Tuesday, July 31, 2012

Milton Friedman

Milton Friedman July 31, 1912 - November 16, 2006

Milton Friedman was born 100 years ago today. If you've never heard of him or listened to any of his philosophies, I give you the video below where Mr. Friedman absolutely destroys Phil Donahue in an interview done in 1979:



Here is a transcript of the clip:
Donahue: When you see around the globe the mal-distribution of wealth, the desperate plight of millions of people in underdeveloped countries, when you see so few haves and so many have-nots, when you see the greed and the concentration of power, did you ever have a moment of doubt about capitalism and whether greed’s a good idea to run on?
Friedman: 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; its 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 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 a free enterprise system.
Donahue: But it seems to reward not virtue as much as ability to manipulate the system.
Friedman: And what does reward virtue? You think the communist commissar rewards virtue? You think a Hitler rewards virtue? You think – excuse me, if you will pardon me – do you think American presidents reward virtue? Do they choose their appointees on the basis of the virtue of the people appointed or on the basis of their political clout? Is it really true that political self interest is nobler somehow than economic self interest? You know I think you are taking a lot of things for granted. Just tell me where in the world you find these angels who are going to organize society for us? Well, I don’t even trust you to do that.

Milton Friedman
Positively brilliant
More from that interview:

On corporate bailouts:
The government has been helping to kill Chrysler, but it should not help to save Chrysler, of course not…. This is a profit-and-loss system, and the loss part is even more important than the profit because it helps get rid of badly managed, poorly operated companies.
On large corporations and government regulations:
One of the major reasons you have multinationals and large companies now is precisely because of the role which government plays… the most effective anti-trust measure you could take in this country would be complete free trade.One of the major reasons… why multinationals are able to occupy the position they are is because government regulations favor multinationals; almost all government regulation favors big companies over little companies.
On the nature of corporations versus government:
General motors cannot get a dollar out of your pocket unless you voluntarily pay it over.  The government can, and that’s the fundamental difference.
On the relationship between rising prices and government spending:
The single most important step you can take to lower inflation is to cut down on government spending.The reason why medical costs have been rising so rapidly in the country is again, I sing the same old tune but it happens to be true, because whereas some 15 or 20 years ago government spending on medical care accounted for something like 10%-20% of total medical care spending, mostly for public health and veterans, today it amounts to something like 40% or more of the spending and that’s what’s been driving these prices up.
More quotes:

 A major source of objection to a free economy is precisely that it ... gives people what they want instead of what a particular group thinks they ought to want. Underlying most arguments against the free market is a lack of belief in freedom itself.Governments never learn. Only people learn. 
History suggests that capitalism is a necessary condition for political freedom. Clearly it is not a sufficient condition.
I am favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it's possible.
If you put the federal government in charge of the Sahara Desert, in 5 years there'd be a shortage of sand.
Inflation is the one form of taxation that can be imposed without legislation.
Many people want the government to protect the consumer. A much more urgent problem is to protect the consumer from the government.
Most economic fallacies derive from the tendency to assume that there is a fixed pie, that one party can gain only at the expense of another.
Most of the energy of political work is devoted to correcting the effects of mismanagement of government.
Nothing is so permanent as a temporary government program.
Only government can take perfectly good paper, cover it with perfectly good ink and make the combination worthless.
The black market was a way of getting around government controls. It was a way of enabling the free market to work. It was a way of opening up, enabling people.
The government solution to a problem is usually as bad as the problem.
The Great Depression, like most other periods of severe unemployment, was produced by government mismanagement rather than by any inherent instability of the private economy.
The most important single central fact about a free market is that no exchange takes place unless both parties benefit.
The most important ways in which I think the Internet will affect the big issue is that it will make it more difficult for government to collect taxes.
The only way that has ever been discovered to have a lot of people cooperate together voluntarily is through the free market. And that's why it's so essential to preserving individual freedom.
The power to do good is also the power to do harm.
One of the great mistakes is to judge policies and programs by their intentions rather than their results.
The great virtue of a free market system is that it does not care what color people are; it does not care what their religion is; it only cares whether they can produce something you want to buy. It is the most effective system we have discovered to enable people who hate one another to deal with one another and help one another 
The society that puts equality before freedom will end up with neither. The society that puts freedom before equality will end up with a great measure of both
 I think that nothing is so important for freedom as recognizing in the law each individual’s natural right to property, and giving individuals a sense that they own something that they’re responsible for, that they have control over, and that they can dispose of. 
When unions get higher wages for their members by restricting entry into an occupation, those higher wages are at the expense of other workers who find their opportunities reduced. When government pays its employees higher wages, those higher wages are at the expense of the taxpayer. But when workers get higher wages and better working conditions through the free market, when they get raises by firm competing with one another for the best workers, by workers competing with one another for the best jobs, those higher wages are at nobody's expense. They can only come from higher productivity, greater capital investment, more widely diffused skills. The whole pie is bigger - there's more for the worker, but there's also more for the employer, the investor, the consumer, and even the tax collector. 
There is one and only one social responsibility of business–to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud
 For example, the supporters of tariffs treat it as self-evident that the creation of jobs is a desirable end, in and of itself, regardless of what the persons employed do. That is clearly wrong. If all we want are jobs, we can create any number--for example, have people dig holes and then fill them up again, or perform other useless tasks. Work is sometimes its own reward. Mostly, however, it is the price we pay to get the things we want. Our real objective is not just jobs but productive jobs--jobs that will mean more goods and services to consume.
 
I am a libertarian with a small 'l' and a Republican with a capital 'R'. And I am a Republican with a capital 'R' on grounds of expediency, not on principle.
 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
 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 "rule of the game" and as an umpire to interpret and enforce the rules decided on. 
The ICC [Interstate Commerce Commission] illustrates what might be called the natural history of government intervention. A real or fancied evil leads to demands to do something about it. A political coalition forms consisting of sincere, high-minded reformers and equally sincere interested parties. The incompatible objectives of the members of the coalition (e.g., low prices to consumers and high prices to producers) are glossed over by fine rhetoric about “the public interest,” “fair competition,” and the like. The coalition succeeds in getting Congress (or a state legislature) to pass a law. The preamble to the law pays lip service to the rhetoric and the body of the law grants power to government officials to “do something.” The high-minded reformers experience a glow of triumph and turn their attention to new causes. The interested parties go to work to make sure that the power is used for their benefit. They generally succeed. Success breeds its problems, which are met by broadening the scope of intervention. Bureaucracy takes its toll so that even the initial special interests no longer benefit. In the end the effects are precisely the opposite of the objectives of the reformers and generally do not even achieve the objectives of the special interests. Yet the activity is so firmly established and so many vested interests are connected with it that repeal of the initial legislation is nearly inconceivable. Instead, new government legislation is called for to cope with the problems produced by the earlier legislation and a new cycle begins. 
There is still a tendency to regard any existing government intervention as desirable, to attribute all evils to the market, and to evaluate new proposals for government control in their ideal form, as they might work if run by able, disinterested men free from the pressure of special interest groups. 
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. The nineteenth century and early twentieth century in the Western world stand out as striking exceptions to the general trend of historical development. Political freedom in this instance clearly came along with the free market and the development of capitalist institutions. So also did political freedom in the golden age of Greece and in the early days of the Roman era. 
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. 
Government has three primary functions. It should provide for military defense of the nation. It should enforce contracts between individuals. It should protect citizens from crimes against themselves or their property. When government-- in pursuit of good intentions tries to rearrange the economy, legislate morality, or help special interests, the cost come in inefficiency, lack of motivation, and loss of freedom. Government should be a referee, not an active player. 
We economists don't know much, but we do know how to create a shortage. If you want to create a shortage of tomatoes, for example, just pass a law that retailers can't sell tomatoes for more than two cents per pound. Instantly you'll have a tomato shortage. It's the same with oil or gas. 
I say thank God for government waste. If government is doing bad things, it's only the waste that prevents the harm from being greater. 
The unions might be good for the people who are in the unions but it doesn't do a thing for the people who are unemployed. Because the union keeps down the number of jobs, it doesn't do a thing for them. 
With respect to teachers' salaries .... Poor teachers are grossly overpaid and good teachers grossly underpaid. Salary schedules tend to be uniform and determined far more by seniority. 
The true test of any scholar's work is not what his contemporaries say, but what happens to his work in the next 25 or 50 years. And the thing that I will really be proud of is if some of the work I have done is still cited in the text books long after I am gone. 
Finally, Q&A with an audience member from the Donahue interview:



I would love to hear what Mr. Friedman would have to say about Elizabeth Warren and President Obama's take on business and the economy...

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