Free to Choose, the Ideas

Free to Choose, The Ideas of Rose and Milton Friedman This paper analyzes the argument of Rose and Milton Friedman about the power of the market. The primary questions which are addressed include: what is the core of the Friedmans' economic argument, is the argument reasonable, and does the author find this argument convincing? This paper will then analyze if the argument is viable, workable and desirable (Friedman, 1980). The fundamental argument used by the Friedmans is that the free market, independent of government interference, maximizes income and opportunities for all.

The second argument of the Friedmans is that increasing government size both limits personal freedom and impoverishes the governed. The Friedmans chose a fairly "pure" example, Hong Kong, to illustrate that the unfettered ability to conduct commerce enhances total income. Rose Friedman's argument has a main point and a corollary.

Her main point is that humans were meant to be free: What is the right thing to do? What is the best way in which we can widen our opportunities, preserve our freedom, maintain our prosperity (Friedman, 1980)? Friedman argues that her ancestors -- as well as those of most Americans -- came to America in search of freedom. It is the exercise of this right to freedom that leads to the major benefit in economic terms: increased economic success. The primary motivator for the Friedmans is personal freedom.

Is the argument convincing? There are certainly cases where economies have succeeded for a short time where personal freedoms have been curtailed: Nazi Germany continued economic growth up to the Second World War, and South Africa continued to have economic success under apartheid. This author would argue that the economic success of a regime which takes away personal freedom is temporary, and subject to change or cataclysm.

In the case of Nazi Germany, there was no outcome other than war; the nation's increase in spending was mainly through public works and war preparations. In South Africa, political instability resulted from continual repression, which led to a change of regime.

Friedman's second argument is that increasing government's "take" of the economy and controls over the economy not only restricts personal freedom, but results in a lower overall income for its citizens: in the past 50 years, we've been squandering that (democratic) inheritance by allowing government to control more and more of our lives, instead of relying on ourselves. We need to rediscover the old truths that the immigrants knew in their bones; what economic freedom is and the role it plays in preserving personal freedom.

Microeconomic analysis covers the term "rent," which is the difference between what the government takes, and what we actually receive in benefits. This effect is sometimes called "rent," or, in Bade and Parkin, "inefficient bureaucratic overproduction." (Bade, 2007). "Rent" hurts economic prosperity in three ways: It reduces the incentive of the productive elements of society to maintain or increase their productivity.

To take an extreme example: if (as in Great Britain in the 1960's) the incremental income tax rate is 95%, a worker will generally choose not to work that extra hour, or create a new good. It reduces the incentive of less-productive workers to create or to work productively, as the State is paying them more than they are producing. An example of this is unemployment insurance: the longer it is paid, and the higher the amount, the longer people stay unemployed.

Thus, in Germany, where unemployment benefits are paid at >70% of average income for at least two years, long-term unemployment is much higher than in the United States, where most unemployment benefits (averaging less than 40% of average incomes) cease after 6 months. The state itself takes part of the revenues derived from the more productive elements as it doles them to the less productive in society. The more money that is taken, the greater the 'non-productive' government take.

This inefficient bureaucratic production can take the form of additional taxes on society, or the form of raising costs (due to regulatory compliance). Society is willing to accept some elements of governmental intrusion, such as minting money and public defense. When voters prefer to expand government's role to redistribution of income, increased regulation or other forms of support, a significant "free rider" problem occurs (Bade, 2007). This means that those providing the bulk of the revenue to the State are not the same as those receiving it.

Those receiving (without paying) would naturally prefer more government hand-outs; if they are in the majority, the danger is that government can continue to grow, and command a "rent" which reduces overall productivity. Is the argument of the Friedmans viable and workable? The program "Free to Choose" was aired in 1980. Since that time, nearly one-half of the world's population has moved from socialistic and communist government control to greater personal and economic freedom. These people include those in China, India, Southeast Asia, much of Latin America and Eastern Europe.

The result of this freeing of government controls has been an unprecedented growth rate in the world. In the past decade, for example, global GDP grew at 3.1%, with growth rates in China and India at 9% and 6.3% per year over the past 11 years (Economist, 2007). If the Friedmans were alive today, they would attribute this tremendous growth rate to the reduction of government interference and the growth of personal and economic freedom.

Is the Friedmans' argument desirable? In "Free to Choose," the interviewers make the point that society is more complex today than it was in Adam Smith's time, and therefore people need to be "protected" by their governments by the rapacious forces of naked capitalism. Friedman argues that the free market system works better than previous centuries where trade was restricted and governments had a greater role in peoples' lives. This author agrees that economic and personal freedom, while chaotic, assure better economic situations for all.

Note that in China the peasants on the farms received economic freedom starting in 1965. Deng Xiao Ping's agricultural market reforms of 1980 resulted in a 40% increase in peasant incomes in the 1980's. Although there is a considerable hue and cry about income inequality in China, all levels of society are considerably better-off today than they were under Communist China (Li, 2005).

If the Friedmans' argument is desirable, why is there such a consistent cry for more government spending, for greater government regulation, and, as a result, reduced personal freedom and the reduction of incentives to innovate and produce? Michael Harrington of the Democratic Socialist Organizing Committee in "Free to Choose" phrased his concerns as follows: would argue that both economically and in terms of repressing the attempts of people to assert.