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August 20, 2017

Milton Friedman and the Role of Government


greed-214x300In Milton Friedman’s Capitalism and Freedom, he opens with the following.

“First, the scope of government must be limited. Its major function must be to protect our freedom both from enemies outside our gates and from our fellow citizens: to preserve law and order, to enforce private contracts, to foster competitive markets…by relying primarily on voluntary co-operation and private enterprise, in both economic and other activities, we can insure that the private sector is a check on the powers of the government sector….”

Thomas Paine also discusses the role of government in his essay Common Sense written in 1776. “Society is produced by our wants and, government by our wickedness; the former promotes our happiness positively by uniting our affections, the latter negatively by restraining our vices.”

Thomas Paine provides as example that a society begins when a small number of persons settle in an area separated from congenial surroundings. In this state of natural liberty, necessity due to differences in age, skills, intellect, and health would soon form the persons into a society. The reciprocal benefits would:

“supersede, and render the obligations of law and government unnecessary while they remained perfectly just to each other …but as nothing but Heaven is impregnable to vice, …the necessity arises of establishing some form of government to supply the defect of moral virtue.”

Milton Friedman specifically describes the government’s role in terms of military, legal, and economic responsibilities; he speaks specifically that voluntary cooperation with the private sector insures a check on the government sector; and with that the forces in play were stronger than and would overcome any self-interest considered detrimental to the market.

Thomas Paine is also specific, that government is a necessary evil; the size of government “evil,” the bureaucracy, must be of such strength and flexibility as to continually defend society from its own individual and collective vices.

Greed is easily argued to be society’s greatest vice; and where there is money, there is greed.

Collective greed is demonstrated when, in the interest of profit through financial gain, we throw destitute families out of homes, allow the uninsured to die, wage useless wars, poison and pollute the ecosystem, slash social assistance programs, gut public education, trash the global economy, plunder the U.S. Treasury and crush all popular movements that seek justice for working men and women.

Individual greed is demonstrated when in the interest of satisfying physical and emotional desires, financial gain is sought without providing an equitable contribution of service in return; assuming the individual is physically capable and effectively educated.

Bringing Thomas Paine’s thoughts to present day, Nico Vorster in his 2010 essay, An Ethical Critique of Milton Friedman’s Doctrine on Economics and Freedom states that many analysts: “attribute the 2008 financial crisis directly to Milton Friedman’s Neo-liberalism economic policies adopted since the 1980’s by Western Countries… free trade and open markets, privatization, deregulation, and decreasing the size of the public sector while increasing the role of the private sector in modern society … that these deregulatory measures lead to irresponsible lending by banks, unethical practices in stock markets and a perpetual gross misconduct in the market place.”

Bernie Sanders (I-VT) provides an excellent example of irresponsible behavior, unethical practices, mixed in with generous amounts of collective and individual greed. In October 2010, a group of 80 CEOs went before Congress stating the need to cut Social Security, Medicare, and Medicaid, while lowering tax rates for millionaires, billionaires, and the largest corporations in America. These are some of the same CEOs who head corporations that:

  1. Received a total taxpayer bailout of more than $2.5 trillion from the Federal Reserve and the Treasury Department and nearly caused the economy to collapse just four years ago.
  2. Avoided at least $34.5 billion in taxes by setting up more than 600 subsidiaries in the Cayman Islands, Bermuda, and other offshore tax havens since 2008; in 2010, Bank of America operated 371 subsidiaries incorporated in offshore tax havens, more than any other financial institution in the United States. 204 of these subsidiaries are incorporated in the Cayman Islands, which has a corporate tax rate of 0%.

A dozen of these companies paid no corporate income taxes in at least one year since 2008, while receiving more than $6.4 billion in tax refunds from the IRS, after making billions in profits.

During the financial crisis, JP Morgan Chase received a total of more than $391 billion in virtually zero interest loans from the Federal Reserve, and a $25 billion bailout from the Treasury Department, while Jamie Dimon served as a director of the New York Federal Reserve. Likewise the Federal Reserve provided GE with $16 billion in financial assistance.

More recently as Matt Taibbi points out in his Rolling Stone article “The $9 Billion Witness: Meet JPMorgan Chase’s Worst Nightmare” – despite the enormous fine no one from JP Morgan Chase has been convicted of any wrong-doing. Here we have some of the same people who “contributed” significantly to the explosive deficit.

Consider then the following questions with respect to Milton Friedman’s statement “… the private sector is a check on the powers of the government sector.”

  1. Has the concentration of power shifted from the government to the private sector such that government can no longer perform the duties as outlined by Milton Friedman “to protect our freedom both outside our gates … and from our fellow citizens: to preserve law and order?”
  2. Has the concentration of power shifted from the government to the private sector such that “voluntary co-operation and private enterprise … insure that the private sector is a check on the powers of the government sector” no longer is viable because the most financially powerful aspects of the private sector cannot be trusted and have an insatiable appetite for more of everything?

Milton Friedman’s long life was spent promoting his economic theories, successfully and persuasively. The results will be debated for many years, by individuals at all levels of academic, economic, and political experience. His theories may have been with good intention, but when applied to the real world did more harm than good.

The harm resulted from Milton Friedman’s idealistic view that human behavior, their self-interests, would be molded and controlled by forces of the market. The harm resulted from those industries and companies of the private sector who hijacked and manipulated Milton Friedman’s political theories to their own advantage.

Milton Friedman decried Socialism, but through the hijacking of his political theories, provided the base for Corporate Fascism. A governmental system led by a dictator (Big Banks, Big Oil) having complete power (purchased through Citizens United), forcibly suppressing opposition (unions) and criticism (media ownership), regimenting all industry (right to work), commerce, etc., and emphasizing an aggressive nationalism (anti-immigration) and often racism.

With all due respect to Milton Friedman, I wonder if Thomas Paine were to meet Milton Friedman in the next world he might say

“Mr. Friedman you are a bit naive regarding human nature”

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I was born and raised in a south side neighborhood of Chicago that was comprised primarily of blue-collar Poles, Irish, and Italians. Many families had arrived from Europe in the first half of the century. Following nearly 40 years of vacationing in Maine, my wife Wendy and I relocated in 2011. Best decision of our lives. I have an undergraduate degree in Secondary Education from Elmhurst College in Illinois. Did my student teaching and discovered it was not me. That was followed by a forty year career in technology, first as a programmer and then management. At 42 received my MBA from the University of Chicago. In 2008 I completed the University of Chicago’s Basic program – a four year curriculum of readings and discussions focused on the fundamental importance of critical thinking and civil discourse. I enjoy reading all genres and believe strongly in the humanities as the basis to life-long learning. www.somethoughtsfrommaine.com

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  • Old Man Milt

    “The existence of a free market does not of course eliminate the need for government. On the contrary, government is essential both as a forum for determining the “rule of the game” and as an umpire to interpret and enforce the rules decided on.” – Milton Friedman

    The SEC, FINRA, and the ratings agencies were perfectly fine with the AAA ratings because they didn’t understand what they were rating. When the umpires don’t understand the game everyone loses.

    And its reckless to not factor in the highly popular Affordable Housing Act as a cause for the crisis. Time named Clinton one of the top 25 people to blame.