effects of the coronavirus pandemic and 2020 recession.
In his FY 2021 budget, Trump’s budget included a $966 billion deficit.17 However, the national debt actually grew by $1.5 trillion between October 1, 2020, and October 1, 2021.
FY 2021: $1.5 trillion
FY 2020: $4.2 trillion
FY 2019: $1.2 trillion
FY 2018: $1.3 trillion
Barack Obama
President Obama added about $8.6 trillion, about a 74% increase, to the national debt at the end of President Bush’s last budget in 2009.
FY 2017: $671 billion
FY 2016: $1.42 trillion
FY 2015: $326 billion
FY 2014: $1.09 trillion
FY 2013: $672 billion
FY 2012: $1.28 trillion
FY 2011: $1.23 trillion
FY 2010: $1.65 trillion
FY 2009: $253 billion (Congress passed the Economic Stimulus Act, which spent $253 billion)18
George W. Bush
President Bush added $5.85 trillion to the national debt, a 101% increase from the $5.8 trillion debt at the end of Clinton’s last budget for fiscal year 2001.
FY 2009: $1.63 trillion (this was Bush’s deficit without the impact of the Economic Stimulus Act)
FY 2008: $1.02 trillion
FY 2007: $501 billion
FY 2006: $574 billion
FY 2005: $553 billion
FY 2004: $596 billion
FY 2003: $555 billion
FY 2002: $421 billion
Bill Clinton
President Clinton increased the national debt by almost $1.4 trillion, almost a 32% increase from the $4.4 trillion debt at the end of President H.W. Bush’s last budget.54
FY 2001: $133 billion
FY 2000: $18 billion
FY 1999: $130 billion
FY 1998: $113 billion
FY 1997: $189 billion
FY 1996: $251 billion
FY 1995: $281 billion
FY 1994: $281 billion
George H.W. Bush
President H.W. Bush added $1.55 trillion to the debt, a 54% increase from the $2.857 trillion debt at the end of Reagan’s last budget.4
FY 1993: $347 billion
FY 1992: $399 billion
FY 1991: $432 billion
FY 1990: $376 billion
Ronald Reagan
President Regan added $1.86 trillion to the national debt, a 186% increase from the $997.8 billion debt at the end of Carter’s last budget.4
FY 1989: $255 billion
FY 1988: $252 billion
FY 1987: $225 billion
FY 1986: $302 billion
FY 1985: $251 billion
FY 1984: $195 billion
FY 1983: $235 billion
FY 1982: $145 billion
Jimmy Carter
President Carter added $299 billion to the debt, a 42.7% increase from the $698.8 billion debt at the end of Ford’s last budget.4
FY 1981: $90.1 billion
FY 1980: $81.1 billion
FY 1979: $54.9 billion
FY 1978: $72.7 billion
Gerald Ford
President Ford added $223.7 billion to the debt.4
FY 1977: $78.4 billion
FY 1976: $87.2 billion
FY 1975: $58.1 billion
Richard Nixon
President Nixon added $121.1 billion to the national debt, a 34% increase from the $353.7 billion debt at the end of President Johnson’s last budget.4
FY 1974: $16.9 billion
FY 1973: $30.8 billion
FY 1972: $29.1 billion
FY 1971: $27.2 billion
FY 1970: $17.1 billion
Lyndon B. Johnson
President Johnson added $41.8 billion to the national debt, just a small 13% increase from the $312 billion debt at the end of President Kennedy’s time in office in 1964.4
FY 1969: $6.1 billion
FY 1968: $21.3 billion
FY 1967: $6.3 billion
FY 1966: $2.6 billion
FY 1965: $5.5 billion
John F. Kennedy
President Kennedy added $22.6 billion to the national debt.4
FY 1964: $5.8 billion
FY 1963: $7.6 billion
FY 1962: $9.2 billion
Dwight Eisenhower
President Eisenhower added $22.8 billion to the national debt.4
FY 1961: $2.6 billion
FY 1960: $1.6 billion
FY 1959: $8.3 billion
FY 1958: $5.8 billion
FY 1957: $2.2 billion surplus
FY 1956: $1.6 billion surplus
FY 1955: $3.1 billion
FY 1954: $5.1 billion
Harry Truman
President Truman added $7.3 billion to the national debt.43
FY 1953: $6.9 billion
FY 1952: $3.8 billion
FY 1951: $2.1 billion surplus
FY 1950: $4.5 billion
FY 1949: $478 million surplus
FY 1948: $6 billion surplus
FY 1947: $11 billion surplus
FY 1946: $10.7 billion
Franklin D. Roosevelt
President Roosevelt increased the national debt by $236 billion, a 1,048% increase from the $22.5 billion debt at the end of Hoover’s last budget.3
FY 1945: $57.7 billion
FY 1944: $64.3 billion
FY 1943: $64.2 billion
FY 1942: $23.5 billion
FY 1941: $6 billion
FY 1940: $2.5 billion
FY 1939: $3.2 billion
FY 1938: $740 million
FY 1937: $2.6 billion
FY 1936: $5 billion
FY 1935: $1.6 billion
FY 1934: $4.5 billion
Herbert Hoover
President Hoover added about $5.7 billion to the national debt.3
FY 1933: $3 billion
FY 1932: $2.8 billion
FY 1931: $616 million
FY 1930: $746 million surplus
Calvin Coolidge
President Coolidge reduced the national debt by about $5.3 billion.3
FY 1929: $673 million surplus
FY 1928: $907 million surplus
FY 1927: $1.1 billion surplus
FY 1926: $873 million surplus
FY 1925: $734.6 million surplus
FY 1924: $1 billion surplus
Warren G. Harding
President Harding reduced the national debt by about $1.6 billion thanks to budget surpluses.3
FY 1923: $614 million surplus
FY 1922: $1 billion surplus
Woodrow Wilson
President Wilson added about $21 billion to the national debt, a 723% increase from the $2.9 billion debt at the end of Taft’s last budget for fiscal year 1913.3
FY 1921: $1.9 billion surplus
FY 1920: $1.4 billion surplus
FY 1919: $12.8 billion
FY 1918: $9.8 billion
FY 1917: $2.1 billion
FY 1916: $551 million
FY 1915: $146 million
FY 1914: $0 (slight surplus)
Note
All presidents from 1790 to 1913 added a total of $2.8 billion to the national debt.8
Frequently Asked Questions (FAQ)
Which president has put the United States the most in debt?
President Joe Biden is on track to add the most to the budget deficit, largely due to the costs associated with continuing to battle the coronavirus pandemic. In late 2021, Congress voted to raise the debt ceiling.
Why does the United States owe so much debt?
Continued decreases in the amount of taxes paid by corporations and the wealthiest Americans have resulted in less money coming in. At the same time, spending on pandemic relief and the military continues to increase.
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 […]
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 […]
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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.
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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.”
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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.
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 […]
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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.
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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 […]
Did protectionism work for Herbert Hoover – or anyone else – in the 1930s?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.
as the best and worst part of capitalism.
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