Showing posts with label Milton Friedman. Show all posts
Showing posts with label Milton Friedman. Show all posts

Friday, February 4, 2011

Milton Friedman on Immigration and Free Markets

One cannot be pro-socialism and pro-immigration. Immigrants are usually needed for private sector jobs, usually either highly specialized or low paying ones. Despite the prospect of a low paying, tough job, immigrants come to America and other non-socialist countries because they believe their children will be able to have a better life. But most union and socialist jobs are reserved for citizens, not immigrants. Thus, the sina qua non of the immigrant story is a large private sector rather than a large government sector. In other words, someone who is pro-immigrant must be capitalist, not socialist, assuming that socialism means a large government sector.

If you're still not convinced, please listen to Milton Friedman:

[Ch 7] "one of the paradoxes of experience is that, in spite of...historical evidence, it is precisely the minority groups that have frequently furnished the most vocal and numerous advocates of fundamental alterations in a capitalist society. They have tended to attribute to capitalism the residual restrictions they experience rather than to recognize that the free market has been the major factor enabling these restrictions to be as small as they are...the purchaser of bread does not know whether it was made from wheat grown by a white man or a [black man], by a Christian or a Jew. In consequence, the producer of wheat is in a position to use resources as effectively as he can, regardless of what the attitudes of the community may be toward his color, the religion, or other characteristics of the people he hires.

Furthermore, and perhaps more important, there is an economic incentive in a free market to separate economic efficiency from other characteristics of the individual. A businessman or an entrepreneur who expresses preferences in his business activities that are not related to productive efficiency is at a disadvantage compared to other individuals who do not. Such an individual is in effect imposing higher costs on himself than are other individuals who do not have such preferences. Hence, in a free market they will tend to drive him out...

[Ch 1] As this example suggests, the groups in our society that have the most at stake in the preservation and strengthening of competitive capitalism are those minority groups which can most easily become the object of the distrust and enmity of the majority--the African-Americans, the Jews, the foreign-born, to mention only the obvious...[Yet] instead of recognizing that the existence of the free market has protected them from the attitudes of their fellow countrymen, they mistakenly attribute the residual discrimination to the market."

Bonus: Our minds tell us, and history confirms, that the great threat to freedom is the concentration of power. Government is necessary to preserve our freedom, it is an instrument through which we can exercise our freedom; yet by concentrating power in political hands, it is also a threat to freedom. Even though the men who wield this power initially be of good will and even though they be not corrupted by the power they exercise, the power will both attract and form men of a different stamp.

Saturday, May 15, 2010

Some Snippets from Recent Reading

From Milton Friedman, on death by a thousand taxes:

We are not going to vote anyone out of office because he imposes a $3-a-year burden on us.


From Nicole Gelinas, City Journal Spring 2010, on municipal bankruptcies:

State governments can't legally declare bankruptcy to escape debt: the federal bankruptcy code doesn't cover them, and they can't write their own bankruptcy laws because the Constitution reserves that power for the federal government. Cities, towns, and counties, meanwhile, can file for bankruptcy only if their state governments allow it, and more than half of the states don't. Moreover, federal law requires eligible cities and towns to meet a strict standard for insolvency.


From James Madison, on power:

All men having power ought to be distrusted to a certain degree.

Tuesday, January 13, 2009

2006 Interview with Milton Friedman

I just saw this excellent Imprimis interview with Milton Friedman. It took place in 2006, but the issues Mr. Friedman discusses are relevant today. He talks about reforming the Middle East, reforming medical care (which he calls a "socialist-communist system"), and extending school vouchers. My favorite quote: "Self-interest, rightly understood, works for the benefit of society as a whole."

Here is my book review of Capitalism and Freedom, Milton Friedman's short, seminal book on economics and freedom.

Thursday, May 29, 2008

Ronald Reagan on Libertarianism

If you analyze it I believe the very heart and soul of conservatism is libertarianism. I think conservatism is really a misnomer just as liberalism is a misnomer for the liberals — if we were back in the days of the Revolution, so-called conservatives today would be the Liberals and the liberals would be the Tories. The basis of conservatism is a desire for less government interference or less centralized authority or more individual freedom and this is a pretty general description also of what libertarianism is. Now, I can’t say that I will agree with all the things that the present group who call themselves Libertarians in the sense of a party say, because I think that like in any political movement there are shades, and there are libertarians who are almost over at the point of wanting no government at all or anarchy.

From Interview with President Reagan, published in Reason July 1975

http://en.wikiquote.org/wiki/Ronald_Reagan

One of the American public's worst misconceptions is that libertarianism calls for no laws. As I explained in my review of Milton Friedman's Capitalism and Freedom, Mr. Friedman himself stated the need for government: "The existence of a free market does not of course eliminate the need for government. On the contrary, government is essential both as a forum for determining the 'rules of the game' and as an umpire to interpret and enforce the rules decided on." See

http://willworkforjustice.blogspot.com/2007/08/capitalism-and-freedom-by-milton.html

Thus, anyone who states that libertarianism means anarchy or no laws is incorrect. Libertarianism merely means that you agree that interference with your ability to lead your life as you see fit--assuming your actions do not interfere with others' freedom--should be reduced as much possible.

More on government debt and the money we pay to the government: Richard Carmona, former U.S. Surgeon General (2002-2008), says that "75 cents of every tax dollar that you contribute [to health care] is spent on chronic disease, much of which is preventable" (The Commonwealth magazine, June 2008, page 44). Mr. Carmona singles out smoking and obesity as two of the largest scourges of health. One issue with having universal health care is how we regulate chronic disease--does an obese man get a free gastric bypass, or a free diet book? I wish I knew the answer.

One way to reduce the burden on any proposed national healthcare system is to have government workers use the premium + pay-as-you-go system (similar to Kaiser's HMO), while non-government workers use a separate, heavily subsidized health care system (similar to Britain's NHS). With most government workers not being "at-will" and therefore harder to terminate, they are best positioned to budget and pay monthly premiums. This type of carve-out is not unprecedented--postal and other federal workers, for example, do not get the same federal retirement benefits private citizens do because federal workers don't pay certain taxes. With more than 1.8 million civilian employees, the federal government, excluding the Postal Service, is the Nation’s largest employer. If you add in local and state government workers, you would have enough members to incorporate into a "closed system" of medical care (similar to Kaiser's HMO). In fact, you could probably leave the current HMO/PPO system intact, and then work with existing hospitals to provide heavily subsidized health care to private citizens while also investing in new hospitals. (There's no reason Thailand should have more hospitals than America per capita.) The out-of-pocket and insurance reimbursement system would shift to government members rather than private citizens, private citizens, especially blue collar workers, being the ones most required to be healthy so that they can be productive and pay taxes to sustain the government.

[Note: this post has been updated from its original content.] 

Friday, August 31, 2007

Capitalism and Freedom, by Milton Friedman

Milton Friedman's Capitalism and Freedom packs so much wisdom in such concise language, I felt like my IQ rose 50 points after just four hours of reading. Mr. Friedman is a polarizing figure. His views on some subjects, such as eliminating Social Security and legalizing drugs and prostitution, are radical; however, Friedman makes the underlying rationale behind these proposals seem bulletproof when he explains their libertarian foundation. Some passages show the inherent reasonableness of his arguments:

"Freedom to advocate unpopular causes does not require that such advocacy be without cost. On the contrary, no society could be stable if advocacy of radical change were costless, much less subsidized...Indeed, it is important to preserve freedom only to people who are willing to practice self-denial, for otherwise freedom degenerates into license and irresponsibility... Freedom is a tenable objective only for responsible individuals."

Friedman's main motif is that freedom requires self-evaluation and self-policing, which is preferable to government interference. The alternative, state-sanctioned coercion, necessarily leads to less freedom--a theme Friedman patiently hammers into the reader.

If there is a flaw in Friedman's analysis, it is the missing link of how to prevent citizens with less self-control or citizens who are more susceptible to temptation from interfering with other, more reasonable citizens. Friedman may answer that this is where government is useful. He writes, "The existence of a free market does not of course eliminate the need for government. On the contrary, government is essential both as a forum for determining the 'rules of the game' and as an umpire to interpret and enforce the rules decided on."

Although government is a necessity, Mr. Friedman wants readers to ask, "How much government is necessary," and "What form should government take"?:

"Political freedom means the absence of coercion of a man by his fellow men. The fundamental threat to freedom is power to coerce, be it in the hands of a monarch, a dictator, an oligarchy, or a momentary majority. The preservation of freedom requires the elimination of such concentration of power to the fullest possible extent and the dispersal and distribution of whatever power cannot be eliminated--a system of checks and balances."

Thus, Friedman escapes any contradiction by making the point that while government is necessary, it is necessary only in the most minimalist form possible. Friedman also promulgates several broad principles to support his philosophical framework, namely,

1. The scope of government must be limited.
2. Government power must be dispersed.
3. "The power to do good is also the power to harm; those who control the power today may not tomorrow; and, more important, what one man regards as good, another may regard as harm."

The last principle is stunning in its beautiful, simple logic, and there are gems like this on almost every page.

Friedman's other point is that the "great advances of civilization...have never come from centralized government. " FDR's New Deal is one counterargument, but Friedman indirectly addresses this potential hole by stating that the Depression was a unique instance in history that could have and should have been avoided: "The Great Depression in the United States, far from being a sign of the inherent instability of the private enterprise system[,] is a testament to how much harm can be done by mistakes on the part of a few men [i.e., the Federal Reserve] when they wield vast power over the monetary system of a country." Friedman says that had the Fed provided money to the banking system through its discount window, the Great Depression might have been avoided. (It is interesting to note that Bernanke, in the face of widespread economic fear, recently opened the discount window to banks, which is an interesting development, because he is known in academic circles as favoring inflation targeting.)

Perhaps Friedman's most salient point is that we forget the short history of mankind's relative affluence. He states, "Because we live in a largely free society, we tend to forget how limited is the span of time and the part of the globe for which there has ever been anything like political freedom: the typical state of mankind is tyranny, servitude, and misery." In other words, there is no such thing as a free lunch, and freedom is a goal worth striving for.

I will leave you with an interesting passage that is relevant to the recent subprime mortgage mess in the markets and the lack of financial liquidity:

"The result [of the banks lending money and keeping only 15 to 20 cents of each dollar deposit] is that for every dollar of cash owned by banks, they owe several dollars of deposits. [Thus,] any widespread attempt on the part of depositors to 'get their money' must therefore mean a decline in the total amount of money unless there is some way in which additional cash can be created and some way for banks to get it. Otherwise, one bank, in trying to satisfy its depositors, will put pressure on other banks by calling loans or selling investments or withdrawing its deposits and these other banks in turn will put pressure on still others. This vicious cycle, if allowed to proceed, grows on itself as the attempt of banks to get cash forces down the prices of securities, renders banks insolvent that would otherwise been entirely sound, shakes the confidence of depositors, and starts the cycle over again."

It looks like Bernanke made the right decision, at least in the short term, by opening the discount window. If, however, he lowers interest rates in September, his reputation as an inflation targeter may not be deserved.

In any case, read Capitalism and Freedom. It's an incredible education to be had, and in just 202 pages. I recommend the 40th Anniversary edition, with the year 2002 introduction by Friedman.

Note: the picture above is of Mr. Friedman's son and myself at Santa Clara Law School.