Thursday, August 9, 2012

How Milton Friedman Helped Make the Case for Big Government

By Robert Wenzel

Michael Lind is out with an important piece at Salon that correctly details the many ways Milton Friedman promoted big government. Lind writes:
[Friedman] undercut any principled opposition by the right to the expansion of the welfare state....

The lasting legacy of the famous University of Chicago economist in the realm of public policy is his design for an alternative welfare state...
Lind then writes that it is a welfare state "that could be embraced by libertarians and conservatives." Here Lind is wrong, Friedman's "alternative welfare state" has been objected to by hardcore libertarians precisely because it was statist.

Here's Murray Rothbard writing in 1971:
And so, as we examine Milton Friedman’s credentials to be the leader of free-market economics, we arrive at the chilling conclusion that it is difficult to consider him a free-market economist at all. Even in the micro sphere, Friedman’s theoretical concessions to the egregious ideal of "perfect competition" would permit a great deal of governmental trust-busting, and his neighborhood-effect concession to a government intervention could permit a virtual totalitarian state, even though Friedman illogically confines its application to a few areas. But even here, Friedman uses this argument to justify the State’s provision of mass education to everyone. 
But it is in the macro sphere, unwisely hived off from the micro by economists who remain after sixty years ignorant of Ludwig von Mises’s achievement in integrating them, it is here that Friedman’s influence has been at its most baleful. For we find Friedman bearing heavy responsibility both for the withholding tax system and for the disastrous guaranteed annual income looming on the horizon. At the same time, we find Friedman calling for absolute control by the State over the supply of money – a crucial part of the market economy. Whenever the government has, fitfully and almost by accident, stopped increasing the money supply (as Nixon did for several months in the latter half of 1969), Milton Friedman has been there to raise the banner of inflation once again. And wherever we turn, we find Milton Friedman, proposing not measures on behalf of liberty, not programs to whittle away the Leviathan State, but measures to make the power of that State more efficient, and hence, at bottom, more terrible.

The libertarian movement has coasted far too long on the intellectually lazy path of failing to make distinctions, or failing to discriminate, of failing to make a rigorous search to distinguish truth from error in the views of those who claim to be its members or allies. It is almost as if any passing joker who mumbles a few words about "freedom" is automatically clasped to our bosom as a member of the one, big, libertarian family. As our movement grows in influence, we can no longer afford the luxury of this intellectual sloth. It is high time to identify Milton Friedman for what he really is. It is high time to call a spade a spade, and a statist a statist
But once Lind makes the incorrect claim that libertarians embrace Friedman, Lind gets back on track and shows us how Friedman promoted statism:
The alternative welfare state that Friedman proposed had two parts. For the bottom tier of the alternative welfare state, Friedman proposed using a negative income tax (NIT) to replace most or all means-tested welfare programs, including in-kind benefits like food stamps and public housing. The negative income tax would be a refundable tax credit — that is, individuals too poor to pay federal income taxes would receive a check in the amount of the credit from the IRS.

The rest of the Friedmanite welfare state was to have consisted of vouchers paid for out of tax revenues in amounts designated by the government for particular purposes designated by the government. Friedman proposed replacing the public school system with vouchers that parents could spend on private schools of their choice.
Lind then correctly points out that support for these statist schemes has not really come from libertarians but beltarians:
Ideas for voucherizing public schools, voucherizing healthcare and voucherizing Social Security have dominated discussions of reform for the last half-century — not because they are popular, but because a few right-wing billionaires like the Koch brothers have poured money into libertarian propaganda mills disguised as think tanks like the Cato Institute, the Mercatus Center at George Mason University and the Heritage Foundation
Lind then nails why Friedman was such a bad actor for the liberty movement:
Although Friedman’s alternative to the modern welfare state has not met the test of public approval and legislative enactment, the late economist unwittingly performed an invaluable service to the center and the left. He accepted the legitimacy of public sector guarantees of minimal income for the poor, universal access to education and universal access to adequate healthcare and retirement income security.

Milton Friedman took for granted the legitimacy of the welfare state, in both of its forms — means-tested public assistance for the poor and universal, middle-class social insurance. He believed it was utopian for his fellow libertarians to propose abolishing public assistance and middle-class social insurance programs outright. That is why he proposed the negative income tax, as a substitute for other means-tested programs for the poor. And it is why he proposed voucherizing universal, middle-class social insurance programs like Social Security and Medicare, along with public K-12 education.

But as ultra-liberarians have periodically complained, that meant that Friedman supported big government. After all, the negative income tax is government welfare in its purest form — the government writes a check to citizens, whether they work or not. Likewise, a voucher program is just as much a government program as direct public provision of a good or service.

While those who receive the voucher may have a choice among vouchers, every other aspect of a voucher program is “big government” in its purest form. The government raises the taxes to pay for the program and redistributes the money on the basis of need. The government, not the market, determines the amount of the voucher. The government, not the individual, determines the purposes for which the voucher can be spent. And the government certifies only certain providers as eligible for receiving the tax-based voucher money. With good reason, more principled libertarians object to voucher schemes as “voucher socialism.”

Voucher schemes do not replace “bureaucracy” with “markets.” They merely replace a single public provider — a public K-12 system, say — with a handful of government contractors in a phony, rigged market created by government.

Nor do voucher schemes necessarily reduce government bureaucracy. On the contrary, they may require government to hire new bureaucrats, in order to supervise both the recipients of vouchers and the voucher-funded government contractors, to prevent them from gaming the complicated system.

The ultra-libertarians are right. Milton Friedman engaged in unilateral intellectual surrender to the supporters of a large, generous modern welfare state. He accepted the legitimacy of a welfare state in principle, and merely sought to substitute other government programs, with limited choice among certified government contractors, for existing government monopolies.
Most condemning is Lind's correct assertion that Friedman is the father of Obamacare (Lind also takes a deserved swing at Ronald Reagan):
The only exception to the perfect record of failure of Milton Friedman’s policy proposals is the Affordable Care Act of 2009 — “Obamacare.” In essence, the individual mandate portion of ACA is a version of Milton Friedman’s proposal, backed by the Reagan administration in the 1980s, to force Americans to buy catastrophic health insurance.
Here's Friedman on his own words:
A more radical reform would, first, end both Medicare and Medicaid, at least for new entrants, and replace them by providing every family in the United States with catastrophic insurance - i.e., a major medical policy with a high deductible....This reform would solve the problem of the currently medically uninsured...
In a bizarre paper for a supposed free market advocate, Friedman also says:
In terms of holding down cost, one-payer directly administered government systems, such as exist in Canada and Great Britain, have a real advantage over our mixed system. As the direct purchaser of all or nearly all medical services, they are in a monopoly position in hiring physicians and can hold down their remuneration, so that physicians earn much less in those countries than in the United States. In addition, they can ration care more directly - at the cost of long waiting lists and much dissatisfaction.

In addition, once the whole population is covered, there is little political incentive to increase spending on medical care.
When reading this, one has to wonder if Friedman understands anything about the free markets. Does he understand that  prices act as signals in a free market and that when governments monopolize a sector there are no price signals? Not only will there be lines, but there will be no innovation. Does he understand that the creation of a medical bureaucracy creates a power center that the bad guys will attempt to dominate (e.g.  Big Pharma)? Where the hell does he get the idea that a one-payer directly administered government system is going to lower costs, when it eliminates all competition and sets up a perfect system to be infiltrated by crony operators? How can even an early student of free markets say anything good about a government monopoly healthcare system, much less Friedman?

Bottom line: It should be clear that anyone wearing a Milton Friedman tie is pretty clueless about what this technocrat for the state was really all about.

(ht Nick Sibilla)

 Robert Wenzel is Editor & Publisher at and at Target Liberty. He is also author of The Fed Flunks: My Speech at the New York Federal Reserve Bank. Follow him on twitter:@wenzeleconomics


  1. Thanks for posting the rothbard quote. I get to interview an economics professor who is a milton friedman fan (he put on a series of lectures free to the public called "Free to Choose") and I will see what he says. He is not, to my understanding, a fan of Rothbard, and I will also see why. It should be interesting.

  2. The political program of the original Chicagoans is best revealed in the egregious work of a founder and major political mentor: Henry C. Simon’s “A Positive Program for Laissez Faire.” Simons’ political program was laissez fairest only in an unconsciously satiric sense. It consisted of three key ideas:
    1: a drastic policy of trust-busting of all business firms and unions down to small blacksmith-shop size, in order to arrive at “perfect” competition and what Simons conceived to be the “free market”;
    2:a vast scheme of compulsory egalitarianism, equalizing incomes through the income tax structure; and
    3:a proto-Keynesian policy of stabilizing the price level through expansionary fiscal and monetary programs during a recession.

  3. i'd say we need to put milton right up there with ole abe lincoln!

  4. is this a pro-anarchy blog? denouncing milton, ha. a perfect opportunity to say, careful what you wish for. i'd love to see how you would fare in the reality of your wild dreams.

    1. At the least it's an anti-monopoly-on-violence blog.

  5. So if you oppose Big Gov then your an anarchist ? J, you have a serious IQ deficit.

  6. Richie - what does anti-monopoly-on-violence mean?
    Marcy - unclear how you deduced that from my comment. but it is clear that your logic is flawed. Are you the reference point for my deficient IQ? ha