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Posts Tagged ‘Milton Friedman’

From an economic perspective, too much government spending is harmful to economic performance because politicians and bureaucrats don’t have very good incentives to spend money wisely.

More specifically, labor and capital will be misallocated because people in government generally are guided by political motivations.

By contrast, there’s a bottom-line incentive in the private sector to use resources wisely. This generates the most prosperity for society because the only way to earn income in a free market is to produce goods and services that other people value.

That’s sort of a macro perspective.

From a micro perspective, when government allocates money, you can only make yourself better off by taking from others. In a market economy, you make yourself better off by serving others.

In other words,enlightened self interest (you can even call it “greed” if you prefer) is channeled productively in a free market system, as Adam Smith observed several hundred years ago.

Now let’s look at a visual perspective, as illustrated by this image I saw on Reddit‘s libertarian page.

Whoever put this together was quite clever to highlight the fact that people in the private sector generally buy in the top-left quadrant while people in government generally buy in the bottom-right quadrant.

And if you want to see the late Milton Friedman discuss this concept, here’s a video for your viewing pleasure.

I’ll simply add a few observations. One of the reasons I often compare market-oriented nations and government-oriented nations is to highlight how countries are more likely to become prosperous when most resources are allocated by private decisions rather than political decisions.

In other words, South Korea out-performs North Korea because its economy is largely driven by decisions in quadrant 1.

Just like Chile out-performs Argentina and Argentina out-performs Venezuela for the same reason.

P.S. This video on profit, narrated by Walter Williams, is a good addition to the insight of Smith and Friedman.

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It’s time to correct a sin of omission.

In five-plus years of blogging, I haven’t given nearly enough attention to the wisdom of the late (and great) Milton Friedman.

Yes, I did say he was at the top of my list of great economists in a 2010 interview, and I’ve cited what he said about the correct goal of fiscal policy being smaller government rather than fiscal balance.

Moreover, I’ve quoted him many times (here, here, here, here, here, and here) to help explain why higher taxes simply lead to more government spending rather than deficit reduction.

But I’ve never once shared an interview of Friedman, which is a big oversight because of his incredible ability to advocate for economic liberty.

So let’s rectify this mistake. A reader emailed me this video, which purports to show Professor Friedman jousting with a young Michael Moore (yes, supposedly that Michael Moore, though I don’t know if it’s actually him).

But the identity of the questioner isn’t what’s important. Listen to Friedman explain the merits of cost-benefit analysis and consumer choice.

Amen. I love what he said about letting people make their own decisions about how much risk they wish to accept given relative prices.

If you want more Friedmanesque wisdom, I’ve also quoted him on issues ranging from immigration to “temporary” government programs, and from Swedish poverty to tax competition.

He also explained that there are four different ways of spending money, only one of which yields real efficiency (Jay Leno channeled some of Friedman’s wisdom when commenting on Obama shopping for Michelle)

And I’ve even noted that he helped guide the development of Economic Freedom of the World.

P.S. I do have one small disagreement with Milton Friedman. He supported the notion of a negative income tax/guaranteed annual income. His goal was noble, to replace the plethora of counterproductive welfare programs run from Washington, but I think a better approach is to get the federal government totally out of the business of income redistribution.

P.P.S. As I already stated, I don’t know if that was the (in)famous Michael Moore jousting with Friedman, but I can say that the Michael Moore of today is a big hypocrite when it comes to inequality.

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