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September 18, 2007

Comments

Stephen Deng

I did not enjoy this book. He writes clearly and concisely with an expertise well deserving of his Nobel Prize, but it was definitely a painful read for me. He believes in principals of the rational, cost-cutting, profit-maximizing man. He believes that profits are the final word – the only word in most cases. He believes all this and claims it is a mechanism for both economic and political freedom. He claims “competitive capitalism […] promotes political freedom because it separates economic power from political power and in this way enables the one to offset the other” (9).

Friedman’s arguments make me think of Polanyi’s warnings about how the freedom of the market is actually limiting society. I think Friedman has succumbed to the trap the free market economy sets. As Polanyi predicted, he has confused the idea of social freedom with economic liberalism.
The market, even in his mind, is driven by “market forces:” consumer and producer theory. To claim that the freedom to choose who to hire and what to buy relates to social freedom is faulty. Serena touched on social inequity nicely. Take the example of the privatized health care industry. People can choose their insurance companies and insurance companies can provide at whatever costs. The result is a cost-minimization of health benefits given to the consumer. Can we really say that the economic freedom procured by the insurance firms relate to any kind of social freedom to the consumer? When the free market begins to encroach on basic human rights and the market system begins to regulate things like health, then we have a problem. The free market is no longer an instrument which pressures producers, but rather, large producers have the leverage to exploit consumers. The freedom of market and the freedom of humanity must be understood to be strikingly different.

I think Friedman overlooks the ability of groups and institutions to alleviate the issues of society. As Versa says, he prescribes that the economic man is a rational, self-serving actor and he leaves it at that. He discounts social and political pressures. Institutions have the ability to facilitate people to overcome selfish tendencies. Where Friedman hopes that the free market will create choice which allow for freedom, I believe social programs can unite single actors to directly increase welfare where needed. The free market is simply a tool, a mechanism that society has used to promote efficiency on the economic front. As stated above, it simply does not guarantee any real freedom for the common person. It takes an organization of people thinking along human lines, not economic ones to direct welfare.

Ironically, even Friedman’s own negative income plan for poverty alleviation requires government facilitation for it to be effective. Letting “the market rip” is great for GDP (most of the time). However, it does not coincide with social welfare. There comes a point where we have to think less about efficiency and growth and rather more about equal distribution and human rights. It is at that point when even Friedman realizes a pure reliance on market forces simply will not do.

Nick Nejad

I disagree with this question entirely because it is forcing people towards the preconceived notion that something is wrong with Friedman's ideas. So I am going to step up as the backer of Friedman's ideas because they happen to coincide a lot with what I think. I think there is a flaw in his argument, but it was mostly missed and I will get to that in the end.

The first argument mentioned was the erosion of "fellow feeling"- that companies would ignore social costs and pollute the air, and try to cut labor costs to a minimum. Well for the first idea, Friedman specifically says he does want regulation of neighborhood effects, which are situations where there are external costs that the victim can't reasonably seem to make up. As for the idea of commoditizing labor, this is something that I do not have the ability to yet explain, but it is often just assumed that competition for labor is just a race to the bottom. But economic logic relies on individual income for consumption, so there has to be some counter-force to this or else there would be no one to sell production to.

The next critique was that letting the market run itself would encourage companies to lie and increase brand appeal rather than give the truth, yet there are no forces even today that are stopping that and so I find that argument not pertaining to this discussion.

Someone mentioned that we need an institution to guide us and mentioned the China pollution idea, but I already discussed how this was covered by Friedman's belief in regulating neighborhood effects.

I am for education unstandardized, but that is a whole different tangent and not an integral part of the discussion.

The idea that the economic sphere can influence the political sphere and hence corrupt it seemed like a real flaw to me at first. But then I realized that if we have a Friedman type government that sticks to its economic principles, there is really very little that government can do to help serve greedy interests.

And finally, there was numerous mentions of what I think comes down to the heart of the problem. For example, Amitha accepts the idea that people can not learn to be rational and responsible. Other people similarly criticized his individualistic approach to freedom because it "assumes people are rational." I never understood why so many people deny their own ability when it is in fact limitless. 300 years ago, had none of our technology and still managed to survive by working every hour of their day, going from task A to task B. Today we have it so much easier and but we just complain to try to minimize the work we need. If we create a system that encourages us not to learn self-sufficiency, it will never arise. Instead the costs of protecting these people will be burdened on the entire population and it will never change. And laziness will breed more laziness, and X will benefit while Y keeps suffering. Why should our society encourage that? Wouldn't it be much better to encourage society to become rational?
And Serma said that what is the point of freedom if you are starving and sick and can't afford the doctor? Well, that depends on how you got there. As a society, we should give everyone the freedom to start with an equal footing- where we take it from there is on our own. If someone is born with a debilitating disease, the system should have a way of helping you out because that was out of your control. But if you are starving and sick because you decided to make some stupid decisions early in your life, you have to live up to the consequences. And this is what Friedman advocates, and I have yet to understand why this idea of equality of opportunity is not the ideal goal of society. And I think anyone who calls for total equality doesn't understand how that completely eradicates the incentive for anyone to do anything with their lives. Rather than capitalism which is a race to the top in human development, socialism is a race to the bottom- who could do the least work wins.

So anyway, the problem I see in Friedman's argument is one of omission. I think something in society needs to be done about very conspicuous consumption. After a certain point, money is really not needed and anyone who tries to spend it all is truly doing a great disservice to the world. Warren Buffett once mused that his vast wealth was like a claim check on society that he had built up. And, if he wanted to, he could use it to hire 1000 painters to just sit around painting pictures of him for the rest of their lives, and he would be contributing to GDP. But in reality, using that money for such purposes would just be a huge and very marginal use of money, when it can be used to help so many others. And again, this is where the idea of a progressive tax system can come in and solve this problem. Otherwise, I agree with Friedman's philosophy and ideals.

Thomas York

Like Vera, I contend that the key flaw in Friedman's Capitalism and Freedom is his reliance on "freedom" as a supreme value. He holds this value in opposition to what he calls 1930's and 1940's liberal "welfare and equality."

I don't disagree with his argument that economic freedom and political freedom are very related. Surely, the purest form of freedom involves both economic freedom and political freedom. His arguments for the regulation of the Department of the Treasury through a goal growth rate seems fair and logical considering their response to the various crises that led up to the Great Depression. His system of freely floating exchange rates for international markets makes considerable sense. In both these cases, he's applying economic rationale to complex systems without sacrificing anything essential.

Unfortunately, in terms of an overall political philosophy, we must accept inefficiency (the flaws of centralization of power and the expansion of government programs) to reconcile raw idealism with reality. To name two of Friedman's condensed list of thirteen excessive programs, Social security programs and "public-housing" govern very serious aspects of American society. If we remove social security, many people will not act in the rational way Friedman expects them to. Instead, they will enter into a period of their lives where they will not be able to work and won't have any financial support. If we remove "public-housing," again many will not act rationally and will simply become homeless.

While Friedman's dedication to freedom is inspiring and in many senses persuasive, he holds that value about all else, even when freedom can be reasonably maintained and suffering and poverty mitigated.

Sam Iverson

I would like to argue against many of the comments that have been posted thus far and offer some support for Friedman’s argument in favor of a capitalist system. First and foremost, I don’t believe that Friedman would argue that the government acts as an enemy towards the market economy. Instead, Friedman emphasizes that the government should act as a nightwatchman of the economy in that it is “essential both as a forum for determining the ‘rules of the game’ and as an umpire to interpret and enforce the rules decided on.” (15) The government is necessary in a number of ways to exact law and order on society, be it promoting competition, adjudicating disputes, enforcing contracts, or any number of means to preserving economic and political freedom for its citizens. After all, Friedman states clearly, “The consistent liberal is not an anarchist.” (34)

Friedman’s correlation between increased economic freedom and increased political freedom seems to be misunderstood by many. Others have argued that economic freedom does not contribute to absolute political freedom. Friedman argues that even if one has the economic freedom to make a political decision, that these decisions won’t be costless. This is a major benefit of the capitalist system, it forces individuals to be responsible for the actions they take with regards to the economic freedom they have at their disposal. In other words, economic freedom does grant political freedom, but there are consequences to utilizing this freedom and the self-regulating system will impact these decisions much like a firm will decide whether hiring a new laborer will raise its profits or not.

I disagree with the point that the capitalist system only perpetuates environmental problems. While it is true that the road to profit-maximization can act against conservationist efforts and even cause environmental problems, it should also be noted that the competitive capitalist system is subject to public scrutiny and is thus self-correcting. Keynes even argued in his End of Laissez-Faire that businesses tend to socialize themselves under public pressures. The separation of management from the shareholder in large enterprises means that profit-maximization is no longer the sole endeavor of business. Instead, many modern corporations must now take measures to consider their environmental effects in order to sustain their business. Take for example Nike inc. that in the past decade has taken measures to enforce child labor laws and improve working conditions as a consequence of great social criticism.

It is a futile effort to argue that any political-economic system could have absolutely alleviated poverty. Attempts to correct this social problem were unsuccessful within socialist states and only lowered standards of living for their people. Thus, Friedman argues that while capitalism will always create a class hierarchy that bears a burden of poverty and unemployment on the population, it may still raise the standard of living for society and limit the pervasiveness of this social pall. The capitalist system, when unregulated, will increase employment and the economic pie for all to contribute from, regardless of the proportions.

I read Friedman’s work as a response to the overwhelming socialist literature that preceded Capitalism and Freedom. In a period where America championed its political and economic prowess over the rest of the world, offering aid to support many faltering social democracies in Eastern Europe, Friedman was reasserting the self-regulating power of free-market capitalism and the freedoms it brought to Americans in the second half of the twentieth century. I read his work less of an attempt to draft domestic policy and more a reminder that with greater economic liberty comes greater political liberty.

Jessica Chu

Since most people have focused on the general flaw of supreme freedom, I’ll talk a bit about two specific points he brought up to diversify the conversation. First off, his claim that the Federal Reserve was the cause of the Great Depression struck me the wrong way. One of the biggest reasons for the Great Depression was the unequal distribution of wealth. The roaring twenties was a time of limited government intervention in economic policy (sound familiar?) which allowed to rich to get richer and the poor to sit around and watch them. Industry and productivity was booming but, in the interest of keeping costs down, wages were increasing at a much slower rate. The disparity in wealth made the US economic system unstable because total demand became less likely to meet total supply with the growing gap. As a result, there was an oversupply of goods. True, speculation also played a major part in causing the Great Depression, but had the economy been allowed to keep going on the path it was headed, there still would have been a Great Depression.
The second idea I want to bring up is his education reform. Friedman claimed that parents should pay all of their children’s education expenses instead of paying taxes towards education and having most of it come back to them when their children go to school. He states, that better education leads to a better society for various reasons listed in the book. However, in this case, I think he puts too much confidence in the parents. Having to pay for their children’s compulsory education isn’t really the problem, it’s their willingness to pay and save for their children’s college education. Friedman is sure to include subsidies for children from low income backgrounds so they can go to school, but what about children from middle income families that don’t save for their child’s education? College is already expensive with government subsides but to make an unprepared parent pay for everything might be stretching the edges of reality. Especially for lower middle class families. Freidman puts too much faith in the parents’ belief in education. He thinks that they’ll save enough for their child’s education because they know that it’ll provide the kid with a good job and help society in general. But in most cases, parents’ scope isn’t so broad as to include what their actions might do for society in general, and will instead use the extra money to make life more comfortable in the here and now. Also, for students that have to pay their own way through, the added cost will act as an incentive to discontinue higher education. By taking tax money out gradually, the government is forcing parents to invest in the future.

Pierre Mouillon

Milton Friedman’s ideas can be seen as probably the most influential ideas of the modern time, because they changed the direction of the economy and politics during roughly the last 40 years. He was the first of the so called “Chicago Boys”, arguing against governmental intervention into the market. He believed, like Adam Smith, that the best way to rule the market is to let the market be ruled by its own laws, thus supply and demand.
It can be seen that he was one of the “inventors” of the new neoliberalist way, which turned around politics and the economy especially in the 80s when Ronald Reagan was president of the United States and Margaret Thatcher of Great Britain. During this period, the market was “freed”, meaning that during this period, everything was financialzed, so instead of the slogan, “what is good for General Motors is good for the US”, the new slogan “what is good for Wall Street is all what matters” (Harvey).
But this financialization brings some problems. It can be argues that this system leads back to a “class system”, because the state doesn’t intervene anymore, thus not supporting a social system. This can result into a widening gap between the high income class and the low income class. Also taxes are often cut, which also supports this widening gap.
But there are also political problems. It can also be argued that a free market and no government intervention, and thus “true democracy”, will lead to authoritarianism or even fascism, as especially Polanyi argues. He says that Neoliberalism is producing two arts of freedom, one is good (freedom of speech, …), the other one is bad (freedom to exploit …). In the long run, the bad ones will replace the good ones (for example because of seeking personal advantage), and thus, democracy will lead to a system, where there will be no good freedoms anymore.

Adriana Gomez

I can see that a lot of us think that there is much flaw in Friedman’s faith in a less regulated market economy. That is what I would personally disagree on him with. His statement that the government “can be our enemy,” as pointed out by Yu Hsin earlier, is not fully justified by his argument.
Milton Friedman argues that sometimes government intervention could lead to disequilibrium of supply and demand through regulating standards. Perhaps there is some legitimacy in his arguing that “dead weight loss” is added to the market through government intervention. Friedman mentions this himself in his introduction, saying that “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” (12). The fact that we give part of our freedom to assure the government of its power upon society is a sign that the government has an incentive to give the people back more than just that “mediocrity” that he speaks of.
Take for instance the topic of “Occupational Licensure,” where Friedman mentions that there is no way that “intern testing for medics can assure competence.” What he doesn’t take into account is the monetary compensation our medics get for their long struggle with med school. This, in turn, raises prices of medical costs, that’s true, BUT this gives people an incentive to work hard and make the income necessary to afford these very essential services. This is all capitalism in the making and all of these restrictions are necessary for the normal functioning of capitalism even though a lot of them involve merely monetary incentives. Those who are not apt for the profession as medics will not go through with the licensure procedure and this will allow for greater specialization. If this long procedure is not used for sorting out medics, there will be more medics (supply will go up) and then demand may or may not change, bringing the cost of these services down. How then, if not through monetary incentive, does Friedman hope to compensate the efforts of these ladies & gentlemen that have gone through the schooling?
Overall, I feel that Friedman’s view of “too much government intervention” is not justified through his arguments. Government intervention is part of what assures the normal functioning of the economy, and failure to do so may result in a much-noted failure that the government can correct to ensure that the people continue to trust in it and comply with the policies. Failure for government correction, as Friedman himself points out, can result in people relocating to a place in which the conditions are better, or voting for the candidate that can offer a better aspect of the bad situation in the domestic country. In other words, government intervention can aid in preserving the capitalist part of the system that Friedman is idealizing.—I can go on forever about this! :)

Kenichiro Nakahara

In order to identify the “flaw” in Milton Freidman’s theory, it is important how we identify the term “freedom”; whether it is only freedom in the market or freedom in the whole society. Friedman argues that the freest markets would keep other factors of society (like politics) in check and create an invisible regulation system without any particular governing body. When I read this in the book, it rang a bell in my head and I felt that this argument was although slightly different, very similar to that of Adam Smith and his “invisible hand”. These two theorists both are not against capitalist society and have similar views in the way that a economic force of some sort that is NOT a group run by the government should be the controller of the market (Smith calls this the “invisible hand” and Friedman calls this “freedom”).

Although Friedman presented his argument clearly and precisely, I would have to agree with Amitha and Serena and the many other peers in this class who feel that economic freedom would not lead to political freedom, hence proving a flaw in Friedman’s argument. Of course, capitalism and the economic benefits from the system may have more freedom in politics but I can not say that this is the only or the strongest factor that may possibly influence an individual’s political freedom.

Friedman continues like many other theorists with an assumption that usually is much too idealistic in the real world. He believes that all individuals in the market would make the most economically rational decisions and bases his theory on these terms. However, it is evident that although economical wealth is a big factor, by all means there are many other factors that control human behavior.

Finally, would complete “freedom” in the market work out? More importantly, would it apply to all the nations? In my opinion, a combination of Smith’s “invisible hand” and Keynes government regulation is how many markets in the world are functioning today. Friedman’s idea of complete freedom is definitely intriguing and revolutionary but it may be a bit extreme and overlooking the “social” factor and the behavior individuals would take in a real life situation.

Chun Chung Chan

Milton Friedman’s argument between economic freedom and political freedom is saying political freedom will be easier to fulfill when there is economic freedom. This notion is kind of similar to the modernization theory whereas the more industrialize the country is, the more rich it has, then the more democratic it will be. In his preface, he mentioned the dramatic success of the market-oriented policies of the East Asian tigers – Hong Kong, Singapore, Taiwan and South Korea. Hong Kong’s success was not solely relying on the market. The British colonial government would like to achieve political stability and made Hong Kong people concentrate on economic activities. And Hong Kong is sovereign back to China now. Was there and is there a lot of political freedom? Yes, but more can be achieved. Singapore’s architect, Lee Kuan Yew, did a lot of work to consolidate the socialist regime in Singapore. It made Singapore very prosperous. Taiwan, although is a mess now, enjoyed a significant economic role in opening China. However, as the politics start to mess up, the economic activity became more vulnerable. The relationship between political freedom and economic freedom is not necessary a causation. In the lecture today, Professor Delong mention how Friedman fix a strong government in a market-oriented society. It ties the thoughts together a bit. Having a market-oriented society does not imply the government is hands-off the welfare aspect and regulation aspect. The role of the government is a watchdog at the night. On the other hand, the Chicago boys, decent from Friedman, were implementing market-driven policy in countries in South America. What you see is a decade of inflation, with increase poverty and government corruption. Let the market “rip” itself cannot be a solution.

Nadia Barhoum

Milton Friedman’s ideas about the market economy and the need for capitalism to “rip,” though sensible in some respects, are impractical, at least for today’s society. I agree with Sam’s statement about Friedman’s work being a response to the oftentimes oppressive “socialist/communist” state i.e. the Soviet Union and its satellite states, although his ideas about capitalism and the free market were also considered fairly radical by even a Western economist’s standards. His belief that the market should go largely unregulated by government, I think, would lead to deep economic inequalities in society. I do not think that he takes into account the current problems evident in U.S. society, problems both which existed at the time of his book’s publication and today e.g. namely Medicare and social security. How can an unregulated market provide society with services if no accountability exists within this private sector?

I also do not know if I understand Friedman’s idea about freedom: “The kind of economic organization that provides economic freedom directly, namely, competitive capitalism, also promotes political freedom because it separates economic power from political power and in its way enables the one to offset the other.” The political and economic spheres of society cannot be mutually exclusive; in practice, economic freedom cannot exist without political freedom and one cannot always lead to the other. The relation between the two is, in a way, symbiotic and not always perfectly balanced. Friedman’s ideas cannot be refuted completely though since they have not been applied. Maybe what first needs to be created is a more level playing field within society which would allow for a more fair application of Friedman’s notion of the largely unregulated free market.

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