Monday, March 5, 2012

Free to Choose by Milton & Rose Friedman

Off and on, for most of my life, I've been involved in business of one sort or another, and always held on to some beliefs of "this is how things work, economically speaking". After reading Friedman's book, I think I must know how christians living behind the Iron Curtain must have felt when they first got their hands on a bible, after so many years. Friedman explains concisely and exactly so many of the things I've held to be true all these years.

Among other things, Friedman explains that information is conveyed in a free market economy by prices, and that anything which unnaturally interferes with those prices, such as government wage and price controls, disrupts the flow of information and warps the market, often in unforseen ways. I've often wondered why, when we have had a federal Department of Energy for most of my adult life, our energy policy has been so ineffective in reducing our dependency on foreign (read Middle Eastern) oil, and in keeping fuel prices affordable. When one looks at the types of actions taken by that agency, in light of their effects on the free market, it begins to make more sense.

Most of us have heard on the news about something called a "favorable balance of trade." It usually means that the United States is exporting more goods than it is importing, and that's supposed to be good for the country. Friedman explains, however, that such a perception is nearly backwards from reality.

"Our gain from foreign trade is what we import...The citizens of a nation benefit from getting as large a volume of imports as posible in return for its exports, or equivalently, from exporting as little as possible to pay for its imports."

"It is simply not true that high-wage American workers are, as a group, threatened by 'unfair' competition from low-wage foreign workers...That is simply market competition in practice, the major source of the high standard of life of the American worker."

Interestingly, given the reputed high productivity of Japanese firms these past few decades, Friedman notes:

"An early (in 1867) foreign resident in Japan wrote: 'Wealthy we do not think it will ever become. The advantages conferred by Nature, with exception of the climate, and the love of indolence and pleasure of the people themselves forbid it. The Japanese are a happy race, and being content with little are not likely to achieve much.'"

What other cultures are we underestimating in the same way today?

I particularly liked Gammon's Law - The more bureaucratic an organization, the greater the extent to which useless work tends to displace useful work.

He also (and this book was written 30 years ago) talks about the essentially fruitless policies of spending pursued by our government.

"...the Department of Health, Education and Welfare has been spending more and more of our money each year on health. The main effect has simply been to raise the costs of medical and health services without any corresponding improvement in the quality of medical care. Spending on education has been skyrocketing, yet by common consent the quality of education has been declining...Billions of dollars are being spent each year on welfare, yet at a time when the average standard of life of the American citizen is higher than it has ever been in history, the welfare rolls are growing."

Nothing has changed, aside from the fact that the dollar figures spent have ballooned out of control.

Our country was founded on the principle, among others, that all men are created with equal rights, and all should have an equal opportunity to pursue their dreams - equality of opportunity. More and more today, though, we see our government trying to ensure equality of "outcome" rather than simply assuring equal opportunity.

"Equality before God - personal equality - is important precisely because people are not identical. Their different values, their different tastes, their different capacities will lead them to want to lead very different lives. Personal equality requires respect for their right to do so, not the imposition on them of someone else's values or judgement."

Alexis de Tocqueville said that "There is... a manly and lawful passion for equality which incites men to wish all to be powerful and honored. This passion tends to elevate the humble to the rank of the great; but there also exists in the human heart a depraved taste for equality, which impels the weak to attempt to lower the powerful to their own level, and reduces men to prefer equality in slavery to inequality with freedom."

Tax the Rich, anyone? It's so horribly unfair that anyone should have "more than enough."

Friedman talks about how Great Britain, since just after WWII, set their domestic policy to try to achieve greater equality of outcome. Many laws have been passed to take from the rich and give to the poor, like Robin Hood of yore. Top tax rates reached 98% on property income and 83% on earned income, with high inheritance taxes as well (does this sound familiar?). State-provided benefits were greatly expanded.

"There has been a vast redistribution of wealth, but the end result is not an equitable distribution. Instead, new classes of privileged have been created to replace or supplement the old: the bureaucrats, secure in their jobs, protected against inflation both when they work and when they retire; the trade unions that profess to represent the most downtrodden workers but in fact consist of the highest paid laborers in the land - the aristocrats of the labor movement; and the new millionaires - people who have been cleverest at finding ways around the laws...who have found ways to avoid paying taxes on their income and to get their wealth overseas beyond the grasp of the tax collectors."

Do we think that following the same policies here will result in a different outcome? What's that definition of insanity again?

Friedman talks a bit about the history of the Interstate Commerce Commission, which was founded on the rhetoric of the reformers who wanted to prohibit unfair practices by the railroads in the 1870s. One shouldn't be surprised to find out that the commission was originally staffed by "experts" on the railroads, drawn from the ranks of railroad executives, and all it really managed to do was to stifle competition and guarantee uniform profits for the railroads, themselves. Later on, the ICC gained jurisdiction over the trucking industry that replaced the railroads, and has managed ever since to keep competition to a minimum there, as well, all ostensibly for the benefit of consumers, who can't be trusted to look out for themselves, of course.

He even (thirty years ago) talks about "alternate" fuels being subsidized by the Department of Energy.

"The threat of price control and regulation is the only important obstacle to the develop ent of alternative fuels by private enterprise...we the people shall pay for the energy we consume. And we shall pay far less in total, and have far more energy if we pay directly and are left free to choose for ourselves how to use energy than if we pay indirectly through taxes and inflation and are told by government bureaucrats how to use energy."

Another good thing to remember:

"...mistakes and accidents occur-government regulation doesn't prevent them. The difference is that a private firm that makes a serious blunder may go out of business. A government agency is likely to get a bigger budget."

Friedman talks about the true functions of unions and professional licensing organizations - to protect the established members of the profession and to limit the ranks of highly skilled workers, keeping wages artificially high - rather than benefitting the lowly laborer.  The Davis-Bacon Act, a federal law that, in effect, requires all businesses contracting for the government to hire only union laborers, practically ensures that all government projects will be completed overbudget and late - using YOUR tax dollars!

This book is jam-packed with great information. I think I'm going to have to pick up some more books by Friedman, to really soak this stuff up.

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