Capitalism and Freedom, Conservative, Free Markets, Milton Friedman

Hayek and Friedman

hayek

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

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Free Markets, Milton Friedman

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.

Free Markets

Hispanola Island and Friedman

Early map of Hispaniola and Puerto Rico, circa 1639.
Early map of Hispaniola and Puerto Rico, circa 1639.

Milton Friedman would look at the Island of Hispanola and point to it as an example of the relationship of economic freedom and economic success. Friedman would call Island of Hispanola ‘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.

Hispanolia 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 Hispanola” which shows in stark contrast a tale of a country that has prospered and another has failed miserably.

Haita 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 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.


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Capitalism and Freedom, Conservative, Free Markets, Milton Friedman

Milton Friedman on Minimum Wage Laws

According to Friedman, “There are no positive objectives achieved my minimum wages. It’s real purpose is to reduce competition with the trade unions.”

The well intentioned ‘do-gooders’ think that raising the minimum wage helps low wage earners. According to Friedman, the opposite occurs. What you do when you raise the minimum wage is to ensure that those whose skills are not up to the new rate will become unemployed.

The market, if allowed to set wages, will maximize the total number of jobs. That is due to the laws of supply and demand. It works for labor just as any other product or commodity. The number of jobs  will be adjusted by the rate the market will bear. Raise the minimum wage and you will see a reduction in the lowest paid jobs.

Capitalism and Freedom, Conservative, Free Markets, Milton Friedman, Uncategorized

Ask what you can do for your family

We all know what Kennedy said and he had it wrong. We are not slaves to our country. I say don’t ask what you can do for your country, ask what you can do for your family.

In his book, Capitalism and Freedom, Friedman makes his central argument by disagreeing with the Presidential Inaugural speech of John F. Kennedy where he said, “Ask not, what your country can do for you – ask what you can do for your country.” 

Milton argues that the country should be neither a  patron of our services nor should the country be the master of our being.

Milton states, “To the free man, the country is the collection of individuals who compose it, not something over and above them. He is proud of a common heritage and loyal to the common traditions. But he regards government as a means, an instrumentality, neither a granter of favors and gifts, nor a master or god to be blindly worshiped and served. “

Economic freedom frees the individual to pursue any means of economic prosperity. Every tax is a repression of that freedom. Every regulation and every permit required to work is a cost that has to be burdened by the most important economic unit, the family. 

Nearly everything the government does outside its constitutional responsibility, hurts the standard of living for families.  Let’s reduce government pain to stop hurting and start helping  our families.

Capitalism and Freedom, Conservative, Free Markets, Milton Friedman, Republican, Uncategorized

Milton Friedman on Greed

Talk show host, Phil Donahue sees “capitalism greed” as bad. Milton Friedman disagrees. Friedman gives a great lecture about greed in all political ideologies. Is there no greed in the Soviet Union? China? Is there no greed in the socialist system? Are there greedy communists?

“The record of human history is crystal clear. There is no alternative way, so far discovered, of improving the lot of ordinary people that can hold a candle to the productive activities that are unleashed by a free enterprise system.”

Donahue retorts, “where is the virtue?”

Freedman rightly lectures, “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.” 

Throughout the history of mankind, capitalism is the standout, top of the heap, A number 1, greatest provider of personal freedom that any other political system. All other systems repress. Capitalism leads to far greater freedoms for far more people.

Greed exists in every political system. Greed is greater in socialist and communist systems because of corruption inherent in the system. Governments are by nature greedy. Greedy to grow in size with no incentive to cut costs. Cutting costs means a smaller budget. Spending is the life blood of all social programs. So no government program, once started, will ever cease to exist.

Greed by reducing government puts more money in peoples hands so they are free to choose how to spend it.

Capitalism and Freedom, Conservative, Free Markets, Milton Friedman, Republican, Ronald Reagan

This blog is dedicated to Milton Friedman’s Economic Study

Nobel Prize in Economics
Nobel Prize in Economics

Like the ‘invisible hand‘ that Adam Smith describes, Milton Friedman theorized there exists a “natural rate of unemployment.” 

The unemployment rate should be allowed to automatically adjust with market needs. He disagreed with the Phillips curve theory that lower inflation rates increased joblessness. He also rejected the Keynesian idea that governments could control unemployment and inflation through spending.  Instead a Keynesian administrative policy could in-fact bring about ‘stagflation’ or high inflation with little or no growth in the economy.

Nobel Prize winner Milton with Ronald Reagan felt that the central government was the problem, not the solution. Government can not micromanage the economy.

It is important to understand what Milton Friedman is telling us. There are far numerous advantages of the free marketplace and far too many disadvantages of government intervention and regulation. 

This blog is dedicated to Milton Friedman’s Economic Study as it relates to the economy of today and tomorrow.

Recommended reading: Capitalism and Freedom by Milton Friedman.