Web Assignment 7: Kristen Durham: Milton Friedman's Challenge

This page is for Kristen Durham's students.

• The page for Ben Peacock's students is here.
• The page for Varanya Chaubey's students is here.

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A whole host of writers we have read so far in the course--Keynes and Polanyi most strikingly--have strongly argued that the market needs to be tamed or guide or muzzled or regulated or controlled if anything like a free, wealthy, and peaceful civilization is to exist. Milton Friedman says not: Milton Friedman says that the government is not the corrector of the defects and evils of the market and the guardian of freedom and prosperity, but is instead our enemy. The right policy, Friedman says, is to let the market rip. This is a powerful challenge to my conventional social-democratic reflexes.

Write a comment of at least 200 words on what you think of his argument. Contribute to the discussion that is ongoing--that is, react and respond to not just Friedman but, to the extent it is appropriate, the earlier posters and commenters on the webpage.

Do this by 5 PM on October 16.

Comments

[Kieran M. Duffy]

I disagree with most of M.Freidman's arguments/evidence for "letting the market rip" as Prof. Delong notes.

First, when he says "The only person who can persuade yourself is yourself. You must turn the issues over in your mind at leisure, consider the many arguments, let them simmer, and after as long time turn your preferences into cinviction" (viii). I disgree with him because I feel his vision of society is a Eutopia that can not exist, because he is not factoring in human traits such as greed, evil, the desire for immense success and vice versa.

I further disagree as he says "...we can ensure that the private sector is a check on the powers of the government sector, and an effective protection of freedom of speech, religion, and thought" (3). The private sector is going to protect our livelyhood?? I do not think so. The private sector serves there own self interests, first above all, if world history is any guide.

I also disagree with his idea of "letting the market rip" when he says "If I do not like what my local community does, be it sewage disposal, or zoning or schools, I can move to another local community, and though few may take this step, the mere possibility acts as a check." So is he saying that the fact that overseas manufacturing ie China, Mexico, Brazil has taken hundreds of thousand of US jobs serves us right? If there is a natural disaster such a Hurricane Katrina here in Berkeley, should we should abandon the city and find a "better local community?"

I also disagree when he describes Social Security as "the citizen of the US who is compelled by law to devote something like 10% of his income to the purchase of a particular kind of retirement contract is being deprived a corresponding part of his personal freedom" (8). Social Security was set up to in some cases, save poeple from themselve so to speak in that managing to save money for retirement or an unpredictable emergency like the Great Depression is very difficult. Therefore I am pro-Social Scurity and do not feel like I am being robbed of my "economic freedom."

I most strongly disagree with his reasoning of letting the "marktet rip" instead of the government having control over controlling and adjusting taxes based on high and low levels of income, and replacing that system with a flat tax of 23 and one half %. I think its wrong as he states "Much of the actual inequality derives from imperfections of the market." and that "Many of these ahve been created by gavernment action or could be removed by governement action" (176). I disagree most with this because I feel the US offers more economic freedom than anywhere else. Why should someone who in some cases comes and creates an enterprise from the ground up, because of the economic freedoms enjoyed, creates an entity that generates in some cases today $10,000,000.00 a year in income should pay the same tax as an employee that gets paid $50,000.00 and contributes $100,000.00 per year to that $10,000,000.00??

The list goes on and on and on and on...

[Shannon Oakes]

I’m on board with Kieran. While many of Friedman’s ideas are very novel and insightful, I would disagree with a number of his arguments. One persisting argument that I really have a hard time with is that everyone in the country (excluding children and the mentally ill) should be responsible for themselves. Government regulation is put into place to help those at the bottom of the socioeconomic ladder and prevent those at the top from having everything. I fear that “letting the market rip” would achieve just that.

Along with Kieran, I have a problem with Friedman’s approach to social security. He proposes privatizing it and making it voluntary. Social security is put into place to help people at a time in their life when they need it most. While there are many flaws in the system, it’s meant to aid “lower income individuals (who) make no provision for their own age deliberately.” In most cases, these individuals are unable to make provisions in the first place and by making it voluntary, it would completely eliminate this benefit for those who need it most.

Friedman was in favor of cutting taxes as much as possible. He lobbied for a flat income tax. This would most likely benefit the top. He also wanted to do away with corporate taxes and he believed that people should pay for there own health insurance. Well what about those who couldn’t afford it? Friedman’s idea of a completely free market is based on the design that people should be able to help themselves, a component of freedom. Unfortunately in this day and age, not everyone can help themselves. While I agree with many of his claims regarding the imperfections of government regulations, a completely free market would not solve many of the problems regarding the distribution of goods and services in our economy.

[Miranda Huey]

As the title “Capitalism and Freedom” would suggest, Friedman believes there is an essential correlation between political liberty and economic liberty. One of the ways he justifies this by pointing out that in the course of history, the two have naturally had a positive correlation. However, this is flawed because, firstly, it merely generalizes a trend, secondly, there haven't been truly free markets throughout history, and therefore there had only been a correlation between mixed markets and political liberty, and thirdly, nowadays he hasn't seen China, one of the most capitalistic societies yet protects the fewest human rights.

He then justifies this claim by asserting that the economic sphere provides an essential check and balance to the political sphere's tendency to abuse its power. For instance, he argues, in order to start a new political idea, one must either only persuade a few wealthy people to market it or sell your writing to a publisher, who will publish it regardless of political leanings because it is primarily out to make a profit. Although with particularly high-expected profit margin publications this is true, for the most part the tendency of a hands-off market still tends towards oligopolies (see Rupert Murdoch) who enjoys the authority to determine what gets published and what doesn't on a large scale. And, because of the instability of the market, other media outlets tend to play it safe so as not to risk radicalizing their reputation, relative to all other mainstream media.

From this, he argues, all justifications for limiting economic liberty is not worth the supposed benefit, since government has done much worse for the economy and its citizens than it has done with intervention (with some caveats) – monetary policy for being so arbitrarily determined rather than set down by rules, and fiscal policy for creating a cycle of debt on the basis of boosting the economy. Rather, he claims, rather than spending on what would have been paid as a consumer cost, the government should only try to boost the economy through tax breaks. However, this argument seems to miss an important part of the economy. Although it is true that there are certain expenditures that are wasteful (defense) and inefficient, causing our government to get more intractably into a cycle of debt, if many of these wasteful and inefficient programs were reduced and the rest paid for by more heavily taxing the rich, this is something that could be resolved. And, as Kieran and Shannon pointed out, spending on social programs is key to psychological and economic security of many, many citizens. If the government were to follow Friedman's advice and abolish rent control, minimum wage, social security programs, and public housing, it would cause a lot more people to start saving and reduce spending. Plus, good social programs ensure a free market of employment, allowing economic mobility through equal access to health, education, infrastructure, and even fresh oxygen from trees of city parks.

[Glory Liu]

I’m going to play the devil’s advocate and disagree with everyone before, not because I agree with Friedman or am even a neo-liberal for that matter. If we look at Friedman’s main argument (government controls versus “letting the free market rip”) in a contemporary setting, I think Friedman’s idea resonates quite strongly.

The context in which I’m going to use Friedman’s faith in the free market is the debate about global poverty and development. Shannon’s comment immediately caught my eye: “Government regulation is put into place to help those at the bottom of the socioeconomic ladder and prevent those at the top from having everything.” This is what Friedman is staunchly against, but what modern political economists like Jeffrey Sachs strongly advocate with flashing neon signs and banners. In fact, Sachs even uses language almost identical to what Shannon said; he beckons the developed nations to help those in the “poverty trap” get on the first rung of the “development ladder.” This is his idea of the “big push,” that is, a global effort of different national governments to intervene in market failures and alleviate poverty. You could say that Sachs is like Polanyi: intervention is necessary because the market often fails.

On the other side of the spectrum, you have people like Friedman, and perhaps you could argue, his contemporary, William Easterly. Easterly would take a Friedman-esque approach to alleviating poverty: he completely bashes Sachs and believes that government intervention is the sole reason for inequality and poverty: “The rich have markets, the poor have bureaucracy.” Easterly doesn’t believe in market failure; he believes in institutional failure. Therefore, the poor need markets in order to not be poor anymore. Stop government spending: it’s already too much and it’s not going to the right places. Start recruiting creative individuals who can come up with local, market-based solutions. If only poor countries had free markets, rich countries would be able to sell their goods to them and vice versa. Everybody has an equal opportunity to participate in the market: mission of freedom and equality accomplished. Easterly’s faith in private individuals, an entrepreneurial spirit, and grassroots “people’s economies” are very much reflections of Friedman’s views.

And Easterly and Friedman present very seductive arguments. Why? It’s very hard to argue against the fact that large government institutions, international development agencies such as the WTO, World Bank, and IMF are bureaucratic and extremely non-democratic. If all you do is turn to the free market—as Easterly and Friedman do—you no longer have to worry about structural problems. What a relief! Moreover, the idea of free-market utopia is a win-win situation. In the global poverty debates, “the poor” are viewed as a vast, untapped market. If free markets could be introduced, not only would the poor prosper, but the rich would benefit as well. Moreover, I think the Friedman/Easterly side has become a “populist” phenomenon: it’s about giving more power to the creative abilities of individual people to solve their own problems and sustain prosperity. To name a few: the Grameen Bank, Paul Farmer and Partner’s in Health, The Bill and Melinda Gates Foundation. How often do you hear of miraculous government aid packages in the same light as the few private foundations listed above?

There are many weaknesses in the Friedman side of the equation: it does not account for market failures. Markets can provide equality of opportunity for all, but do they guarantee equality of outcome? The game becomes Social Darwinistic once the free market rules.

So while I do not personally agree with all of Friedman’s points (as previous posters have delved into extensively) I think it’s important to consider Friedman’s argument as a crucial counterpoint in an extremely relevant contemporary issue. If you look at his broadest goal of maximizing human freedom and equality through by letting the free market rule, place that in a tangible situation (like against Jeffrey Sachs’ Big Development Project) Friedman doesn’t have to be as crazy as he seems.

[Roushani Mansoor]

I am going to have to partly agree with Glory with respect to Milton Friedman’s approach to government involvement. I think like a lot of thinkers we have read in this class, like Orwell and Polanyi, Freidman’s thoughts and prescriptions should not be taken at face value; they are controversial on purpose to provoke discussion and debate. He wants to illuminate inherit complications and contradictions with contemporary policies. I honestly think that if Freidman’s ideas were adopted in their entirety, it would be a disaster. However, the fact that he has gotten individuals to think about their current economic system is a step in the right direction.
With respect to Freidman’s actual theories, I agree with the previous comments. I personally find it so hard to believe Freidman’s argument. He makes a good, concise argument that there is no difference between political freedom and economic freedom, but then why should the government be separated from the economy? If they are so intertwined, it makes no sense to divorce the two. He is making the case to bring the economy back to the people, that political freedom is a necessary freedom in itself as well as a vital means for political freedom. However, for the economy to be beneficial for the people there needs to be an overarching structure- i.e. government. Freidman, in my mind, is basically complaining that, in his mind, most corrective governmental economic policies have had undesired, detrimental consequences. In his conclusion, he bemoans how government intervention in the economy has often had an effect opposite of that intended- “The government, despite its goo intentions, should stay out of areas where it does not need to be.”
For me, one of the biggest flaws in Freidman’s argument is its lack of practicality. Freidman forgets the majority of free market economies operate in democratic nations, nations that elect their government. Thus, most of the government officials are need support policies that will benefit the society as a whole- policies like Social Security and income taxes. Freidman laments that “welfare rather than freedom became the dominant role in democratic countries” because it had to for these countries to remain democratic. For example, numerous American presidents have lost their bid for reelection partly because the state of the economy at election time. Democratic governments cannot functionally let the economy rip as Freidman advocates.

[Helen Louie]

Like Glory and Roushani, I would have to say that Freidman’s argument is very persuasive and makes a lot of sense, such that it gets their point across to the reader. However, unlike Glory and Roushani, I believe that Freidman’s prescriptions are quite plausible. Currently, corporations have a lot of power and are able to get a way with a lot of things that people would consider immoral or wrong because it is perfectly legal for them to do so. Although, the government does enact many laws and regulations to prevent and correct the wrongs of the market, they are not doing enough. Moreover, I believe that some of the government’s public policy is actually causing harm to the economy.

I believe that Freidman’s point about the limited role of the government is a plausible one. The government currently is unable to enact a lot of successful public policy on all of the problems in the market, however, there is a lot that the government can do if they focus on a few issues, instead of attempting to fix a lot. Freidman believes that the government should only deal with issues that involve keeping order, controlling the money supply, monopolies and cartels and property rights. I believe that if the government only focuses on these issues, these issues will no longer be problematic. Shannon believes that there should be Social Security because it benefits society greatly; I believe that Social Security can help society; however, I do not think that it is as important of an issue as the ones listed by Freidman, because there are alternatives to Social Security and other welfare provided by the government. The government only has the capacity to do so much.

I am not agreeing with all of Freidman’s argument, I just believe that he makes valid points because government public policy has not always been effective and it appears that public policy would be more effective if the government had less to deal with. I believe that today corporations and the market greatly influence the economy, thus with free markets, the corporations and business will have to work towards improving the economy. It would only help them in the long run for the economy to be good.

[Edward Taylor]

As compared to Keynes and Polanyi, it is clear that Milton Friedman offers a dramatically different viewpoint on the role of government in a free market economy. On the surface his argument portrays government as the free market’s main enemy and in order for the market to truly succeed, government must not intervene. Looking over some of the other posts, I hope to add a unique perspective to what others have already contributed to this discussion. First, in Kieran’s post, it mentions that Friedman does not take into consideration human traits such as greed, evil, and desire for immense success. I however would counter this statement by saying that Friedman’s argument is essentially rooted in the idea that individuals have an innate desire to maximize their social and financial standings (sounds strikingly similar to Adam Smith). In an additional article I read written by Friedman about corporate social responsibility, he basically argues that it is the responsibility of the CEO of a company to maximize profits for the shareholders of the company as long as it is done so in a legal way. Friedman argues that “only people can have responsibilities,” and that responsibility is to maximize financial gain. He believes this will lead to greater good in general (increase in taxes paid, stimulation in local economies, etc). So while he might not explicitly talk about greed and desire for success, these human traits are deeply rooted in his free market theory. Moreover, a post mentions that the US offers more economic freedom than any other country. Friedman would no doubt agree with this statement. However while this proclamation is very accurate in my opinion, I want to discuss something I feel Friedman did not anticipate. It can be argued that with more deregulation in certain sectors (aka less government regulation and freer markets) there is actually a reverse force that requires more regulation. Steven Vogel, a political science professor here at Berkeley, is a large advocate of this line of thought. Basically it can be argued that the preconceived notion that there is a negative relationship between regulation and competition can be in fact false. In certain sectors, you can have an increase in regulation and competition at the same time. Regulation can be broken down into two distinct subsets: 1) social regulation which can be defined as health, safety, and environmental regulation 2) economic regulation which can be price, entry, or anti-trust regulation. To explain this a little better, during deregulation you basically create new agencies to regulate over open competition. In addition, some sectors need government regulation in order to remain stable. For example, the US financial system is rooted on banks that are backed and regulated by the federal government. Thus in closing, it is clear that Friedman’s ideas are far too utopian, and I would agree with Roushani’s post where it says that if Friedman’s ideas were adopted in their entirety, it would be a complete disaster. However Friedman’s view is no doubt unique compared to other theorists we have read. And at the very least it is extremely thought provoking. However the lack of practicality is indeed one of the biggest flaws Friedman’s theory has.

[Aditya Gandranata]

In my opinion, Friedman’s idea of “letting the market rip” does not sound like a good idea to me simply because of what capitalism can do to some people who are more “unfortunate”. There are only certain amount of wealth in this world and if a lot of people are getting richer, then you can bet that there are a lot of people that are also getting poorer. Friedman’s idea strangely enough reminds me of Karl Marx’s prediction of what is going to happen in the future which is the rebellion of the working class (the poor) toward the bourgeoisie (the rich). The more that capitalism goes unregulated and uncontrolled, the more that the gap between the rich and the poor will grow and the poor would get sick of it eventually. If what Friedman says is true, self regulated market also means that there will also be some competitiveness in terms of getting a job. Companies would want to hire workers that they can pay with as little wage as they possibly can and we can already see it in the United States. More and more jobs are shipped outside of the United States because the wages that the companies can pay overseas are much lower and more people in the United States are losing their jobs. So, does this mean that Friedman’s idea is a good one?
I also agree with Kieran’s comment about social security which is very important. Without social security, not a lot of people would have enough money to save for their future retirement. If we are to privatize the social security system according to Friedman’s suggestion, then only certain amount of people would be able to afford it because part of the free market economy is to be competitive and make as much profit as they can at the same time. Is it better to have a competitive market for this or is it better for government himself (no competition and not thinking of profit) to work on social security? I would think it’s better for the government to manage this since if it is privatized, not everybody can definitely afford it.

[Carolina Merizalde]

Friedman’s case, as pointed out in the previous postings, contains several arguments that instead of contributing to national development, could endanger the survival of an efficient economic and political system. Aside from the arbitrariness in the decision-making process regarding monetary policy, the debt cycles, in fiscal policy, the problems of income distribution, and the dangers of privatizing social security that my classmates have discussed, I would like to focus on the impact of the implementation of Friedman’s negative income tax.
In chapter twelve, Friedman proposes the adoption of a guaranteed minimum wage intended to alleviate poverty. In his attempt to promote a complete laissez-faire model, Friedman suggests that negative income tax should be privately managed and it should replace welfare programs. Under this logic, “taxes are imposed on some to pay subsidies to others,” which can only take place if we can “rely on the self-restraint and good will of the electorate” (194). Thus, this measure would not only represent a political but a social problem as well. The system would become vulnerable to fraud and it would be an incentive for unemployment.
The reward for fraud would tempt people to disobey the rules and take advantage of the situation. Likewise, there would be a diminishing incentive to work since individuals without employment would enjoy the benefits of a guaranteed minimum wage. Consequently, poverty may be mildly alleviated but corruption and social tensions would arise as well as an inefficient economic state due to the reduction of employed laborers and an increasing demand for this guaranteed wage.
As a result, I would also advocate the improvement of social programs that could improve the living standards of the population without causing such an excessive abuse of the system.

[Miles]

I would tend to agree with most of everybody in that I find his arguments a little out there. I totally disagree with his argument about social security, where he doesn’t serve the people’s best interest if the government takes 10 percent when they could use that money for something else. However he says something that I fully agree with. “Viewed as a means to the end of political freedom, economic arrangements are important because of their effect on the concentration or dispersion of power. 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 this way enables the one to offset the other”. I would argue that we can see this going on today. The political candidates aren’t just normal people. They are people that have a lot of money and power. They campaign with corporation money and in turn the candidate will look after their interests. I believe that Milton Friedman would have seen this coming. I also agree with him in that he believes that our majority of our economic activity should go through private businesses in an economic market.
I also do not understand his belief in that of taxes being cut. I agree that some taxes could be cut, such as defense, as Miranda pointed out, but money is needed for other things like education and free healthcare. This might be a separate issue, but most industrialized nations have free healthcare and the United States does not. This would go against his beliefs, because he feels as though a citizen should be able to start any business they want, even if the government has set up a legal monopoly such as bart. Private citizens should be able to open up their own businesses. All in all I disagree with a lot of what he had to say.