Milton Friedman Interview w/ Gary Becker (2003) Nobel Prize Economics debunk the Leftist Agenda!

I have spoken around the world quite a bit and I frequently get asked in the queue a part of that people will say well you've dealt with presidents and prime ministers and kings and so on over a long period of time and who has made the greatest difference and so I ruminate about Gorbachev and one person or another and of course in the end come around Ronald Reagan and Margaret Thatcher and I get through talking about them and I said well all things considered I have to say Milton Friedman in December 1976 Milton Friedman won the Nobel Memorial Prize for economic science primarily for his theory of the consumption function and three volumes on monetary history with Anna Schwartz that same year he retired from the University of Chicago and in 1977 began work on a PBS television series free to choose which was telecast in 1980 an earlier work capitalism and freedom was the beginning of his lifelong effort to help the general public understand the workings and benefits of free markets one of the most insightful analyses of Milton Friedman the person was a short fictionalized essay by Leo Rosten titled an infuriating man Rosten finds Friedman in the guise of one fenwick adorable yet calls him the most unpopular man on our block and the reason for this contradictory assessment fenwick Friedman is a man who goes around being logical he even uses reason at cocktail parties in 2002 the University of Chicago held a colloquium honoring Milton Friedman's 90th birthday professor of English Richard Stern after observing the event suggest that Friedman's logic and intellect has been more than matched by his humanity my respect for him has grown and grown to this very hour went to hear his responses to the discussions at this celebration they are so clear they're so alert they're so humane that I I think of him as a kind of human dessert which doesn't mean that he isn't an hors d'oeuvre and an entree as well but there are very few people whose humanity whose individuality has been so developed over 90 years that you can say this is someone very special this is a man who has been a great teacher in every way on November 7th and 9th 2002 Gary Becker student of Friedman and recipient of the 1992 Nobel Prize in Economics discussed a life of scholarship with his mentor and friend Liberty Fund welcomes you to a conversation with professor Milton Friedman isn't there very nice really to have you back at the University of Chicago and here in Hyde Park you spent over 30 years here and I was one of your students one of your earliest students now but I most impressed me when I came in and I want to get your side and I saw it as a student I was I remember the first day I attended your class I had taken a lot of courses and economics at Princeton was fairly confident I knew some economics and after about ten minutes you asked a question I gave an answer and you said that's just restating the question in other words and I sat down and I thought about I said well he's absolutely right and I have a lot of economics to learn and what I felt I learned from you with a lot of different things one that you use economic theory to understand the real world and that this can also to help you in public policy decisions now that was I think what Chicago stood for unto you now how did you come to the emphasis I think that was what Chicago stood for before me I think that was a key feature of our Jacob Varner's course in economic that he taught theory and something to be used as a as a machine for examining thing in the words which Marshall used and and you know Marshalls words for was an engine of analysis and not as its sometimes viewed as a magnificent mathematical structure which is to be admired but not to be used so I think that that's a tradition in Chicago that goes way back I'm sure Viner was not the first and but he from my point of view that's certainly where I got it but is not what help distinguish Chicago from what we saw I compared notice very much so I used to say that there was a distinction between the vowel region and the marsh alien Leon varas was a great economist but his contribution was to show how you could think of the economy as a set of simultaneous equation has a large interrelated structure in which everything depended on everything else all happening simultaneously and Marshall on the other Alfred Marshall on the other hand said well let's not that's true that's in the background but let's look at the partial equilibrium let's not try to get the whole society let's take the steel industry and look at the steel industry let's take automobiles and look at automobile I guess Marshall it was before the days of automobiles he would not have used that replica but carriages maybe he would never get angry yeah well that was an important difference now the students absorb that the students at Chicago speak for myself felt we were learning something at as you indicated very different from what was going on in the rest of profession that we were Chicagoans and we were sort of in a war with with the rest of her fashion and that this was a war that meant you had to try to argue and you had to carry an argument to its conclusions and they often had to take a lot of heat and in your career you've certainly in your teachings and so on you've taken a lot of unpopular positions and I'm sure it's gratifying to see many of them have been adopted but how did you feel I mean we as a student I couldn't tell you you I heard you give for example you talk on voucher school vouchers when I was a graduate student I heard you give many other parts of capitalism and freedom these were totally new from the point of view of the students how did you feel taking these unpopular stands well it's it's not easy to answer that question but you're certainly describing the atmosphere correctly I recall very well a student coming to see me to see me who was a student at Harvard and he said he come out west to see that black not that will black something about it he heard of a black magician a black magician he had been told but you know you're most affected by the immediate area your West and the beauty of Chicago was that I wasn't alone that I was one of a very broad group this was yet this was the approach as I say a Viner is my teacher but when I was there my father the fellows around there it was really the approach the most instill Oh George Stigler was there later came a little later but Alan Wallace School of Business errand director law school Gail Johnson Ted Schultz it was it was a collegial environment in which they were half a dozen I think it is almost impossible for one person isolated to maintain a a non acceptable and non a position that is not accepted by the other people you don't have to have the we had plenty of people who are on the other side as well you want an environment in which there are people on both sides but on which there are enough people of your view so it's a give mutual reinsurance now one of the big innovations that I attribute to you was a workshop system at Chicago and I was a student I participated in and then when I was a young faculty member we went down and bought some used Marsh ants I don't know if your method oh I remember them we paid three hundred dollars apiece for her sound like that now how did you come to start I mean that was a tremendous I think revolution in how to teach but a lot of my research I'm not sure I was entirely the originator quite the opposite I think Ted Schultz really he started the kind of an agricultural workshop but I guess what I did innovate was not in having a workshop but in the way I ran it because most of the workshops were kind of like just like seminar people would come and give papers and there would be discussed and I as you remember established a couple of rules that to attend the workshop you had to be willing to produce a paper during the course of the year and second the paper had to be written and distributed before the meeting and the meeting would be devoted entirely to discussion of the paper and I think those rules were very productive because they with with a series of seminars in which people could come in there's there's very little carryover because if it's the first time you hear a talk your response is not going to be very profound you'll find trivial things in the main there must be there exceptions accorded but in the main and this is especially very good for the youngsters who are writing their dissertation so it was pretty successful I think they're turning out quite a number of significant dissertations I know I I worked a lot in them in that workshop with you in it and I think I think the difference between having a paper distribute ahead of time and not is it's easier for the speaker but it's less productive for both the speaker in the audience if when when it's not distributed ahead of time so the speaker doesn't since people can't make good comments it's an easier talk to get it because you did not going to be criticized very much and you come away maybe feeling a little better about yourself my feeling is off and giving what jobs you learn a lot you don't come along feeling you do you did that well but when you think about it you got a lot out of it anyway certainly the workshop having it ahead of time you get much much better quality discussions now you you did a lot of your writing while you're at Chicago I mean the whole most consumption function book monetary history capitalism freedom your presidential address to the American game Association on unemployment and inflation and why the Phillips curve was all wrong if flexible exchange rates I mean I can go on and on with here these are all periods that came over that period of time so I wanted to ask your money your writing is the 40th anniversary I think of capitalism and freedom which was a very influential book not any I don't think there's any graphs on mathematics in the book no it's closely reasons it's a closely reason a lot of economic analysis in the book that had an enormous influence on public policy and thinking about public policy now as you look back on on that book they take just one of a number of examples what do you consider you know if you had to mention a few of most important contributions that you made in that book on different subjects I think of a few about I'd be interested in look at it well I should say I think one reason for the why they the book had as much has had as much circulation as it has is really the fact that first of all it was based on lectures and so on written and spoken English is different from written English and then those lectures were transcribed into the book by really by rose oh and she took the transcripts and converted them into the text of the book and so I think a lot of the it is because if I had started from scratch to write it it would be much more technically oriented would be less readable I believe than going from a and Israel X is giving to a general audience yeah no no not a general audience these is one of the foundations and Volker foundation brought together in the summer for summer group of audiences academics from economics from political science from military but they were all young academics from different discipline different disciplines and different universities who were interested in the subject of freedom and the free market and free enterprise so it wasn't really a general order here but on the other hand neither was it a highly specialist in technical economical that's right no and I I gave those lectures for two years I think it was and be as a result of a two years work we had a set of transcript of the lecture that was the basis of so far as a content of it well I guess the most notable thing in there was probably the proposal of the voucher that so for education but also have one other one that are also negative income tax there was another item which has received a lot of attention and which has a lot wrong with it as well as right with it part of it is right and part of it is wrong I'm afraid and I discovered that very much in in nineteen oh what was it about Oh 68 70 in the first Nixon administration when Nixon with the aid of the senator former senator in New York Oh Monahan money money Monahan at the time was serving as a assistant special assistant to President Nixon I remember that and he took charge of trying to put through a piece of legislation the Family Welfare plan and I was all excited about an incident it was a direct application of the negative income tax idea but when so I testified that in the first draft the first phase of it I testified before Congress in his favor but then Congress got to work on it and once they got the words I viewed the negative income tax as an alternative to all the special particular welfare program instead of saying we're going to help those poor people over housing we're going to help those poor people who in one way those poor people will need food and another way and so on lap them all together and say if anybody has an income below a certain level he'll get some help and instead of doing that Congress started to pile this on top of all the yeah and I eventually testified against it and also I may say I was at the time writing columns for Newsweek and where I hadn't written an original column praising the later column retracting that and saying it was a bad measure and should be rejected fortunately it was not adopted but you know the idea of it has now been incorporated in the crane and the income tax credit for earned in any earned income earned income tax credit that fundamentally operates the idea of the negative income tax now 1950 you had worked on flexible exchange rates and I know had a long essay then I heard you speak on it when I was an undergraduate of Princeton was one of the factors that encouraged me to come to Chicago now that took led to a lot of opposition clearly right at that time oh yes well it was standard Pratt the the standard opinion which you had to have fixed exchange rate after all you it had a major conference in 1944 and 45 at Bretton Woods which had led to the establishment of the International Monetary Fund and the World Bank for recovery and resettlement redevelopment I forgotten the exact words on it and and it was it was sort of the inbred view that you had a fixed exchange rates inste indeed in a debate I had with one of the proponents of fixed exchange rates he said literally that flexible exchange market you would not you could not get a trade you could not get a price it was absurd and crazy but that was the opinion at the time however there was also a lot of professional economic opinion on the side in favor of flexible exchange rate what really interested me is how fast they received idea one day can become an out-of-date idea the next the real end the flexible exchange rates came after 1971 and the victories came after 1971 when Richard Nixon on that famous August 15 1971 adopted a new economic policy involving on the one hand a bad thing figure pricing wage control on the other hand not just bad terrible the worst decision he ever made as he himself said in his autobiography later and his memoirs and on the other hand a good thing namely ending the pegging of the exchange rate closing the gold window as it was said at the time and that was a real end although it wasn't formally acknowledged until about 1973 and I remember being at a meeting of the I think was he some international organization dealing with exchanges on on a panel in which the Secretary General of the IMF was present it was a different Secretary General each time the first one just before 1971 oh we just dismissed as idle talk there's business you can't possibly have have floating exchange rate it would be chaos and so that two years later just after this change a new Secretary General VI Emma saying on the same kind of a panel well we all recognize this is the only thing they can this pop so you know there's people who think that there's a rigid status quo which can't possibly be broken or wrong it is rigid it's true but it's like a pane of glass when it breaks it shatters it doesn't stay there so ideas have important influences they certainly do have important but it's not easy to predict when they're going to have that influence is it the other thing that I going back to capitalist freedom that's in there and that's I think it was important was the advantage of a voluntary army of it elimination of the draft that got me out of trouble when I had a debate in Madison Wisconsin at the University of Wisconsin with Leon Kaiser Lange who as you remember was a chairman of the Council of Economic Advisers one of the first third meant I think he was a he was a second chairman of the round and he was making mincemeat of me by reading out in the from capitalism and freedom I had a list of things that government ought not to be doing and he was reading those you know how absurd this was so he had the students all with him until he came to my statement they that it ought to end the draft and have a volunteer army and that students love it he lost the debate but that would take the voluntary army now you know in if you look in the 50s and the 60s that looked like it was not going to happen we had the draft here we had a draft look solid and people there was little support the military was dead set against it I know when I was at Rand I tried to write something on the case for the beginning the draft and ran which was then funded by the Air Force wouldn't publish it their force just objected to it because they were getting good people who were trying to avoid the draft by enlisting in the Air Force you know time so they were completely opposed now we get the Vietnam or and of course all the protests and so on and then the gates commission that you were influential maybe you can tell a little about that because I think that was a turning point in the in the elimination of the draft but let me say something first I don't want to say I I wouldn't take the position that a draft is never justified it all depends on circumstances the case that has always bothered and become to my mind was out of Israel you have a small country with a small population essentially you need almost 100 percent of your manpower for the proper army you can justify a draft I think a voluntary army doesn't work well if you take or might not work well you're taking a significant fraction of the population or the price is going to it's going to be very the taxes are going to be enormous that you're going to find financed exactly I think that's absolutely right but in the United States at that time at the most one-third of the young men were being required so you had plenty of room lots enough volunteered reasonable prices and the and several things contributed to the success of the volunteer army as you're saying you were saying the Vietnam War was critical the protest by the students and so on and the scandal of the draft in which the class argument could be made that the wealthy children were first going on to graduate school and second they were going to Canada indeed I believe that the draft has had a great responsibility for the emergence of political correctness in our in our colleges and universities because the many of the youngsters who went on to graduate school as a way of a what in the draft were people who would otherwise have gone into business it would have been good entrepreneurs they would have done well but they became scholars in adversity and they had very left-wing opinions and they really had no real scholarly interest in in just being an academic well they have learned that they have come to populate our part no questions a big problem going back to the circumstances at the time there were there was a growing sentiment that something had to be done about this and the key on the key match the person you have to give a lot of credit to is Martin Anderson Martin Anderson was working on Richard Nixon's as a research group for the campaign of 1968 and he well earlier than that because that's how he got to work on it I guess earlier than that he had written a memorandum which he had shown to some of the people around Nixon in favor of a volunteer army pointing out the argument and as a result of that he became part of the Nixon research group and Nixon read the thing and looked at it and Martin didn't know whether he agreed with her or not and then in a when Nixon was giving an interview to a newspaper man on a train ride from one place to another the newspaper man brought up the issue of the draft what are you going to do about that mr. president well I'm going to and he said I'm going to come out in favor of a volunteer we committed himself and then when he became president and and Marty became a special assistant in the same way as Moynihan it was Marty kept pressing on it and it was he who really was responsible for organizing the gates Commission that was one of the most interesting experiences I've had in my life with that group there were a group of what was it 15 16 something like that on that Commission of whom a third of them to begin with were strongly Pro volunteer army a third were strongly Pro draft and a third was sort of more or less in between and committed and it ended up with unanimous report in favor of a volunteer army and the process of of discussion and meetings and listening to evidence and so on we went through for I don't know a year or so of frequent meetings weekend meetings had a very good research staff it was a fascinating experience of how people get their minds changed one idea in capitalism and freedom that I didn't realize was there frankly until I went back and reread capitalism freedom before the the may White House meeting was for private privatization of Social Security private retirement systems and all the whole thing is laid out pretty fully at that times I thought of Chile and I wondered sometimes what way to Chile get it from it how did how do they come to it but when did you come to love it I think that was a very influential discussion gee I really don't know the answer to that at all because it was only many years later that I got involved again and discussions about it but you see I think that shows a virtue of the pure theory of not being unwilling to consider what seems utterly unrealistic trying to get a nice clean abstract model and ask yourself what are you really trying to do and how are you doing it and once you start thinking of the problem with Social Security that way I think you have to come out on private accounts but I have no clear recollection of with how that came why the how I got involved in that I just don't know but it and I don't know the link exactly between the Chile experiment in that and capital has been freedom but I do know that one of the unsung heroes of the of the Chilean experience had been a student at Chicago by name of caste yeah and he was involved in making to make al cash right very good so went back to be a member there have it there and so you know I I don't know because he died very young whether he may be and I've heard that in Chile that he helped bring that idea which I would think he got maybe at Chicago I'm China thing at the connection back to Chile and then it they they had the situation against someone like the draft when things were very but their public system was terrible Cheryl II couldn't finance it and they looked around for an alternative and and they came up with this both of these examples illustrate a general principle the only time you can get major change is when there's a crisis and the function of economists like you and me he's not ready to produce change is to make available solutions one crisis arises a crisis arises and you're going to take up some solution which is already there at that time you're not going to try to get to the bottom of it and start that's true that you withdrew the draft it's true of the Social Security it's true of flexible exchange rates in all of those rural values I mean I drove out the discussion of vouchers right right and so I've always tried to say to my friends and students don't get to exercise of what you could bargain before doesn't go about right now it's going to go into a stockpile of ideas which for which the time will come when they're suitable but a lot of people are get frightened when they carry the logic of an analysis to a point it's very unpopular and so they don't carry they don't they don't do it they and they they shy away from doing that because then you sort of have a lot of people saying it's a crazy idea it's you know it's who can think of such an impractical sort of sort of thing like that maybe vouchers the opposition vouchers met it initially but almost all these ideas at time there are a large fraction of the profession for this was really crazy even though was the implications of clear-headed economic reasoning now how do you I mean you don't have Eric turistic does that encourage people to carry their ideas to its logical extreme and doesn't that mean coming back to a point you made earlier it's very hard to do it if you're an institution or a place where the only one with these ideas and although no support almost impossible you've got to have a group of people you've got to have some collegiality in order to be able to do it all so it's very hard to do it from inside Washington because inside Washington there are always these pressure on you and you've got it's always immediate it's always a crisis for tomorrow it's got to be done you can't really think long term that's why I always used to encourage my students if you're interested in policy you want to go to Washington go to Washington but don't stay more in two years or you'll be ruined now there obviously have been some people who haven't been ruined but I think not to gamble to act after a longer longer than that and get back and do research I mean they're very few examples I think they a people came back and did research I don't know I mean it's hard to I'm not I've never been sure exactly what the reason is you know whether it's just your interest change or you just out of you know you'd appreciate us some capital you can't get back to it or but maybe something else I'm not sure but it's a fact I think that very few people come back to do many cases you get sort of - let's love Washington you get to love the part and so the temptation when you come back is not to do scientific research but to do the kind of thing that can keep you involved in or back in theory so you want to be a consultant to the Treasury you want to be a consultant Federal Reserve Board and you intend to do that kind of work now let me come back a little bit to some of the other periods at Chicago that we were talking about right this this predates Chicago and sort of continues with Chicago and I don't have a good understanding of your evolution on this other I'd like to hear this you became very anti changing and maybe you always were I don't know that's no I don't think I became very anti changing I became very antique Indian policies eventually but I never became anti Keynesian if you think of Kings is the Economist I think change was a great economist no I did yeah okay and I think the general theory is a great book it's just is that I think it offered a hypothesis which when subjected to the evidence turned out to be wrong okay it was an insightful hypothesis it was a very ingenious hypothesis the only difficulty with it was it it didn't work a Milton about almost 50 years ago when I was a graduate student my first year you gave a talk Hitchcock Lounge graduate dome the David fan had arranged what you spoke about the time was on the relationship between economic freedom and political freedom and you made the point that it's hard to have political freedom without economic freedom but that you can have economic freedom without political freedom and that eventually became the lead essay in your volume capitalism and freedom and I found it extremely exciting and I remember asking you a question at the time I think you don't remember but I remember it I said well is the evidence really strong that you could have economic freedom without political freedom or is that simply a temporary phenomena we were discussing then I think you mention the Nazi period and so on no these would last or what it would only be transitory so what's your view on that at this point because I still be puzzled by that issue well you know it that I think that's the most complicated issue and that bothers me most from what I wrote at the in that time because I now would never state it in that way I would say now that there are three things and you have to distinguish those three one is economic freedom which we discussed then another is civil freedom civic freedom the freedom of speech the freedom to assemble freedom to publish what you want print what you want and the third is political freedom meaning the freedom of the situation in which the members of a community are able to vote for their leaders and have the vote count now the clearest get it I think the confusion arises because I do not believe you're going to have economic freedom without a large measure of civic freedom but I think you can have it without any political freedom at all and that's been amply demonstrated by the case of Hong Kong until the Chinese took over Hong Kong had no political freedom at all he was run by an emissary of the British a British government in London now they hasn't happened the emissaries they set out believed in economic freedom as a way to make Hong Kong most productive and they maintained a complete economic freedom in fact it's hard to think of any country in the world that had as much economic freedom as political as Hong Kong did at that time for example it had no tariff protection whatsoever no restriction on exports or import but it also maintained civic freedom so the citizens of Hong Kong felt perfectly free to say what they wanted to print what they wanted to assemble to meet is so clearly empirically it is possible to have economic freedom without political freedom now Singapore is another example you had Lee Kuan Yew who was ostensibly an elected president but it was fundamentally a dictator but a benevolent dictator right and he too saw the merits and economic freedom and while I think poor did not maintain as extreme as pure and economic freedom as Hong Kong was it still had a very large measure of economic freedom so the I I the answer I would give today is that I think you can have economic freedom without political freedom provided you have a large measure of civic freedom yeah let me follow up on that a little bit because I won't like to distinguish the short run in the longer run and but my examples that go the other way are South Korea Taiwan and Chile now these are three examples of countries that had substantial economic freedom maybe not like Hong Kong but you know substantial economic freedom by world standard certainly and started out all three of them as dictatorships in one form or another yet Pinochet in Chile who promoted economic freedom maybe as a last resort but he promoted it and it was successful you had the cumin tongue in when they went to Taiwan eventually started promoting you know in freedom and yet similarly in South Korea but they evolved in all three cases without any revolution or so on they evolved into not only more civic freedom but also a really substantial political freedom out in all three of these nations you are having you know most of the criteria they would say they have political freedom the question I have unfortunately Hong Kong can't answer anymore because now part of China would if Hong Kong had persisted with a substantial amount of economic freedom conservo civil freedom would it been able to have maintained where they have been growing protests opposition movements they wanted to have the right to elect their own government and so on and would that have created what happened in these other cases not that's the question I'm not sure well I'm not sure obviously I'm not sure the answer either because there sort of is a two-way relationship between political freedom and economic freedom in a way the growth in economic freedom tends to promote political freedom for the reasons you're citing as in China now where there's a real protests in the villages about having to having to have the bureaucrats named by Beijing run them and there are beginning to be like elections for local leaders and the FIR step so in that sense economic freedom promotes political freedom on the other hand political for Agra you have the situation that political freedom from promotes a lack of economic freedom opposes economic freedom but promotes the growth in government you take a case like the United States we have had complete political freedom but the extent of economic freedom has been declining not increase and it's been declining precisely because we have political for you so I don't think you can give a simple answer because it's a two-way relationship no I also think it's there's a fair bit of evidence now that as countries evolve economically you have a tendency to go towards freedom now I think you're raising an interesting complication once you get the political freedom there may be forces that are set up that begin to throttle some of the economic freedom the governments get bigger and that's what I wanted to move to eight a subject where that's the center of the subject as you know there's been some opinion in recent years called the end of history that somehow the whole world had moved and now we've moved toward free markets and political democracy and that's been the goal of all this historical forces and the future looks very rosy I can guess your views on that but I think it would be nice to hear how confident are you about that and what do you see as the problems in the future and I don't believe that that's valid at all the first of all the people who put out that view you have a very generous interpretation of a free economy for their from their point of view as long as you have markets of some kind it's a free economy it doesn't really matter how one of those monarch markets are manipulated it doesn't much matter if the government has extensive controls over those it's still a free democracy in the second reason place my view of history is very different my view of history is it runs and long long swings and that the question of a free economy is at into that you start without him Smith's in 1776 he was at a time when you had a highly controlled economy Mercante left in that case in which the belief was that the strength of a nation dependent on how much cold golden canal and the way to get gold was to keep out the products of other people but to sell as many of any of your products as you could as something which was possible for a few countries but which was self-defeating on the world scale Adam Smith started in lecture 11 and toward a toward a world of freedom he would have been in favor of course of economic freedom political freedoms of a dream all sorts but it took about 140 60 years 9:18 won were the Corn Laws in Florida's 1840s so it took about 60 years a long time and then from then in the 19th century that kept going and Britain really moved toward more economic freedom and more political freedom but then about the 1880s or so you had the Fabian Society formed I'm not sure exactly what date it is but at some time that time sometimes around that time an intellectual opinion started to shift away from above from the Cobden bright belief in free markets no tariffs and as I say they repeal the Corn Laws and you started to have a movement that's already obvious in the early 20th century and in toward greater government involvement and that's about the time when the government took over the schools and and it's also the time when you had the movement toward Imperial preference toward social insurance early stages of the social security system it's one of the most interesting books I know it's a book on the law and public opinion by Dyson every guys know and in the in the 1940 and the preface he wrote to the 1914 reprint of his book he he essentially predicts in the welfare state that came in the 30s and 40s it was on that well that's that in motion that movement set in motion another trend that trend which was the main names you can associate with that one are Friedrich Hayek Lublin Mises Lionel Robbins and John Friedman well a little later a little later and that was a movement toward pointing out the difficulties which were arising it was I think best can capsulated by the title of Hayek's great pamphlet the road to serfdom and and you started to have a movement in public opinion back the other way but that movement and opinion again which I would say started well at the something like nineteen late 30s early 40s something probably not leading that movement in opinion had no effect at all for twenty or thirty or forty years but then as government grew and as a public at large became dissatisfied with what was happening with government growing you've got more and more backing more and more in effectively opinion more generally and finally around 1980 it started to have a real effect with the fall of the Berlin Wall and the collapse of the Soviet Union it became you got the doctrine you are talking about but again that's a wave it hasn't worked itself out yet by any manner Amin but when it does I have no doubt that there will be wave in the opposite direction that will come along and you'll move back again well the tendency often to confuse waves with trends I mean people were sending it saying there was the end of the business cycle because we had a number of years of good runs and we went into a cycle and similarly but to come back to collapse of communism was one of the great events of the certainly last 50 years maybe the whole century to what extent would you say that the ideas that you mentioned of Hayek von Mises Friedman and others were crucial well my I think that what was important in the collapse of the Soviet Union was the internal forces within the Soviet Union X aspirated at the end by the arms race into which Reagan forced them and that stretched him a little too far and they broke but sooner or later they would have broken because the internal structure was so inefficient and incompatible with human beings and human values on the other hand so I don't believe that the writings of measles Hayek so on had very much to do it on the other hand I think those writings had an enormous amount to do with the interpretation that was placed on the collapse and the conclusions that were drawn from it if it hadn't been for those writings the conclusion would have been oh well the alternative is a free market that wouldn't have been the conclusion the conclusion would have been fought ISM or some other kind of a detail so I think that it's always important to distinguish between events and the interpretation people play some event you come back to the Great Depression from this point of view which is a lovely illustration there was an event clear event no arguments about the facts interpretation placed on it a failure of private business evidence that you needed the government to come in and stabilize things because of discussion yesterday and right at discussion we had the conference yesterday and it's a by now fortunately has been reinterpreted and nobody thinks that way anymore if we if you had continued to think that way you would have had more great depressions so so we look forward now we have the set of important ideas on free markets as you said maybe starting with Adam Smith and evolving over time into the modern period we have events that might come up in the future we have also a good deal of intellectuals many intellectuals who are closeted socialists is my judgment who are waiting for some difficulties and then they'll come become more explicit and every time there's a little bit of difficulties they begin to emerging where you can't have global market financial markets they're too unstable so do you see the as you look forward to the to the next decade or two the likelihood that there will be some events maybe we can't predict what they will be now that will bring this force this anti market forces as bins not completely but somewhat suppressed now more into the forefront and that people look for solutions in the direction of more government ownership even more than we have now more centralized control maybe not the old Soviet model that's probably going to be a long time if we're here and go back to that but some new inefficient type of system of where the government plays and and centralized more central direction plays a bigger role it's possible but I'm not I'm not pessimistic about that because the government is so damn inefficient that it's increasingly recognized that that's not the way to go and the forces of the market operate in such subtle and indirect and unperceived ways and I think they will keep winning the race for at least a few decades in advance now what happens beyond that who knows Everitt much so much is going to depend on what happens to China what happened to India those are the great countries that are today in a transition process between well they're very different but China is on transition process from collectivism in economics and in politics till market ruling in economics and an uneasy kind of a political structure which I think from the long-run point of view has to disappear I think that the market is not likely to be consistent full of a full application of the market is not likely to be consistent with a collectivist rule of the kind of China has so I think sooner or later in the next 10 years or so you are going to come to another Tiananmen Square kind of an episode and when it does I think it will be evolved in a democratic direction I think the young people in China are thinking very differently than their and their elders and India is a very different case within Chinese financial optominute Milton then the Chinese would indicate that sort of supports the view that when you have strong economic freedom that puts a lot of pressure on the political sector and you very lightly or often will see a conversion from a very social totalitarian regime to one that allows more political freedom certainly civil freedom as in the cases you cited a Korea and up in Taiwan yeah are you in talk about India as well India is quite different because it's been able to maintain the democracy and there you have had the case where you've had political freedom a considerable measure of political freedom with very little economic freedom it's a it's an outlier as it were in that sense but it's beginning to wake up it's beginning to have tools to give more role to egon on in the reverse turn and if it can retain its political freedom in the process it will help prevent the kind of reverse that you're fearing well if you look at the United stuck in the United States I mean government is relatively small the United States compared to Europe but not small by any standards Your Honor I would like what 35 percent to 40 percent would would go through counting federal state and local well I would you give the figures I think I get or that if you add federal state and local government spending is just roughly forty percent okay but of national in tonight not gross national product in massive income and the point you made earlier the regulations the indirect influence of government in that way uh the estimate is that it accounts for about another ten percent of national income so roughly were here 50 percent socialist and but however the Socialist Party so infini ficient there were 50 percent socialist but probably the non-socialist half produces eighty percent of the income no question no cry remember for a while in China when they went to this individual responsibility system on farms people had these small plots they were producing most of the output some of it may have been just away they they were reallocating their time and so on but certainly efficiency was great but look at you again look at the united states we've been talking about some of the sort of perverse trends in the united states and one of them that's very recent is the issue of corporate governance we had clearly a few scandals where there was malfeasance on the part of executives and maybe some accounting companies and as a result of that we got a lot of panic we got some what strikes me as very unattractive legislation in terms of rules and restrictions imposed on in corporate government so it i'd like to you know your reaction to that well i think the interpretation the general interpretation that was placed on them was it you know these people who run businesses are all a bunch of crooks and you can't trust them they're going to go they're going into the bottle and stealing from their customers and it's a wholly wrong perception of the market the market imposes standards the you don't make money over a long run by being dishonest you make money over a long run by establishing a reputation for being reliable for being square and honest and moreover if you look at these particulars you want to ask yourself a question how did they come up how how come how were they discovered was it a snooping government official who discovered that Enron was doing wrong things not at all it was a market that discovered it the market the price of the Enron stock started to go down and who punished the Enron people the market punished down on people they drove their price to nothing unfortunately it's a tragedy that innocent people were hurt in the process the same thing is true of all of the others every single one of these scandal it was I was discovered by the market now this is not something new you've got a very active vigorous dynamic competitive in the industrial area and there going to be some bad apples in that process especially when something that looks so good starts going bad and people are desperate to find a way out of it some of them are going to resort to illegal modular activity and that's kind of the price you pay the Schumpeter's creative the creative destruction the price you pay for having an effective system if used and indeed if you start to try too hard to them to cut it down you're going to have perverse effects in fact I think some of these difficulties arise from the laws that were passed about two decades ago in response to the or all the scandals about takeovers internal takeovers that produced a space of the new spate of new laws on insider trading making crimes out of things that should never be crimes so I think the situation is quite the reverse of that which is which is perceived the lesson to draw is not that you have a private market which can't be depended on which is a dishonest so on and you have to have the the strong hand of the government come in and take care on the contrary what you have to do is to try to devise institutions which will enable the to have competition in competitive markets if people are doing things like that it's an opportunity for somebody else to make money out of them that one other thing if you think people talk about the law about a profit economy I think that's a misnomer it's it's a profit and loss economy and the lost part is if anything more important than the profit part because it's a lost part that keeps capital from being wasted if you consider the telecommunication industry right now it was over there was a something of a bubble in it there was over capitalization the too much money spent on expanding capacity somehow has to be that has to be corrected and some of these scandals are really part of the correction process which are keeping good more good money from being tossed after bad suppose you contrast the situation when you have a scandal in government how is it discovered you know there are many scandals and government there are at least the same Sun but they tend to be hushed up and concealed very seldom do you have a teapot dumb affair that comes out and gets public publicity moreover on the case of the profit and loss element a government project a government project may be just as intelligent when it started as a private project the real problem is that it has no exit strategy if a private project like Enron makes a mistake and fails it had no alternative it either gets a subsidy from the government or it goes out of business and that's true if a public enterprise fails like for example subsidizing agriculture like trying to maintain agriculture what happens it gets expanded it gets more money surely what we have the amount of money that has gone down the drain and in in maintaining an excessive agricultural industry Dwarfs by many times the amount of money lost in all of these private scandals so I think government ought to pay more attention to its own affairs and give a freer hand to private business well this leads to one important issue you've been very important among the many areas where you've been important is on economic education because if the population had had better appreciation of how markets operate in this particular context and if gern including journalists and readers of journalism and so on and then maybe you get more pressure against stepping in to for the politicians stepping in politicians or responding where they perceive of as a demand I mean you know fold they've found their own interest so they're perceiving this is demand the media certainly gave relenting unrelenting attention to these issues and and many voters came away with the view our business people men and women are a bunch of crooks how does one improve you know you mean you had a remarkably successful television series free to choose enormous influence book based on by you and Rosa normally influential you wrote Newsweek columns for what 20 years or so that were rain columns 1819 you know not to factory I know that together are enormous ly influential and I think it's helped I think the literacy of people I have improved I think significantly but I think still it's a long way to go to get rid of this in hostility bred partly by the Academy now which have teaching in subjects not less so in economics and history and many other subjects the intrinsic hostility to markets and market forces how can we are there any ways that we can think of that can further improve never make it perfect but further improve the literacy of the you know though educated and even uneducated or a problem of the literacy of the educated is I think a much more difficult task but the education is I think from a different point of view as a scandal we have roughly a quarter of the youngsters in this country never graduated from college from high school high school we have a level of literacy today in the United States which is lower than it was a hundred years ago we have an elementary and secondary school system which is a relatively seventeenth century we teach our kids today the same way as we did then and the reason is a very simple in it it's a the reason is its monopoly you have 90 percent of all kids go to government schools government schools in turn have been taken over by trade unions and the National Education Association and the American Federation of Teachers they have enormous political power they have annual incomes over billion dollars and three-quarters of that is devoted not to union activities but to public policy in providing political story and the one result of that is that their emphasis is on the teachers and the quality of teachers has been going down the educate our so-called educational schools if you take university after university the lowest sat scores of entering students are the students who go into education so that's a terrible way of laying a basis for the kind of training you want and in my opinion there is one way way only one way in which you're going to solve that you're never going to reform it from inside you can't reform any institution from inside because you get people don't act against their own inner you the only way you reform institutions is by competition from the outside and that's what we need and what inhibits is competition from the outside is that we have adopted the policy that government not only finance schooling but will also produce schooling that it will run the schools if you think about the problem and consider it in a slightly different area government finances poor people with food stamps suppose it required them to spend those food stamps in government stores government grocery store would they be like our present supermarkets very unlikely and that's what we're doing in schooling and so countries require that for health they have to take their medicine in government-run hospitals and so all right what does some extent they do now in medicine from getting the same problem at any rate it seems to me the way to solve the way to move towards solving it I won't say to solve it but the way to make a dent in it is by introducing some more competition through giving parents more of an opportunity to choose many parents now have an opportunity to choose those in the upper and middle classes can choose a place to live which has good schools many of them can afford to pay twice for schooling so they send their child to a private school but continue to pay taxes of course to support public schools but there's a large fraction of the population probably two thirds or something like that that is not in a position to make a real choice who have to go to the school that they're assigned to and I have long been in favor of a voucher system for those people government is now spending in the state of California something like nine thousand dollars per child in school well if you if a California citizen takes his child out of the public school and puts it into a private school he's saving the state ninety nine thousand dollars the why shouldn't the state say to him look we'll split that district we'll give you a voucher for forty five hundred dollars and you go and spend it however you want it's provided it's on education and that way will benefit you'll benefit and you will have more freedom of choice I think it's strictly unethical now what we're doing now to force people to pay for the schooling of their children without giving them any control over how that schooling is done that's that's the proposal that's a voucher scheme that rose and I some years ago set up a foundation for the sole and solitary purpose of trying to educate the public at large on the importance of parental choice and on the voucher system as a means to attain blended parental choice I believe the intellectual battles have been won by the proponents of choice and vouchers I mean they're still going on but I think the the opposition has lost this enthusiasm and is loss of support and in the political battles though is where the opposition still remains and so let me continue on that because I think you know these are important areas that I know you're very interested you Andros and very important for the country because at the same time that human capital and education is becoming more important for the advancement of a motto of the US economy and the world economy because it's more knowledge-based and so on we're not preparing very well a significant fraction of our population now the proponents of choice differ in the number of dimensions for example where the charter school movement is to be encouraged or whether that's a way because those are still public schools or I charted by the public body with some independence of the traditional system do you see that as a good development or a way of defeating ultimately the goal of having open competition between public and private schools it's a halfway house and it's good in the extent to which you give some people great degree of choice but it is not a long-run solution and I don't think it will have it will if anything I think promote the voucher school but I think there's a different division which in some ways is more important and more basic there are two approaches toward voucher in two constituencies one has to do with vouchers for low-income people where it's a welfare program now that's a worthy effort and something that's well worth doing but there's another view of it which in my view is more important and that's that the verb that what you want to do is to have a competitive educational industry in which you will let loose the forces of competition which have done so much to change every other area which is at it and you can only do that if you have a broad market and you can only do that if you have a market in which you have a whole range of prices you have some expensive schools some inexpensive schools and from that point of view we have always been in favor of universal vouchers the vouchers that are not limited by income or by anything else a vouchers in which the voucher schools are free to charge more than the voucher amount you know it's an interesting thing and a very important thing we can top up the voucher with additional expense of the parents want to that's an important point because some of the current voucher systems do not allow that that's right and I think that's a mistake but you know there's a general point of which this is an illustration if you look at the course of history all progress has ultimately benefited the lower incomes most and the procedure the process is very simple that what you have is in the new product that's introduced television is introduced the early television sets are extremely expensive only the rich can afford to buy them but in the process of buying them they provide the capital for expansion and innovation and the course of events is at what begins as a luxury for the poor ends as a necessity for the masses well the rich allow them to experiment always learn by doing and they get more efficient at it and similarly in schooling if you have a program which is for the poor we have a program which is limited by income you're going to have a program for the poor and it's going to be a poor program you're not going to attract the kind of competition the kind of free-market enterprise that you want if you have a universal voucher where parents at all levels are able to choose the school's their children go to and they're able to top-up to add some money if they want to you're going to open an enormous field you know this is a big industry we spend what is it over three hundred billion dollars a year I think on the industry so it's a big industry it would be a brand new field for research for research you know there's no other industry in the United States except politics which is so obsolete which is which is still operating on the basis of principles of 300 years ago and that's because these are the only industries in which there's no competition

Channel: BasicEconomics

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Keywords: liberty, Milton Friedman, Economy, Economic, Freedom, Economics (Field Of Study), Inflation, Money, Taxes, Tax, Policy, Free, Trade, Free Trade, Consumer Protection, ralph nader, Gas, Oil, Energy, Environment, Free Society, Justice, Enlightened, Iceland, Debate, Finland, Estonia, Chile, Federal Reserve, Monetary policy, fiat, money, sound, Gold, Standard

Id: nz-RwNd0_XY

Length: 71min 50sec (4310 seconds)

Published: Thu May 24 2012