Posts tagged with: Milton Friedman

Who is the biggest enemy of the free market system? The late Milton Friedman, one of the 20th century’s most prominent free market champions, had a surprising answer: the business community.

Economist Arnold Kling explains why support for markets and business are not the same thing:
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I spent last week in London attending a couple of stimulating conferences at the Institute for Economic Affairs (IEA) and the Transformational Business Network (TBN), and catching up with some friends and acquaintances. All of the discussions were either officially off-the-record or of a personal nature, so I can’t be too specific about who said what but my general impression, obvious to anyone who’s visited, is that London remains an extremely vibrant, forward-looking, prosperous global capital in stark contrast to much of Europe and even other parts of Britain. But the reasons why are varied and may upset some seemingly-settled orthodoxies about religion and wealth.

London’s wealth is certainly tied to the City and international finance, even if giants such as the Royal Bank of Scotland are posting record losses (£9 billion in 2013). There’s much distress about such losses, especially subsequent to the massive bailouts RBS and other banks received in the wake of the 2008 financial crisis. We often forget that making bad investments and taking losses is part of the normal, necessary functioning of the market economy; Milton Friedman went so far to say that losses are even more important the profits. Wealth can’t be created if we don’t allow losses to get rid of badly-managed or mistaken enterprises.

No one wants to fail, of course, but without failure, we can’t have success, even at the individual level. I’m reminded of a Teddy Roosevelt image we used to have at the office of my college newspaper emblazoned with the words, “The only man who never makes mistakes is the one who never does anything.” Certainly true, even if the vice of sloth and complacency often tells us otherwise; what’s more important is to learn from one’s mistakes and try again.

Critics of capitalism have often cited the constant striving and relentless competition as negative aspects; what’s the point of hard work, after all, if we can never enjoy its fruits? The austerity and disciple required by the market are sometime called “Protestant” because they supposedly imply a pessimistic, individualistic view of human nature, as opposed to Catholicism’s more positive, “relaxed,” social view. Made famous by the German sociologist Max Weber, this thesis has always seemed to contain some elements of truth but never completely accurate to me, and my time in London confirmed my doubts. (more…)

Blog author: jballor
posted by on Friday, August 23, 2013

I ran across this video yesterday (courtesy of ESA), which I thought presented some interesting challenges and issues:

The video was presented on Upworthy as an example of something “all white people could do to make the world a better place,” that is, use their white privilege to address injustices.

A number of economists, including Milton Friedman and Thomas Sowell, have written about the power of the market economy to overcome racism and discrimination, to put people into relationships on the basis of economic decision-making rather than skin color. As Friedman contended,

the preserves of discrimination in any society are the areas that are most monopolistic in character, whereas discrimination against groups of particular color or religion is least in those areas where there is the greatest freedom of competition.

But as a conversation I had with some others about the video also illustrates, there are times when (at least in the short run interests of the firm), something like profiling can seem to make some economic sense. The successful passing of one bad check can really hurt a store’s margins. Practically speaking the stores often take a complete loss.
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In response to my post last Thursday on the Fed’s signaling the possibility of more quantitative easing (QE), a commentator using the pseudonym “Milton Friedman” wrote,

have you checked inflation rates lately? they are at historic lows. if the parade of horribles doesn’t happen, shouldn’t that cause you to reconsider your understanding of the economy? economists have learned quite a few things since 1609…

As I responded on that post, I’m not sure what “parade of horribles” he is referring to; my point was simply that the short term gain of inflationary policy now is not worth risking the likely long term disadvantages and need not be taken as apocalyptic.

Furthermore, as a matter of fact, inflation rates do not appear to be at “historic lows” in 2012, especially given the short bout of deflation we experienced from March to October 2009. I’ll let readers make up their own minds on that point, however, since it really doesn’t affect my argument.

What is far more important to me is pseudo-Friedman’s comment that “economists have learned quite a few things since 1609.” The reference to 1609 is due to the fact that I was highlighting the work of Spanish scholastic Juan de Mariana’s analysis of the effects of inflationary policies in medieval Spain. Is pseudo-Friedman right? Is Mariana’s analysis invalid due to its antiquity? (more…)

July 31st marks the 100th birthday of the economist Milton Friedman. Celebrations planned by proponents of free-markets will take place across the country to recognize and pay tribute to his legacy and the power of his ideas. I am speaking at an Americans for Prosperity event in town on the topic of school choice on his birthday.

My commentary this week is on school choice. Nobody has influenced and shaped the school choice movement more than Friedman. In my piece, I stressed the moral power of pivoting away from bureaucratic centralized schooling and encourage greater parental involvement in education. Simply put, school choice allows for parents to better shape the spiritual formation of their children. Nobody can make better decisions about the education of their children than the parents.

Finally, schools that have to compete for students and tax dollars will be forced to improve and be innovative for today’s complex and global marketplace.

Blog author: rnothstine
posted by on Tuesday, January 10, 2012

“Stupid is the new smart,” and “Pop culture is a wasteland” are just a few lines from Daniel J. Flynn’s introduction to Blue Collar Intellectuals: When the Enlightened and the Everyman Elevated America. Certainly, one does not need to read Flynn’s account to surmise that there are grave problems with our culture. But many would miss some great stories and a return to a people and time that crafted a great uplifting for mass audiences.

Flynn has profiled six intellectuals or thinkers who sprung out of the immigrant backgrounds and / or a working “blue collar” origins. They opened up and popularized the great works, theories, and conversations of Western Civilization for the everyman. It seems it is of little coincidence that in profiling Mortimer Adler, Eric Hoffer, Ray Bradbury, Will and Ariel Durant, and Milton Friedman, Flynn touches on diverse streams of thought such as history, literature, economics, philosophy, and popular story teller. Flynn laments that we do not see these type of public intellectuals today and we are surrounded by passive and meaningless entertainment that not only debases but detaches us from the great ideas and a common heritage.

Will and Ariel Durant popularized history with their widely popular 11-volume The Story of Civilization. Flynn lauds them as writers who “extracted history from the academic ghetto whither it had retreated, opening the conversation about the past to all comers.”

Mortimer Adler, who compiled The Great Books of the Western World set, once quipped, “The only education I got at Columbia was in one course.” That course studied the classic works of Western Civilization and Adler sought to package them for mass consumption. A brilliant mind, Adler received a Ph.D from Columbia without ever receiving a high school diploma, bachelor’s, or master’s degree. Adler held a disinterest and disdain for the academic bubble, and in turn academics turned their noses up at his work for packaging and popularizing the great works. “The Great Books Movement, for better or worse, offered education minus the middleman. It is no wonder the middleman objected so vociferously,” says Flynn.

The idea that somebody who took on entrepreneurial endeavors and worked a myriad of jobs in the economy might make a better or more notable economist makes sense. But it’s not always the case, when one looks at say the lifelong academic John Maynard Keynes. Flynn notes what many free marketers already know about Milton Friedman and that is he “waited tables, peddled socks door-to-door, and manned roadside fireworks stands. He attended the public schools and lived in rent controlled apartments.” Friedman harnessed his experiences, professorship, books, a “Newsweek” column, and a PBS series to popularize libertarian free-market economic principles. He transformed public policy and much of the economic lingo and ideas we borrow today directly comes from the free-market economist.

Eric Hoffer, the longshoremen philosopher, was the favorite author of President Dwight D. Eisenhower. His book The True Believer covers the psychology of mass movements. “Hoffer’s patriotism stemmed from the belief that America was the workingman’s country. That the everyman became president hardly proved America’s mediocrity; it proved the excellence of the American everyman,” says Flynn.

Ray Bradbury, still writing, and most noted for Fahrenheit 451, could not afford college. He has proudly said that he is an alumnus of the Los Angeles Public Library. Bradbury glamorized small town Midwestern life and the significance of books, while slamming the detached superficial culture that suffers from a lack of education and critical thinking.

Flynn has weaved together some wonderful stories to remind us that great culture and deeper ideas are accessible to the masses. I have often wondered how some history professors could turn a lively and passionate subject boring. History, and other academic subjects, have too often been turned into gender-bending, “evil colonialist” type studies, eschewing much of the established work of Western Civilization. They deliberately use their own inner language and codes. “The ivory tower has become a tower of babble,” Flynn says.

He makes the easy case that a vapid society is objectionable and bankrupt of purpose, meaning, and ideas. He also highlights the less known significance on society of six influential thinkers, who because of their background, were able to help uplift the masses to the great ideas and release those ideas from an academic ghetto. Outside of Friedman, I did not know much about these figures and the stories he tells are lively and I did not realize how some of these thinkers already had had an influence on me. Growing up, my family had the set of The Great Books of the Western World, so it was fascinating to hear the story behind it.

As somebody with a divinity degree, and as an observer of ministry and churches, I thought about this problem in our faith culture. Today, there is a serious issue with the need to see Church as a form of entertainment first. Too often churches reflect the very same problems that plague our culture. There is little use for serious deeper reflection in some churches, and little use for the study of doctrine and traditions. The consequences are that confusion abounds today about what Christianity teaches and its transformative power. A revival and renewal is not just needed in culture, but in many of our churches too. There is a great need for teachers and preachers to deliver that word in days such as these as well.

Blog author: jballor
posted by on Wednesday, December 28, 2011

Fojol Bros. of Merlindia

Customers standing beside the food truck operated by Fojol Brothers of Merlindia, a theatrical, mobile Indian restaurant, serving food at various locations throughout Washington, D.C

In this week’s Acton Commentary, “Food Fights and Free Enterprise,” I take a look at the increasing popularity of food trucks in urban settings within the context of Milton Friedman’s observation that “it’s always been true that business is not a friend of a free market.”

As you might imagine, the food truck phenomenon has found opposition from brick and mortar eateries that fear competition from the mobile units. In this they are merely acting from self-interest, trying to influence the local laws and ordinances to favor them. As Friedman says, “It will be in the self-interest of individual businesses to promote a tariff here and a tariff there,” or a specially-designed zoning ordinance here, a tailored regulation there.

Various Christian traditions have recognized the right to food as basic, and there is thus a corresponding right for those who would provide food for others. We therefore ought to respect those who provide us with “our daily bread,” whether it be in the form of traditional restaurants, grocery stores, or food trucks. This means that the prejudice should be in favor of freedom for food trucks to operate and bring daily sustenance to many, or as Lester DeKoster writes, bring food to “God himself, hungering in the hungry.”

One response from brick and mortar restaurants could be to start up their own mobile operations. This would be far more helpful and healthy than trying to get city commissions to disallow them. The relatively lower barriers to entry (e.g. lower capital costs) can make food trucks an ideal start-up enterprise for a culinary entrepreneur. But the mobility and versatility of the food trucks can be a great complement to the stability of a traditional restaurant as well, as many establishments are already finding.

And the complementary relationship between food trucks and sit-down restaurants can work both ways. The food trucks can be a good “first step” into the food service business, and down the line the food truck brands can be well-served by setting up a base of operations with a brick-and-mortar establishment, too.

John Baden, chairman of the Foundation for Research on Economics & the Environment in Bozeman, Mont., wrote a column for the August 19 Bozeman Daily Chronicle about the Circle of Protection and Christians for a Sustainable Economy and how each has formulated a very different faith witness on the federal budget and debt debate. Baden says that the CASE letter to President Obama is “quite remarkable for it reads like one written by respected economists and policy analysts.”

I attended the FREE conference on the environment for religious leaders in July, the event referenced in Baden’s column (appended below). FREE is building a really useful conference/seminar for faith groups with outstanding lecturers and a truly diverse mix of attendees. I would recommend it to anyone seeking to deepen their understanding of environmental policy as informed by a religious worldview.

Also see Acton’s “Principles for Budget Reform” and associated resources on the budget and debt debate.

Religions’ reactions to financial realities

By John Baden

Many quite normal people, not just the paranoid, believe America will spiral downward and drown in a sea of debt. The Aug. 5 downgrade of U.S. bonds stoked their fears. Much of the debt problem is based on entitlements, commitments to Social Security, Medicare, Medicaid and the Prescription Drug Act.

As Rep. Barney Frank of Massachusetts said on NPR on Aug. 9: “I am not going to tell an 80-year-old woman living on $19,000 a year that she gets no cost-of-living, or that a man who has been doing physical labor all his life and is now at a 67-year-old retirement – which is where Social Security will be soon – that he has to work four or five more years.”

Sojourners is a “progressive” religious organization that supports Frank’s position. (Ironically, billionaire atheist George Soros has generously supported Sojourners.) They have recently drafted a letter to President Obama, “A Circle of Protection: Why We Need to Protect Programs for the Poor.”

Sojourners acknowledge our unsustainable deficits – but reject reforms reducing entitlements directed to the poor. “Programs focused on reducing poverty should not be cut. … The budget debate has a central moral dimension. Christians are asking how we protect ‘the least of these.’ ‘What would Jesus cut?’ ‘How do we share sacrifice?’”

There is nothing radical or even unusual in their position. Many, probably most mainline denominations, support similar positions. Sojourners’ leader Jim Wallis wants to move the broad religious community into the policy arena. Hence he is mobilizing a diverse nonpartisan movement of Christian leaders to make them “deeply engaged in the budget debate to uphold the principle that low-income people should be protected.”

Few would question Wallis’ goal but his strategy is challenged by a new group, Christians for a Sustainable Economy (CASE). They too sent a letter to President Obama.

While they share identical goals of helping the most unfortunate and poor, their means are diametrically opposed. They question policy outcomes by asking the ecological and economic question “and then what?” What are the logical, practical consequences of policies allegedly designed to help the unfortunate and needy?

Their effort had an unusual origin. It arose from an economic conference involving an ecumenical, indeed disparate, group of religious leaders, mainly Christians and several Jews. They represented a wide philosophical and theological spectrum. Some are allied with the Sojourners, others opposed.

CASE’s letter soliciting signers began, “At one level CASE began with a few of us at a lovely conference in Montana with fresh air, kindred spirits, time to talk and the gift of the idea to join together. … Signatories already include us (Catholics, Protestants, Orthodox) … (and) many who work alongside the very poor, and so on.”

I find their letter to the president quite remarkable for it reads like one written by respected economists and policy analysts. “We do not need to ‘protect programs for the poor.’ We need to protect the poor themselves. Indeed, sometimes we need to protect them from the very programs that ostensibly serve the poor, but actually demean the poor, undermine their family structures and trap them in poverty, dependency and despair for generations. Such programs are unwise, uncompassionate, and unjust.”

Their text explains, “We believe the poor of this generation and generations to come are best served by policies that promote economic freedom and growth, that encourage productivity and creativity in every able person, and that wisely steward our common resources for generations to come. All Americans – especially the poor – are best served by sustainable economic policies for a free and flourishing society. When creativity and entrepreneurship are rewarded, the yield is an increase of productivity and generosity.”

A decade ago I wrote a column celebrating Nobel Prize economist Milton Friedman’s 90th birthday. Milton was an apostle of responsible prosperity and liberty. While he is gone, his influence lives. CASE’s letter to the president is a sterling example.

John Baden is the chairman of the Foundation for Research on Economics and the Environment and Gallatin Writers, Inc., both based in Bozeman.

Blog author: jmeszaros
posted by on Wednesday, July 6, 2011

Many politicians have talked of repealing the Patient Protection and Affordable Care Act (“Obamacare”).  Mitt Romney has said nullifying the healthcare law would be one of his first actions if he was elected president.  However, rather than just repealing the law and going back to the status-quo, with minor changes, the American people should demand true reform.

In 2001, Milton Friedman, the famed, Nobel-prize winning economist, published an article titled “How to Cure Health Care.” (Although worthy of serious consideration, Friedman’s analysis does not contain any explicit moral message, and is simply a policy analysis on healthcare.  For a more in-depth look at the moral dimension of healthcare reform, visit Acton’s special section on healthcare)

In his essay, Friedman stated that, “The United States spends a mind-boggling percentage of its GDP on a health care system that virtually everyone agrees is a disaster,” and that was in 2001.  Spending has only increased over the past decade.  In fact, according to the Department of Health and Human Services Center for Medicare and Medicaid Services, the United States spent 17.6 percent of its GDP on healthcare in 2009, and this figure is expected to grow over time.

In addition to out of control spending, studies in the United States and Europe at the time were showing “…public dissatisfaction with the increasingly impersonal character of medical care.”  Recently, a 2010 Gallup poll showed a majority of Americans are satisfied with the quality of healthcare they receive (62 percent rated quality as excellent or good), but only 39 percent rated the availability of coverage as excellent or good.

How did this happen? How has massively increased spending led to unsatisfactory coverage?

In four words: the government got over-involved.

Friedman explained, “In other technological revolutions, the initiative, financing, production, and distribution were primarily private, though government sometimes played a supporting or regulatory role.”  However, in healthcare, the government decided to intervene and regulate extensively.

It all started at the onset of World War II when, due to wage and price controls enacted during the war, “firms competing to acquire labor at government-controlled wages started to offer medical care as a fringe benefit,” which was not recorded as part of their salary due to the wage-controls.  As a result, employees came to expect healthcare from employers as part of their compensation.

The IRS eventually wised up to this and, wanting more revenue, started to tax the contribution.  Workers raised an uproar so Congress passed a law, The Revenue Act of 1942 (Section 127 specifically), allowing, in Friedman’s words, “… medical care expenditures to be exempt from the income tax, if, and only if, medical care is provided by the employer.”  This system, according to Dr. Donald P. Condit in his Acton Institute commentary “Should Business Be Responsible for Employee Health Care?”, “effectively punishes taxpaying citizens who are paying for health care benefits with after-tax dollars.”

Thus, if an employee paid directly for healthcare, this was added to their taxable income, but, if they went through their employer, it was not, setting up a large incentive to get insurance coverage from one’s employer.  Condit states “medical spending has increased with this ‘tragedy of the commons’ scenario, wherein resources [health care dollars] are overconsumed with the perception that someone else [the company, the government] is paying.”

Friedman similarly demonstrated the result of this and other policies dealing with healthcare with a simple example: “In 1946, seven times as much was spent on food, beverages, and tobacco as on medical care; in 1996, more was spent on medical care than on food, beverages, and tobacco.”  In 50 years, healthcare went from a minor expenditure to the major expenditure of most people, and, during this period, spending by individuals and government on healthcare approximately quadrupled.

Friedman explained, “On the evidence to date, it is hard to see that we have gotten much for quadrupling the share of the nation’s income spent on medical care other than bureaucratization and widespread dissatisfaction with the economic organization of medical care.”

What can be done?

For starters, Friedman said: “If the tax exemption were removed, employees could bargain with their employers for higher take-home pay in lieu of medical care and provide for their own medical care either by dealing directly with medical care providers or by purchasing medical insurance.”  This would make families more responsible for their own healthcare and they could adjust accordingly, either spending less/more on healthcare or taking more/less in wages.  (It seems that most would probably spend less on healthcare and take more income in light of this National Journal article).

This kind of reform would help by “reprivatizing medical care by eliminating most third-party payment, and restoring the role of insurance to providing protection against major medical catastrophes,” rather than using insurance to pay “for regular medical examinations and prescriptions.”

This sounds great, in theory, but how would such a drastic change actually be accomplished?

Friedman advocated for medical savings accounts. He stated: “A medical savings account enables individuals to deposit tax-free funds in an account usable only for medical expense, provided they have a high-deductible insurance policy that limits the maximum out-of-pocket expense.”  This way, employees, not employers, would be responsible for their own healthcare spending, hopefully eliminating the third-party problem, while allowing the wages contributed to still be tax free.

Several companies, including Forbes, Quaker Oats, and the Golden Rule Insurance Company, tried out medical savings accounts instead of employer provided insurance and found that healthcare costs were lower and both management and employees were more satisfied than under the old employer provided system.

Friedman stated, “Families would once again have an incentive to monitor the providers of medical care and to establish the kind of personal relations with them that were once customary.”

This puts responsibility back on the individual to care for his or her family and brings to mind the words of 2 Thessalonians 3:10: “If a man will not work, he shall not eat.”  Modern healthcare is obviously not comparable to biblical food, but the concept of individual responsibility has largely been lost with employer provided healthcare. This reminds all that a family is better served caring for itself rather than relying on someone else to make choices, including healthcare, for them.  Condit, in his essay, says as much: “Employer, or any third party, involvement in providing health care can interfere with an employee’s ability to make his or her own decisions and distort individual responsibility.”

Also, allowing families to manage their own healthcare costs would allow for greater efficiency by means of more efficient spending.  For instance, instead of using insurance to pay for a doctor visit due to a cold or a small prescription, one could pay out of pocket.  If most people paid out-of-pocket, the cost would likely go down because what individual would pay $80 (like my insurance company does) for a 20 minute doctor visit?  By putting people in control and not insurance or government bureaucracies, one could expect people to “shop around” for quality doctors.  Then, doctors’ offices would likely offer better care to compete for patients, instead of expecting an $80 to $100 payout from the insurance company or the government.

In addition, Friedman advocated for the abolishment of Medicare and Medicaid, which sounds rather radical.  However, he said the government should “…replace them by providing every family in the United States with catastrophic insurance (i.e. a major medical policy with a high deductible).”

That way “the family would be relieved of one of its major concerns – the possibility of being impoverished by a major medical catastrophe – and most could readily finance the remaining medical costs.”

This should satisfy the concern that impoverished citizens would not get adequate coverage.  Even if a small portion of the population is chronically ill or unable to pay their medical bills, these people would be covered by a government catastrophic care policy.

It is a citizen’s duty to care for those individuals in their communities who simply cannot help themselves.  Condit states, “Christians, and others, are expected to fulfill a service obligation, with a preferential consideration for the poor and underserved.”  This corresponds to the principles of subsidiarity and sacrifice seen throughout Catholic and Christian teaching.

In Luke 3:11, John the Baptist states: “The man with two tunics should share with him who has none, and the one who has food should do the same.”  Jesus himself said, in Luke 14:13, “when you give a banquet, invite the poor, the crippled, the lame, and the blind.”  Again, in Jesus’ and John’s teaching, the focus is on “you”, the individual, caring for ones neighbor, rather than an entity such as the government (or a corporation).  The government, naturally being more impersonal and disconnected, could provide support in the severest cases, when communities and individuals could not support their own.

Rather than harming the less-fortunate and marginalized, this kind of health reform could free up time and hospital beds (many families would spend much less time and money on care) to help those chronically ill individuals who truly need the best care and doctors available. Friedman’s approach does not solve all the problems of healthcare (how do I know this doctor/hospital is reputable or provides good care since there is no rating service, what about those that refuse to or cannot pay out of pocket, etc.) and this is only a basic analysis, but it does offer a seldom discussed approach to improve care, allow for greater individual independence, and decrease costs.

 

Speaking of Milton Friedman, here’s a link to a paper that looks interesting: “Transcendental Commitments of Economists: Friedman, Knight, and Nef” (HT: Organizations and Markets).

Acton president Robert A. Sirico’s reflection on Friedman’s legacy last year noted, “Friedman was a true Enlightenment disciple and feared that truth claims could lead to coercion.”