Milton Friedman Interview

As we finish out Passover (scholars have found that “slavery” in ancient Egypt meant being subject to a 20 percent income tax that full citizens did not pay) and prepare to file our tax returns for 2014 it seems like a good time to look back 42 years to Milton Friedman: The Playboy Interview.

Americans today want the government to set wages and, for at least some products, prices. President Richard Nixon made a foray into this area:

I regret that he imposed them; yet in doing so, I think he behaved the only way a responsible leader of a democracy could. He resisted controls for nearly three years when there was strong pressure for their introduction. He tried to make the case against controls, to educate the people about the causes of inflation and the best methods of fighting it— namely, reduced monetary growth and lower federal spending. But he failed and finally gave in to the popular demand for some kind of immediate and extreme measure to halt rising prices, and controls were the measure most people seemed to agree on. As a leader, that was a proper thing for him to do, even though he felt it was the wrong solution. He behaved the same way with regard to the war. Playboy: Aren’t you saying that there’s been a large element of political opportunism in Nixon’s reversals? Friedman: One man’s opportunism is another’s statesmanship. There is a very delicate balance between the two in our society. Good politics is what we should demand from our politicians— to a degree. We don’t want our leaders to charge off in every direction

What about the higher minimum wages that politicians around the country are currently debating and imposing?

A minimum-wage law is, in reality, a law that makes it illegal for an employer to hire a person with limited skills. Playboy: Isn’t it, rather, a law that requires employers to pay a fair and livable wage? Friedman: How is a person better off unemployed at a dollar sixty an hour than employed at a dollar fifty? … the effect of a minimum-wage law is to produce unemployment among people with low skills. And who are the people with low skills? In the main, they tend to be teenagers and blacks, and women who have no special skills or have been out of the labor force and are coming back. This is why there are abnormally high unemployment rates among these groups. … Blacks get less schooling and are less skilled than whites. Therefore, the minimum-wage rate hits them particularly hard. I’ve often said the minimum-wage rate is the most anti-Negro law on the books. Playboy: Couldn’t those who are hurt by minimum-wage legislation be trained for more skilled jobs at better wages? Friedman: The minimum wage destroys the best kind of training programs we’ve ever had: on-the-job training. … In an attempt to repair the damage that the minimum wage has done to traditional on-the-job training, you now have a whole collection of programs designed to take up the slack. The great proliferation of governmental programs in which employers are subsidized to provide on-the-job training gives employers an incentive to hire people and then fire them in order to get other people for whom they can get more subsidies.

Friedman plainly did not foresee the expansion of the Welfare State or the development of Xbox and Comcast! (Or he would not have asked how a person could be better off unemployed than working at a crummy job!) Why do we have so much poverty after 42 years of expansion of anti-poverty programs since the interview?

the law of supply and demand works very generally. If there is a demand for poor people, the supply of poor people will rise to meet the demand. In setting up programs such as Aid to Dependent Children and all the other welfare programs, we have created a demand for poor people. Don’t misunderstand me. I’m not blaming poor people. You can hardly blame them for acting in their own interest. Take a poor family in the South, working hard for a very low income. They learn that in New York City they can get $ 300 a month— or whatever it is— without working. Who can blame such a family for moving to New York to get that income?

If someone on welfare finds a job and gets off welfare, and then the job disappears— as so many marginal jobs do— it’s going to take him some time to go through all the red tape to get back onto the program.

If a man is working and has an income above the minimum, he’s not entitled to welfare. But if he deserts his family, they can receive welfare. That way, he can continue to earn his income and contribute it to his family, in addition to the welfare they get. Many ADC families are actually created by fake desertions. Of course, you have real desertions, too. If a deserted woman is going to be immediately eligible for welfare, the incentive for the family to stick together is not increased, to put it mildly.

How much inflation has there been since 1973? Friedman estimates the cost of “a survival existence” at $1,600 per person and proposes that this amount be exempt from income tax.

What about the estate taxes that fascinate Thomas Piketty and some American politicians?

There’s no such thing as an effective inheritance tax. People will always find a way around it. If you can’t pass $ 100,000 on to your children, you can set them up in a profitable business; if you can’t do that, you can spend the money educating them to be physicians or lawyers or whatever. A society that tries to eliminate inheritance only forces inheritance to take different forms. The human desire to improve the lot of one’s children isn’t going to be eliminated by any government in this world. And it would be a terrible thing if it were, because the desire of parents to do things for their children is one of the major sources of the energy and the striving that make all of us better off.

After giving about 40 percent of your income to local, state, and federal governments via property, sales, income, excise, and other taxes, are you feeling charitably inclined? Friedman says that, if so, you’re in the minority:

One of the worst features of the current system of Social Security and welfare arrangements is that it has drastically reduced the feeling of obligation that members of society traditionally felt toward others. Children today feel far less obligation toward their parents than they did 50 years ago. If the state is going to take care of the parents, why should the children worry? Similarly with the poor. Who feels a personal obligation to help the poor? That’s the government’s job now.

How about the evil Koch brothers who now use their money to get American voters to dance to their tune?

under capitalism, the power of any one individual over his fellow man is relatively small. You take the richest capitalist in the world; his power over you and me is trivial compared with the power that a Brezhnev or a Kosygin has in Russia. Or even compared in the United States with the power that an official of the Internal Revenue Service has over you. An official of the IRS can put you in jail. I doubt that there is a person in the United States who couldn’t be convicted of technical violation of some aspect of the personal income tax.

Friedman pushes for the elimination of government-run schools and the provision of tuition vouchers to American children partly to achieve integration by race and income class. Friedman asks why the neighborhood in which a family can afford to live should also determine the schools that their children will attend. Friedman thinks that Americans will come around to the idea of shrinking government’s role in society:

Galbraith said a few years ago that there wasn’t anything wrong with New York City that couldn’t be fixed by a doubling of the budget. Of course, that’s happened and things are worse now than when he made the remark. So one of the things that encourage me just a little is the proven inefficiency of government, regardless of how big it gets. I think people are catching on to it.

New York City became insolvent in 1975 and government spending as a percentage of GDP has risen in the years since the Friedman interview. Did he not foresee any of that?

You have to consider the ideological climate. The spirit of the times has gone against freedom and continues to go against it. There are still intellectuals who believe that concentrated power is a force for good as long as it’s in the hands of men of good will. I’m waiting for the day when they reject socialism, communism and all other varieties of collectivism; when they realize that a security blanket isn’t worth the surrender of our individual freedom even if it can be provided by government.

7 thoughts on “Milton Friedman Interview

  1. Regarding Nixon, I think Friedman was being partisan. He never would have defended a Democrat for doing the same thing.

    Friedman was right about most things , and the Russians themselves got rid of Communism, but I don’t think he foresaw the ethnic and demographic shifts that immigration and differential birth rates would cause, so that you now have a large population that is predisposed to statist interventions. Most people only disfavor government interventions in certain areas but favor them in others. If you are a “conservative”, you don’t have any problem with the government intervening to make abortion illegal but dislike gun regulations. A liberal desires the opposite, but neither is consistently against intervention in all areas.

    The other thing he didn’t see was that globalization would end up hurting the average American worker so that we are a more polarized society. We are all richer than when $1,600 was an adequate minimum income, but the rich are much richer and the poor have had their benefits increased but working stiffs no longer have union jobs with benefits at the local factory (which has closed and moved to China or Mexico) but scratch out a living at Wal-Mart, Mc Donalds, etc.

  2. “A minimum-wage law is, in reality, a law that makes it illegal for an employer to hire a person with limited skills”

    But without a minimum wage law, you get a race to the bottom among skilled workers. If there are 10 candidates for one job paying $10 an hour, and no other jobs available, most of them will accept $9.75, or $9.50, or $6, or less.

  3. Mark: By your reasoning countries without a minimum wage should have a market-clearing wage of 1 cent/hour or 1 cent/week. That is not what has been observed, however.

    You could make the same argument about cars. Because there is no government-set minimum wage the price in the market should be very low. For every car buyer there are at least 10 candidate suppliers with factories capable of making one extra car. So we should observe the same “race to the bottom” that you posit and be able to get a Honda Accord for 1 cent (or, at any rate, no more than 1 cent over the cost to Honda of the materials). explicates and illustrates what Milton Friedman was talking about.

    You can also do an at-home test of your theory. Plumbing is a skill. See if you can hire a skilled plumber to come to your house this week for the current minimum wage in your area. If not, ask the plumbers who rejected your minimum wage offer what was their reason for doing so.

  4. Ancient Egypt had a tax of 20% of the harvest for slaves. That is like a 20% revenue tax and much different from a 20% income tax.

  5. This is not Friedman the economist – this is Friedman the partisan ideologue. “…if you can’t do that, you can spend the money educating them to be physicians or lawyers or whatever. A society that tries to eliminate inheritance only forces inheritance to take different forms. ”

    How do you compare spending money on educating an extra doctor, vs inheritance (free money paying that child to sit around and play XBox forever). Or is he saying that incentive to spend your money educating your kids or, hey other exemptions like charitably educating other people’s kids is just the same as giving your children incentives to not work?

  6. Milton Friedman was right about several things. But he definitely made a big mistake, which was inventing the income tax withholding scheme. Believe or not, the IRS opposed the idea at the time as impractical! I think he took it from the income withholding that department stores when selling their products (I guess some form of credit). I think the income tax withholding scheme is just another example where politics (WWII) took priority over economics for Milton.

    More info on this link about the curse of the withholding tax:

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