July 9, 2017

Milton Friedman

Blue Army: Persons of Interest


On few matters over the centuries has
the human conscience been more amenable and
the human brain more resourceful
than in finding reasons why the rich and the fortunate
should live in comfortable coexistence with the poor.


(John Galbraith, The Affluent Society, 4th Edition, Penguin, 1984, p xxiv)




(Michael Kirk, President Trump, PBS Frontline, WGBH, 2017)

John Galbraith (1908 – 2006):
Labor and labor unions are no longer the primary enemies of the business enterprise …
The enemy … is government. …
[And for] the defense of private enterprise against the state the commitment to the classical market is of vital importance.
(A History of Economics, Penguin, 1987, p 285)

John Kennedy (1917 – 1963):
[My] fellow Americans:
  • ask not what your country can do for you;
  • ask what you can do for your country.
(Inaugural Address, 20 January 1961)

Milton Friedman (1912 – 2006):
The free man will ask neither:
  • what his country can do for him; nor,
  • what he can do for his country.
(Capitalism and Freedom, 1962, emphasis added)

The strongest argument for free enterprise is that it prevents anybody from having too much power …
[The workers of 19th century Britain] were not exploited.
The studies that have been done recently have shown over and over again that the 19th century was a period in which the ordinary English worker experienced a very rapid and very substantial rise in his standard of life.
(The Tyranny of Control, Episode 2)

{[That system] of unregulated rapacious capitalism} did a far better job of expressing … compassion than the governmental welfare programs are today.
[It saw] the greatest outpouring of … charitable activity the world has ever known.
And one of the things I hold against the welfare system most seriously, is that it has destroyed private charitable arrangements that are far more effective [in helping people] in disadvantaged situations.
(From Cradle to Grave, Episode 4)

[Look] at the way the welfare system has been corrupting the very fabric of our society. …
[We] are inducing [welfare recipients] to become dependants — to become children …
(How to Stay Free, Free to Choose, Episode 9, PBS, 1980)

Mary Kissel (1976) [Editorial Board Member, Wall Street Journal]:
[By expanding] the entitlement state [Barack Obama has] hooked a lot of lower income Americans on welfare programs — 1 in 7 Americans on food stamps, for instance.
(The Trump victory, Between The Lines, ABC Radio National, 10 November 2016)

Donald Regan (1918 – 2003) [Secretary of the Treasury under Ronald Reagan, 1981 – 1985]:
I've read an awful lot about how we're really going to hurt the poor … with our cuts.
That is absolutely not what we're going to do.
(The Reagan Revolution, The Eighties, Episode 5, 2016)

John Galbraith (1908 – 2006):
[Under Ronald Reagan, along with tax cuts for the rich,] there was the attack … on economic support to the poorest of the population — on welfare payments, food stamps and aid to families with dependent children.
(p xvii)

There is … the by no means remote chance that management of the modern economy by the affluent for the affluent will fail.
It involves a basic contradiction between,
  • on the one hand, the conservative commitment to free enterprise, the monetarist illusion and taxation especially tailored to the affluent, and,
  • on the other, the hard fact that depression and recession are only avoided by comprehensive, socially concerned measures, notably by the required fiscal and prices and incomes policies …
Failure could easily put enough people in jeopardy so that the economic contentment arising from affluence would be threatened and political attitudes thus changed.
This was the effect of the Great Depression …
(The Affluent Society, 4th Edition, Penguin, 1984, p xxxi)

Karl Marx (1818 – 1883)
William Wood, 9 years old, was 7 years and 10 months when he began to work …
He came to work every day in the week at 6 am, and left off about 9 pm …
Mary Anne Walkley had worked without pause 26½ hours, together with sixty other girls, thirty of them in one room …
[She] died of apoplexy, but there is reason to fear that her death had been accelerated by overwork in an overcrowded workroom.
(Capital, Vol 1 Ch 8, 1867)

The ruling ideas of each age have ever been the ideas of its ruling class …
During its rule of scarce one hundred years, [capitalism] has created more massive and more colossal productive forces than have all preceding generations together. …
[It] has created enormous cities, has greatly increased the urban population as compared with the rural, and has thus rescued a considerable part of the population from the idiocy of rural life …
(Marx & Engels, The Communist Manifesto, 1848)

Terry Hillman:
In the eighteenth century, factory owners chained children to the machines.
They fought the government's attempt to [make the] shackling children illegal.

The Mills and Factory Act (1833):
  • No child workers under nine years of age.
  • Children of 9 to 13 years to work no more than 9 hours a day.
  • Children of 13 to 18 years to work no more than 12 hours a day.
  • Children are not to work at night.
  • Two hours of schooling each day for children.
(The Complete Idiot's Guide to Economics, 2014, pp 20 & 23)

William Sumner (1840 – 1910):
[Millionaires] are a product of natural selection … the naturally selected agents of society for certain work.
They get high wages and live in luxury, but the bargain is a good one for society.
(The Challenge of Facts and Other Essays, Albert Keller, Editor, Yale University Press, 1914, p 90)

The law of the survival of the fittest was not made by man.
We can only by interfering with it produce the survival of the unfittest.
(Essays in Political and Social Science, Henry Holt, 1885, p 85)

Edmund Burke (1729 – 1797):
The laws of commerce are the laws of nature, and therefore the laws of God.
(Thoughts and Details on Scarcity, 1800)

John Rockefeller, Jr (1874 – 1960):
The growth of a large business is merely a survival of the fittest …
The American Beauty rose can be produced in the splendor and fragrance which bring cheer to its beholder only by sacrificing the early buds which grow around it.
This is not an evil tendency in business.
It is merely the working out of a law of nature and a law of God.

Milton & Rose Friedman:
Life is not fair.
It is tempting to believe that government can rectify what nature has spawned.
(Free to Choose, 1980)

David Ricardo (1772 – 1823):
The natural price of labour is that price which is necessary to enable the labourers … to subsist and to perpetuate their race, without either increase or diminution.
(Chapter V, The Principles of Political Economy and Taxation, 3rd Edition, 1821, p 52)

Like all other contracts, wages should be left to the fair and free competition of the market, and should never be controlled by the interference of the legislature.
(Letter to Malthus, Vol I, The Works and Correspondence of David Ricardo, Piero Sraffa, Editor, Cambridge University Press, 1951, p 105)

John Galbraith (1908 – 2006):
Thomas Robert Malthus [1766 – 1834], a British clergyman of aristocratic instinct … provided a powerful case against public or private charity and a greatly serviceable support to those who found it publicly convenient or personally economical to forgo help to the unfortunate. …
[Among] the many who sought to put the poverty of the poor on the shoulders of the poor — or remove it from those of the more affluent — none did so more completely than Malthus.
(A History of Economics, Penguin, 1987, pp 77 & 79)

John Locke (1632 – 1704):
The great and chief end of men uniting into commonwealths, and putting themselves under government, is the preservation of their property …
[Men] have agreed to a disproportionate and unequal possession of the earth …
[By] voluntary consent [they have] found out a way how a man may fairly possess more land than he can fairly use the product of, by receiving … the overplus of gold and silver, which may be hoarded up without injury to anyone.
(Second Treatise on Civil Government, 1689)

Adam Smith (1723 – 1790):
For every rich man, you must have 500 poor.
And that rich man must live every time in fear because of the jealousy of others.
And if it is not for the firm hand of the magistrate … he would not be able to keep his capital safe. …

[Civil government,] in so far as it is instituted for the security of property, is in reality instituted for the defense
  • of the rich against the poor, or
  • of those who have some property against those who have none at all. …
(The Wealth of Nations, 1779)

Garrett Hardin (1915 – 2003):
World food banks move food to the people, hastening the exhaustion of the environment of the poor countries.
Unrestricted immigration, on the other hand, moves people to the food, thus speeding up the destruction of the environment of the rich countries. …
We are all the descendants of thieves, and the world's resources are inequitably distributed.
[However, we] cannot remake the past.
We cannot safely divide the wealth equitably among all peoples so long as people reproduce at different rates.
To do so would [only] guarantee that future generations would have … a ruined world to inhabit.
(Lifeboat Ethics: The Case Against Helping the Poor, Psychology Today, 1974)

Robert Putnam (1941):
The dominant public ideology of the Gilded Age [was] social Darwinism.
Its advocates had argued that social progress required the survival of the fittest — with little or no interference by government with the “natural laws of the marketplace.”
In a society so organized, the ablest would succeed, the feckless would fail, and the unhindered process of elimination would ensure social progress.
In important respects this [late 19th century] philosophy foreshadowed the libertarian worship of the unconstrained market that has once again become popular in [late 20th century] America.
(Bowling Alone, 2001, p 378)

Herbert Spencer (1820 – 1903):
I am simply carrying out the views of Mr Darwin in their applications to the human race …
Only those who do advance under [the pressure imposed by the system| eventually survive …
[These] must be the select of their generation.
(The Study of Sociology, 1882)

Partly by weeding out those of lowest development, and partly by subjecting those who remain to the never-ceasing discipline of experience, nature secures the growth of a race who shall both understand the conditions of existence, and be able to act up to them.
It is impossible in any degree to suspend this discipline.
(Social Statics, 1878)

The function of Liberalism in the past was that of putting a limit to the powers of kings.
The function of true Liberalism in the future will be that of putting a limit to the powers of Parliaments.
(The Man Versus the State, 1884)

Freedom Without Justice


peaceandlonglife:
Freedom without justice is tyranny by any other name.

James McPherson (1936):
[Most] southerners insisted that one of the most cherished tenets of republican liberty was the right to property — including property in slaves.
(p 34)

John Calhoun (1782 – 1850) [Senator for South Carolina]:
Instead of an evil [slavery is] a positive good … the most safe and stable basis for free institutions in the world.
(Battle Cry of Freedom, 2nd Edition, Oxford University Press, 2003, p 78)

Richard Tawney (1880 – 1962):
Freedom for the pike is death for the minnows.
(Equality, 3rd Edition, 1938)

It is not till it is discovered that high individual incomes will not purchase the mass of mankind immunity from cholera, typhus, and ignorance, still less secure them the positive advantages of educational opportunity and economic security, that slowly and reluctantly, amid prophecies of moral degeneration and economic disaster, society begins to make collective provision for needs no ordinary individual, even if he works overtime all his life, can provide himself.
(Equality, 4th Edition, Allen & Unwin, 1952, pp 134–5)

Isaiah Berlin (1909 – 1997):
[Total] liberty for wolves is death to [lambs.]
[Total] liberty of the powerful [and] the gifted, is not compatible with the rights to a decent existence of the weak and less gifted. …
Equality may demand the restraint of the liberty of those who wish to dominate … in order
  • to make room for social welfare,
  • to feed the hungry,
  • to clothe the naked,
  • to shelter the homeless,
  • to leave room for the liberty of others, [and]
  • to allow justice or fairness to exercised.
(The Pursuit of the Ideal, The Crooked Timber of Humanity: Chapters in the History of Ideas, 1990)

Thomas Jefferson (1743-1826):
Under pretence of governing, they have divided their nations into two classes:
  • wolves and
  • sheep.
Experience declares that Man is the only animal that devours its own kind.
For I can apply no milder term to the governments of Europe.
And to the general prey of the rich [upon] the poor.
(Letter to Colonel Edward Carrington, 16 January 1787)

Karl Popper (1902 – 1994):
[The] paradox of freedom, first discovered by Plato, … can be expressed by saying that unlimited freedom leads to its opposite, since without its protection and restriction by law, freedom must lead to a tyranny of the strong over the weak.
This paradox … was solved by Kant, who demanded that the freedom of each man should be restricted, but not beyond what is necessary to safeguard an equal degree of freedom for all.
(The Open Society and Its Enemies, 5th Edition, 1966, Routledge, pp 257-8)

Tony Benn (1925-2014):
[Real choice] depends on the freedom to choose, and if you're shackled with debt, you don't have the freedom to choose. …
[If] the poor in Britain or the United States turned out and voted for people who represented their interests, it would be a real democratic revolution. …
[There] are two ways in which people are controlled:
  • first of all, frighten people; and
  • secondly, demoralize them.
An educated, healthy and confident nation is harder to govern. …
The top 1% of the world's population own 80% of the world's wealth.
It's incredible that people put up with it.
But they're poor, they're demoralized, they're frightened.
And therefore they think: perhaps the safest thing to do is [just] to take orders and hope for the best.

Ronald Reagan (1911 – 2004) [On behalf of the American Medical Association]:
One of the traditional methods of imposing statism or socialism on a people has been by way of medicine …
The doctor begins to lose freedoms.
It's like telling a lie, and one leads to another …
All of us can see what happens once you establish the precedent that the government can determine a man's working place and his working methods, and behind it will come other federal programs that will invade every area of freedom as we have known it in this country.
Until, one day, we will awake to find we have socialism.
(Michael Moore, Sicko, 2007)

George W Bush (1946):
We're faced with a prospect of a global meltdown. …
It's true this crisis includes failures
  • by lenders and borrowers, and
  • by financial firms and independent regulators,
but the crisis was not a failure of the free market system.
(The G20, Rear Vision, ABC Radio National, 2 November 2014)


My God is Freedom


Milton Friedman (1912 – 2006)

[The] Great Depression was not a failure of capitalism.
It was not a failure of the private market system …
It was a failure of government.
(Who Protects the Worker?, Episode 8)

Unfortunately that failure did not end with the Great Depression.
Ever since, government has been attempting to fine-tune the economy.
In practice, just as during the Depression, far from promoting stability, the government itself has been the major single source of instability.
(Anatomy of a Crisis, Episode 3)

If you promote freedom … you will end up … with both
  • more freedom,
  • more prosperity, and
  • more equality. …
[But] if I were wrong, if freedom led to wider inequality, I would [still] prefer that to a world in which I got artificial equality at the expense of [natural] freedom.
[My] God … is freedom. …
(Created Equal, Episode 5)

[Government] money always corrupts …
(From Cradle to Grave, Episode 4)

[In America today, in] some areas we have more freedom than we have ever had before.
In some other areas our freedom has been drastically reduced.
  • Our freedom to spend our own money as we want has been cut sharply.
  • Our freedom to go into whatever occupation we want has been reduced sharply.
  • Our freedom to enter various businesses has been reduced sharply.
[These] restrictions on our economic freedoms have carried over to restrictions on [our] freedom of [speech,] the activities we carry on, our attitudes toward governmental officials …

Consider a Professor of Medicine, … he's almost certain to have is research financed by the federal government .
Don't you think he would think two or three times before he gave a lecture on the evils of socialized medicine?
Or consider one of my colleagues at the university who happens to be getting grants of money from the National Science Foundation.
Do you really think he feels free to speak out on the issue of whether government ought to be financing such research? …
There is no businessman in this country today who can speak out … about anything.
Take, for example, the recent attempts by President Carter to impose voluntary wage and price controls. …

There's a natural human drive for freedom which always expresses itself …
The real value of freedom is that it provides diversity. …
The fact that there isn't a monolith conformity imposed on us, that is the source of protection for our freedom and also the fruit of freedom. …
[It's] the fact that have all these expressions of people's individuality that produces the great achievements of civilization and that provides the great hope and protection of our freedom. …
We have been moving away from freedom.
Our freedom is in jeopardy. …
[Nevertheless,] I believe that there is a strong enough component of freedom in our society … that we're going to turn this trend back, that we are going to cut government down to size.
We going to lay the groundwork for a resurgence … of that diversity which has been the real product of our free society. …

[Government] should be limited to its basic functions:
  • defending the nation against its foreign enemies,
  • preserving order at home, [and]
  • mediating our disputes …
[I would] reform social security in such a way that would end in its ultimate elimination. …
[Admittedly, it] would be intolerable to throw the millions of people now depending on welfare on to the streets.
We've got to go gradually from here to there.
That's why I proposed a negative income tax as a transitional device, that it would enable us to give help to people who really need help, [rather than] the mess we have now where most of the benefits go to people who [don't.]
How to Stay Free, Episode 9)

(Free to Choose, PBS, 1980)


Milton's Great Vacation


Mark Blyth (1967)

[Milton] assumed that unemployment was voluntary and was not due to a deficiency [in the demand for labor.]
People [voluntarily trade off leisure against labor according to] the prevailing wage.
There is no [such thing as Keynesian] demand-deficient unemployment in Milton's world.
In other words, the 25% of Spaniards who are presently without work [have simply made a rational decision not to] work at the prevailing wage [— freely choosing, instead, to go] on vacation.
(p 153)

[By this logic, the Great Depression was] a giant, unexpected, and astonishingly long unpaid vacation for millions of people …
(p 159)

[Likewise, Joseph Schumpeter] argued that the Great Depression was neither great nor depressing.
Rather, it was just a particularly marked transitional period of technological and organizational change …
(p 129)

(Austerity, 2013)


John Kenneth Galbraith (1908 – 2006)


The values of a society totally preoccupied with making money are not altogether reassuring.
(p 101)

[From June 1929,] free at last from all threat of government reaction or retribution, the market sailed off into the wild blue yonder. …
Never before or since have so many become so wondrously, so effortlessly, and so quickly rich. …
Perhaps it was worth being poor for a long time to be so rich for just a little while.
(p 68)

Those who employed rational, objective, and scientific methods … failed to foretell the crash.
(p 109)

When people are least sure they are often most dogmatic.
(p 189)

Many things were wrong [in the lead up to the Great Depression,] but five weaknesses seem to have had an especially intimate bearing on the ensuing disaster. …

  1. The bad distribution of income. …
  2. [The] 5% of the population with the highest incomes in that year received approximately one-third of all personal income.

(p 194)
  1. The bad corporate structure. …
(p 195)
  1. The bad banking structure. …
(p 196)
  1. The dubious state of the foreign balance. …
(p 197)
  1. The poor state of economic intelligence. …
    [The] economists and those who offered economic counsel in the late twenties and early thirties were almost uniquely perverse.
(p 199)
    In the months and years following the stock market crash, the burden of reputable economic advice was invariably on the side of measures that would make things worse. …

    The Democratic platform in 1932 called for … at least a 25% decrease in the cost of government.
(p 200, emphasis added)
    The fear of inflation reinforced the demand for the balanced budget [— flying in the face of] the most violent deflation in the nation's history.
(p 201)

The economic advisers of the day had both the unanimity and the authority to force the leaders of both parties to disavow all the available steps to check deflation and depression.
(p 202)

[The] chances for a recurrence of a speculative orgy are rather good.
No one can doubt that the American people remain susceptible to the speculative mood — to the conviction that enterprise can be attended by unlimited rewards in which they, individually, were meant to share.
A rising market can still bring the reality of riches.
This, in turn, can draw more and more people to participate.
The government preventatives and controls are ready.
In the hands of a determined government their efficacy cannot be doubted.

There are, however, a hundred reasons why a government will determine not to use them. …
Action to break up a boom must always be weighed against the chance that it will cause unemployment at a politically inopportune moment.
(p 206)

[Now,] as throughout history, financial capacity and political perspicacity are inversely correlated.
Long-run salvation by men of business has never been highly regarded if it means disturbance of orderly life and convenience in the present.
So inaction will be advocated in the present even though it means deep trouble in the future.
Here, at least equally with communism, lies the threat to capitalism.
It is what causes men who know that things are going quite wrong to say that things are fundamentally sound.

(The Great Crash 1929, Penguin, 1975, p 210)


[The] influence and power [of the modern business firm extends] to politicians, Presidents and the Pentagon. …
[This power] is much enjoyed, and its economic and political exercise can also be pleasingly remunerative.
Nothing serves it better than [an economic] theology that disguises its exercise. …
[Nonetheless,] the service that economists render to the disguise of power in their writing and teaching is more often the result of catatonic expression than of any deliberate or wilful motivation.
(p xv)

Inflation is an endemic tendency of the modern economy, which monetary policy attempts to control by high interest rates.
Given the persistent character of inflation, a reliance on monetary policy means that interest rates will be persistently high. …
And, since those who lend are likely to have more money than those who borrow or have nothing to lend, also a strikingly evident matter, the policy clearly favors those of established affluence.
From this comes the popularity of monetary policy in the financial world — its popularity with those who are or who speak for the affluent. …
[Unsurprisingly] those who urge an aggressive monetary policy are conveniently exempt from the unemployment and other misfortunes that it produces.
(p xxi)

[There] has been the shift in political power to the affluent.
This has led those so favored to try to contract out from the cost of those public services of primary importance to the poor — from the cost of public schools, police, public libraries, parks, public recreational facilities, public transportation.
Instead, through private purchase, the affluent provide these services for themselves in the form of private education, personal security guards, private recreational facilities and private transportation.
Deep moral indignation over the invasion of liberty by taxes coupled with grave complaints about the inefficiency of government have extensively supported this change.
(p xxiii)

A self-serving branch of moral philosophy has been devised to defend the right of the affluent to freedom of choice [while neglecting to mention] the way bad public services (like the absence of income itself) abridge the freedom of the poor.
(p xxiv)

With the spread of well-being, more and more people have a comfortable satisfaction with their own economic position.
Once thus blessed, they find, as in all past times, a suitably persuasive reason for separating themselves and their consciences from the still-persisting poverty of the now less numerous poor.
Those who are financially secure are the people
  • who are most likely to vote in elections and
  • who are best able to contribute to the high cost, especially in the United States, of modern political campaigns.
So endowed, they vote out of power those
  • who made the revolution on behalf of the insecure and the poor and
  • who would continue efforts on behalf of the smaller number of the underprivileged who remain.

In the industrial countries it was the leaders of the socially concerned left …
  • who, all but exclusively, led in measures to temper or eliminate the insecurity and anxiety associated with old age, illness and unemployment;
  • who supported the trade unions in their quest for better incomes and job security;
  • who gave farmers a large measure of certainty in their prices; and
  • who gave the average citizen safety for his savings.
In all of these efforts American liberals and their counterparts in the other industrial countries contributed to the spread of affluence and especially to a more-than-modest security therein.
(p xxvii)

That as more people grow richer there will be growing political indifference as regards the poor is not wholly a domestic tendency; it has a strong international manifestation as well.
(p xxix)

With increasing affluence it might have been expected that out of the ever-more-abundant resources this assistance would increase.
Alas, however, the concern for the poor in both the United States and the rest of the affluent world has diminished …
That the political and economic position of the poor everywhere worsens with increasing affluence is not an attractive conclusion.
[Yet in] the industrial countries some do remain whose compassion and resulting political commitment survive their personal good fortune.
(p xxx)

The line which divides our area of wealth from our area of poverty is roughly that which divides privately produced and marketed goods and services from publicly rendered services.
[Our] wealth in privately produced goods is, to a marked degree, the cause of crisis in the supply of public services.
For we have failed to see the [the urgent need to] maintaining a balance between the two.
(p 190)

[For] Herbert Spencer and his American disciples in the last century, the Social Darwinists, poverty is the socially therapeutic tendency that eliminates the unfit.
[This secular] instinct for Social Darwinism still lurks in our time [accompanied by a] fundamentalist theology that holds that property is God's natural reward for the worthy.
The poor, meanwhile, have the comfort of knowing they … will pass [more] easily into the next world to enjoy, along with the meek, full compensation for the miseries of this existence.
The relevant and supporting texts and sermons are amply available from the religious broadcasters and the Moral Majority.
(p xxvi)

(The Affluent Society, 4th Edition, Penguin, 1984)


By showing that the rich were the naturally selected products of the Darwinian process, Herbert Spencer … relieved those so endowed of all sense of guilt and made them understand that they were, instead, the incarnation of their own biological excellence.
And he had also removed all feelings of obligation and concern as regards the poor.
However cruel their euthanasia, it served the higher purpose of human improvement as a whole.
(p 164)

In Europe the division between privilege and impoverishment was by classes; in the United States it was by individuals — the rich and self-reliant and below them the ragged fringe.
There could be a Darwinian selection of individuals, a Darwinian euthanasia of the fringe, but not so obviously of an entire class.
(p 165)

Spencer and his prophets were the supreme achievement in the defense of the great American rich in the years after the Civil War.
(p 166)

For active business participants the classical system was — and remains [—] a manifestation of religious faith.
(p 219)

To attribute to intellectual myopia or to narrow pecuniary interest the resistance of business to the ameliorative tendencies of Social Security (and later of Lord Keynes) is to misunderstand much that is important in competitive and capitalist motivation.
Something, perhaps much, must also be attributed to the pleasure of winning in a game where many lose.
(p 220)

In 1929, the highest marginal rate on the personal income tax had been 24%; it rose during the New Deal years, and by 1945 it was 94%.
With the war, and in justification of these taxes, had come the notion of an approach to equality of sacrifice:
  • the poor would pay with their lives or anyhow with their military service or their toil;
  • the affluent, especially the nonserving rich, would pay with their taxes.
(p 249)

There are some economic lessons that are never learned.
One is the need for the most profound suspicion of innovation in matters concerning money and more generally the field of finance.
The thought persists that there must surely be some as yet undiscovered way of solving great social problems without pain, but the simple fact is that there is not.
Ingenious monetary and financial designs, without known exception, turn out to be, if not innocuous, then frauds on the public or, frequently, on their perpetrators themselves.
(p 99)

[The] pretension of economics that it is a science is firmly rooted in the need for an escape from blame for the inadequacies and injustices of the system with which the great classical tradition was concerned.
(p 125)

The most common qualification of the economic forecaster is not in knowing, but in not knowing that he does not know.
His greatest advantage is that all predictions, right or wrong, are soon forgotten. …
The modern economic system [survives] not because of the excellence of the work of those who forecast its future, but because of their supremely reliable commitment to error.
(p 4)

The inadequate provision of housing at modest cost in contrast with that of, say, automobiles or cosmetics, can be considered the single greatest default of modern capitalism.

In great measure, wants are now shaped by the advertising done by the producing firms that supply the products or services.
That this is possible is itself an indication that the individual product or service has little consequence.
When the price for a particular product is noticeably high, the result may be complaint or indignation, but there is no suffering or hardship as in the past. …

In the industrial countries most people, when employed, are not primarily preoccupied with the size of their income. …
Their principal worry is the danger of losing all or most of their income — of losing employment and the consequent loss of all or most of the means of their livelihood.
This fear afflicts men and women at nearly all levels — on the shop floor and throughout the middle structure of administration and management.
(p 290)

In consequence, the factors affecting the security of employment are now socially far more important than those determining the level of reward. …

During the severe recession of the early 1980s … the production of goods and services declined over a broad range.
No one was thought, however, to suffer because of what was not produced, housing again apart.
Deprivation of this kind received no mention at all.
All suffering was identified with the interruption in the flow of income — with unemployment or loss of employment.
That, not prices or the unequal distribution of income, is demonstrably the prime social anxiety of our time.
In the modern industrial economy production is of first importance not for the goods it produces but for the employment and income it provides.
(p 291)

(A History of Economics, Penguin, 1987)


John Quiggin (1956)


Professor of Economics, Queensland University

[In the 1970s, those economists] who wanted to restore the pre-Keynesian purity of classical macroeconomics … became known as the New Classical school.
Their key idea was what they called "rational expectations," which, in its strongest form, required all participants in an economy to have, in their minds, a complete and accurate model of that economy.
John Muth (1930 – 2005):
[Rational expectations are] those that agree with the predictions of the relevant economic model.
(p 94)

[New Classical economics] reproduces the classical conclusion:
  • that government intervention cannot improve macroeconomic performance and
  • that, in the absence of such intervention, the economy will rapidly adjust to economic shocks, returning quickly to its natural equilibrium position.
(p 96)

The top four hundred income earners [in the US] paid average tax rates below 20% in 2007, a fact symbolized by Warren Buffett's observation that he paid a lower rate of tax than his secretary.
(p 142)


An Epidemic of Laziness


[Real Business Cycle Theory interprets] fluctuations in aggregate demand and employment [as the] socially optimal equilibrium response to exogenous shocks such as:
  • changes in productivity,
  • the terms of trade, or
  • workers' preference for leisure.
(p 99)

[This analysis implies that,] at the outset was the Great Depression, [either:]
  • the state of scientific knowledge had suddenly gone backward by 30%, or …
  • workers throughout the world had suddenly succumbed to an epidemic of laziness …
(p 100)

(Zombie Economics, Princeton University Press, 2012)


Crisis? What Crisis?


The Efficient Markets Hypothesis implies that there can be no such thing as a bubble in the prices of assets such as stocks or houses.
(p 45)

The Efficient Markets Hypothesis, which enshrines the market price of assets as the summary of all relevant information, is inconsistent with any idea that managers should pursue the long-term interests of corporations, disregarding short-term fluctuations in share prices.
According to the Efficient Markets Hypothesis, the current share price is the best possible estimate of the long-term share price and therefore of the long-term value of the corporation to shareholders.

If the Efficient Markets Hypothesis is accepted, public investment decisions may be improved through the use of formal evaluation procedures like benefit-cost analysis, but the only really satisfactory solution is to turn [delivery of public services] over to the private sector. …
The Efficient Markets Hypothesis implies that governments can never outperform well-informed financial markets.
(p 49)

Privatization is bad for unions, which tend to be stronger and more effective in the public sector.
It is usually good for the incumbent senior managers of privatized firms, who move from being rather modestly paid public sector employees, constrained by bureaucratic rules and accountability, to doing much the same job but with greatly increased pay and privileges, and far fewer constraints.
(pp 185-6)

[In 2007 all] of the checks and balances in the system failed comprehensively.
The ratings agencies offered AAA ratings to assets that turned out to be worthless, on the basis of models that assumed that house prices could never fall. …
The entire ratings agency model, in which issuers pay for ratings, proved to be fundamentally unsound.
But, these very ratings were embedded in official systems of regulation.
Thanks to the Efficient Markets Hypothesis, crucial public policy decisions were, in effect, outsourced to for-profit firms that had a strong incentive to get the answers wrong.
(p 64)

The failure of the Efficient Markets Hypothesis does not imply the converse claim that governments will always do better.
Rather, the evidence suggests that markets will do
  • better than governments in planning investments in some cases (those where a good judgment of consumer demand is important, for example) and
  • worse in others (those requiring long-term planning, for example).
(p 76)

The experience of the twentieth century suggests that a mixed economy will outperform both
  • central planning and
  • laissez-faire.
(p 78)

The financial markets that were supposed to replace governments showed themselves incapable of managing their own businesses, let alone the world economy. …
[During the crisis everyone] in the financial sector was happy to be bailed out.
But of course, as soon as the crisis was over, they insisted that everything had been under control and that no rescue was necessary.
(p 225)

Throughout the [global financial] crisis, the economics profession carried on, for the most part, as if nothing had changed.
And now that the immediate crisis has passed, market liberals are trying to pretend … it never happened.
(p 231)

(Zombie Economics, Princeton University Press, 2012)


Milton Friedman (1912 – 2006)


Swedish National Bank's Prize in Economic Sciences in Memory of Alfred Nobel (1976).

  • Free to Choose, PBS, 1980.

    Where did it all go wrong?


    Government began to take and increasing part in our personal affairs nearly 50 years ago.
    It was 1933 at the lowest point of the worst depression in history.
    The idea took root that capitalism had failed and that failure was responsible for the human and economic tragedy. …

    [Since then we have become] a nation ruled by bureaucratic empires. …
    More than one out of every hundred people in the United States works in the [Health, Education and Welfare] empire. …
    • [This Department] is spending increasing amounts of our money each year on health.
      One effect is simply to raise the fees and prices for medical and hospital services without a corresponding improvement in the quality of medical care that we receive.
      It is controlling more and more of the food and drugs we buy, in the process discouraging the development and preventing the marking of new drugs of that could be saving tens of thousands of lives a year.
    • In the field of education the sums being spent are sky rocketing, yet by common consent, the quality of education is declining.
    • More and more money is being spent and increasingly rigid controls imposed to promote racial integration, yet our society is becoming more fragmented.
    • In the field of welfare, billions of dollars are being spent each year.
      Yet at a time when the standard of life of the average American is higher than it has ever been in history the number of people of welfare rolls is growing.
    • Social security — the budget is colossal, yet is in deep financial trouble.
      The young complain … about the high taxes they must pay.
      And those taxes are needed to finance those benefits that are going to the old.
      Yet the old complain … that it is difficult for them to maintain the standard of living they were led to expect. …
    HEW, in one year lost, through fraud, abuse and waste an amount of money that would have built well over a 100,000 houses costing $50,000 apiece.
    Little wonder that those initials are increasingly coming to stand for How to Encourage Waste.
    Martin Anderson (1936 – 2015) [Economic Advisor to Ronald Reagan]:
    [In] some cities, upwards of 25% of all the people receiving welfare are totally ineligible for welfare or are receiving more than they should be receiving. …
    [Just] last week they arrested a woman in Southern California … referred to as the Welfare Queen.
    Over the past 6 or 7 years she had received [the equivalent of] over a million dollars in before tax income.
    She and her husband were living a nice $170,000 home, [owned] nice cars …
    She used a very simple technique.
    She just used aliases … and drove around and collected her cheques. …
    As Adam Smith wrote, over 200 years ago, in the economic market people who intend to only serve their private interest are led by an invisible hand to serve public interests that is was not part of their intention to promote.
    In the political market there is an invisible hand working as well.
    But, unfortunately, it operates in the opposite direction. …
    Government will continue to grow so long as the rest of us believe the way to solve our problems is to turn them over to government.
    (How to Stay Free, Episode 9)

    For much of this century the British have tried, [and failed,] to use the law to impose equality …
    The drive for equality [failed because it] goes against the most basic instinct of all human beings. …
    Adam Smith (1723 – 1790):
    The uniform, constant, and uninterrupted effort of every man to better his condition; to improve his own lot and to make a better world for his children and his children's children. …
    The growth of crude criminality in Britain … owes much to the drive for equality …
    Who can doubt [that] the effect that the drive for equality has had on efficiency and productivity … is one of the main reasons why Britain has fallen so far behind … other countries in the improvement of the economic lot of the ordinary man over the past 30 years. …
    If you ask, where in the world to people have the greatest opportunity for them and their children? … it's in places like the United States

    The society that puts equality before freedom will end up with neither. …
    [You] get greater equality of actual results by a system under which people are free to achieve unequal results. …
    [In] this world, the greatest source of inequality has been special privileges granted by government. …
    Everywhere, and at all times, economic progress has meant far more to the poor than to the rich.
    Wherever progress has been achieved, it has relieved the poor from back-breaking toil …

    The inheritance of talent is no different, from an ethical point of view, from the inheritance of other forms of property: of bonds, of stocks, of houses, or of factories — yet many people resent the one but not the other. …
    (Created Equal, Episode 5)

    I'm not in favor of no government intervention, I never have been. …
    The question is: what kind of intervention?

    I agree … that the more homogeneous a country, the less harm a government will do by intervening.
    I don't believe it does positive good; I just simply believe it does less harm.

    … I am in favor of the [antitrust] laws that make agreements and restraint of trade illegal.
    [However, most] of the antitrust apparatus has promoted monopoly instead of hindered monopoly.
    If you look are where there are monopolistic elements in the world … in almost every case [it] derives from a special grant by government.
    And, therefore, the problem is not: how does government enforce competition, [but] how do you keep government from setting up monopolies? …
    The responsibility [of government] is to set a system of laws … under which competition will flourish …

    I don't know of any case, in history, in which monopolies have been able to maintain themselves for very long, without having government assistance directly come in on their side.
    The trade union monopolies … would never have the kind of power they do now if it weren't for the special privileges which government has granted to them …
    [Antitrust action by the government is really] pro-monopoly action — in the main.
    (The Tyranny of Control, Episode 2)

    [Some stimulus] measures may have been useful, and indeed needed during the depression years …
    (Anatomy of a Crisis, Episode 3)

    The people who get on welfare lose their … feeling of dignity. …

    Suppose you were cruel, and simply took away [a recipient's] welfare overnight — cut it off — what would happen?
    He would find a job.
    What kind of job?
    I don't know.
    It might not be a very nice job. …
    But at some wage, at some level of pay, there will always be job which he could get for himself.
    It might be also that he would be driven to rely on some private charity; he might have to get soup kitchen help or the equivalent.
    [I'm] not saying that that's desirable … but as a matter of actual fact as to what would happen, there is little doubt that he would find some way to earn a living. …

    Nobody spends someone else's money as carefully as his own.
    Nobody has the same dedication to achieving someone else's objectives that he displays when he pursues his own.
    [Active labor market programs] have a insidious effect on the moral fibre of both the people who administer the programs and the people who are supposedly benefiting from it.
    • For the people who administer it, it instils in them a feeling of almost God-like power.
    • For the people who are supposedly benefiting, it instils a feeling of child-like dependence.
      Their capacity for personal decision making atrophies.
    [These programs] tend to rot away the very fabric that holds a decent society together. …

    The … least bad solution that I have ever been able to devise is … the negative income tax. …
    [It's] a system [that] would have the effect of eliminating the separation of the society into
    • those who receive and
    • those who pay,
    a separation that tends to destroy the whole social fabric. …

    We have surrendered power to government.
    Nobody has taken it from us.
    Its our doing.
    The results:
    • monumental government spending, much of it wasted;
    • little of it going to the people we would like to see helped;
    • burdensome taxes;
    • high inflation;
    • a welfare system under which neither those who receive help nor those who pay for it are satisfied.
    Trying to do good with other people's money simply has not worked.
    (From Cradle to Grave, Episode 4)

    There is no place for government to prohibit consumers from buying products the effect of which will be to harm themselves.
    There is [only] a place for government to protect third parties. …
    There is a role for government in pollution. …
    That is a case in which you are protecting third parties. …
    There is a case for requiring brakes because that's to protect the person you might hit.
    [But,] there's no case for requiring an airbag …
    (Who Protects the Consumer?, Episode 7)

    The people most discriminated against by a high minimum wage rate are people with low skills, which includes a disproportionate number of negros.
    Indeed, I have long believed that the minimum wage rate is the most anti-negro piece of legislation on our statute books …

    Unions have never accounted for one out of four or one out of five of American workers.
    The American worker benefited not out of unions, he benefited in spite of unions. …
    [In] so far as unions have played a role, they [have] protected some workers at the expense of others and [have] retarded the prosperity of this country. …
    The plain fact is, that there is no evidence whatsoever, that either unions or minimum wages have made positive contributions to the prosperity of this country [as a whole.]
    (Who Protects the Worker?, Episode 8)

  • Capitalism and Freedom, 1962.

    Consider a group of individuals who initially have equal endowments and who all agree voluntarily to enter a lottery with very unequal prizes.
    The resultant inequality of income is surely required to permit the individuals in question to make the most of their initial equality.
    Redistribution of the income after the event is equivalent to denying them the opportunity to enter the lottery. …
    [By analogy, individuals] choose occupations, investments, and the like partly in accordance with their taste for uncertainty. …

    [The] economic progress achieved in the capitalist societies has been accompanied by a drastic diminution in inequality. …

    The methods that governments have used most widely to alter the distribution of income have been graduated income and inheritance taxation. …
    My impression is that [the current high and highly graduated nominal tax rates (20-91%)] have had a relatively minor, though not negligible, effect in the direction of narrowing the [income] differences between the average position of groups of families …
    [Though, if] present tax rates were made fully effective, the effect on incentives and the like might well be so serious as to cause a radical loss in the productivity of the society.
    Tax avoidance may therefore have been essential for economic well-being. …

    I find it hard, as a liberal, to see any justification for graduated taxation solely to redistribute income.
    This seems a clear case of using coercion to take from some in order to give to others and thus to conflict head-on with individual freedom.

    All things considered, the … tax structure that seems to me best is a flat-rate tax [eg 23.5% on total personal income (labor and capital); combined] with the abolition of the corporate income tax [coupled with a] requirement that corporations … attribute their income to stockholders …

    [Such a flat rate] would yield a higher revenue because a larger amount of taxable income would be reported for three reasons:
    • there would be less incentive than now to adopt legal but costly schemes that reduce the amount of taxable income reported (so-called tax avoidance);
    • there would be less incentive to fail to report income that legally should be reported (tax evasion);
    • the removal of the disincentive effects of the present structure of rates would produce a more efficient use of present resources and a higher income. …

    Much of the actual inequality derives from imperfections of the market.
    Many of these have themselves been
    • created by government action or
    • could be removed by government action.
    There is every reason to adjust the rules of the game so as to eliminate these sources of inequality.
    For example, special monopoly privileges granted by government, tariffs, and other legal enactments benefiting particular groups, are a source of inequality.

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