Word
Gems
What is a
man but the sum of his thoughts?
Economics:
Milton
Friedman's
Free
To Choose - 1990
#1: The Power of the Market
Hi, I am Arnold Schwarzenegger. I would like a moment of your time because I
wanted you to know something. I wanted you to know about Dr. Milton Friedman's TV series,
Free to Choose. I truly believe that the series has changed my life. When you have such a
powerful experience as that, I think you shouldn't keep it to yourself, I wanted to share
it with you.
Being free to choose for me means being free to make your own decisions; free to
live your own life; pursue your own goals; chase your own rainbow; without the government
breathing down on your neck or standing on your shoes. For me that meant coming here to
America. Because I came from a socialistic country in which the government controls the
economy. It is a place where you can hear 18 year old kids already talking about their
pension. But me __ I wanted more. I wanted to be the best __ individualism like that is
incompatible with socialism. So I felt I had to come to America. I had no money in my
pocket, but here I had the freedom to get it. I have been able to parlay my big muscles
into big business and a big movie career. Along the way I was able to save and invest and
I watched America change and I noticed this __ that the more the government interfered and
intervened and inserted itself into the free market, the worse the country did. But when
the government stepped back and let the free enterprise system do its work, then the
better we did, the more robust our economy grew, the better I did, and the better my
business grew, and the more I was able to hire and help others.
Okay. So there I was in Palm Springs, waiting for Maria to get ready so we could
go out for a game of mixed doubles. I started flipping through the television dial and I
caught a glimpse of Nobel Prize winner, Economist Dr. Milton Friedman. I recognized him
from the studying of my own degree of economics in business, but I didn't know I was
watching Free to Choose __ it knocked me out. Dr. Friedman expressed, validated and
explained everything I ever thought or experienced or observed about the way the economy
works. I guess I was really ready to hear it. He said, the economic race should not be
arranged so that everyone ends at the finish line at the same time, but so that everyone
starts at the starting line at the same time. Wow! I would like to write that one home to
Austria. He said, that society that puts equality before freedom winds up with neither,
but that society puts freedom before equality, we will end up with a great measure of
both. Boy, if I would have come up with that one myself, I maybe wouldn't have had to get
into body building.
When I did beef up my body building, at business school, of course it started with
what Thomas Jefferson believed and what Adam Smith thought, even what Milton Friedman had
to say __ I would be free to choose __ it all came together. Their economic thought with
my own personal experience, and in a way I felt that I had come home. I sought out Dr.
Friedman and had great pleasure and privilege of meeting him and his economist wife, Rose,
and we have all become friends, and now I call him Milton. Then I became a big pain in the
neck about Free to Choose.
All my friends and acquaintances got the tapes and the books for Christmas after
Christmas, all the way through the Reagan years when I was able to tell them all __ you
see, Milton is right. And I think it's crucial that we all keep moving in the same
direction, away from socialism and to its greater freedom and opportunity. That is why I
am so excited that Milton Friedman is updating Free to Choose, bringing it into the 90's
by discussing how to deal with the drug disaster, the chabain phenomenon, and of course,
the miserable failure of communism. By the way, there are plans now to translate Free to
Choose into the languages of the Soviet Union and Eastern Europe. And you know, they
really need it to guide them through it __ to take the first walk toward freedom. But we
need it too.
I commend to you the new television series Free to Choose and encourage you to
walk into the 21st century in freedom, in opportunity and in success, with Dr. Milton
Friedman.
Thanks for listening.
Friedman: Once all of this was a swamp, covered with forest. The Canarce Indians
who lived here traded the 22 square miles of soggy Manhattan Island to the Dutch for
$24.00 worth of cloth and trinkets. The newcomers founded a city, New Amsterdam at the
edge of an empty continent. In the years that followed, it proved a magnet for millions of
people from across the Atlantic; people who were driven by fear and poverty; who were
attracted by the promise of freedom and plenty. They fanned out over the continent and
built a new nation with their sweat, their enterprise and their vision of a better future.
For the first time in their lives, many were truly free to pursue their own
objectives. That freedom released the human energies which created the United States. For
the immigrants who were welcomed by this statue, America was truly a land of opportunity.
They poured ashore in their best clothes, eager and expectant, carrying what
little they owned. They were poor, but they all had a great deal of hope. Once they
arrived, they found, as my parents did, not an easy life, but a very hard life. But for
many there were friends and relatives to help them get started __ to help them make a
home, get a job, settle down in the new country.
There were many rewards for hard work, enterprise and ability. Life was hard, but
opportunity was real. There were few government programs to turn to and nobody expected
them. But also, there were few rules and regulations. There were no licenses, no permits,
no red tape to restrict them. They found in fact, a free market, and most of them thrived
on it.
Many people still come to the United States driven by the same pressures and
attracted by the same promise. You can find them in places like this. It's China Town in
New York, one of the centers of the garment industry __ a place where hundreds of
thousands of newcomers have had their first taste of life in the new country. The people
who live and work here are like the early settlers. They want to better their lot and they
are prepared to work hard to do so.
Although I haven't often been in factories like this, it's all very familiar to me
because this is exactly the same kind of a factory that my mother worked in when she came
to this country for the first time at the age of 14, almost 90 years ago. And if there had
not been factories like this here then at which she could have started to work and earn a
little money, she wouldn't have been able to come. And if I existed at all, I'd be a
Russian or Hungarian today, instead of an American. Of course she didn't stay here a long
time, she stayed here while she learned the language, while she developed some feeling for
the country, and gradually she was able to make a better life for herself.
Similarly, the people who are here now, they are like my mother. Most of the
immigrants from the distant countries __ they came here because they liked it here better
and had more opportunities. A place like this gives them a chance to get started. They are
not going to stay here very long or forever. On the contrary, they and their children will
make a better life for themselves as they take advantage of the opportunities that a free
market provides to them.
The irony is that this place violates many of the standards that we now regard as
every worker's right. It is poorly ventilated, it is over-crowded, the workers accept less
than union rate __ it breaks every rule in the book. But if it were closed down, who would
benefit? Certainly not the people here. Their life may seem pretty tough compared to our
own, but that is only because our parents or grandparents went through that stage for us.
We have been able to start at a higher point.
Frank Visalli's father was 12 years old when he arrived all alone in the United
States. He had come from Sicily. That was 53 years ago. Frank is a successful dentist with
a wife and family. They live in Lexington, Massachusetts. There is no doubt in Frank's
mind what freedom combined with opportunity meant to his father and then to him, or what
his Italian grandparents would think if they could see how he lives now.
Frank Visalli: They would not believe what they would see __ that a person could
immigrate from a small island and make such success out of their life because to them they
were mostly related to the fields, working in the field as a peasant. My father came over,
he made something for himself and then he tried to build a family structure. Whatever he
did was for his family. It was for a better life for his family. And I can always remember
him telling me that the number one thing in life is that you should get an education to
become a professional person.
Friedman: The Visalli family, like all of us who live in the United States today,
owe much to the climate of freedom we inherited from the founders of our country. The
climate that gave full scope to the poor from other lands who came here and were able to
make better lives for themselves and their children.
But in the past 50 years, we've been squandering that inheritance by allowing
government to control more and more of our lives, instead of relying on ourselves. We need
to rediscover the old truths that the immigrants knew in their bones; what economic
freedom is and the role it plays in preserving personal freedom.
That's why I came here to the South China Sea. It's a place where there is an
almost laboratory experiment in what happens when government is limited to its proper
function and leaves people free to pursue their own objectives.
If you want to see how the free market really works, this is the place to come.
Hong Kong __ a place with hardly any natural resources __ about the only one you can name
is a great harbor, yet the absence of natural resources hasn't prevented rapid economic
development. Ships from all nations come here to trade because there are no duties, no
tariffs on imports or exports. The power of the free market has enabled the industrious
people of Hong Kong to transform what was once barren rock, into one of the most thriving
and successful places in Asia. Aside from its harbor, the only other important resource of
Hong Kong is people __ over 4_ million of them.
Like America a century ago, Hong Kong in the past few decades has been a haven for
people who sought the freedom to make the most of their own abilities. Many of them are
refugees from countries that don't allow the economic and political freedom that is taken
for granted in Hong Kong.
Despite rapid population growth, despite the lack of natural resources, the
standard of living is one of the highest in all of Asia. People work hard, but Hong Kong's
success is not based on the exploitation of workers. Wages in Hong Kong have gone up
four-fold since the War, and that's after allowing for inflation. The workers are free.
Free to work what hours they choose, free to move to other jobs if they wish. The market
gives them that choice. It also determines what they make. You can be sure that somebody
somewhere is willing to pay for these cheap, plastic toys. Otherwise they simply wouldn't
be made.
Competition from places like South Korea and Taiwan has made cheap products less
profitable, so Hong Kong businessmen have been adapting. They have been developing more
sophisticated products and new technology that can match anything in the West or East and
their employees have been developing new skills.
Hong Kong never stops. There's always some business to be done, some opportunity
to be seized. Its long been a tourist center and a shoppers paradise and it's now one of
the business centers of the East. It's the ordinary people of Hong Kong that benefit from
all this effort and enterprise.
This thriving, bustling, dynamic city, has been made possible by the free market
__ indeed the freest market in the world. The free market enables people to go into any
industry that they want; to trade with whomever they want; to buy in the cheapest market
around the world; to sell in the dearest around the world. But most important of all, if
they fail, they bear the cost. If they succeed, they get the benefit and it's that
atmosphere of incentive that has induced them to work, to adjust, to save, to produce a
miracle. This miracle hasn't been achieved by government action __ by someone sitting in
one of those tall buildings and telling people what to do. It's been achieved by allowing
the market to work. Walk down any street in Hong Kong and you will see the impersonal
forces of the market in operation.
Mr. Chung makes metal containers. Nobody has ordered him to. He does it because he
has found that he can do better for himself that way than by making anything else. But if
demand for metal containers went down, or somebody found a way of making them cheaper, Mr.
Chung would soon get that message.
A few doors away, Mr. Yu's firm has been making traditional Cantonese wedding
gowns for 42 years. But the demand for these elaborate garments is falling. The firm has
already gotten that message and is now looking for another product.
The market tells producers not only what to produce, but how best to produce it
through another set of prices __ the cost of materials, the wages of labor, and so on. For
example, if these workers could earn more doing something else, Mr. Ho would soon find a
way to mechanize his picture frame production.
Inside this Chinese medicine shop, a market transaction is going on. The
customer's confidence that this painful looking ordeal will help him doesn't rest on any
official certification of the bone doctor's qualifications __ it comes from experience __
his own or his friends. In his turn, the doctor treats him not because he has been ordered
to, but because he gets paid. The transaction is voluntary so both parties must expect to
benefit or it will not take place.
Believe it or not, this backyard is an entrance to a factory. The workers here are
some of the best paid in Hong Kong. It's hot, sticky, and extremely noisy. The workers are
highly skilled so they can command high wages. They could induce their employer to improve
working conditions by offering to work for less, but they would rather accept the
conditions, take the high wages, and spend them as they wish. That's their choice. The
best known statement of the principles of a free market, the kind of free market that
operates in Hong Kong, was written on the other side of the world. Two hundred years ago
in Scotland, Adam Smith taught at the University of Glasgow. His brilliant book, The
Wealth Of Nations, was based on the lectures he gave here.
The basic principles underlying the free market, as Adam Smith taught them to his
students in this University, are really very simple. Look at this lead pencil, there is
not a single person in the world who could make this pencil. Remarkable statement? Not at
all. The wood from which it's made, for all I know, comes from a tree that was cut down in
the State of Washington. To cut down that tree, it took a saw. To make the saw, it took
steel. To make the steel, it took iron ore. This black center, we call it lead but it's
really compressed graphite, I am not sure where it comes from but I think it comes from
some mines in South America. This red top up here, the eraser, a bit of rubber, probably
comes from Malaya, where the rubber tree isn't even native. It was imported from South
America by some businessman with the help of the British government. This brass feral __ I
haven't the slightest idea where it came from or the yellow paint or the paint that made
the black lines __ or the glue that holds it together. Literally thousands of people
cooperated to make this pencil. People who don't speak the same language; who practice
different religions; who might hate one another if they ever met. When you go down to the
store and buy this pencil, you are, in effect, trading a few minutes of your time for a
few seconds of the time of all of those thousands of people. What brought them together
and induced them to cooperate to make this pencil? There was no Commissar sending out
orders from some central office. It was the magic of the price system __ the impersonal
operation of prices that brought them together and got them to cooperate to make this
pencil so that you could have it for a trifling sum.
That is why the operation of the free market is so essential. Not only to promote
productive efficiency, but even more, to foster harmony and peace among the peoples of the
world.
These people are crossing between two very different societies. This is Lo Wool,
the official border crossing point between China and Hong Kong. Now-a-days there's a
considerable amount of traffic at this border. People cross a little more freely than they
use to. Many people from Hong Kong trade in China and the market has helped bring the two
countries closer together, but the barriers between them are still very real. On this side
of the border, people are free not only in the marketplace, but in all their lives. They
are free to say what they want, to write what they want, to do pretty much as they please.
Not so over there.
That is why people in China who cannot get permission to leave go to desperate
lengths to escape. They risk their lives in the process. Many lose their lives, but that
doesn't keep others from following. Some are attracted by the higher material standard of
life in Hong Kong, but more by the natural human desire to be free.
The people who get official permission to leave China are fortunate. They are
going to be able to enjoy the benefits of the economic freedom they will find in Hong
Kong. More important, that will give them a much wider freedom.
Human and political freedom has never existed and cannot exist without a large
measure of economic freedom. Those of us who have been so fortunate as to have been born
in a free society tend to take freedom for granted __ to regard it as the natural state of
mankind __ it is not. It is a rare and precious thing. Most people throughout history,
most people today have lived in conditions of tyranny and misery, not of freedom and
prosperity. The clearest demonstration of how much people value freedom is the way they
vote with their feet when they have no other way to vote.
Of course, many of the people who pour into Hong Kong will end up in conditions
that most of us in the West would find appalling. Hong Kong is very far from utopia. It
has its slums, its crime, its desperately poor people. But the people are free. That's
after all, why so many of them have come here, despite having to live in leaky house boats
in one of Hong Kong's many small harbors. Here they have the freedom and the opportunity
to better themselves, to improve their lot, and many succeed. There's appalling poverty in
Hong Kong, it's true, but the conditions of the people have been getting better over time.
They're far better off now than they were when they first came across the border from
China. And that poverty, appalling to us, because we're accustomed to much higher
standards of life, is not poverty as viewed by most of the people in the world. It's the
poverty to which they would aspire. A state of affairs they would like to achieve.
There is an enormous amount of poverty in the world everywhere. There is no system
that's perfect. There is no system that's going to eliminate completely poverty in
whatever sense. The question is, which system has the greatest chance? Which is the best
arrangement for enabling poor people to improve their life? On that, the evidence of
history speaks with a single voice. I do not know any exception to the proposition that if
you compare like with like, the freer the system, the better off the ordinary poor people
have been.
Ask yourself what it is that assures the garment workers in Hong Kong a good wage;
not high by Western standards; but high enough to enable them to live far better than most
people in the world. It is not government or trade union, these workers do well because
there is competition for their labor and skills.
When a businessman faces trouble, a market threatens to disappear, or a new
competitor arises, there are two things he can do. He can turn to the government for a
tariff or quota or some other restriction on competition, or he can adjust and adapt. In
Hong Kong the first option is closed. Hong Kong is too dependent on foreign trade so that
the government has simply had to adopt a policy of complete non-interference. That's tough
on some individuals, but it is extremely healthy for the society as a whole. Only the
businessmen who can adapt, who are flexible and adjustable survive and they create good
employment opportunities for the rest.
The complete absence of tariffs or any other restrictions on trade is one of the
main reasons why Hong Kong has been able to provide such rapidly rising standard of life
for its people. Even Communist China recognizes Hong Kong's success, it set up shop here
and now excepts the universal symbol of capitalism. The Bank of China, the official bank
of Communist China is the largest bank in Hong Kong. There's no doubt that Communist China
recognizes the power of the market.
In all this, the government of Hong Kong has played an important part, not only by
what it has done, but as much by what it has refrained from doing. It has made sure that
laws are enforced and contracts honored. It has provided the conditions in which a free
market can work. Most importantly, it has not tried to direct the economic activities of
the colony.
No government official is telling these people what to do. They are free to buy
from whom they want, to sell to whom they want, to work for whom they want. Sometimes it
looks like chaos and so it is, but underneath it's highly organized by the impersonal
forces of a free marketplace.
The impersonal forces of a free marketplace at work back here in the United
States, prices are the key. The prices that people are willing to pay for products
determines what's produced. The prices that have to be paid for raw materials, for the
wages of labor, and so on, determine the cheapest way to produce these things.
In addition, these self same prices, the wages of labor, the interest on capital,
and so on, determine how much each person has to spend on the market. It's tempting to try
to separate this final function of prices from the other two. To think that some how or
other you can use prices to transmit the information about what should be produced and how
it should be produced, without using those prices to determine how much each person gets.
Indeed, government activity over the past few decades has been devoted to little else. But
that's a very serious mistake. If what people get is not going to be determined on what
they produce, how they produce it, on how successfully they work, what incentive is there
for them to act in accordance with the information that is transmitted. There is only one
alternative: force __ some people telling other people what to do.
The fundamental principal of the free society is voluntary cooperation. The
economic market, buying and selling, is one example. But it's only one example. Voluntary
cooperation is far broader than that. To take an example that at first sight seems about
as far away as you can get __ the language we speak; the words we use; the complex
structure of our grammar; no government bureau designed that. It arose out of the
voluntary interactions of people seeking to communicate with one another. Or consider some
of the great scientific achievements of our time __ the discoveries of an Einstein or
Newton __ the inventions of Thomas Alva Edison or an Alexander Graham Bell or even
consider the great charitable activities of a Florence Nightingale or an Andrew Carnegie.
These weren't done under orders from a government office. They were done by individuals
deeply interested in what they were doing, pursing their own interests, and cooperating
with one another.
This kind of voluntary cooperation is built so deeply into the structure of our
society that we tend to take it for granted. Yet the whole of our Western civilization is
the unintended consequence of that kind of a voluntary cooperation of people cooperating
with one another to pursue their own interests, yet in the process, building a great
society.
DISCUSSION
I'm Linda Chavez. Welcome to Free to Choose. Joining Dr. Friedman in a discussion
of the power of the market are David Brooks of the Wall Street Journal, and James
Galbraith of the University of Texas at Austin. Dr. Galbraith, should we follow the
example of Hong Kong and simply allow an unregulated free market?
Galbraith: I think we do better in this country whereas the combination of a free
market and its advantages, and a well regulated, carefully thought out structure of
government, which provides a chance to pick up some of the losers from the market process
and give them a second start. It provides us with a chance to make the economic process a
little safer, a little healthier, a little more environmentally sound and protective, than
you might get from a strict adherence to the free market such as Professor Friedman has
described in the case of Hong Kong.
Chavez: Dr. Friedman, is there any such thing as a well-regulated market?
Friedman: No. He is begging the question. Obviously he is right. If you could have
a well-regulated, carefully thought out, properly done market, benevolent dictatorship is
the best of all forms of government.
Galbraith: Oh, I don't agree with that at all.
Friedman: Neither do I.
Galbraith: Constitutional democracy is the best of all forms of government.
Friedman: No. Constitutional democracy is the least bad of all forms of
government. But you beg all the questions when you talk about well-regulated, carefully
thought out __ if you look at the actual programs that governments follow, they most
always have effects that are the opposite of those that were intended by their
well-meaning advocates.
Galbraith: Let me tell you what troubles me.
Friedman: I will tell you something. Matching the invisible hand of the market is
the invisible foot of government.
Galbraith: You make the point in the program that in every case where you have a
smaller role of government and a freer market, you have a higher standard of living.
Friedman: No. I didn't say that. I didn't say that. I said there are better
conditions for the poorer people.
Galbraith: Okay. Better conditions for the poorer people. Fine, I will accept
that. At the same time you are making the argument in the program that the conditions in
Hong Kong are better, for example, than in the United States, which is manifestly not
true. You are making the argument that Hong Kong is more free than we are.
Friedman: It is more free.
Galbraith: Does it then follow that the conditions for poor people in Hong Kong
are better than they are in the United States? That I don't believe is true.
Friedman: I said in there where you compare like with like.
Galbraith: Okay this is an important qualification.
Friedman: Hong Kong obviously started out from a much lower position. If I were to
compare conditions in Hong Kong in 1945 or 1950 with conditions in the United States in
1820 or 1830, you would have a much closer comparison.
Galbraith: Are you then saying, a position which I would find much more congenial,
that where you have a country which has developed a base of material wealth, a degree of
comfort for the average citizen, that it is then legitimate for the government of that
country to step in and provide some guarantees and some security for poor people and old
people.
Friedman: No. I am not saying that at all. Every time they step in and try to do
that, they end up doing the opposite.
Galbraith: This discussion reflects a feature of the program that I found to be
most troubling which is the failure to make a distinction between governments of the kind
that we have developed in this country over 200 years, and governments of the kind that
you described in the People's Republic of China. It's perfectly clear that one can have,
and many countries do have, the curse of repressive dictatorships. It is also perfectly
clear that an economy that is organized by Commissars is going to fail. We have certainly
seen laid out before us over the last several years, the ashes of those failed economies.
But is it possible to take the example of the Soviet Union, Poland, Hungary, and to say
that because their governments, which were after all dictatorships modeled after the
system of government installed in the Soviet Union by Stalin, are in fact parallel to the
actions of our government which is a government which operates on many different federal
levels, and where fundamentally what you have is the ability of the ordinary citizen whose
power is not weighted by the amount of money he or she has, to use the vote in order to
make some collective decisions. Granted, after ten years of Reagan's Washington, you've
got a serious problem of corruption. Does that mean we should abandon the idea that you
have a democratic process that should be entrusted with certain important decisions __ I
don't think so.
Friedman: You don't have a democratic process in the sense in which you mean it.
We have a democracy. We have a majority rule, but the majority that rules is a collection
of minorities. It is a collection of special interests. You cannot tell me that the
consumers in this country would vote for a sugar quota that makes the price of sugar three
times the world price. When you say you can't compare it to Russia, you are quite right,
but only because they are 100% and we are 50%. If our system, if our present regulations
and rules had prevailed, our scope of government had prevailed 100 years ago, we wouldn't
be where we are today.
Chavez: Let me understand you Dr. Friedman. Do you believe that there should be no
role at all, whatsoever, for government?
Friedman: Of course there should be a role for government __ a very important role
for government.
Chavez: What is that role?
Friedman: The role for government is first of all, to protect people from physical
coercion by their neighbors or by foreign countries, that is to protect the national
defense and to protect law and order at home. There is a role for government enabling us
to have a mechanism whereby we decide on the rules which we want to run, how we define
private property, what we mean by private property. There is a role for government in
adjudicating disputes between us. There is a role for government. A very important role
and I believe our government played that role quite well for about 100 years until the
Great Depression.
Brooks: I would go a little further. I think there is a health and safety role as
well. The problem is that you have to keep your regulations simple and minimal. You have
to realize that there are costs and often the costs outweigh the benefits. In fact, in
Washington there are interests who want to divert costs to themselves, so there is sort of
a built in structure, a dynamic to make costs outweigh the benefits.
Galbraith: We are making progress here. I would add that the government has a role
to protect the environment. I would say the government has a role to set standards for
products, where information is very costly for the individual consumer to obtain. I like
very much the fact that the steaks that the dentist was eating were inspected by the USDA.
Their purity was guaranteed by a rather well-functioning aspect of our government.
Brooks: On the other hand, you have the FDA which has these long delays, 10 years
to get a drug approved so that the effect is that you have to be a big drug company to get
any kind of dent of the market. Basically you are closing off the market.
Galbraith: On the other hand, you have had a set of regulations which have
disappeared without any well-justified regrets. For example, the regulations that govern
the entry into interstate trucking; the regulations that govern entry and rates in the
airlines.
Friedman: Don't tell me that that was done under the Reagan administration.
Galbraith: Oh no. Those reforms were done under the Carter administration.
Brooks: There is no doubt that Carter did the heavy lifting on deregulation.
Friedman: In any event, I am not trying to defend one political party or another.
As David says, a major enemy of a free market is a business interest. The business
community is a major enemy and the problem in this society is to have the public at large
understand the importance of free markets so as to protect themselves against the
depredation of the business community with their tariffs, their quotas, their special
provisions, and so on. But you cover all of these good things that society is supposed to
do, you have to look at how many of them have been perverse in their influences and their
effect. You mentioned the FDA and that is a very important case because that's cost tens
of thousands of lives over the course of time.
Brooks: You can start with the AIDS virus where the FDA tries again __ recently
there have been reforms but they were very slow, even people who knew they were going to
die and were going to die without any drug to try experimental drugs.
Chavez: Let me ask another question.
Galbraith: You have to establish that those experimental drugs would have, in
fact, saved their lives.
Brooks: They couldn't have done worse __ they were going to die.
Chavez: Let me give you another hypothetical. What if you have a social need, say
a disease which is very lethal but effects very few people and you don't have a company
who has an interest because it is not going to make very much money, there is not a large
market for the good to produce a drug, does the government have any role there to step in
and try to stimulate certain social purposes?
Brooks: It's hard for me to imagine how the government would, in the first place.
Friedman: In any event, you must realize that government isn't the only recourse.
The great period, when were the nonprofit hospitals of the United States founded? Almost
all of them were in the 19th century, during the hay day of laissez faire. There are
private charitable activities which are essentially the most effective way of handling the
kinds of things you have described.
Galbraith: A little bit of faithfulness to history surely would cause you to
concede that in 1937, when we inaugurated social security, 1965 when we inaugurated
Medicare, we did so because the private charitable systems, the private insurance systems
to care for people when they were old and when they were sick were failing in a gross way
to meet the needs of the American people. And those programs, which are government
programs, have at least had the virtue of extending the access to health care and
extending income security when you are old to a very large part of the population that
never had it before.
I would argue too that in addition to the regulatory functions and the judicial
functions that we certainly agree on, that there is, in a rich society which can afford to
take care of people who fell out of the market process, who aren't lucky or gifted or
fortunate in their economic lives, to take care of those people when they are old and when
they are sick.
Friedman: What about the extent to which the same society that you described, the
same logic you described, makes them poor. What about the minimum wage which prevents many
people from getting employment. What about the rent controls which destroy housing in the
cities.
Brooks: To switch over, you can point to the minimum wage which everybody agrees
increases unemployment among the poor especially, but what about the environment. If you
have a simple environmental law __ the reason the West is cleaner than the Eastern Bloc,
the main reason is that we are richer. We can afford to do it.
Friedman: The problem, so far as the environment is concerned, the real function
of the government is to define the property rights and it is quite clear that if I force
you to take bad water for good water, then I ought to pay you. I am not quarreling with
that. But if you look at the actual environmental measures that government takes, they
often have harmful effects and not positive effects. The new Clean Air Bill that has just
been passed, for example, is going to cost an enormous amount of money.
Brooks: Nobody knows how much.
Galbraith: It is in principle, of course, your argument is one which many
economists are sympathetic to and I have some sympathy for it, but the technical facts of
environmental control are such that it is often very costly to define the property rights
in a way in which you can generate a efficiently functioning market. That is why you don't
have a private and organized market. The information cost of those transactions is
extremely high. So, in some cases, what you want to have the government do is say, if
there is mercury in the water, you find out who is putting it in and . . . . . that is the
reasonable way to proceed because the alternative is extremely costly.
Friedman: Let's look at what the government actually does. In the United States
today, the federal government spends an amount of money which is 25% of the national
income. State and local governments spend an additional 17% of the national income. That
is 42% all together. Now, some of that is doing good, of course. It would be very hard to
spend that amount of money. But an enormous amount of that is simply taking money from
some and giving it to others and very often taking it from poor, giving it to well-to-do,
. . .
Galbraith: . . . social security in that which is taking money from the payroll
tax from working people . . .
Friedman: On the whole, as far as social security is concerned, the people who pay
are poorer than the people who benefit.
Chavez: Gentlemen, we are out of time. Thank you for watching Free to Choose. Next
week we will be discussing what happens when government enters the marketplace.
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