Word
Gems
What is a
man but the sum of his thoughts?
Economics:
Milton
Friedman's
Free
To Choose
#4: Cradle to Grave
Friedman: After the 2nd World War, New York City authorities retained rent control
supposedly to help their poorer citizens. The intentions were good. This in the Bronx was
one result.
By the 50's the same authorities were taxing their citizens. Including those who
lived in the Bronx and other devastated areas beyond the East River to subsidize public
housing. Another idea with good intentions yet poor people are paying for this, subsidized
apartments for the well-to-do. When government at city or federal level spends our money
to help us, strange things happen.
The idea that government had to protect us came to be accepted during the terrible
years of the Depression. Capitalism was said to have failed. And politicians were looking
for a new approach.
Franklin Delano Roosevelt was a candidate for the presidency. He was governor of
New York State. At the governor's mansion in Albany, he met repeatedly with friends and
colleagues to try to find some way out of the Depression. The problems of the day were to
be solved by government action and government spending. The measures that FDR and his
associates discussed here derived from a long line of past experience. Some of the roots
of these measures go back to Bismark's Germany at the end of the 19th Century. The first
modern state to institute old age pensions and other similar measures on the part of
government. In the early 20th Century Great Britain followed suit under Lloyd George and
Churchill. It too instituted old age pensions and similar plans.
These precursors of the modern welfare state had little effect on practice in the
United States. But they did have a very great effect on the intellectuals on the campus
like those who gathered here with FDR. The people who met here had little personal
experience of the horrors of the Depression but they were confident that they had the
solution. In their long discussions as they sat around this fireplace trying to design
programs to meet the problems raised by the worst Depression in the history of the United
States, they quite naturally drew upon the ideas that were prevalent at the time. The
intellectual climate had become one in which it was taken for granted that government had
to play a major role in solving the problems in providing what came later to be called
Security from Cradle to Grave.
Roosevelt's first priority after his election was to deal with massive
unemployment. A Public Works program was started. The government financed projects to
build highways, bridges and dams. The National Recovery Administration was set up to
revitalize industry. Roosevelt wanted to see America move into a new era. The Social
Security Act was passed and other measures followed. Unemployment benefits, welfare
payments, distribution of surplus food. With these measures, of course, came rules,
regulations and red tape as familiar today as they were novel then. The government
bureaucracy began to grow and it's been growing ever since.
This is just a small part of the Social Security empire today. Their headquarters
in Baltimore has 16 rooms this size. All these people are dispensing our money with the
best possible intentions. But at what cost?
In the 50 years since the Albany meetings, we have given government more and more
control over our lives and our income. In New York State alone, these government buildings
house 11,000 bureaucrats. Administering government programs that cost New York taxpayers
22 billion dollars. At the federal level, the Department of Health, Education and Welfare
alone has a budget larger than any government in the world except only Russia and the
United States.
Yet these government measures often do not help the people they are supposed to.
Richard Brown's daughter, Helema, needs constant medical attention. She has a throat
defect and has to be connected to a breathing machine so that she'll survive the nights.
It's expensive treatment and you might expect the family to qualify for a Medicaid grant.
Richard Brown: No, I don't get it, cause I'm not eligible for it. I make a few
dollars too much and the salary that I make I can't afford to really live and to save
anything is out of the question. And I mean, I live, we live from payday to payday. I mean
literally from payday to payday.
Friedman: His struggle isn't made any easier by the fact that Mr. Brown knows that
if he gave up his job as an orderly at the Harlem Hospital, he would qualify for a
government handout. And he'd be better off financially.
Hospital Worker: Mr. Brown, do me a favor please? There is a section patient.
Friedman: It's a terrible pressure on him. But he is proud of the work that he
does here and he's strong enough to resist the pressure.
Richard Brown: I'm Mr. Brown. Your fully dilated and I'm here to take you to the
delivery. Try not to push, please. We want to have a nice sterile delivery.
Friedman: Mr. Brown has found out the hard way that welfare programs destroy an
individual's independence.
Richard Brown: We've considered welfare. We went to see, to apply for welfare but,
we were told that we were only eligible for $5.00 a month. And, to receive this $5.00 we
would have to cash in our son's savings bonds. And that's not even worth it. I don't
believe in something for nothing anyway.
Mrs. Brown: I think a lot of people are capable of working and are willing to
work, but it's just the way it is set up. It, the mother and the children are better off
if the husband isn't working or if the husband isn't there. And this breaks up so many
poor families.
Friedman: One of the saddest things is that many of the children whose parents are
on welfare will in their turn end up in the welfare trap when they grow up. In this public
housing project in the Bronx, New York, 3/4's of the families are now receiving welfare
payments.
Well Mr. Brown wanted to keep away from this kind of thing for a very good reason.
The people who get on welfare lose their human independence and feeling of dignity. They
become subject to the dictates and whims of their welfare supervisor who can tell them
whether they can live here or there, whether they may put in a telephone, what they may do
with their lives. They are treated like children, not like responsible adults and they are
trapped in the system. Maybe a job comes up which looks better than welfare but they are
afraid to take it because if they lose it after a few months it maybe six months or nine
months before they can get back onto welfare. And as a result, this becomes a
self-perpetuating cycle rather than simply a temporary state of affairs.
Things have gone even further elsewhere. This is a huge mistake. A public housing
project in Manchester, England.
Well we're 3,000 miles away from the Bronx here but you'd never know it just by
looking around. It looks as if we are at the same place. It's the same kind of flats, the
same kind of massive housing units, decrepit even though they were only built 7 or 8 years
ago. Vandalism, graffiti, the same feeling about the place. Of people who don't have a
great deal of drive and energy because somebody else is taking care of their day to day
needs because the state has deprived them of an incentive to find jobs to become
responsible people to be the real support for themselves and their families.
For the past 7 years Maureen Ramsey has had to buy food and clothes for her family
out of a government handout. For the whole of that time, her husband, Steve, hasn't had a
job. Each week he collects what's known in Britain as Social Security. The government
looks after him, his wife and their children. But accepting welfare payments means
accepting the rules of those who hand them out.
Mrs. Ramsey: My opinion, anyway you feel as they own you. You know, there is no
other way of putting it. Say I got a job tomorrow, because I needed something, well I know
that means I've got to go down there and report it. Because I couldn't go into the job
because you'd be looking over your shoulder thinking well the Social Security is coming
in. And I'm going to be done for it. It's just hopeless, you can't fight against that.
Mr. Ramsey: The jobs are out there you only come up with about 45 pounds a week.
And you need a doctors stamp over there. You see, you finish up with about 29 pound. So
what good is it working? You still get the same thing, you know what I mean? I can't make
any sense of it.
Friedman: Of course, he's quite right. It may not pay to get a job now. That's not
his fault and I don't blame him. He's acting sensibly and intelligently for his own
interest and the interest of his family. It's the fault of the system which takes away the
incentive from him to get a job.
But suppose you were cruel and simply took away the welfare overnight. Cut it off.
What would happen? He would find a job. What kind of a job? I don't know. It might not be
a very nice job. It might not be a very attractive job. But at some wage, at some level of
pay, there will always be a 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. Again, I'm not saying that's desirable or nice or a good thing it isn't,
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.
The American government is trying to break the welfare trend. These people were
unemployed. They are now being trained at the taxpayers expense. It may or may not lead to
a real job.
Lawrence Davenport: Here we have a vast national welfare system which is
diametrically opposed to everything that America believes in. Because America was founded
on a work ethic, has practiced a work ethic, and it's said this is what we want everybody
to do. An opportunity to hold a job in America.
Friedman: Everyone here has to clock in and do a full days work. It's an attempt
to make it seem like a real job.
Lawrence Davenport: We're saying a job is a part of the American way of life and
we're going to help you find a job. So that you can get a piece of the pie. You can pay
taxes, you can become a part of that American dream.
Friedman: But the dream isn't working. Schemes like this run under the
government's Comprehensive Education and Training Act (CETA) have a high drop out rate and
many trainees end up back where they began, on welfare.
The men and women who administer CETA and similar programs, the officials of the
Department of Health, Education and Welfare are dedicated people. Their motives are good.
Their achievements are not.
The results of these programs have been disappointing. Why? I believe that the
basic reason is because it is very hard to achieve good objectives through bad means. And
the means we have been using are bad in two very different respects.
In the first place, all of these programs involve some people spending other
people's money for objectives that are determined by still a third group of people. Nobody
spends somebody else's money as carefully as he spends his own. Nobody has the same
dedication to achieving somebody else's objectives that he displays when he pursues his
own.
Beyond this, the programs have a insidious effect on the moral fiber of both the
people who administer the programs and the people who are supposedly benefiting from it.
For the people who administer it, it instills in them a feeling of almost Godlike power.
For the people who are supposedly benefiting it instills a feeling of childlike
dependence. Their capacity for personal decision making atrophies. The result is that the
programs involved are misuse of money, they do not achieve the objectives which it was
their intention to achieve. But far more important than this, they tend to rot away the
very fabric that holds a decent society together.
If you think that's overstating the case, look what ATW found when it made a
special investigation into the spending of the vast funds it administers.
Public Health Service worker: We just got the plan from the Public Health Service
on reducing unnecessary beds.
Friedman: In these reels of tape that record every payment made, every recipient,
they found evidence that a staggering $7.5 billion had been lost by fraud, waste and abuse
in one year.
Doctors, building contractors, hospitals, schools, welfare recipients, everyone
had been fraudulently dipping into the pot. And the investigation isn't over yet.
The inevitable consequence of having a huge pot of taxpayers money is that all of
us want to get our hands in it. You can be sure that we'll all be able to find very good
reasons why we should be the ones to spend somebody else's money.
Somebody or other put up a good case for spending taxpayers money to subsidize
rents in New York City, including the rents of these apartments. The people who occupy
these apartments pay something like $200 a month less than the market rent. And that
subsidy comes out of the taxes of people, most of whom are much poorer than the people who
live here. It's not unusual for this sort of thing to happen when government tries to do
good with our money.
Look at what happened in Chicago. For most visitors, the immediate impression is
of a rich, prosperous, bustling city. But like every large city in America, it has its
problem areas. Over crowded slums breeding poverty and crime.
After WWII, one such area developed in Hyde Park. In the 50's, plans were drawn up
to pull down large areas of slum buildings and to rebuild using government funds under an
urban renewal program. It was to be a show project replacing a blighted area with an
integrated community. Who controlled the spending of that government money? It was in
fact, my own University of Chicago which felt it's very existence threatened by the spread
of urban blight and crime. Government money was used to tear down an area that contained
many small shops as well as families of low income. Once the area was cleared, private
money rebuilt it with middle class apartments, townhouses and shopping complexes. The
blight had been cleared here, but only to be shifted elsewhere.
Joe Gardner: In may instances, when government administers large grants, a lot of
those funds don't wind up directly serving the people and achieving the objectives that
were the intent of the programs. Because the grant has too feed that large government
bureaucracy.
Friedman: Joe Gardner helped to set up an organization of local black people to
protect their own interests. Previously, the blacks had rioted in the streets to try to
get their way. Now it was to be done peacefully using government money.
When government funds became available, the Woodlawn Organization got control.
They used them to build the kind of houses they wanted. Low rise apartments like these.
The bureaucrats, planners and architects told them that it was uneconomical. That
only high-rise blocks would work. They were wrong.
Joe Gardner: A lot of people have this view that, the disadvantaged if you will,
have no ideas what their problems are and how to resolve them, that it takes outside
professionals to do that. And we say that's baloney because the outside professional does
not feel in his gut what a woman on welfare with six kids living off of a $100 a month in
a deteriorated building feels. She can come up with solutions much better than a
bureaucrat.
Friedman: The intentions of this local community group are good. They want to
rebuild the community as the community wants.
Joe Gardner talking to an elderly woman: I can't hear you. I said are you pretty
pleased with the work we are doing? Yes I am very pleased with it.
Friedman: But government money always corrupts. Look at the number of people
rebuilding this garage. It doesn't make sense except that these are CETA workers paid for
by taxpayers money.
Government funds have allowed the organization to take over a whole area of
Chicago. They now have their own supermarket.
They've built splendid houses for middle class occupiers. Very expensive,
protected by the latest security systems. All at the taxpayers expense.
Joe Gardner: In a sense TWA is rapidly becoming a mini-government. At this
particular point we have approximately 400 employees. We have an operating budget of, in
excess of $5 million per year. So we are large.
Friedman: Large and expanding. Their next project is to redevelop this site. And
that's only the first step in a 20 year plan that will cost $220 million. Most of it
coming from the taxpayers.
In the South Bronx, they are very familiar with government protection. Like the
rent controls have made it uneconomic for landlords to maintain their buildings. They've
moved out and the vandals have moved in. The South Bronx is an area where many of the
people are on welfare, and where the crime rate is high. But all this could change. A
group of local people has begun to renovate these buildings to build new homes. They call
themselves "Sweat Equity." Because at first sweat and effort was all they could
put into the project. Only later did they accept a small government grant.
Friedman and Robert Foster: How long ago did you start working on this building?
Four months ago for this building right here. And I take it what you are going...to gut
the whole thing from beginning to end. Totally gut it. And you'll have to rewire, right,
roof, put new walls up, new floors, new ceilings, new everything in winter and summer
whenever there was a chance to work. How many people do you have working here? A good 40
people. How do you keep them working? You know, some of them must want to, get tired of
it. We show them what can be done in the future and what will be done in the future. And
they get, at first, it's kind of hard to prove to somebody that in the next three or four
years what will come out of it. They can't see it in long range terms. They only see it in
short, they need money right now, not in two years. So we try to show them that it will
happen.
Friedman: It's true they now accept some government money. But so far they've
managed to retain their original philosophy. That the best way to get something done well
is to do it yourself.
Robert Foster: Like what we're doing. We're bringing people out of the street and
giving them something to look forward to. They have their own apartment, they'll be taken
care of, the area around it, they have a garden, they have something to look forward to.
They even get off welfare, you even give them a job. They can drop the welfare and have
some self pride. That's the only thing about it, self pride. The longer you take from the
government and sitting back, you've got no worries. We're not sitting back, we're working.
We're making our money come in. And we are putting it into our building, we're building
ourselves up as well as the buildings.
Friedman: Some of these people are CETA workers. Paid for by the taxpayer. But
this isn't as useful as it might appear.
You ask these fellows which would they rather have, the CETA workers or the money
that's being paid to the CETA workers? Laughter. Which would you rather have?
Robert Foster: The money paid to the workers. Friedman: That's your answer. That's
very expensive help. In terms of what these people could use with the money. You give
these people the amount of money you're paying to that CETA worker and I'll bet they'll
have twice as much, three times as much, work. Am I wrong?
Robert Foster: Your right.
Friedman: So it's a very inefficient way to use their money. The problem is you've
got bureaucracy and the government bureaucrats, they want to decide what to do. They don't
want to let you decide what to do.
Robert Foster: Exactly.
Friedman: Ask yourself, how does this place get built up in the first place. After
all, this was a pretty respectable, solid, substantial region when it was first developed.
It wasn't done through a government project. It was done by people individually having an
incentive to put up these buildings and occupying them. What these people we've been
seeing here are doing is they are trying to restore that feeling and that attitude. You'll
have a far healthier community here that grows out of the self-help of people like the
people we've been talking to. That it is a paternalistic venture undertaken by
governmental civil servants and bureaucrats who have to plan on a large scale for other
people.
We must find a way to give everyone caught in the welfare trap the kind of
initiative these people have.
The best, or should I say the least bad, solution I have even been able to devise
was something called the negative income tax. This is the idea that we should get rid of a
large part of the welfare bureaucracy, and for demeaning rules, and we should help people
who are poor fundamentally by giving them money.
With a positive income tax, you're entitled to a certain amount of personal
exemptions and deductions. And above that amount you pay tax. But suppose you have no
income. Under a negative income tax a fraction of your unused exemptions would be paid to
you by the government. Guaranteeing at least a minimum income.
If you earned something, you'd still get a fraction of your unused exemptions. And
you'd end up better off.
As your earnings rose, the supplement to your income would become smaller and
smaller until your earnings equaled your exemptions. At that point, you'd break even.
Neither paying tax nor receiving a subsidy.
It's not an ideal system. It's not the system we might have liked to get into, but
it's a system which would have the effect of eliminating the separation of a society into
those to receive and those who pay. A separation that tends to destroy the whole social
fabric. It would mean that we could each of us take advantage of opportunities that opened
up without fearing that if by some chance we lost our jobs, it would be a long time before
we could get back on assistance. It would be a system that would give all of us an
incentive gradually to improve our lives would perhaps enable us, over time, to work
ourselves out of the kind of mess we've gotten ourselves into. A mess we've gotten
ourselves into for the very best of motives but with the very worst of results.
We've become increasing dependent on government. We've surrendered power to
government, nobody has taken it from us. It's our doing. The results, monumental
government spending. Much of it wasted, little of it going to the people whom 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.
DISCUSSION
Participants: Robert McKenzie, Moderator; Milton Friedman; James R. Dumpson, Chief
Administrator, Human Resources Admin., NYC; Thomas Sowell, Professor of Economics, UCLA;
Robert Lampman, Professor of Economics, Institute of Poverty; Helen Bohen O'Bannon,
Secretary of Welfare, State of Pennsylvania
MCKENZIE: The discussion's already underway here at the University of Chicago, so
let's join it.
DUMPSON: As I looked at the film, I had a growing sense of anger. Anger that that
position failed to recognize that the system that was being attacked was necessary in our
capitalistic, free enterprise system that by its own failure produces poverty, and
therefore requires governmental intervention in the interest of those people caught in the
traps of poverty. So, as I sat and looked at the film, and as I hear Dr. Friedman's
statement, I was aroused to the point, as I said, of anger because only half the story is
told. We are really blaming again a victim, this time a system, the welfare system, for
the failure of other systems to operate in the interest of people.
MCKENZIE: Let's get other reactions now to that statement: "Trying to do good
with other people's money simply has not worked, the welfare system is rotting away the
very fabric of society." Tom Sowell.
SOWELL: My reaction was just the opposite from __ my anger was at what had been
created in the city where I grew up, under very different conditions, during the period of
capitalistic failure, during the period when there wasn't this humanitarianism, and when
it was possible for people to live better and to get out of that poverty. Now, I think
someone who lived in the very same place where I lived would find it much harder to escape
from that poverty because of all these things. Buildings were not abandoned like the
buildings that we saw in that film when I lived in Harlem. The crime rate __ they're all
things that are blamed upon the failures of the previous method did not exist. I slept out
on the fire escapes in Harlem. I would defy anybody to do that in any part of New York
City today.
LAMPMAN: Traditionally in the United States we have tried to avoid some of the
welfare trap that was referred to by denying eligibility to people who are able-bodied and
not aged and so on. And we've therefore tried to close the welfare door to a good number
of categories within the poor population. The second point that was emphasized and I think
needs to be put in some perspective is that some, but not all, of what we might call
welfare programs broadly, have this very strong take-back of benefits as you earn some
more money and that I guess is what I would like to single out as the principal problem
identified in the film but it is not common to any and all welfare programs that one might
think of.
O'BANNON: When the family fails, when the private sector fails to create jobs at a
fast enough rate you find that people are unemployed and drift into needing help in order
to exist and the welfare system was created in the '30's to do exactly that. When the
private sector, essentially, failed we have the development of a welfare system, and it's
not corrupting society, it is taking what society _ institutions have left behind: The
family breaking up, the economy not expanding fast enough, the health system failing, the
educational system not doing its job. We have untrained, unskilled people looking for jobs
in a highly technical society or jobs that pay so low that people cannot in fact live at a
decent level of humanity. I see the welfare system not corrupting, but in fact taking the
remains and attempting to help people live in dignity.
MCKENZIE: So rotting away the fabric of society is not supported __ except perhaps
by you, would you back that phrase or so.
SOWELL: Absolutely. You're saying __ you're talking about the failures of the
other parts of society. What the welfare system and other kinds of governmental programs
are doing is paying people to fail insofar as they fail they receive the money; insofar as
they succeed, even to a moderate extent, the money is taken away. This is even extended
into the school systems where they will give money to schools with low scores; insofar as
the school improves its education the money is taken away, so that you are subsidizing
people to fail in their own private lives and become more dependent upon the handouts.
O'BANNON: We have expectations built in today about the quality of life, the
quality of jobs, the level if income for which one expects in return. Why? Because we look
at the level around us that it takes us to have __
SOWELL: No, that's not why. That's not why. I may have all sorts of expectations,
the question is: What can I do? If someone else is subsidizing my expectations, my
expectations would be far higher. But insofar as the Center for Advanced Study was
subsidizing my expectations a few years ago, I refused to work at UCLA for the normal full
professor's salary. Why should I when I can get the same money for being at the Center for
Advanced Study with no hours, no duties and no classes.
MCKENZIE: Let's look at another proposition in Milton's case. The insidious effect
on those who receive welfare. They lose their independence and dignity, are treated like
children, and so on. Now, Dr. Dumpson, as a former Administrator of a major program, is
that a great hazard?
DUMPSON: That is not a great hazard. As a matter of fact, that presumes that
people get on welfare, stay on welfare, and therefore have the result that Dr. Friedman's
statement issues. The fact of the matter is that in our AFDC program throughout the
country and particularly was this true in New York, there is a graduate __ a turnover of
the welfare AFDC roles _ about a third of them go off each year. Now, if these people were
so destroyed by the system, when they go off they wouldn't go into employment, they
wouldn't hold employment, they wouldn't stay off the roles for six months, eighteen
months, twenty-four months, as long as they are able to stay off. So, there's something
wrong with that argument when one looks at people and what they do. People, you know, who
are poor are no different from those of us who are not poor and their motivation for
self-dependency, self-support and mobility in the economic scale is no different that
those of __ than the motives we have, so that they will not let the system __ you
remember, Dr. Friedman, the welfare rights organization who refused to let the system
squash them down as it was attempting to do. We turned the policies around.
FRIEDMAN: You and I agree completely, that the people who are poor and are on
welfare roles are no different from the rest of us. Of course not. They are human beings
and they deserve every sympathy and every possibility of making their own way, but the
welfare system makes them different.
DUMPSON: But you give them __
FRIEDMAN: It makes it in their interest to be different.
MCKENZIE: How do you account for them going off the roles, Milton?
FRIEDMAN: Oh, but figures are figures and you've got to be careful with figures.
The fact that a third, there's a turnover of a third does not mean that there aren't half
who are on all the time. People come on, go off; come on, go off. We've got to have the
other figures __
DUMPSON: The latest statistic, Dr. Friedman, is that __
FRIEDMAN: __ fraction __
DUMPSON: __ 34 percent of the people on AFDC are on for five years or longer and
when one thinks of the purpose of the AFDC program, which was the rearing and support of
children, dependent children, minor children, I would submit to you that five years is not
a terribly long time for a mother and children to have to be dependent if there's no other
source of income.
O'BANNON: I think the other __ we have a program in Pennsylvania for essentially
all of those who are not taken care of by the AFDC program. It's called the General
Assistance Program. And there less than 15 percent are on more than eighteen months. So we
have a great turnover. We have essentially young males moving into the welfare system
after unemployment compensation, and then moving out when a job opportunity comes along.
This, you know, I think the notion of generations of people on welfare is a very small
minority in the whole system. That doesn't mean that the system as presently defined and
as the set of programs that we have put together don't often contradict each other and I'm
the first to agree with Dr. Friedman that some of the programs are conflicting. However, I
think it is overly broad to say that we turn people into helpless children.
SOWELL: I don't remember talking to anyone who's ever been on welfare who didn't
think they were being treated like children while they were on it.
DUMPSON: Of course, I think, you know, you __ one must make a difference, a
distinction between a system that was set up to help people and the people who are
employed in that system. Look at any public welfare system around the country and we have
no, practically few trained people who to work with people. We employ them ill-trained,
people who are not equipped to be helping people. We say they're social workers. They're
not social workers, they have neither the skills, the attitudes, and some of them not even
the concerns; so I think one has to separate how a conceptual framework of a system
designed to help people and what the country and community puts into that system to
implement those programs.
SOWELL: You mean to separate the hopes from the reality.
DUMPSON: I separate the skills that are available in order to implement what the
objectives of the program are. I think we have to separate whether we are talking about
program objectives, or we're talking about how it operates. I would be the first to say
that the system that I administered had ill-prepared people to do the job that we were set
up to do, and I would not say that the system that we set up __
SOWELL: I talked to some social welfare people who think that in fact they were so
hamstrung by the system that there was very little they could do to help people to get off
welfare; that is to build up skills at jobs, do whatever was necessary to get off welfare.
They felt it was the system.
MCKENZIE: Bob Lampman, your comment.
LAMPMAN: The system that we're stereotyping is one of a great deal of
paternalistic interference in individual family's lives and in fact isn't it true, Mr.
Dumpson, that case load is so high for an individual welfare worker that they can't do a
lot of interfering in individual family lives. Moreover, in the last decade there's been a
real attempt to ease this welfare trap in AFDC by changing the take-back rate and by
administering work expenses and child care expenses in such a way as to facilitate work by
those who may want to do it; so it's not quite as harsh a picture as we sometimes get that
there is this omniscient welfare worker who's right there in the living room with the
family making all their decisions for them.
FRIEDMAN: I've never heard of a government program which was defective in which
the people who ran it didn't say, "If only we had more money to spend on what we're
not being able to accomplish with the amount we're spending now."
MCKENZIE: Milton, we're going to move along now to some of your prescriptions in
that film because I think it's good ground for discussion. The most drastic one was when
you said, speaking of an unemployed man, "Supposing you were cruel and took away
welfare from this man, he would find a job at some wage, there'd always be a job he could
get; he might need some charity on route, private charity, but he would get a job."
Now, I want you to react, those of you, before we come back to Milton on that. Is that a
picture that seems plausible to you?
DUMPSON: He may get a job, and he may get a job in what we refer to as the
underground economy, and that's where a number of our youth are now going to get their
jobs. Those activities that are illegal, the only opportunities they have for earning
their part of a livelihood.
O'BANNON: I think the other issue is that you have a whole group of people who are
the single, female head of the household; and yes, cut off welfare tomorrow: What will
they do? What will be their immediate response? At what price to their small children and
to their middle-aged children? Yes, they'll get a job, in fact the statistics show that
women, in fact, are the most successful through the employment program. But what has to
supplement that typically is the provision of some kind of day care arrangement. Either
the individual woman has to earn enough money to be able to pay privately for her day
care, or in fact, she is quote "subsidized" through this insidious, corrupting
program, set of programs, run by the federal government which, in fact, makes her
employable and a taxpayer. It's an interesting notion of trying to get people in a
productive mode.
MCKENZIE: Tom Sowell.
SOWELL: It's incredible the way you start the story in the middle as if there's a
predestined amount of poverty, a predestined amount of unemployment and that the welfare
system is not itself in any way responsible for that __
O'BANNON: There is a predestined 20 percent of the bottom half of the population.
SOWELL: I have never __ well, that's always been true __
(Everyone speaking at once)
O'BANNON: There's going to be 20 percent at the bottom.
SOWELL: It's also true that 20 percent of the bottom population doesn't have to be
living on the government and ruled by the government. You mentioned, for example, a female
head of household. Many of those, in addition to the grown woman who has all the kids, are
teenage pregnancies. There's not a predestined amount of teenaged pregnancies. I grew up
in an era when people, and particularly blacks, were a lot poorer than today, faced a lot
more discrimination than today, and in which teenage pregnancy rate was a lot lower than
today. I don't believe there is a predestined amount of teenage pregnancy. A predestined
amount of husband desertion. Gutman has done a study of a black family showing that this
whole notion that the black family has always been disintegrating, that is nonsense. His
studies go up to 1925, the great bulk of black families were intact two-parent families up
to 1925 and going all the way back through the era of slavery, so it is now, only within
our own time, that we suddenly see this inevitable tragedy which the welfare system says
it's going to rush in to solve.
O'BANNON: We're talking to Tom about __
SOWELL: To which it is itself a point __
O'BANNON: We're talking about a very small group. We're talking about twelve
percent of the families are not intact. Are not two-parent families at any one period __
SOWELL: Do you mean __ among welfare recipients __
O'BANNON: No.
SOWELL: __ or the public at large?
O'BANNON: Among the public at large. We're talking about twelve percent of the
families; twelve percent.
SOWELL: That's right.
O'BANNON: That's a small number. But __
SOWELL: We've got to build on welfare.
O'BANNON: We're still talking about a significant component of the bottom twenty
percent that are the bottom twenty percent. Whether they are above the poverty line or
below the poverty line; they are still the bottom twenty percent. And the issue is: What
is the responsibility of the other eighty percent; if any, towards those others?
SOWELL: There's no program plan to eliminate there being a bottom twenty percent?
O'BANNON: No. But it intends to raise the bottom twenty percent so __
SOWELL: We're raising them by having more __ by having more illegitimacy, more
unemployment, by having __
O'BANNON: I'm not making them be __ have illegitimate children. I hope that's
clear.
SOWELL: Oh, I_I__ you don't have to do that. You simply subsidize it.
FRIEDMAN: We, as human beings, don't have a responsibility; but I hope we have a
compassion and an interest in the bottom twenty percent. And I only want to say to you
that the capitalist system, the private enterprise system in the 19th century did a far
better job of expressing that sense of compassion than the governmental welfare programs
are today. The 19th century, the period which people denigrate as the high tide of
capitalism was the period of the greatest outpouring of Ella Mosner in charitable activity
that 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 which are far
more effective, far more compassionate, far more person-to-person in helping people who
are really, for no fault of their own, in disadvantaged situations.
O'BANNON: I have to disagree with you though, because I think that the whole
notion of private property was excluded, whole segments of society were excluded from the
notion of private property in the 19th century; namely, women, idiots and imbeciles. And
so, I don't go back to the 19th century and hold it up as any paragon that we would want
to replicate today.
MCKENZIE: Anyway. I want Milton now to come to your major prescription, which I
know you don't say is on the agenda for tomorrow, but it lies ahead; that is, the negative
income tax. And I'm not sure people fully understand how it would work. We can't, I think,
go to the details of it, but I'd like to get a reaction around the panel first of all, is
this a viable approach to the enduring problems of poverty? Negative income tax.
LAMPMAN: I think it's a viable approach to some part of the problems of poverty.
It involves, first of all, cash payments rather than in kind payments as I understand it?
It involves payments on a non-categorical basis.
MCKENZIE: What do you mean non-categorical?
LAMPMAN: That is to say, it doesn't matter whether you're a female-headed family
or a male-headed family or whether you're young or old, you're sick or well.
MCKENZIE: If your income falls below a certain level you __
LAMPMAN: Pay some guaranteed income level for people based on family size and then
it has a take-back rate which is modest, I suppose, by definition. Now, the question is:
How many things you want to use that program to replace? How many things you want to
replace with such a negative income tax program.
MCKENZIE: Would you replace everything with it __ just __ we clear that point up.
Would you virtually wipe out the remaining forms of welfare if you got this program going?
FRIEDMAN: Yes, I would not __ I think its purpose is precisely to provide a
transition between where we are now and where we would like to go because while __ because
I agree with you, that given that we've corrupted the people on welfare and gotten them on
there. We do have an obligation not to throw them out in the street and put them in the
difficult adjustment you've made. We've got to ease the __
MCKENZIE: Yeah. Okay. Right.
FRIEDMAN: __ ease it off __
MCKENZIE: Sure. Yeah.
FRIEDMAN: __ and so __ but I would want to replace all __
MCKENZIE: Yeah. Okay.
FRIEDMAN: __ present welfare programs.
MCKENZIE: Let's get reactions to this and then we'll come back to you.
SOWELL: Well, I saw some figures recently which said that if you took all the
money spent on poverty in the United States and divided it by all the poverty families
you'd come out with a figure of $32,000 per family. Now, the average poverty family is
apparently not getting the $32,000 and so clearly someone in between the treasury and
those families is getting an awful lot of that money and I think if you simply eliminated
the middle man, as they say in the commercials, that there'd be an awful lot of benefit
both to the poor and to the taxpayers.
DUMPSON: I'm supportive of the negative income tax concept and the objective of
it. I'd like to point out, however, that administratively we have another bureaucracy set
up. Somebody has to take into account earnings. Someone has to decide when to pay back
that which they're entitled to. There's a time lag between the paying back __ the earning
and the paying back. There are a variety of problems in there that I will be prepared to
accept but I want you to know that government intervention is not going to be eliminated.
O'BANNON: The issue that I have is: Where do children come in? What are their
rights under a negative income tax? And are we, by building in a negative income tax, in
fact subsidizing the illegitimacy that Tom Sowell is so concerned about?
FRIEDMAN: The major reason it is not feasible today to have a negative income tax
is because the present welfare bureaucracy would be out of work. They are the major
objectors and as Senator Pat __ he's now a senator, Pat Moynihan demonstrated in his book
on the Nixon program, the chief obstacle to getting it enacted was the welfare
bureaucracy. So that I don't believe these administrative problems, if you got it enacted,
would be at all serious.
O'BANNON: I think the other assumption under the negative income tax, and it's one
that I'm not sure I can buy, is that everybody has a minimum level of understanding about
how to spend money. In other words, how to use the marketplace to satisfy wishes. And I,
as an economist, would say, yes, we do. We __ everybody from age four to a hundred knows
how to use money to satisfy wants and that's the __
FRIEDMAN: But they don't. They don't. There are all sorts of problems of people
who are not going to be able to. But that's a minority problem. That's a problem for
private activity and private charity. One thing is sure: They're spending __ they would be
spending their own money and that however knowledgeable you are about money __
O'BANNON: They would be spending my money.
FRIEDMAN: They would be spending my money, but it would be one stage less then.
Right now, the welfare worker is spending Mr. A's money to help Mr. C. And there's a big
takeoff in the middle as Tom Sowell said.
SOWELL: The question is not whether the people on welfare or low incomes can all
spend their money effectively; the question is: How effectively do they spend it as
compared to how effectively the bureaucrats spend it for them. Comparing anything to
perfection or to some arbitrary standard settles nothing. The same thing is true in the
education area. They're saying "Would families be able to spend their __ select
schools for their kids under a voucher system," for example. Well, the question is:
Could they possibly do much worse than the current bureaucrats are doing in the public
school system.
O'BANNON: Oh __
MCKENZIE: We've run on education on another program. Bob Lampman.
(Laughing)
LAMPMAN: I want to quibble with something you said, Tom, about half of the money
not going to the poor or something. That doesn't __ shouldn't leave the viewer to think
that all the money is going to the administrators of programs. A lot of what you are
talking about goes to non-poor recipients. For example, social security, as a program,
pays a roughly half of its benefits to people who otherwise would not be poor.
Unemployment insurance pays about two-thirds of its benefits or so to non-poor persons.
And those are, in some definitions, welfare or anti-poverty programs and that's how
statisticians come up with this horrendous sounding discrepancy between the total amount
of money spent and the total cash benefits that go to the poor.
SOWELL: Well, I think, I think it's a perfectly valid point though, because
supposedly we were not setting up unemployment benefits and social security in order to
keep the affluent.
LAMPMAN: Well, this goes back to its big philosophy, debate we might have. I think
that it's easy to oversimplify things and say that all these programs, including the
public schools are there to be a help to the poor and poor only.
FRIEDMAN: Yeah, but I was saying __
LAMPMAN: But let me mention that the negative income tax has some of its impetus
in that it would be a way of confining benefit payments to people who are __
SOWELL: Yes. Yes.
LAMPMAN: __ and it would cut out benefits for an awful lot of people who now have
expectations that they're going to get them, not in the form of public assistance, but in
the form of social insurance as we use the term.
SOWELL: Well, in order to be made for not disappointing the expectations on which
people have built their lives for one generation, but not of continuing for eternity in
order to avoid one generation of transition.
MCKENZIE: What are the other hurdles toward getting underway. Now, you said, I
don't know how seriously, the biggest almost the only hurdle is the welfare bureaucracy.
FRIEDMAN: No. Now, there'd be the biggest immediate group of lobbyists that will
lobby against it.
MCKENZIE: Yep.
FRIEDMAN: The biggest hurdle in getting it over at the moment is that there is no
way of constructing a sensible negative income tax system that will not hurt some people.
There will be some people who will get less money than they are now getting under __
particularly those in the upper income groups. Particularly the affluent who are now being
subsidized by the welfare and they, will make it politically difficult for the people to
put it into effect. The attempt is to put a negative income tax in effect which costs less
money, is easier to administer, and yet which doesn't pay anybody in the society one
dollar less than he's now getting. There's no way in which you can construct such a
program. But, although it's not politically feasible now, the force of history is on its
side, it's going to become political __
MCKENZIE: Dr. James Dumpson.
DUMPSON: Let's not say that the __ give the impression that welfare administrators
were against negative income tax, the fat program for example, as Moynihan says, because
they would lose their jobs, for example. Many of us were opposed to it because of certain
features in that program: A $24 __ $2,400 level for a family of four. We were opposed to
that. And if one goes down the Congressional record, those who testified, will be shown to
be saying, "Yes, we're for it conceptually. But we're against this piece and this
piece, if you change that you'll have our support."
FRIEDMAN: I was in the same position. I first proposed the negative income tax
twenty-five years ago but I testified against the final version of the Nixon plan. Why?
Because the welfare bureaucrats had led them to introduce changes in it which converted it
from a decent satisfactory negative income tax to one which would have been just as bad as
what you have now. Would have been added on top of everything else.
O'BANNON: Cold reality.
FRIEDMAN: It's political reality __
O'BANNON: That's right.
FRIEDMAN: __ but political reality changes and that's the important thing. I want
to say one more thing about this, this whole problem that we've been talking about. And
that is, going back to Bob Lampman's comment, there is one thing that can be said in favor
on the welfare program. Unaccustomed as I am to saying anything in favor of it; and that
is, that it is the only social program I know of which at least, on the average, give
money to people who are in lower income classes than those who pay the taxes. Every other
welfare program, not only does a lot of money go to the people who are well off, but on
the average the poor are taxed and the well-to-do are subsidized. We in the upper income
classes have been very clever at conning the poor suckers at the bottom to pay us nice
salaries as bureaucrats and to provide us with nice benefits at their expense, and at
least the welfare program doesn't do that.
MCKENZIE: And you stated with great confidence that it will come, the negative
income tax, even though you recognize the hurdles. Why are you so sure it will come?
FRIEDMAN: Because the present system has within it the seeds of its own
destruction. There is no way in which a system constructed like the present, in my
opinion, can avoid creating more and more social problems, and something is going to have
to be done. Nobody has proposed any alternative, so far as I know, there is no effective
alternative to the negative income tax and so it gets knocked down and it keeps rising, it
gets knocked down and it keeps rising.
MCKENZIE: He finally raised the question though whether in any modern industrial
democracy like this one it's conceivable system to be run without fairly elaborate welfare
underpinning of some kind. What do you feel?
O'BANNON: I don't think it can be because I think essentially the welfare __ set
of welfare programs reflect the values of this society that if it didn't there would have
been revolt long before now. Yes, there are rumblings about its cost, and I think that's
primarily a function of rapid rates of inflation eroding real income earning power of the
middle-class taxpayer, but I think on one level we wanted to give up the responsibility of
caring, the responsibility of day-to-day actual caring and in a technical, modern,
industrial society like we have the tax system and the government system is probably __ is
a viable alternative. I don't think we're going to get out of it. I don't think you're
going to see private charities who can take my money that I'm free to give, or not give,
and essentially make a difference in people's lives of any substance on any level.
SOWELL: I don't think it has anything to do with the society being modern,
technological or industrial, it has to do with an ideology and particularly an ideology
that is very strong among academic intellectuals or in the media, and I think that as time
goes on and more and more intelligent ideas replace the kinds of vague visions that
dominate today, that the political climate will change and that's the only thing that
stands in the way of reform right now.
MCKENZIE: Jim Dumpson.
DUMPSON: I don't think you're going to get rid of the system but I'm interested __
welfare system, I'm interested in Tom's last statement about academicians and theories and
so forth, we forgot that we're talking about people and we may sit in the ivory tower and
talk about whether this system will work and either logically or illogically why it won't
work, at the same time there are masses of people outside who are locked out of the system
that you and I are part of and somehow we've got to make sure those people are taken care
of and the short of not doing it, of course, means that your safety and my safety and the
vitality of this government and of our country is at stake. The Mayor of the city of New
York asked me, when we had a strike, what would I do if I couldn't get checks out to
people when our workers were on strike and I said to him, "After the first month _
chaos." And he said, "What do you mean?" I said, "No man or woman in
this city of New York, you included Mr. Mayor, will be safe if we cannot take care of
people..."
MCKENZIE: We leave this discussion and hope you'll join us for the next episode of
Free To Choose.
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