The media have spent the past week trying to get a handle on Paul Ryan’s public policy ideas. Despite all that’s been written about Ayn Rand’s influence on Paul Ryan, I think that Milton Friedman’s book “Capitalism and Freedom” is a far better guide to understanding Ryan’s perspective on the role of government in society, generally, and on specific policy issues.
I first read “Capitalism and Freedom” in 1982. Since then, I’ve re-read it every few years both on my own and with students in my introductory economics courses. It’s a powerful statement about the role of government in a free society.
Friedman begins the book by parsing President Kennedy’s phrase, “Ask not what your country can do for you – ask what you can do for your country.”
Then he notes, “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.”
He goes on: “The free man will ask neither what his country can do for him nor what he can do for his country. He will ask rather ‘What can I and my compatriots do through government’ to help us discharge our individual responsibilities, to achieve our several goals and purposes, and above all, to protect our freedom? And he will accompany this question with another: How can we keep the government we create from becoming a Frankenstein that will destroy the very freedom we establish it to protect?”
According to Friedman, “such a government would have clearly limited functions and would refrain from a host of activities that are now undertaken by federal and state governments and their counterparts in other Western countries.”
One function that Friedman believes is not government’s job is provisions for retirement. He writes: “The citizen of the United States who is compelled by law to devote something like 10 percent of his income to the purchase of a particular kind of retirement contract, administered by the government, is being deprived of a corresponding part of his personal freedom.”
Another government task to be questioned, in his view, is K-12 education.
According to Friedman, “Governments could require a minimum level of schooling financed by giving parents vouchers redeemable for a specified maximum sum per child per year if spent on ‘approved’ educational services.” Then he adds: “The role of the government would be limited to insuring that the schools met certain minimum standards, such as the inclusion of a minimum common content in their programs, much as it now inspects restaurants to insure that they maintain minimum sanitary standards.”
Ryan melds most of these two ideas in his proposals for reforming Medicare. Instead of the current fee-for-service system, Medicare would become a voucher program similar to the one Friedman proposed for K-12 education. Citizens would use the vouchers to purchase private health insurance, with the government ensuring minimum standards and annually increasing the size of the voucher based on economic growth and inflation. Ryan has proposed a similar system for Social Security as well.
One thing Ryan would not change is the way Medicare and Social Security are funded. Friedman objected to compelling citizens to save for their retirement; by contrast, Ryan would continue the compulsory payroll taxes currently used to finance Medicare and Social Security.
Milton Friedman, who would have been 100 years old on July 31, had strong, clear views on Social Security, in particular, and on the welfare state more generally.
Paul Ryan shares many of these views, and the future of Social Security and Medicare might be very different if his ideas are adopted.
Definition
Which of the many definitions of ‘freedom’ does Friedman use?
How many ‘degrees of Friedman’?
With respect to Ryan’s Medicare plan, the CBO reports that due to cutbacks in prescription benefits and other feature eliminations, the first year the Ryan plan is effect, seniors who are under the Ryan plan would see a 40% increase in out-of-pocket expenses. This immediately cuts the outlay for medicare
Second, the continuing growth of Medicare is cut simply by reducing the rate of increase in the size of the voucher to approximately a 1/2 percent higher than GDP growth. This is significantly slower than the rate at which healthcare costs are growing right now.
The idea is that the inability of people to cover rising costs from their own funds combined with the government voucher will exercise cost control on the health care system. If people can’t buy health care, then they won’t.
What a nice way to get rid of the “parasites” that Any Rand wrote about. But hey, don’t call it a “death panel”, it’s just the market at work.
However, the main thing to know is that the Ryan plan does not even pretend to balance the budget until 2040. Expenditures are being cut during that period, but tax revenue is falling ever faster, due to greater and greater tax cuts. In fact, the fastest growing portion of his budget is the interest paid out on the increasing debt during that period.
Flaw or feature?
It’s the primary feature, if you want to be able to continue to use the increasing debt as a perpetual whip to shrink government to the proverbial size that you can drown in a bathtub.
By the way, with the extreme deregulation proposed by Romney and Ryan, how many people will reach retirement age with any substantial sums in their privatized Social Security to pay for the rising costs of the privatized medicare system? The number, if today’s economy is an indication, will be laughably small, but don’t call it a “death panel”–it’s just the market at work.
Can you picture the scammers and con artists gathering for those upcoming privatization events? It’s just the free market, which will self-regulate— after all, no one would target someone’s retirement funds, sell unsuitable insurance products or scam seniors.
How else do you get rid of “parasites”?
The proof of who is deserving is in who has the money.
“The virtue of selfishness”.
Just what my 90 year old mom needs
I know that most of Ryan’s thinking would be going forward and not retroactive but I expect that I might be 90 some day like my mom.
I am trying to picture a 90 year old hard of hearing (or like my late mother in law almost blind) trying to negotiate and select a health care plan. Talk about opportunity for scams. And the thought of elderly people in bankruptcy court because they can’t pay their medical bills is just really something that gives a whole new meaning to compassionate conservative.
Milton Friedman is someone like Ann Rand, you read their work in college and then you grow up, or not apparently. Evidence that these policies work is lacking and no policy should be tried until you find a model that works.
Friedman and freedom?
Friedman’s entire program and economic theory defies history and was never based on evidence. It’s a economic theology, he even referred to his advocates as apostles. The most revealing fact about Friedman’s agenda has been that the primary requirement for it’s realization is a totalitarian regime. All over the world from Chile to Indonesia the overthrow of elected governments was the necessary first step in implementing Friedman’s economic plan. This is freedom? When Friedman complained to Margret Thatcher that her reforms didn’t go far enough her response was: “This isn’t Chile my dear”.
The only way you can take Friedman’s thesis about “freedom” seriously it you think Chilean’s were more free under Pinochet than they Americans were under Jimmy Carter or any other president. Do you really think that? Do you really think the Central and South American dictatorships of the 70s and 80s were the worlds bastions of freedom?
We have to stop pretending that Friedman was anything other than an economists version of a quack. His economic quackery is second only to fascism and Stalinism in delivering pain and misery to human beings on this planet in the 20th century. The suggestion that his economic theory in any way enhances human freedom is little more than a sick joke.
MV=PQ
The Quantity Theory of Money is one of the most empirically-verifiable propositions in the entirety of economic science. It is unquestionably accepted by almost every economist as a matter of course, whether they are coming from the “right” or the “left” on other issues. Friedman pioneered the resurgence of interest in the Quantity Theory and its implications for monetary policy, so it is not right to claim that Monetarism is “economic theology.”
Even saying so, I am no Monetarist. It is gravely mistaken in its assumption that an influx of money does not affect the real structure of production, nor the distribution or disposition of relative wealth in society. Economists as far back as Richard Cantillon (1680s-1734) had a more complete theory of monetary disturbances on the real structure of production and the distribution of wealth than do many Monetarists, it seems.
As far as Chile goes, I have spent time in the country myself and can attest to its economic vitality, which is difficult to separate from the liberalizing policies of Pinochet. I am no fan of Pinochet. He was a murderous thug. But his economic policies are a matter for scientific discussion, not ad hominem attacks. Opening Chile’s markets and liberalizing its labor laws did wonders for generating wealth and eliminating the scourge of poverty in the country. Fascism and Stalinism are the exact opposite of economic freedom. You must understand that Fascism is National Socialism, and Stalinism is the application of the tenets of Marxism, Saint Simonism, etc. Economic freedom means people doing their own planning (not the govt.) and free exchange being permitted to occur. Nothing more, nothing less.
I was born and raised a democrat
My father was a union truck driver and my mother a dyed-in-the-wool liberal. I worked on LBJ’s campaign as a teenager and voted for Jimmy Carter in 1976 because he was a democrat and a fellow submariner. I had excellent democrat bonefides.
But three years into Carter’s disastrous term I decided to listen to what Ronald Reagan had to say. Having served in the nuclear submarine navy, where our mission was to destroy the Soviet Union when so ordered, I had been educated in Marxist philosophy and why it was antithetical to a free society and the American way of life. I was willing to die to ensure those freedoms guaranteed by our constitutional form of government.
And so after reading and later hearing Ronald Reagan’s 1964 speech “A time for choosing,” a speech conservatives simply refer to as “The Speech,” [http://www.youtube.com/watch?v=qXBswFfh6AY] I spent the summer of 1980 researching conservative and libertarian philosophy. That meant Hayek’s “Road to Serfdom” and Milton Friedman’s “Capitalism and Freedom.” And yes, “Atlas Shrugged.”
Louis Johnston is right in that while Rand was a philosopher who laid out the rationale of individualism over collectivism, Milton Friedman was an economist who explained how that works for everyone in the real world. Rand was an elitist and an atheist who got it right but for the wrong reasons.
Friedman used to talk about the three-legged stool of personal, political and economic freedom and how the power of free markets is really the power of consumer choice. You’ll notice how all of the Romney/Ryan proposals have an element of choice in them. No one is forced to do anything they don’t want to do. He had a 10-part TV series back in the 80s called “Free to Choose” about how free market economies were required for economic freedom, and how the other two were meaningless without the existence of economic freedom. People can vote in Cuba.
Also, as a libertarian Friedman believed in open borders in principle but opposed an open border for the U.S. because we had become a welfare state. Forcing taxpaying citizens to support illegal aliens with housing, education and medical benefits is infringing upon their economic freedom.
Must you continually bash the US?
The 2 countries that are perennially at the top of “economic freedom” list prepared by the Heritage are Hong Kong and Singapore. One is the ward of China and one is the personal fiefdom of a political family .
Would you rather live in either of those countries?
Other countries that regularly fall in the top 10 are Australia, New Zealand, Switzerland, Canada and Ireland.
But I guess those are all socialistic hell-holes with government medicine and social safety-nets. So they’re out of the running.
Hey, how about the US, they’re always in the top 10? No, they’re not going to be suitable until Medicare and Social Security are privatized.
“Economic freedom” proves nothing about a country.
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http://en.wikipedia.org/wiki/Index_of_Economic_Freedom
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It’s instructive
that during George Bush’s last year in office the U.S. was 5th. Four years later under Obama we’re 10th, the lowest we’ve ever been.
That’s right, continue with the declinist rhetoric, the world is going to hell (it’s a sure sign of impending “geezerdom”)
Well, my point is that “economic freedom” has little to do with personal or political freedom. The countries ahead of the US on the list represent a wide range of freedom or lack of freedom.
I have a question for you, to regain out lost “economic freedom” should we become more like Canada or China (both ahead of us on the current list)?
Must you continually bash thoughtful commentary?
Neal, if the material is too complicated to understand, the thoughtful person often chooses to remain silent.
For your education, I’ll tell you that I did live in Singapore, on and off, for five years during the 90’s.
It is a Democracy. Although the People’s Action Party has held majority power for 40 years, there are several other political parties and there has been little to no evidence of electoral fraud and none of repression. The largest opposition party is the “Socialist Front”, which is wisely kept in the minority by the majority of voters.
Compared to Western democracies, Singapore has relatively few laws. In fact, the average would be absolutely befuddled trying to negotiate the maze of regulations and laws here. Given the cryptoclastic mess our judicial system has become, he idea that “ignorance is no defense” would outrage them. The few laws they do have are enforced, however; when they say “don’t”, the wise citizen doesn’t.
Singapore, far and away, leads the world in the education of it’s children. It is one of the wealthiest countries on the planet. It’s citizens enjoy very high standards of living. It encourages immigration, but requires immigrants to pull their own weight. They have a welfare system, but it is the gold standard of what a true “safety net” is…there are no families that have lost generations to sloth.
One party/family in control for 40 years. Press freedom in Singapore rated at below Iraq and Zimbabwe. Gum, homosexuality, public smoking, nudity in homes, failure to flush public toilets are just some of the activities that are prohibited by laws. Gun ownership is very strictly limited. The highest rate of executions of any country in the world (4 times the rate of Saudi Arabia)
As for the numbers of laws, obviously there is only one set of laws in a city-state. Here we have federal, state, county and city governments with all of their own laws. But hey, there is at least one party that insists on as much fragmentation of power as possible…
As for poverty in Singapore, it is harder to spot, is in places far from the public eye, and not reported much in the repressive press controls.
As for the lives that Singaporean lead, I would say without equivocation that if we transferred the economic stratas from the US to Singapore (the bottom 10% in the US becomes the bottom 10% in Singapore, and so on) every group except the top 1% or 5% would be unhappy.
So how much economic freedom do you have
If you don’t have enough money your freedom is pretty limited. For folks living in poverty there aren’t as “Free to Choose” as you might think.
I can’t remember how Friedman handled Monopolies, and restricted markets, or did they not exist in Uncle Miltie’s world?
Jody
Uncle Miltie would remind you that virtually all monopolies are a direct result of special government privilege. How many many sources do you have to buy your water? Your electricity? Your phone or cable TV?
Even in the labor markets, the monopoly of union labor exists only through the support of government.
http://www.youtube.com/watch?v=tdLBzfFGFQU
Very few monopolies survive in the free market because there will always be another player to come along with a better idea or a lower price than the monopoly’s as long as the government stays out of their way and allows them to compete.
So the answer is less government intervention, not more.
Romney and Ryan’s antipathy towards Bernanke and the Fed are well known. So a Republican win would bring quantitative easing to a screeching halt, and possibly a quick unwind of the central bank’s massive $2.8 trillion balance. Such a policy would be highly recessionary. Remember, no Bernanke means no Bernanke put. You could halve asset prices everywhere pretty quickly in such a scenario.
Well, that explains a lot
“…But three years into Carter’s disastrous term I decided to listen to what Ronald Reagan had to say…”
I’m so sorry.
Yet another patriot led astray by a second-rate actor, a man who wouldn’t have recognized an economic theory if it hit him between the eyes – proof of that being his support of Barry Goldwater. “The Speech” is hogwash, from beginning to end, consisting of platitudes, mistakes, debt and budget numbers skewed (“There are lies, damned lies, and then there are statistics” said Mark Twain) by the ideology of his advisors, since Mr. Reagan lacked the intellect to devise his own economic formulas. The “astonishing” tax burden Reagan quotes is rather mild compared to the percentages during the Eisenhower years, an era of considerable prosperity and, I might add, freedom, once Joe McCarthy had been exposed as the self-serving fraud he was.
Hayek is demonstrably an economic quack (I’ve read him, too). “Atlas Shrugged” is mean-spirited adolescent spite. It was kind of cool when I was in high school, a much edgier “Catcher in the Rye,” but high school was a long time ago. Most of us grow up. Ayn Rand did not. Milton Friedman, as Paul Udstrand suggests, is far more the economic theologian than economist.
As Neal Rovick wrote, “‘Economic freedom” proves nothing about a country.’” Those awful socialist Scandinavian countries have living standards that match or exceed ours, better health care (and better health), and just as much freedom as we do. They also have much higher tax burdens, but no one goes bankrupt from a visit to the hospital. And so on. The success we’ve managed is almost in spite of laissez-faire economics, not because of it. The Robber Barons exacted a huge cost from the society in exchange for their fortunes and monopolies, and I see nothing in the recent revival of the American aristocracy and its associated Social Darwinism that merits admiration.
The Puritans were wrong about “The Elect” in the 17th century, and the plutocrats are wrong about their version of “The Elect” in the 21st century.
5th and 10th in What Dennis?
What ratings are you referring to?
Index of Economic Freedom
“The Index of Economic Freedom is a series of 10 economic measurements created by The Heritage Foundation and The Wall Street Journal. Its stated objective is to measure the degree of economic freedom in the world’s nations.
The Heritage Foundation and the Wall Street Journal created the Index of Economic Freedom in 1995. According to Heritage, the creators of the Index took an approach similar to Adam Smith’s The Wealth of Nations that “basic institutions that protect the liberty of individuals to pursue their own economic interests result in greater prosperity for the larger society.”
Friedman, Rand…does it matter in the end?
Friedman too was under the influence of rank Rand individualism carried to its arrogant extreme where ‘us’ over ‘them’; the ‘deserving’ over the ‘undeserving’, applauds, supports a form of political and cultural elitism that demonstrates Greed as its most hellish hallmark?
Slight variations on Rand philosophy still qualifies Ryan as holding hands with one scary economic perspective – Rand, Friedman, Ryan; three in a tub – a political sense of hierarchy which dehumanizes the many for the sake of the power of a few…so much for justice coming from the conservative camp in a democratic society?
Ryan more Friedman than Rand? Does it really matter which mentor more clearly defines Ryan if he draws the same sense of intolerance for the disenfranchised in this society?
It’s all variations of the same old theme, getting-the-better-of…so what else is new?
Heritage Foundation Index Freedom?
Shoulda known. Only America haters like those guys would say that Canada is more free ( 6 on the scale) than the US.
Couple interesting notes. During Clinton’s administration our ranking was higher than during G.W. Bush’s. for 7 of the 8 years Bush was president Ireland ranked better than the US. Have you seen Ireland’s economy lately? America haters must not know a bubble when they see one.
Rand and Friedman
Where Mr. Johnston goes wrong is his assumption that Friedman was actually an economist rather than an ideologue, that’s why he misses the Rand connection. As Beryl points out Friedman started with Randian socio-political assumption and built his “economics” around them. The Chicago school economic program was never supported by history, evidence, or observations, it’s always been based on “objectivists” principles delivered by Rand.
Back in 2010 PBS NOVA did great program on economics: http://www.pbs.org/wgbh/nova/body/mind-over-money.html Ostensibly it was an introduction to Behavioral Economics but it’s really more of a critique of the Chicago School assumptions. It’s amazing to see Chicago School champions stand in front of equations on chalk boards and declare that they’re doing science. They clearly don’t understand the difference between science and math. All they do is stand around creating equations devoid of observations and evidence and they don’t realize it’s not science. It IS however Randian Objectivism. A particularly poignant moment in the show is when Behavioral Economists point out that the primary product of scientific method is reliable and accurate predictions. They point out that the Chicago School never predicts anything and completely failed to recognize the crises that produced the Great Recession much less predict it. Chicago’s reaction: “Well that’s just and insult”. Say: “Good Night” Gracie.
“Pretense of Knowledge”
Inasmuch as your comment references the inadmissible application of the experimental methods of the natural sciences to the science of human action (economics, history, and sociology), you are correct in pointing out that many of the “assumptions” of the Chicago School, and similarly for the Neoclassical School, are unwarranted and unrealistic. One does not treat man as a “homo economicus” in establishing the laws of economics. Rather, anyone having an understanding of the methodological problems of the sciences of human action apply the modern, subjective (marginal utility) theory of value. The “Behavioral Economists” have little insight into the specific nature or cause of the business cycle, nor of most macro-economic phenomena, as far as I can tell.
To say that Dr. Friedman was not an economist is sheer nonsense. Just because you disagree with someone’s policy doesn’t mean you attack their credentials, just as “conservative” economists don’t attack Krugman’s standing as an “economist.” We just say that he is a bad one who doesn’t understand the most elementary equilibrium theory regarding the interest rate and the supply of real savings in the economy, and therefore cannot formulate a correct theory regarding recessions and the business cycle either.
Dennis you might want to rethink that statement
Don’t confuse profit making monopolies with public goods, they are different. And don’t confuse cause with effect.
Beyond the urban mass where it is extremely expensive to put in competing infrastructure there is competition. Just imagine how often roads would be dug up if there were competing infrastructure companies running and repairing lines.
There is geographic competition for electric firms out side of the metro area but only at the margins. There was some question as to which electric company would serve Grand Casino Hinckley when it opened.
Natural gas is delivered through three different separate services. The supplier of the gas (any number of competing companies), the owner of the pipeline (who has to transport the gas and is required to take all comers) and the local distributor. When an operation reaches a certain size it can becomes more cost effective to be it’s own distributor. It’s not cheap and the local distributor can’t stop it because of regulations. Many of the regulations for utilities require the utilities to provide access to other providers as part of their licensing.
Cable, phone and internet there has never been more competition. Surprisingly it does not seem to be reducing prices much but it will. There are some monopoly forces at work – neither of the 2 band width service providers in my area will my ISP provider more bandwidth (i.e. faster speeds) because government regulation doesn’t make them – so they are squeezing the little guy out of business requiring that I buy their service to get faster speeds.
As for water we pump our own. But frankly public water and sewer is a public health issue where one operation can effect another adversely and the costs can’t be recovered by the harmed entity except through litigation. While it might make attorneys happy – not a good use of the courts and not cost effective.
Just as conservatives have embraced Ronald Reagan, they reject his tax hikes. Actually they, nor their opponents mention them.
So they would have to remember Friedman said “print money” but the deficit and debt would rise.
Isn’t the deficit and the debt the rage today?
Funny that is wasn’t in the summer of 2008.
In short
Friedman “theories” = economic nonsense