Milton Friedman’s “Free To Choose”
In the last 6 months or so I’ve become a big Milton Friedman fan. Complex issues like inflation, money supply, economic growth, unemployment, government spending, deficits, etc always seemed like complex issues to me with many sides to the story. You could read or ask 20 different people about issues like that and you’d get 20 different answers.
Somehow, Milton Friedman seems to make them easy to understand, and I feel almost embarrassed that I didn’t understand them better before.
He has now passed away, but I just finished watching part of his 1980 documentary called “Freedom To Choose” and it’s outstanding. You can watch one part of it here, although I recommend you check out the whole thing.
I was shocked when reading Fortune Magazine recently (where Obama and McCain discuss the economy) to see a quote from McCain stating that his economic role model was Milton Friedman. That certainly caught my eye. Although I’m more liberal socially on some issues than McCain, this was a huge plus for me. I don’t think Obama’s plan for the economy makes any sense at all (he wants to raise business taxes, taxes on wealthy, and increase government spending… basically the exact opposite of what would help the economy).
It’s interesting to note that Scott Adams, the creator of the Dilbert comic strip, has decided to fund a study from the top 500 economists (at great personal expense) to see where they fall on the presidential election coming up. I feel pretty confident they will come down economically on the side of McCain (it’s just such a shame he hasn’t come around on some other issues, I’m not totally sold on him :).
Apparently, even Arnold Schwarzenegger is a Milton Friedman fanboy! (Which actually really helps explain his politics.)
What do you think about Milton Friedman? Had you heard of him before this post? Leave a comment below.
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Nathan Robertson said,
Wrote on August 27, 2008 @ 8:58 pm
You have much to learn! Every Republican is a huge Milton Friedman fan, and if people understood just basic economics the politicians would not be promoting the ideas that they do. We would be kidding ourselves to say they don’t know any better, because they certainly do!
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Brian Armstrong reply on August 30th, 2008 1:10 am:
Hi Nathan, yep I was thinking the exact same thing watching campaign speeches tonight. “You can’t keep promising all that without explaining how you will PAY for it!” :)
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Friedman fanboy said,
Wrote on August 27, 2008 @ 9:40 pm
Actually is Free To Choose, not Freedom to Choose,
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Brian Armstrong reply on August 30th, 2008 1:10 am:
Thanks for the correction!
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Christian said,
Wrote on August 29, 2008 @ 7:55 pm
Hey Brian,
I like the sincerity in your site (like talking about why certain businesses failed), you seem like a good guy and I wish you success. I have to disagree strongly with your choice of Milton Friedman as a source of economic wisdom, and I’m kind of suprised to hear you talk about him as if he was an outsider, considering his ideas have had serious power (at least as propaganda if not policy) since the 1980’s. Before that they were considered very radical and weird.
Anyway, this is obviously the kind of discussion that could go on a long time, but like me make the most important points for you and any other readers.
1) The “monetarist” thesis that growing the money supply by a set, slow amount would grow the economy in a similar way, that has simply been disproven through the results of real life application. The most severe application came in Chile, where a dictatorship that murdered and tortured tens of thousands decided to base a new economy on Friedman’s ideas, which led to disaster and a massive state bail-out and renationalizations, which then caused growth (starting from the disaster point) which has been ridiculously attributed to Friedman’s original ideas. Chile is still suffering massive environmental and social fall out from these decisions, and what growth there is is based on unsustainable factors like mining, chemical-intensive agriculture, conumer debt, and some of the longest working hours in Latin America. Similar results have taken place to lesser degrees in other areas his ideas have been instituted.
2) There is also no set relationship between unemployment and “growth” (that term should always be in quotes when in standard use, since it refers to growth in GDP, a Soviet invention, and not growth in the quality of life and optimum resource use for ourselves and the next generation) or between government spending and inflation. In fact, government spending (either through tax or through direct creation of money through lending, as private banks currently do) can, if targeted to materially useful investments (like renewable energy, public infrastructure, health research and energy efficiency) can actually reduce inflation. (Remember that inflation results from “too much money chasing too little useful stuff,” and thus military spending and financial speculation ARE hugely inflationary.)
Of course these investments need to be accompanied by serious regulations that insure that best practices of resource use are the norm. Which brings us to…
3) What we call the economy is a shell game based on the real world use of natural resources (either efficiently and innovatively, or wastefully and stupidly) to satisfy human needs, ideally the basic ones first.
Oil, the basis of the world’s economy (and “globalization”) will run out as an affordable energy source within our lifetimes, and natural gas will soon follow along with uranium. A large portion of mankind survives by fossil aquifers, which are not replenished by rainfall, and water depletion plus topsoil depletion and climate change will greatly complicate the world’s ability to feed more people with less and less land (and energy).
“The market” is not preparing to confront these problems, and in fact cannot. I’m going to recommend to you and your readers too great books that are free online and go into much more detail. In fact they are pretty “business friendly” and not as socially radical as my own views.
Natural Capitalism
http://www.natcap.org/sitepages/pid20.php
Plan B
http://www.earth-policy.org/Books/PB3/index.htm
PS - I don’t care for any major politician in the US, but in all fairness the majority of the federal budget right now is going to military spending (mostly financed through debt) and John McCain will be a disaster in that area. Also, taxes on billionaires and giant corporations are in the interests of small business people like ourselves, as is universal health care and resource taxes put to good use.
The converse is that business as usual will continue and the average standard of living both in the US and the world will greatly erode within our lifetimes and possibly serious disasters greater than WWII will be at hand.
Would love to hear your response if you like.
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Brian Armstrong reply on August 30th, 2008 12:34 am:
Thanks for the comment. I read a brief summary of Natural Capitalism and Plan B just now…it seems to be focused on conservation of resources which I support. I think any “tragedy of the commons” type scenario like that is a good place for government regulation, and there is good economics behind it. I haven’t actually seen anything in Milton’s ideas yet which touch upon that or conflict with it though. Let me know if I’m missing something, and thanks for generating some debate! :)
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Christian reply on August 30th, 2008 5:57 pm:
Yeah the first book talks a lot about business opportunites in green tech too, like your friend’s solar flashlight idea which is great. Basically conservation of resources requires serious public regulation of resource use and large scale public investments in infrastructure and research, which seem to be to be things Friedman and his followers really oppose. If they were to agree with those things then I guess I really wouldn’t have anything to argue about.
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Brian Armstrong reply on August 31st, 2008 4:22 pm:
I don’t think Friedman has an issue with infrastructure or NIH grants or anything like that. His issue is with “income redistribution” type things which take from the rich and give to the poor, inflationary monetary practice, restricting free trade, etc.
If government has to recommend a particular solution to a problem, they will do it inefficiently and slowly. If they are providing funding and allowing the free market to decide what works best then it can still work.
Nick Usborne said,
Wrote on August 30, 2008 @ 11:49 am
Oh boy. Go read The Shock Doctrine by Naomi Klein. A remarkable book. If you do read it, I don’t think you’ll still be quite such a fan of Milton Friedman. Friedman’s teaching are very attractive and have pretty much created the entire neo-con political movement. But they have also led to the death and misery of millions of people around the globe.
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Brian Armstrong reply on August 31st, 2008 4:39 pm:
I just read the summary on Amazon and honestly it looks pretty silly, here is part of it: “At the most chaotic juncture in Iraq’s civil war, a new law is unveiled that will allow Shell and BP to claim the country’s vast oil reserves… Immediately following September 11, the Bush Administration quietly outsources the running of the ‘War on Terror’ to Halliburton and Blackwater… After a tsunami wipes out the coasts of Southeast Asia, the pristine beaches are auctioned off to tourist resorts… New Orleans residents, scattered from Hurricane Katrina, discover that their public housing, hospitals and schools will never be re-opened.”
Well, first of all outsourcing the war to Halliburton and Blackwater is NOT an example of free market economics if they were awarded the contracts because of their relationship with Cheney, so I’m not sure why that is in there.
Actually, I don’t see what public facilities closing in New Orleans has to do with free market economics either.
But the rest of those things are all good things. People forget the most beautiful thing about free markets: by definition a transaction never takes place unless both parties benefit from it. This whole idea of one party being coerced into giving up their oil fields and beaches, or people being FORCED to work long hours for low pay is BS. If they are really free they can just decide not to sell or to quit their job, which is what FREE market economics is proposig. They wouldn’t sell the beaches/oil fields or come to work unless it was their best option at that time. No one has a gun to their head in a free system.
If they are actually being coerced and someone did have a gun to their head, then that is a legal issue, not a criticism of free market economics which is the whole thing Milton is proposing: everyone being totally free to act in their own best interest.
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Nick Usborne reply on August 31st, 2008 5:00 pm:
Brian, hi
Well…think about it for a moment…in a FREE market where everyone can pursue their own self-interest…who is going to “win”…the rich or the poor? Friedman’s system results in the rich becoming richer and the poor becoming poorer…because in a FREE market, the poor can never compete…not poor people in this country, or poor countries in the “free market” of the world. John Maynard-Keynes, the “guru” before Friedman, had a much more compassionate view. He saw that neither the “market” nor the rich would take care of the poor or disadvantaged in society. So his system combined capitalism with a level of social conscience. He supported public schooling and free health care for everyone. Friedman didn’t. Friedman opposed all efforts by government to interfere with the free market by spending tax dollars on education and health care. Let the market decide! The problem is, the “market” is brutal and without human compassion. Nice for the rich. Deadly for the poor.
Nick
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Brian Armstrong reply on August 31st, 2008 5:59 pm:
In a free market who is going to win, rich or poor? The answer is both.
If you go into a store and give the clerk a dollar he will give you a gallon of milk. You BOTH say thank you. Why is that? Because you wanted the milk more than the dollar, he wanted the dollar more than the milk. A “double thank you”. A transaction never occurs in a free market unless BOTH parties benefit.
I don’t know where people get this idea someone has to lose for another to win.
Also, why do you say the poor can’t compete? The very idea of a free market is that absolutely anyone can come along and build a better mousetrap. I agree with you on one point, the market is brutal…it doesn’t give special preference to anyone. Even if you are Microsoft, someone tomorrow can come along with a better whatever and take you out.
Knowing that is possible is what drives everything…innovation, builds new companies, jobs, the economy as a whole, etc.
Compassion makes a whole lot of sense to everyone, but as Friedman pointed out you can’t judge it based on it’s intentions, only on the actual results it gets. If your goal is compassion and it ends up having the opposite of it’s intended effect, then it isn’t compassionate at all. Government programs end up spending wastefully and inefficiently, whereas in a free market economy the rising tide lifts all ships, so to speak, rich and poor alike.
I dunno…we might have to agree to disagree on this one.
B