This work reads a lot like that of Hayek's. Friedman ties political freedom to capitalism or economic freedom. The reasons make a lot of sense in theory. The more power is concentrated in a few hands the less freedom there is. As such more and localer governments are preferred, giving one opportunity to move if displeased, as opposed to a strong central government. We should not expect government to work for us nor to work for government; rather we should ask what we can achieve through government, through voluntary association. This all sounds good. But then you get down to reality, and this is not always so great. Friedman gives the example of social security. We should have freedom to use that income as we see fit rather than the government taking it and only handing it back to us when old. Yes! Except, wait. How many will actually invest that money and have it on hand when old? And how many can afford to save like so? And what happens when people don’t? Do we just let them suffer, or do we end up paying anyway? (A better example is health care, where such freeloading ends up costing those who actually pay, because we aren’t generally cruel enough to just let the poor or the unwise die on the street.) Too much centralization is awful but a lack of centralized standards can be awful as well. There are reasons equality and well being are of importance; it’s a balancing act with freedom. That’s because free markets don’t dispense with power dynamics; they just move the from government to those with more resources.
Friedman next turns to the role government should play in the economy, which is solely as a rule maker and arbitrator. A key conflict he notes is the need to allow people via the market to make decisions and to combine at will while also keeping that combining from manipulating the market through monopoly. Friedman acknowledges that some industry is better with monopoly because of its nature— utilities such telephone and historically railroads. But what to do with such monopolies? There are three choices: let the government have the monopoly; let the government regulate the monopoly; or let the private monopoly flourish. Friedman actually proposes the latter as the least evil. He says that when the government controls the monopoly, at some point it interferes with innovation. An example is the railroad, which if it had not been regulated, would have eventually split up naturally in the face of new transport opportunities like cars and planes. Instead the government continues to regulate trains and the industry suffers. While deregulating trains might be good, given new technologies, I think letting a monopoly flourish when at its height likely would have kept those new industries from emerging. In the previous chapter Friedman had said all innovation came from private sector, but that is simply not true. Government has often seeded innovation: think of NASA. When it’s too costly and the reward to ethereal, private enterprise is not going to even try a particular innovation. Government can sponsor such.
Friedman tries to blame the Great Depression on government regulation, which seems ludicrous to me. Certainly failed fiscal policy may have helped it along, but the idea that government overreach always makes economic trouble worse seems like poppycock.
Here are some things Friedman would have the government get out of: national parks, farm and housing subsidies, bank regulation, tariffs, social security, business licensing, FCC. I’m dumbfounded. Licensing is a pain and can be abused, but it also protects consumers. FCC regulation helps distribute limited bandwidths so that we have media at all. And every time we deregulate something with the banks, we find ourselves in some economic collapse a decade or two later caused by people gaming the system. Government has a role to play, and that role does stomp on our freedom, but it’s so that others don’t do the same but without a regulator to try to make things somewhat even. I can empathize with the idea of trying to keep power out of the hands of a few, but Friedman puts way too much faith in the supposedly unbiased market. But once monopolistic behavior arises, control is still bound up with just a few people. A democratic government at least lets a wider swath of people at least attempt to keep things even.
On fiscal policy Friedman calls into question Keynesian economics. He notes that government expense to spur the economy do just the opposite, simply making things worse and bloating the government. He points to 1937 when government expenses were cut in the Great Depression and how all Econ troubles resumed. But that seems to me precisely the issue. The government wasn’t aggressive enough to truly put an end to the trouble until ww2. Nevertheless he claims that stimulus is never ending and raises inflation and takes as much from private sector as it gives. This would seem to be true but the idea is that such stimulus is to be temporary; we’re just not good at cutting. In that sense Friedman’s preference for tax cuts instead, if there is stimulus at all, has some point, because it would tend toward shrinking government instead of adding to it. But the problem is the same, since no one wants more tax just as no one wants less government service, so we still end up usually with permanent greater debt. A better means of stimulus might be in the form of grants to private sector: temporary and one time but helping to spur one hopes an economy that has sputtered. (His claim that government stimulus never works seems very dubious to me, having seen it used twice to deal with turmoil and also in reading of troubles in less regulated late 1800s. Yes stimulus leads to inflation, but it does help restore spending in low times more that nothing would. It stops the trouble from getting worse.
On the education front, Friedman espouses vouchers. He notes that ideally only parents would pay for kids, save that society does reap some benefit from an educated populace such that government payment is justified. Still a voucher system with minimum standards about what kids are taught gives parents more choice and drives innovation and excellence through competition. It would also put all people on the same level and better integrate schools. (I have middling feelings about vouchers. If someone who pays in to public school but chooses private schools on top of that now gets money back, that would take money from those who already have less. Minimum standards means government would now wield some authority over private schools. And finally who is to say that vouchers would pay for all of education. A high class institution could charge more and thus cut off poor, leaving them able only to attend poorer schools that can be paid fully by vouchers. Still, I like the idea of giving students more choice.) Friedman argues that only lower level schooling should be paid for and not anything like basket weaving or basketball, which only helps the individual and not the state. For this reason higher education, especially as related to professional programs should not be paid for or operated by the state. You want to be a doctor or plumber, you pay for that yourself because you reap the financial benefit. (Friedman doesn’t address how public education for some such programs can help society fill shortages, but I suppose the free market would do that just as well, since jobs in need would pay more and thus would be more likely to have people willing to pay for education in those fields.) This still leaves a problem for those too poor to pay for such vocational training. Friedman proposes loans based on income one makes after (say the loaner gets 10 percent of your earnings); he acknowledges this is in a way akin to slavery, however. This might be something the government could supply—then it’s more like a tax but only on the beneficiary. And in a sense that’s what has happened with students loans the government sponsors.
On civil rights, Friedman espouses a color-blind society—neither laws enforcing integration nor laws enforcing segregation. In principle I can agree; in practice, it is not realistic. On some level, it seems like we should be able to associate with whom we want, and as Friedman notes, those who choose not to serve part of a community necessarily weaken their economic status compared to others, because they're limiting their audience. Except—and Friedman shares this counterpoint—if a community forges a standard bias such that when one openly breaks that standard, one actually sees economic trouble one would usually not see. He compares race to taste, but in that there is a great problem. Taste may mean blues musicians are in higher demand than classical, but a musician can switch music genres. That’s a whole other world to race, and the like. Despite misgivings, I find it fair that government takes a swing at preventing such biases. Freedom of association is wonderful until one is one of those not free to associate. But it is a tricky proposition, with inherent contradictions, because we clearly allow such freedom in some circumstances while not doing so in others. But not forcing such a situation, one could argue, actually reduces the unity of the society and thus its ability to function.
The most interesting idea in Friedman’s discussion of monopolies is that there should be no corporate income taxes. Rather shareholders should be taxed on company profits. This would encourage larger dividends rather than companies keeping their capital. In turn money would be invested in new enterprises and where it is needed, rather than companies squirreling money away and trying to find new ways to reinvest. It actually would help small businesses more. Interesting argument. After corporations aren’t people but rather the people who make up the corporation. In this sense also corporations should not be involved in welfare and social things; their job is to make money for the investors. Making them worry over other things dilutes their purpose and takes away individual’s freedom. As a stockholder I shouldn’t be forced to give via the company to things I don’t want to give to.
Already noted is how Friedman is against licensing, which he sees as just another form of monopoly, usually perpetrated by those already in a business. He lays out three options for ensuring people belong in a business and says the first two are better options: registration, certification, and licensing. In the first, you put your name on a list, of say gun sellers. Then if we need to figure out where a gun came from we can do so. It also might involve a tax. Certificates involve noting you’ve passed certain criteria like a CPA; others can still enter the business but the certificate gives the educated a leg up and helps customers know a bit about the risk they’re taking if they hire someone else. Licenses keep people from entering a business if they don’t pass a test. Friedman shows how licenses essentially establish a monopoly in fields like medicine; he has a point. But how to keep from malpractice without a license? Let people sue more easily for bad behavior; then again, I’m not sure I’d want money in exchange for poor doctor care.
Next comes redistribution of income, which he says is ineffectively done in taxes and unfair. Luck will always play a role in wealth, along with merit. It’s unfair to penalize someone who manages to do well. He’s a proponent of the flat tax. I have not thought it a great idea insofar as I tend to think there needs to be a way to reset wealth for the sake of balancing societal power. Yet he has a point insofar as he shows how our tax system allows so many loopholes that in fact we end up not with a tax on the wealthy but on those who would otherwise become wealthy. We tax income, not wealth. We don’t tax capital gains at the same rate. And so on. He would tax all money made at the same rate with only a single standard deduction. I’ve always liked the simplicity of such an idea. Not sure of its effectiveness in practice.
Unsurprisingly Friedman comes out against housing assistance, minimum wage, and social security. I see his point about housing assistance and his preference just to hand out money is less paternalistic; I see another solution in South America, where one program hands out half finished houses, giving people a home they own and a place they are invested in. Minimum wages have their problems, I will agree, but I do think establishing a baseline is important and useful. And I am not keen on the poverty of the old that would result if social security went away; there are reasons it was instituted.
That said removing all of the above programs might be fine if his other proposal were instituted: the negative income tax (or in other words the minimum livable income). This seems a bit surprising coming from a neoliberal. But it makes a lot of sense. It is the least paternalistic and offers the greatest freedom, while hopefully keeping folks from becoming indigent. In practice it might work (as some experiments have shown), or it might just lead to inflation in the manner that minimum wages do (or so the argument goes), such that the negative on the income tax does not really provide a livable minimum. (Indeed, I remain mostly skeptical. If we were all paid enough to survive just by living, I would venture that folks would be less inclined to work jobs they didn't like or want unless those jobs paid significantly more than the minimum given out by the government. I mean, why work if you're going to get paid whether you do or not? So some typically disliked job like fastfood would have to pay, I'd think, at least $500 more per month than what your negative tax would be. That would mean that prices would rise accordingly, which would result in that same vicious circle one gets with minimum wage.)
While I don’t buy into Friedman’s anti-Keynesian narrative, I find many of his ideas interesting and possibly better than how we manage the economy now. Much to think on.
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