PRESIDENTIAL REPORT CARD: Milton Friedman on the State of the Union

funding for this program is provided by the star foundation and Ann and Peyton Lake welcome to uncommon knowledge I'm Peter Robinson our show today the State of the Union or more precisely the State of the Union according to the Nobel prize-winning economist Milton Friedman every year the President of the United States travels from the White House to the House of Representatives to deliver a major televised address the State of the Union address the president outlines for the American people the accomplishments of his administration to date the challenges the nation still faces and his programs for meeting those challenges now by the time the president delivers his address it will have been worked on for many days by the President himself and by a large team of speech writers there will have been Draft after Draft after draft markups cross-outs Corrections of all kinds yet when we finally see the address when we watch the president seemed to speak all but flawlessly for 30 40 minutes or more delivering a speech that must be many pages in length we never see him refer to a single sheet of paper the trick a machine called a teleprompter that projects the text of the speech onto a plate of glass in such a way that the president and he alone can see it a trick with mirrors an illusion Milton Friedman perhaps the most influential economist of the last half century believes that when Bill Clinton gave his own most recent State of the Union address the teleprompter wasn't the only illusion the speech involved Milton Friedman we were in the sixth year of the Clinton administration the nation is at peace the economy is booming the federal government has gone from a budget deficit of 290 billion dollars in 1992 the year Bill Clinton was elected to a surplus of at least seventy six billion dollars for this year don't you want to give Bill Clinton and a know I want to give the economy a give the economy and Enka how much credit does he deserved well there's only one way in which I believe he deserves some credit because you have a Democrat in the White House and Republicans in Congress control of Congress it's hard to get any laws passed and that's been a great advantage the source of our prosperity and in my opinion dates back to mr. Reagan's reductions in tax rates 1980 to 1982 and the deregulation during the Reagan administration would also go down to the 1986 Tax Act which eliminated a lot of innocent interventions so we or CH initely which have been creeping back in and that unleashed a private enterprise boom which it were still benefiting we're not in the sixth year of the Clinton demint an expansion we're in the 17th year of the Reagan exactly of the Reagan I won't call it a boom because it really hasn't been a boom it's been a very good healthy expansion steady sustainable into a boom in the stock market but so far as the economy is concerned the average rate of growth does not is not out of line with what it's been in the past many times that's in line with historic longer term rate of growth since the early since the Civil War for example is in the order of about three to four percent a year of which one percent is population growth one-and-a-half to two percent per capita growth and we're in about that same range but it's been a notable period for other things it's been a notable period because we've had this expansion at the same time that inflation has been brought down and relatively stable and for that the credit belongs to the Federal Reserve under the leadership of Alan Greenspan I think Alan Greenspan deserves more credit for that then than anything else more credit than he's being given or more than Bill Clinton more credit Oh Bill Clinton deserve no credit for that right that's entirely a result of the fit of the Fed in its behavior the Fed has done a lot of bad things in the past and so I'm delighted to be able to give it credit from one good thing and it's done very well under alan greenspan does the does the so to speak extra constitutionality of the Fed disturb you yes I have always been in favor of abolishing the Fed from a purely primarily from a political point of view and what would you how would you handle the currency how would you then manage the currency without the Fed all right my favorite proposal is to have a fixed amount in what's called high powered money and just keep it there just keep the money supply static not the money supply high-powered money the widget RNC plus the reserves in the banking system that are now deposits in the Fed and under my system you would convert to currency so you would eliminate the policy functions of the Fed but you might keep a few of their statisticians around to keep tabs on the money supply well I don't even have to do that you just have to keep somebody around to make sure that you replace the worn-out notes again keep the stock a quantity of money in that narrow sense of currency essentially unchanged or if you want growing at 3% a year but some purely mechanical regimes given that you do have a Fed it makes a great deal of difference how it performs I believe that the inflation that we had in the 70s was primarily the responsibility of the Fed I believe that the Great Depression of the 30s was primarily the responsibility's effect so I'm not it has in the past done a great deal of harm but as it happens in the last in this last eight years or so it's it's been very good and has just the last eight years or would you give some would you compare Volcker as well now in that case man's predecessor that's an interesting case because you have to give the credit there really to Reagan there is no other president who would have stood by while the Fed followed the policy it did if you remember you don't remember that period before I would I had just started at the White House these days but if you if you go back to that period the stopping the inflation that was raging which reached double-digit levels at the end of the 70s and early eighties required stepping on the brakes hard and produced a recession and if you remember reagan's the popular ranking went way down in the town into the 30s 30s right no other president would have stood by and said to the Fed keep doing what you're doing you're doing the right thing but Reagan did do that and that's what unable to vote credit to what Volcker did back to the present to find out what Milton Friedman thinks of President Clinton's ledge slative goals for the rest of his term let me ask you to apply your thinking to the principle points of Bill Clinton's program for the remaining couple of years in office the president's program is intended will take old folks first - I quote now address the challenge of a senior boom by using the budget surplus to help save Social Security well the proposal if you look at it in detail is a complete fake a complete fake absolutely he wants to take 60% little more than 60% of the budget surplus away intact in here where does that come from he's counting that twice that that comes from the proceeds of the payroll taxes that are now in which in principle does not in practice or supposed to be used for Social Security but which have indeed been financing every irregular event if he doesn't do a thing about the surplus that would still end up in in bonds in the hands of the Social Security so-called trust fund you say he's guilty of but Fleming a flim-flam game with the books within 48 hours of that State of the Union address in which he made this proposal alan greenspan whom you have just praised endorsed the proposal in general terms not specific terms but he endorsed the proposal and the Republicans in Congress said yep that's a good idea sign us up for that - how is it that he's able to get everybody to go for what you call a flim-flam game look do you need to ask that question now after six years of Clinton how he's been able to get one flim-flam game after another how he's been able to bamboozle the people into thinking that he deserves higher ratings because he lies Clinton is a superb politician who has the most extraordinary capacity to exude sincerity it is an incredible phenomenon I think is he's a genius but go back to the Social Security program in the first thing to be said is that all this nonsense about saving something for Social Security is is pure fiction we do not it's wrong to think that what people are paying into Social Security by what people are paying in the form of wage taxes is what they're paying for their own security there is no relationship whatsoever we have a system under which you have a set of taxes for Social Security it's named for Social Security but doesn't matter their payroll taxes terrible tax is regressive taxes nobody you could not get a legislature to vote such a tax on its own can you imagine proposing a tax that we're going to impose intent let's say 16% tax on all wages from the first dollar up to the up to a maximum and nothing beyond that can you imagine voting that similarly we had the other side of the picture is that we have made a series of commitments to people like million I receive Social Security payments also it's my payroll tax that goes to you absolutely absolutely it's not only your payroll tax it's your income taxes whatever taxes you paid I get them you know and if you think you're going to get them you're kidding yourself it is a fundamental deceit hoisted upon the American people and sustained for lo these six decks aleut lee if you read the Social Security brochures they say this is a system under which you are putting aside money now for your retirement and that's not that is utterly fake but let's suppose it were true all right for a moment why is it why is it that it's appropriate for government to come and tell me what fraction of my income I should say for my old age if that's okay why can't it come in and tell me exactly what fraction of my income I have to spend for food what fraction for housing what fraction for closing let me show you the absurdity of this all right consider a young man of 35 who has AIDS for whom the expected length of life is 10 years at the most maybe maybe there'll be a cure but his expected length of life is not very long he's did really intelligent for him to put aside 15 percent of his income for for retirement at at age 65 it's outrageous it's outrageous really exactly the only word you can give to it and in my opinion the whole Social Security system is an outrage if Social Security is an outrage what would Milken free do about it well how would you get rid of it very simply Here I am I'm entitled to a certain number of payments in the future have the government give me a bond equal to the current present value of what a expected value of what I'm entitled to you have already accumulated some rights and so have the government give you a bond which will be due when you're 65 which will be the present value of what you've already accumulated under the law and then close the whole thing up and just close the books everybody gets what he's in telling what he's been promised the unfunded debt under Social Security is funded it's made open and aboveboard there's not a penny a transition cost and everybody is is the the the in my world the payroll tax would be abolished would be eliminated it's the worst tax we have on the books and everybody would be free to do what he wanted about his own retirement okay and he would do and on the whole he would do very well now undoubtedly people who argue against that say well what are you gonna do about these people who are so so careless and so unproven that they don't accumulate anything for retirement well what do you that's a general problem what do you do about people who are poor who whatever their own fault are not for their own for society and I in society in general is not willing to see them starve to death correct well I have always been in favor of having a program under which a negative income tax under which you will have some minimum income you will provide for people whether they are poor or whether they are indigent because they're clear they're their wastrels or whether they're indigent because they're in bad health even if it's their own fault that even they don't starve their B the problem is it's always seemed to me absurd that you make a hundred percent of the people do something in order to make sure that one or two percent of the people don't behave badly Milton that negative income tax proposal actually started to go someplace if I remember my history correctly that actually started to go someplace during the Nixon years did yes good cap Weinberger no nor Moynihan Pat Moynihan and what happened to it why don't he die because the public pressure was converted into a program that I testified against it's what happens in Washington all the time right right okay next question what would Milton Friedman do with the mounting budget surplus we've got seventy nine eighty billion dollars more coming in this year than the I'm in favor of reducing taxes under any circumstances for any excuse with any reason whatsoever because that's the only way you're ever going to get effective control of government spending sooner or later if you shut office if you don't if you don't reduce taxes to get rid of that surplus it's going to be spent the rule from not only the last few years hundreds of years is that governments will spend whatever the tax system will raise plus as much more as they can get away with the Republicans are calling for 10% it's not enough not enough what is it now Dan Quayle who's running for president has this is the most extreme extreme maybe the wrong word but this is the most dramatic proposal I'm aware of that's on the table anywhere at the moment he's called for a 30% cut is that enough I don't know I would cut as much as you can get away with so you'd run the numbers and give back virtually all these rules get back it's not it's not take you two you'd lower tax you know this idea of giving back which is the words we use assumes I take back my words but go ahead and go ahead and RAM them down my throat yeah but it assumes that every individual is a property of the government that all of the income that you earn is really the government's and it decides how much you can keep and how much it gets I've always said he treats people as if they were running around with an IBM card on their back which says do not mutilate punch or disturb right right you've got more money coming in at the moment then it's going out you ought to reduce taxes by enough to generate and you don't wanna pay down the debt oh no I want to generate a deficit because I want pressure on it to get the government to spend less you like a federal deficit no I don't like a federal deficit but I like lower government spend all right President Clinton has another proposal for using that surplus and he calls them USA accounts he's proposing to use about 11% of the surplus over the next 15 years or so to establish I quote now from his speech Universal savings accounts USA accounts to give all Americans the means to save again quotation here with extra help for those least able to save details to follow you like that idea no I think it's a terrible idea you know the idea is saying I'm gonna take your money but then I'll give it back to you if you do with it what I tell you to do is that the way you have a free society of free self-reliant individuals who are responsible for themselves it's a terrible do you even agree with the premise that the savings rate is too low in this country I don't agree with that premise I what is the right savings right well gee you're the Nobel Prize winners right savings ran in in a world in which you did not have distortions in which you did not have government stepping in and and distorting the rate at which people say they're not the right saving rate is whatever all of the people of the community separately want to save how much you want to save how much I want to say why shouldn't people be free to save what they want well here's let's move to a more theoretical question why do we end up with so many stupid government programs when we're supposed to be so smart in our own private affairs how is it you credit great intelligence shrewdness on the part of individuals when they're spending their own money and managing their own property in the marketplace how can we all be so dumb when we give up being players in the marketplace and become citizens participating in the political process we get take a hoodwinked by Clinton we go for this crazy sham of Social Security how can we be so dumb because it's always so attractive to be able to do good at somebody else's expense that's the real problem of our government government is a way by which every individual believes he can live at the expense of everybody else that's I'm just repeating what Basquiat said two centuries ago more than two centuries ago you know the thing that people don't really understand is that free societies of the kind we've been lucky enough to experience for the last 100 hundred and fifty years are a very rare exception in human history most people most of history and at any one time most people at any one time have lived in tyranny and misery and it's only for a brief period and why it is precisely because once you get some government program in may have been a very good idea it's always proposed for good reasons but once it gets in it becomes a special privilege of a small group which has an enormous Lea strong interest to maintain it and you do not have any comparable group that has an interest to get rid of it and therefore the hardest thing in the world is to get rid of any government program however badly it works in fact try to name any government programs that have been eliminated I only draft well that's not yes the draft is an example it's one of the rare examples of a program that has been eliminated one of the others was postal savings it used to be that the postal postal system had a savings system which became very popular as a result of the Great Depression but it disappeared why because by accident when they set it up they limited the interstate could pay on postal savings to 2% and when the market got out and that all the money was taken out opposed to savings and postal savings came to an end but aside from that can you name programs that have been a eliminated because they failed and so how are we set a limit on government and keep it coming back the only thing I can see on the horizon that offers a real chance are term limits term limits right now being a politician is a lifetime career being a congressman is a lifetime career do we have any evidence in the states where term limits apply that it has worked as you would like to see at work term limits have been in effect here in California for about a decade now whatever they may have been enacted a decade ago so they've been in effect for perhaps six years little early we had early we don't really have any very good however it still happened I had occasion to have a conversation the other day was a former governor of Virginia Allen Georgia Georgia everybody says he's going to be running for the Senate yes I intend to do all right however he he had Virginia has a one-term four-year term for the governor right and he said you know he said if we had had a two-year term if we had had situation that most states that you can run for a second term I would have spent a third and fourth year of my term working for re-election I would never have been able to get done what I got done it was the first real hands-on testimonial I've seen to a term limit it's not a good idea for being a legislature to be a lifetime profession they are the founders of our country had the idea of legislation as a part-time activity it is in many states today but on the federal government level it's a full-time profession right and that is very unhealthy because the the legislature it's not a criticism of the individual but any human being in that position he's going to sit in committee meetings and day after day he's going to hear arguments good arguments were the arguments for new programs he's going to forget very few arguments for getting rid of programs and the evidence is clear the longer people are in Congress the more willing they are to provoke government spending the polls all show the American people are very concerned about our public schools what does Milton Friedman think of President Clinton's proposals to improve those public schools President Clinton on public schools he calls this according to the white house fact sheet he wants to I quote raise standards and increase accountability in public schools this is I got to take a deep breath to get through this raise standards and increase accountability in public schools through proposals to end so promotion bring high quality teachers into the classroom intervene in failing schools provide school report cards to parents strengthen our commitment to smaller class sizes and boost our efforts for school modernization what grade do you give that proposal F F what does it mean it means more government control of schools what do we really need in schools we need competition what we have is a monopoly and like every monopoly it's producing a low quality product at a very high cost the way to improve that is to have competition to make it possible for parents to have a choice of the school's their children attend all high income people have that choice now they can move to they can choose their residents in a way that's good for private schools or they can send their children to private schools pay twice for schooling once in taxes and once in tuition no did the lower income classes can't they're stuck Milton didn't public schools used to work yes when I graduated from high school in 1928 there were 150,000 school districts in this country today there are 15,000 and the population is twice as great in the early days you had local control of schools and there was effective competition between a large number of local areas but school districts got consolidated they got run not by local people but by the professional educators and most important of all in the 1960s you began to have the emergence of teachers unions can taken control of schools and since 1960 since the teachers union started emerging you have had a on the whole a rather steady decline in the quality of schooling what was it about you want to improve automobiles right do you have government step in and tell tell people what breaks to put on and so on or do you rely on the fact that General Motors is going to try to beat Ford is going to try to beat Toyota competition is the most effective way to improve quality whether in computers in automobiles and suits or in schooling let me ask you to close if I may with a prediction it's 2009 ten years from today is the government of the United States bigger or smaller smaller your ideas are winning no the Internet is going to make it harder and harder to collect taxes how come because you'll be able to evade taxes you'll be able to do your deals in in the Cayman Islands so the internet so the at the moment I see the Internet is a bigger as a most likely source of a smaller government but and but it's not in your mind it really will have an effect that's not that's not speculative you know no I believe it will it I believe it's having it now I see okay Milton Friedman Bill Clinton I hope you're taking notes will send this we'll send a tape of this to the White House Milton and I are sure thank you very much thank you thank you dr. Friedman believes the government should be smaller and that it will become so maybe some future president will preside over such a small government that he can shrink up the State of the Union address enough to get rid of the teleprompter and deliver the speech from memory I'm Peter Robinson thanks for joining us for more information visit our home pages at www.stanford.edu or k teh org

Channel: Hoover Institution

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Keywords: HooverInstitutionUK, Friedman, economy, president, budgets

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Length: 26min 36sec (1596 seconds)

Published: Sun Apr 22 2012