Words of Wisdom for Labor Day

Milton Friedman (1912-2006) was born in Brooklyn, New York. He was a prolific public intellectual, and an American Nobel Laureate economist, something we need a lot more of these days. He made major contributions to both economics and statistics. In 1976 Friedman was awarded the Nobel Prize in Economics for achievements in the fields of consumption analysis, monetary history and theory, and for his demonstration of the complexity of stabilization policy. Simply put, Milton Friedman was the best known advocate of economic freedom in recent American history.

According to The Economist, which is not a pro-Friedman magazine, Milton Friedman "was the most influential economist of the second half of the 20th century . . . possibly of all of it.” Former Federal Reserve Board chairman Alan Greenspan stated, "There are very few people over the generations who have ideas that are sufficiently original to materially alter the direction of civilization. Milton is one of those very few people." I agree with Alan Greenspan’s analysis. This does not mean that I agree with everything Friedman wrote but in general I believe his thinking about freedom, economics and markets is sound and (generally) irrefutable.

Last week I came across one of the best Friedman’s quotes I have ever found: "A society that puts equality before freedom will get neither. A society that puts freedom before equality will get a high degree of both."

If you think about it this sounds counterintuitive at first glance. Surely we should strive for equality in a nation that is fundamentally committed to freedom (“all men are created equal”). But equality under the law is not the same thing as the equality of results. Yes, the law should be color blind but people are not and cannot be forced to embrace results based on this law. And yes, we should strive to protect the freedom of all people, regardless of race, creed, religion or gender. But, and this is hugely important, freedom does not mean that everyone will have the same economic results. This is a false deduction. Thus true freedom comes first and with true freedom people will have the opportunity to better themselves in an open society of laws. This is why Friedman also said, "Underlying most arguments against the free market is a lack of belief in freedom itself.” I believe he is right. This is why I believe in economic freedom – I believe in freedom!

Friedman expressed the same type of sound thinking when he wrote: "I think that nothing is so important for freedom as recognizing in the law each individual’s natural right to property, and giving individuals a sense that they own something that they’re responsible for, that they have control over, and that they can dispose of."

One of the most engaging and thought-provoking Friedman statements that I recently came across was made in reference to one of the most memorable lines in a presidential speech in my lifetime.

"In a much quoted passage in his inaugural address, President Kennedy said, ‘Ask not what your country can do for you — ask what you can do for your country.’ It is a striking sign of the temper of our times that the controversy about this passage centered on its origin and not on its content. Neither half of the statement expresses a relation between the citizen and his government that is worthy of the ideals of free men in a free society. The paternalistic ‘what your country can do for you’ implies that government is the patron, the citizen the ward, a view that is at odds with the free man's belief in his own responsibility for his own destiny. The organismic, ‘what you can do for your country’ implies that government is the master or the deity, the citizen, the servant or the votary. To the free man, the country is the collection of individuals who compose it, not something over and above them. He is proud of a common heritage and loyal to common traditions. But he regards government as a means, an instrumentality, neither a grantor of favors and gifts, nor a master or god to be blindly worshiped and served. He recognizes no national goal except as it is the consensus of the goals that the citizens severally serve. He recognizes no national purpose except as it is the consensus of the purposes for which the citizens severally strive” (italics mine).

But doesn’t the government have a role in creating business and jobs? We hear a great deal about this role during the present recession. The wisdom of Friedman is again remarkably precise because he provides a profound measure of necessary wisdom for us in this difficult time. The government is a bad creator of jobs in almost every instance. Why? Because the government is not designed for creating jobs. When it tries it often makes things much worse, contrary to popular opinion. Here is a funny Friedmanism about what government often does: "If you put the federal government in charge of the Sahara Desert, in five years there'd be a shortage of sand."

"There is one and only one social responsibility of business–to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud” (italics mine). Note that he says business must stay within the rules of the game. This did not happen with AIG and its related practices on Wall Street. This did have an impact on bringing about our present economic problem. White collar crime is serious and it clearly tilts the table against freedom.

But what about the government’s role in providing jobs? Almost everything we hear these days is one argument after another about the growing danger of a “jobless recovery.” This is followed by an appeal to the role of Washington, or your state capitol, to provide more jobs. I would argue that the government is not in the business of business; i.e., that it should not provide jobs. The best thing it can do for jobs is to protect true freedom so the market creates jobs. This will happen if the government plays a limited role in the process and allows real freedom to work. Said Milton Friedman:

"For example, the supporters of tariffs treat it as self-evident that the creation of jobs is a desirable end, in and of itself, regardless of what the persons employed do. That is clearly wrong. If all we want are jobs, we can create any number–for example, have people dig holes and then fill them up again, or perform other useless tasks. Work is sometimes its own reward. Mostly, however, it is the price we pay to get the things we want. Our real objective is not just jobs but productive jobs–jobs that will mean more goods and services to consume."

Some may read this as a license of consumerism, something I’ve written against many times. I do not read this statement in that way. Good jobs provide real goods and services for real people to consume (use) for real needs and imagined needs. It is the imagined needs that are created by consumerism, a by-product of freedom that we can personally resist without trying to manage other people’s lives in the process. Again, the central purpose of government is to protect our freedom and besides the freedom of religion and the right to vote no freedom is more vital to our day-to-day well-being than economic freedom. Friedman, a mild libertarian from what I can tell, understood that quite clearly. This was basis for his opposition to government’s intervention in the use of marijuana as well. This was the basis of this one final quote I share:

"This plea comes from the bottom of my heart. Every friend of freedom, and I know you are one, must be as revolted as I am by the prospect of turning the United States into an armed camp, by the vision of jails filled with casual drug users and of an army of enforcers empowered to invade the liberty of citizens on slight evidence. A country in which shooting down unidentified planes ‘on suspicion’ can be seriously considered as a drug-war tactic is not the kind of United States that either you or I want to hand on to future generations."