Milton Friedman - What's wrong with welfare? (Q&A) Debunking Social Justice & Equity

thank you very much ladies and gentlemen and thank you very much professor friedman in 1946 the mcgraw-hill publication reported that the total tax take in the united states was about 22 percent and suggested that if it became 25 percent that it would lead to the destruction of our capitalist economic system now it's 40 as you suggested tonight is this a gradual destruction that takes place or is it catastrophic how much can the tax take to come before it really used to be dangerous there is it's dangerous now but there is no magic number it's clear that as that number grows it becomes more and more difficult to maintain a free society but where the breaking point is will vary from case to case to illustrate in the case of chile the breaking point came at 40 percent the level of government spending had risen to 40 percent of the national income under ayendy and that was appointed which the breaking point came and the system fell apart and a military government stepped in and you had a loss of freedom but chile is a much less developed a much less wealthy country than we are in great britain the percentage has gotten up to 60 percent and great britain has not collapsed the breaking point there is apparently higher than 60 percent in israel the percentage is something like 70 percent now i should explain a little bit to you on that because that percentage is a very misleading percentage you know accountants are marvelous people and the way in which you run the national accounts there is really nothing to prevent the government spending as a ratio to national income from being 120 because these are two different concepts and i believe all of these numbers really greatly overstate the role of government spending they don't overstate the role of government influence now the other thing that needs to be said is that government can have a lot of influence over your life without spending any money those two are quite different for example every automobile you drive has maybe five or seven hundred dollars of equipment on it that is mandated by the government you paid for it that doesn't enter into government spending or again uh the the administrative body that administers the interstate commerce commission doesn't spend much money but its effects has been to destroy the railroad industry so that you can have great effects without spending money so the simple answer to your question is that there's no magic number but the larger it is the more dangerous it is yes sir i have a question about public housing sure i agree with you when you say that the number of dwellings destroyed is greater than the number of dwellings put up but you are comparing the number of dwellings that are destroyed are three-story apartment buildings left over from the 19th century and the dwellings that are put up are about 20 stories high i have about eight families per floor oh i mean the number of dwelling units not the number of buildings but when i spoke i i was not careful and i should have been i meant the number of dwelling units where a dwelling unit is something that houses a family so in the case of the buildings you're talking about i wouldn't count that as one eight-story building versus one three-story building but the number of dwelling units built is less than the number destroyed how does that improve the housing maybe you dislike the public housing because of the institutional look to it and that looks more like a hotel and looks less homely but the alternative nothing to do with it the alternative is either you have a public house or you have a badly maintained apartment building by an absentee landlord and there are no dwelling units in this country that are more badly maintained than public housing dwelling in the south bronx people are disburning their houses of course why they are their houses of course but why are they burning those houses and abandoning them why badly maintained no siree because you have rent control in new york city which makes it uneconomical to maintain the houses and means that the only way in which you can get any money out of them is by burning them down also an absentee landlord is very absentee landlordism of course but you mean to say that the public housing units are not happening landlords look i am not you must understand i think it's important for people to have decent housing my objection to public housing is that it's made the housing of the poor worse you've torn down how dwellings in which they lived you've put up in part if you take the whole housing program urban renewal above plus public housing the situation is even worse you've torn down more dwelling units than you've put up of those you put up a considerable fraction have not been available to the poor you've torn down low income dwelling units take any urban renewal area in this country you want you've turned torn down low income dwelling units and you've put up luxury apartments and that's helping the housing of the port not by alongside so that the problem is and then in the in the public housing units you've set up because of the income requirements and so on the people who can qualify for them tend to be broken families they have an abnormally high rate of of juvenile delinquency of sabotage of destruction they are poorly maintained you see the problem with this young man is illustrating is the tendency that we often have to take the will for the deed the problem isn't the objective of the public housing units the point is to go out and see what's actually happened with them and there is hardly anybody who has studied the subject who will defend the public housing program as having improved the housing of the poor yes sir i was interested before you had mentioned a comparison between 19th century and 20th century america i'd like to know if you think that that's you know i don't see how that could be considered a legitimate comparison in terms of in terms of the fact that you know there were unlimited resources essentially in the 19th century and and now we have a kind of very limited resource and an allocation situation at least this seems to be the thrust of a lot of i know but that's fundamentally wrong and well just let me before before before i'm yeah sure sure let me finish the question uh in the 19th century when you had a completely free economy uh you seem to have situations developing where uh tycoons would come along like rockefeller or the railroad barons essentially and they'd come to dominate society so is is it not a choice do we not have a choice between developing that kind of situation where john d rockefeller and that crowd will decide what's good for our society or whether the government officials will well let's take the rockefellers and just stick with them he created the university of chicago incidentally i know he counted he founded the university of chicago tell me john d rockefeller did a great deal of good for this country he developed and promoted i'm not talking about his charitable activities that was separate not even about the founding of the university of chicago but he developed and into a major industry the the oil industry of refining discovering and making oil available he reduced its cost he never got a dollar from anybody with a gun he got his money by selling people products at a lower cost than other people could provide it his grandson nelson rockefeller did enormous harm to the country by operating through the political channel did i do it if nelson rockefeller had if we had the 19th century version and nelson rockefeller with all his accumulated wealth had tried his hardest to spend that in such a way as to reduce the freedom and the affluence of other people he could not have come close to achieving what he did achieve in that direction as as a political figure he couldn't even have afforded to put up the albany mall let alone to have undertaken the measures which made new york state a basket case which re which which changed the educational structure of new york state in my opinion in a very adverse direction but let me go back to your first question first place it is simply not true that we have limited resources now whereas we had unlimited resources in the 19th century on the contrary from every important economic point of view we have a greater volume of resources now than we had then tell me in 1850 how much oil did we have we hadn't been discovered it was useless we had no oil the first oil well was discovered who came who was it was drilled in titusville in 1858 we have more oil now than we had in 1850 in a meaningful economic state before nuclear power was discovered how much nuclear power and energy did we have the progress of the progress of technology has had the effect of increasing the effective volume of resources available to us so that we have far greater resources available now than we had in the 19th century as a result of the technological and business developments that were produced is government regulation of the resources necessary not at all government regulation of resources of the kind we've had has led to waste and misuse of resources so so that really go back look at your your analysis what matters are the resources that are available to be used not those that will be discovered later on of course one more thing needs to be said we are of course wealthier and better off than where the people in the 19th century but we are their heirs we could not be where we are if they had not done what they did and i think it's a false comparison not to take into account the debt which we owe to the enormous economic progress and development of the 19th century to the fact that our ancestors came here with empty hands and have made it possible for us to have a decent life i hate to use the old cliche about standing on their shoulders but that's what we do yes sir professor friedman how is it that uh germany which has one of the highest social security systems in the world is better off economically than the usa germany is not better off economically than the usa it's a great deal better off economically than great britain is at the moment but it is not a great deal better off in the united states it's relatively well off why because in 18 in 1948 there was a name man by the name of ludwig earhart who had the good sense on one sunday afternoon and he did it on sunday because the american british and french occupation forces offices were closed on sunday and he knew if he did it on a weekday they would countermand his order and so on that sunday he abolished all price and wage controls and rationing that had been in existence and he unleashed in germany a free market economy and germany with a free market economy had an economic miracle that miracle will not last if germany long continues to hamper its free mark economy by still greater growth of social security welfare and other measures but in general the actual extent and level of those measures is not terribly different in germany from what it is now some of them in some areas it's great what it is here in some areas it's greater in some areas it's less but the most important difference between the two countries is that germany in the past 30 years has been willing to rely to a far greater extent on private markets and private market arrangements than we have you know i was saying before an answer to an earlier question there's no magic number 30 percent 25 percent 40 percent which a government can spend spend while having a viable economy how much it can spend depends on the other policies which it follows it depends also on the attitudes and structure of the people as i was saying with a homogeneous people you can go much farther than with a heterogeneous people so i would say that germany has done as well as it has despite and not because of the welfare measures you were mentioning um in america it has been argued by some that there are no pervasive values that would form the basis of the private sector performing in the altruistic manner you think it will but instead the only pervasive value in this country is material self-interest and therefore the private sector is not inclined to perform in the altruistic way that you think it will and as a result of that the welfare state has sprung up as the only alternative for the disadvantage in the society well let's look at the situation was it a pure interest in material welfare and self-well-being that built the university of rochester and the thousands of other private universities around the country was it the material interest in immediate self-welfare that produced the private non-uh non-profit hospitals around the country that we're so prominent to feature let alone the carnegie libraries let alone all the others it's quite the opposite there is no question about the evidence that the united states has had a unique almost unique experience of private charitable elemonary activity on a broad scale but now i come to the other tourist court again you are looking at it in terms of objectives and not results you are assuming that these welfare programs do help the disadvantaged you are assuming that government activity helps the disadvantage if i take people of your race in what respect are the black people in this country most disadvantaged in respect to the kind of schooling they can get why because that schooling is provided by the government where do you get the idea that the the disadvantage they're being helped the blacks are in the first place forced to have bad schooling because the state provides it in the second place having been put under that disadvantage they are being prevented from getting on the job training by a minimum wage law which is the most anti-negro law we have on our books all in order to help the poor no doubt that's the purpose of that that's said to be the purpose of it but what's the effect of it so what i'm what i'm trying to say to you is that it's all very well talk about using the state but explain to me how it is that a people who in their separate lives have are driven only by material self-interest are somehow in their collective capacity driven by altruistic impulses how do you reconcile the one or the other see the basic situation as it appears to me is almost the opposite most people are selfish in a narrow material sense and when they when the government is run by most people when you have a majority in democracy the government is going to reflect their preferences and their taste the only way in which you can have non-material values become effective is by having a society in which a minority can express itself which are the most materialist countries in the world there is no country in the world more materialistic russia all it talks about is its five-year plans its material accomplishments its material plans it it is not altruistic on the other so that at any time in any society i don't care what it is the fraction of the public that is going to be interested in the well-being of others and in things other than their fairly narrow self-interest is going to be a minority and the question is how do you construct a system in which that minority is least hindered and in my opinion that's a system in which government has very limited power and in which private voluntary activity has a maximum of opportunity to develop thank you let's see if we can get some more questions here all right yes sir um given that the best intentions of the government has failed to provide the government has no intentions only people have intentions all right the best intentions among the people in power and government has failed to provide adequate housing for the poor well go slowly i never talked about the best intentions of the people in power in government i talked about the good intentions of the people who promoted those legislation that legislation once you get legislation the people who get in power in government are people who want power not people who have good intentions yeah that's a very different thing though it's not really the question i had in mind okay we'll work our way around through it what i what i was hoping to ask is what specific policies you propose which would lead to adequate housing for all the poor well in the first place you know these are words that really have no clear meaning adequate housing for all the port those are not definable words what's adequate what we now consider inadequate would have been considered a palace 150 years ago it would be considered a palace abroad i don't know if you all know the story about the about the movie that was made out of john steinbeck beck's great grapes of wrath and it was shown during the war i think shortly thereafter but i think during the war in the soviet union and it had to be withdrawn because the people were so excited and interested about the quality of the clothes and shoes that the okies going out west were wearing it backfired so adequate poor the average the the the income which we now use in this country as a governmental standard to separate the poor from the outboard is higher than the average income of all the people in the soviet union it's decidedly higher than the average income of most of the people in the world these are not absolute standards they're relative so you have to ask a very different kind of question what kind of system will give the widest range of people the greatest opportunity to make the most out of themselves out of their own capacities their own resources what are the plans for doing that i don't i'm not going to try to have a program which will give adequate housing to the poor i want to have a system under which individuals can can have as much opportunity as possible to develop themselves and in which other people can have as much opportunity as a possible to help other people and i would i say that system would be a system of essentially free enterprise private enterprise capitalism with a with a very limited government and in that system you have in fact achieved higher standards of housing than you have through other methods the number of privately built houses is always vastly exceeded the number of government uh built houses so that i i i'm not answering your question directly but i'm going at it indirectly you and i seem to have been involved in indirect circles thank you yes professor friedman there are certain social goods that cannot be supplied by the private marketplace such as one um well let's say there's there are goods that either the marginal benefits cannot be separated or that they're so lumpy that such is what you've had them for years is there any reason why this interstate highway that you have the the great interstate new york throughway is there any reason why that couldn't be leased out to private enterprises to run i could finance it by charging a fee okay my question concerns social goods i yeah do you accept the fact that there are certain goods that the private economy cannot supply i accept that there are goods which the private economy is not likely to supply i accept that there are goods in which it is difficult through a private economic system to charge everybody who gets the benefits from it okay in those cases however it is also true that it's not easy for the government to supply it you see the problem with the direction you're going is that there's a strong tendon to say here's a market failure i have no way in which rochester university can be made to pay those citizens of rochester whose shirt is dirtied by the amount of smoke that comes from rochester university's chimneys right that's a market failure rochester is imposing a cost on people that ought to pay them for it it's buying their services in effect their services of letting their shirts get dirty so that rochester can heat its building right now that's true that's a problem but in those same cases it's also difficult to have government do anything about it and if you're going to consider cases of market failure like that you have to put into the balance the fact that when government seeks to achieve an answer to it you're likely to have a government failure i agree yeah okay i was leading up to this question like okay considering that there are externalities like as you said pollution right how can government limit itself to distinguish between the social goods and the private goods well it cannot and there is no easy way to limit there aren't hard questions there isn't an easy answer for every question and the my answer would be to you twofold it would be first of all if government decides to do something in that area it will do least harm and most good if it doesn't via effluent charges are the equivalent rather than via setting standards or imposing specific requirements second government or not to step in and try to do anything unless there is a very very strong case that the net disadvantages and that third-party effect are of significant magnitude because the costs of doing it are significant government is going to do it imperfectly and you're comparing one imperfection with another and i think we've had a great deal of experience by now which suggests that you're about as likely to make matters worse as you are better that's not a clean and neat answer and i don't think you can get a clean and neat answer because i think in all of these cases you're dealing with a balance sheet in which there are certain advantages of the proposed action there are certain disadvantages and you have to weigh them up and all i'm urging is that you make sure you look at both sides of that balance sheet and not only at one that you don't take the naive view which so often is taken that lo and behold there's an evidence of a market failure boom government should step in and do something about it without taking into account the possibility of a government failure as well thank you if the middle class control this coalition that you were talking about earlier why are they so upset with the way the government is handling their life and their share of the pie i was explaining that to you earlier and that was because they really don't get anything out of it they're all each one separately you see it's a fallacy of composition it is true every individual program works this way but what you gain on the one you lose on the other and the problem is that you have a system under which each one of us tends to have concentrated interest in certain ways and the costs are diffused and therefore each one of us gets our program but at the expense of paying everybody else's right and so the net outcome is that that we may be worse off and what you have is a situation in which you have as it were a local equilibrium but you don't have a global equilibrium in which there's a drastic rearrangement which would make everybody better off right but if that's the situation why can't we find a method to overcome all these impediments and arrive at this global equilibrium because i hope we can the purpose of my talking this way and if you're listening and of our trying to persuade one another is to try to see if we can find a way to do it and i think the way to do it is to try to wrap these programs together and have attack attack it through some kind of constitutional limitations on the aggregate amount that can be spread in these ways thank you thank you

Channel: BasicEconomics

Views: 642,245

Keywords: liberty, Milton Friedman, Economy, Economic, Freedom, Economics (Field Of Study), Welfare, social justice, equity, equality, social assistance

Id: 08_UHiDWRFM

Length: 27min 3sec (1623 seconds)

Published: Thu Apr 26 2012