Hayek and Friedman

Milton Friedman was born 104 year ago while Friedrich Hayak was born 117 years ago. Yet their teaching are still relevant today.

Friedrich Hayek’s work with the Mont Pèlerin Society, an international association founded by him in 1947 and later led by Milton Friedman, was  concerned about systemic problems with capitalism rather than stopping the interventionist state.  Yet Hayek rather than Friedman has been mentioned more by conservatives since the Great Recession of the late 2000s.

Here is an explanation as to why from Angus Burgin, author of The Great Persuasion: Reinventing Free Markets since the Depression:

An essential difference between Hayek and Friedman here was that Hayek was in many ways a dark thinker. If you read Hayek in the 1930s and 1940s, the thinks the world is coming apart. Certainly Hayek’s response to the Great Depression was not one that imbued with a great deal of optimism. He thought that to a certain extent you just have to wait things out; if you try to intervene to solve the problem you’ll only exacerbate it.

Whereas Friedman was this tremendous optimist. Friedman was always emphasizing–he said that what Hayek and Robbins got wrong when they were responding to the Great Depression was precisely that: that they said you shouldn’t do anything. He thought that part of what he was doing in monetary theory was to try to come up with a way to say that there was a solution, something that could be done that would prevent this kind of problem. A kind of counternarrative to Keynes. And he always emphasized–instead of dwelling on the catastrophic situation that the world was in, he always emphasized the ways in which those catastrophes could be solved by the market.

And so when you reach this moment of deep pessimism that I think a lot of people associated with organizations like the Tea Party felt, Hayek in many ways feels more consonant with that set of views. His chiliastic tones align with the perspective that a lot of market advocates have in the present day. In that sense it’s not surprising at all that there’s kind of a revival of Hayek.

At the same time, I would say to them that precisely what made Friedman so influential in the public sphere was that sense of optimism. I make an argument in the book that Friedman was in many ways the rhetorical underpinning of Reaganism, that a lot of Reagan’s messages about the benefits of the market were derived from rhetoric that Friedman had developed. And so in emphasizing this dark perspective that can be very powerful among subsets of people who agree with that perspective but in the end can limit the public influence of a group in a broader political environment that in difficult times is looking for optimistic solutions rather than expressions of despair.

“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” Friedrich Hayek – The Fatal Conceit

Great Achievements Do Not Come From Government

Today marks the 101st year since the birth of Milton Friedman, whose observations and conclusions ring loud and true today.

Regarding achievements, Friedman said,

“The great achievements of civilization have not come from government bureaus.”

Albert Einstein Was Not Inspired by Government Order

“Einstein didn’t construct his theory under order from a [government] bureaucrat. ” Milton Friedman

Henry Ford was not ordered to improve production by government.

Henry Ford didn’t revolutionize the automobile industry in that way.” [by government order] – Milton Friedman

Milton Friedman argues that the only cases in which the masses have escaped from grinding poverty, the only cases in recorded history is where the society had capitalism and largely free trade.

On the other side of history, the masses are worst off in the societies that depart from capitalism. Such as when Stalin moved to force the collectivization of farming which resulted in the drastic drop in living standards of the masses and widespread famine where an estimated 5 to 10 million people died of starvation.

Stalin’s Collectivism death by starvation.

“So 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.” – Milton Friedman

Friedman on Fiscal Policy and Secular Stagnation

Graph: When high unemployment continues despite the spending, the spending is often followed by a sharp economic contraction like the recession of 2008.

Milton Friedman states,

“Ever since the new deal, a primary excuse for the expansion of government activity at the federal level has been the supposed necessity for government spending to eliminate unemployment.”

At first Keynesians say that government spending is necessary to ‘prime the pump.’ They argue incorrectly over and over again, that temporary expenditures by the Fed would get the economy going and the government could then ‘step out of the picture.’ Well the government never steps out of the picture.

Secular Stagnation
Even during good times, theories are needed to keep the government spending going. Keynesian economics theory of “Secular Stagnation” was developed to help justify continuing spending. The Theory explains as the economy becomes mature, there are no new opportunities for investment and people still want to save. Therefore it is necessary for the governemnt to spend, spend, spend and run a perpetual and increasing deficit. The theory goes on to make the claim that the securities issued to finance the deficit would provide individuals with a way to accumulate savings while increasing governmental expenditures will ultimately provide the needed employment.

Regarding Secular Stagnation, Friedman wrote in 1962:

This view has been thoroughly discredited by theoretical analysis and even more by actual experience.

The whole idea of secular stagnation is embraced only by the ever enlarging government program bureaucrats. The new spending programs didn’t work then, yet are still with us today. Instead of government ‘stepping out of the picture’ the government keeps the new bureaucracy keeps growing year after year. Worse of all, many of the programs don’t even go into effect until after the recession has passes.

To keep the spending going it is argued that a healthy expansion must not be jeopardized by cuts in government expenditures. Instead the long term effects are damaging to the economy by creating an ‘inflationary bias’ in government policy while increasing the tax burden on Americans.

Milton Friedman Word of the Day: Augury

Augury – an event that is experienced as indicating important things to come; “he hoped it was an augury”; “it was a sign from God.”

From Milton’s Capitalism and Freedom:

As Adam Smith once said, “There is much ruin in a nation.” Our basic structure of values and the interwoven network of free institutions will withstand much. I believe that we shall be able to preserve and extend freedom despite the size of the military programs and despite the economic powers already concentrated in Washington. But we shall be able to do so only if we awake to the threat that w face, only if we persuade our fellow men that free institutions offer a surer, if perhaps at times a slower, route to the ends they seek than the coercive power of the state. The glimmerings of change that are already apparent in the intellectual climate are a hopeful augury.

Friedman was an optimistic man who believe to have real freedom one needed to live in a trichotomy of economic freedom, civil freedom AND political freedom.

Happy 99th Milton Friedman

On July 31, Milton Friedman would have been 99 years old. Reason TV posted this video and text that I’d like to share.

There’s no way to appreciate fully the contributions of Nobel Prize-winning economist Milton Friedman (1912-2006), who would have turned 99 years old this weekend, to the growth of libertarian ideas and a free society.

This is the man, after all, who introduced the concept of school vouchers, documented the role of government monopolies on money in creating inflation, provided the intellectual arguments that ended the military draft in America, co-founded the Mont Pelerin Society, and so much more. In popular books such as Capitalism and Freedom and Free to Choose, written with his wife and longtime collaborator Rose, he masterfully drew a through-line between economic freedom and political and cultural freedom.

Yet his ultimate contribution to freedom and liberty is found less in any of the specific argument he made and more in the ways he made them. Friedman provided an all-too-rare example of a public intellectual who was scrupulously honest, forthright, and fair in every debate he entered. Whether he was duking it out with fellow Nobel Prize winners and other high-profile economists or making the case for the morality of capitalism with TV hosts such as Phil Donahue and angry students, he always argued in good faith, admitted when he was wrong, and enlarged the circle of debate.

Long after some of his technical points and social insights have been superseded, that commitment to relentless inquiry and search for truth wherever it takes us will survive.

Milton Friedman gave us something much better than revealed truth: He showed us the process by which we might continue to indefinitely learn about our world and the human condition. In this sense, the Friedman Century is far from over; indeed, it’s just getting started.

Written and narrated by Nick Gillespie. Produced and edited by Jim Epstein, with help from Jack Gillespie.

No Free Lunch, Now We have to Pay

Milton Friedman held that the government’s role in the guidance of the economy should be restricted severely.

Taking over car companies is not restricted government economics from any sense of the concept. A health care program which will cost taxpayers dearly and continuing to expand all social programs cut into the economic freedoms of everyone  working.

We should be cutting programs that Milton says,  ‘enslave those who are supposed to benefit from the very program that is supposed to help.’

Unions continue to hurt much more than they help. Unions have a bad name in our country. More on that here: Milton Friedman on Labor Unions.

For too long we have lived with improper spending. Living as if lunch were free.

“There is No Free Lunch”

– Milton Friedman

Countries taking ‘no heed’ of proven Friedman economic fiscally responsible theories are now suffering with huge cuts in social programs resulting in violent protests from an under-informed public. Irresponsible governments are defaulting on financial obligations and are on the brink of bankruptcy.

Where does that leave US in Friedman’s eyes?

Right now all we have are Milton Friedman approved ‘promises’ from newly elected conservative lawmakers. If congress puts together a budget this year, that would be a good first step. Last year the democrat controlled congress failed to put forth a budget for the first time in history. Never before has the house failed to pass a budget, yet that same congress passed huge spending bills without a financial forecasted budget.

The next step to being more Milton Friedman-like would be to honor federal spending cut promises.

Here are some highlights, thanks Daniel Foster for putting this list together:

– Reducing the federal workforce by 15 percent through attrition, and eliminating automatic pay increases for the next five years.
– Eliminating all remaining “stimulus” funding. $45 billion
– Privatizing Fannie Mae and Freddie Mac. $30 billion
– Prohibiting any funding of the implementation — or legal defense — of Obamacare.
– Cutting the federal travel budget in half. $7.5 billion annually
– Cutting the federal vehicle budget by 20 percent. $600 million annually
– Eliminating the Corporation for Public Broadcasting subsidy. $445 million annually
– Eliminating Amtrak subsidies. $1.565 billion annually
– Repealing Title X Family Planning. $318 million annually
– Repealing the Davis-Bacon Act (which sets “prevailing wages” for workers on federal projects). $1 billion-plus annually
– Prohibiting taxpayer funded union activities by federal employees. $1.2 billion savings over ten years

Next, let states declare bankruptcy. Lawmakers are working on a way to let states declare bankruptcy and get out from under crushing debt, including pensions promised to retired public workers. The New York Times reported on Friday that House Republicans, and senators from both parties, have taken an interest in the issue.

More cuts and bankruptcies are needed. It will be a painful catharsis. You can’t pay for this lunch with “lunch money”. You’re going to need allot more.

The Power Of Choice

An interesting compilation of Milton Freeman as an economic freedom philosopher. Milton makes the case for economic freedom as a precondition for political freedom.

The title of this video, The Power of Choice is really a summary of his philosophy. Let me restate his thesis: If you have the power to choose anything, a job, a pizza, home and so on, you have freedom. Freedom to choose is power. Economic Freedom can, but does not necessarily, lead to political freedom.

If you do not have freedom to choose your job, your home or even your healthcare, then you will never have political freedom. But if you have freedom to choose, you have the conditions right for political freedom. Please note: this is not guarantee of political freedom. It is just a condition that is necessary for political freedom.

Famous Friedman Quotes

Milton Friedman – University of Chicago School of Economics Professor

As I read the comments by Milton Friedman, I can’t help but think about how his words relate so much to today’s economic and political issues.

“Nobody spends somebody else’s money as carefully as he spends his own. Nobody uses somebody else’s resources as carefully as he uses his own. So if you want efficiency and effectiveness, if you want knowledge to be properly utilized, you have to do it through the means of private property.”

See Video: Friedman Explains Spending

“There’s no such thing as a free lunch.”

“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 most important single central fact about a free market is that no exchange takes place unless both parties benefit.”

“My major problem with the world is a problem of scarcity in the midst of plenty … of people starving while there are unused resources … people having skills which are not being used.”

“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 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 Great Depression, like most other periods of severe unemployment, was produced by government mismanagement rather than by any inherent instability of the private economy.”

“Governments never learn. Only people learn.”

“Only government can take perfectly good paper, cover it with perfectly good ink and make the combination worthless.”

“The greatest advances of civilization, whether in architecture or painting, in science and literature, in industry or agriculture, have never come from centralized government.”

“So the question is, do corporate executives, provided they stay within the law, have responsibilities in their business activities other than to make as much money for their stockholders as possible? And my answer to that is, no they do not.”

“Nothing is so permanent as a temporary government program.”

“We have a system that increasingly taxes work and subsidizes nonwork.”

“I’m in favor of legalizing drugs. According to my values system, if people want to kill themselves, they have every right to do so. Most of the harm that comes from drugs is because they are illegal.”

“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.”

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Hispaniola Island and Friedman

Early map of Hispaniola and Puerto Rico, circa 1639.

Milton Friedman would look at the Island of Hispaniola and point to it as an example of the relationship between economic freedom and economic success. Friedman  would call the Island of Hispaniola ‘a tale of two countries – Haiti and the Dominican Republic’.

One country has a democratic republic which encourages capitalism. The other a history of repressive military government and even slavery.

Governments which allow individuals to pursue their own economic interests generate greater economic well being and freedom to larger swaths of the general population. Governments that get too big and too powerful become oppressive to its people, reduce economic wealth and individual freedom.

Hispaniola is an excellent example of capitalism working and lack of capitalism causing economic hardships.

Economically speaking, Haiti is the poorest country in the Americas. Contrast that with the capitalist Dominican Republic with the largest economy in Central America.

Haiti, by contrast, had a nominal GDP of 7.018 billion USD in 2009 with a GDP per capita of 790 USD, about $2 per person per day. Dominicans have a GDP of 9208 USD with exceptional economic growth rates around 10% per year over the past 2 years!

Haiti is an impoverished country, one of the world’s poorest and least developed. Comparative social and economic indicators show Haiti falling behind other low-income developing countries (particularly in the hemisphere) since the 1980s.

Haiti now ranks 149th of 182 countries in the United Nations Human Development Index (2006). About 80% of the population were estimated to be living in poverty in 2003. Most Haitians live on $2 or less per day. Poverty has forced at least 225,000 children in Haiti’s cities into slavery as unpaid household servants.

Contrast Haiti with the Dominican regarding tourism. The only figures I can find is $1.5 billion in 2007 for DM and no economic number for Haiti.

Friedman would summarize that “Clearly capitalism works, just look at the Island of Hispaniola” which shows in stark contrast a tale of a country that has prospered and another has failed miserably.

Haiti Needs Economic Freedom
Allow the people to work unhindered and you will see Haiti become a top travel destination. The weather is beautiful year round. Haiti needs to help its people help themselves by turning oppression into economic freedom. Without Capitalism, Haiti fails over and over again. A man must be allowed to look out for himself without repression. He must be allowed to seek the labor he so desires without taxation or threat of violence. To be successful economically, he must be allowed to reap the rewards of his labor so he may contribute to the economy economically. Haiti needs a fair government of free people.

Let the capitalist rebuild. Perhaps someone will see the value. Especially if the government becomes a democratic republic like its neighbor, DM.

And let this be a lesson to those in America that big government is exactly what we need to avoid. Smaller government means greater economic freedom. Be free and live.

 

The 10.2% Unemployment Friedman Solution

Nearly 16 million people can’t find jobs even though the worst recession since the Great Depression has supposedly ended. The Labor Department said Friday that jobless rate rose to 10.2 percent, the highest since April 1983, from 9.8 percent in September.

Economists say the unemployment rate could climb as high as 10.5 percent next year because employers remain reluctant to hire.

Thanks to Reagan and the confidence he brought to America with his economic plan*, the economy soared by nearly 8 percent in 1983 after a steep recession. This lowered the jobless rate by 2.5 percentage points that year.

But with Obama’s presidency, all confidence is gone, spending is up and the economy is likely to grow by less than 3% according to recent comments from many noted economists such as Wells Fargo chief economist John Silvia. Mr. Silva projects 2.4% for all of 2010.

Friedman would advise that Obama go on a strict diet.

He should reduce the size of government, reduce spending, reduce taxes and reduce the the growth of the money supply.

Instead, Obama rejects Milton Friedman’s proven monetarist policies.

This is causing too much growth in the size of the Obama Administration.

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*Reganomics

When Ronald Reagan entered the White House in 1981, he immediately put into effect a dramatic new economic policy that was founded on the principles of one of his most important economic advisors, Milton Friedman.

Reaganomics has four main policy objectives:

1. Reduce the growth of government spending
2. Reduce the marginal tax rates on income from both labor and capital
3. Reduce regulation
4. Reduce inflation by controlling the growth of the money supply

The goal of these objectives was to increase savings, investment, and economic growth. Balancing the budget, restoring healthy financial markets, and reducing inflation and key interest rates.