May 26, 2018
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Flying with Milton Friedman a trip unto itself

By Caroline Baum, Bloomberg

As I was leaving the house last Friday for a full day of travel, I wanted something to read during airport holdovers and almost-certain delays. My only prerequisite was that the book be small enough to fit in my purse.

Whether I grabbed Milton Friedman’s “Capitalism and Freedom” because of recent tributes to the Nobel laureate — he would have turned 100 on July 31 — or because of the book’s compact size, I can’t say. But I’m glad I did.

“Capitalism and Freedom” was published in 1962. Much has changed since then. Top marginal tax rates have plummeted, the government has gotten larger and more intrusive, and federal deficits have grown exponentially.

What hasn’t changed is the appeal of Friedman’s ideas. His thesis of capitalism as a system for economic freedom and a necessary condition for political freedom is as valid as ever. The role of government is to protect that freedom while the role of the market is to organize economic activity, based on a voluntary exchange between individuals.

Rereading “Capitalism and Freedom” after a hiatus of at least 15 years reminded me just how relevant Friedman is. The application to the present day should be obvious:

“‘Full employment’ and ‘economic growth’ have in the past few decades become primary excuses for widening the extent of government intervention in economic affairs.” — Chapter III.

The subsequent six decades were no different. The 2008 financial crisis provided just such an excuse: “An opportunity to do things that you could not do before,” said Rahm Emanuel, President Barack Obama’s first chief of staff, outlining the administration’s crisis-management strategy following the last election.

Obama left the details of his $831 billion fiscal stimulus to the Democratic-controlled House of Representatives, which proceeded to lard the bill with pet projects that had little to do with stimulus and everything to do with priorities (tax credits for renewable energy, for example).

As for full employment and economic growth, there’s little to show for $5 trillion of newly minted debt since Obama took office.

Friedman took issue with Keynesian orthodoxy, as well. The idea that a dollar taken from the private sector and spent by the government is expansionary defies logic and is inconsistent with empirical evidence, he said.

One thing that has changed over the last 60 years: The econometric models have gotten more sophisticated, which doesn’t mean they are more accurate.

It’s a new century, but equality of income is still a social goal. Obama touts his tax-the-rich strategy as both fair and necessary to pay down the debt.

On the matter of fairness, the top 20 percent of taxpayers received about 50 percent of pretax income in 2009 and paid almost 70 percent of federal taxes, according to a Congressional Budget Office study.

As for making a dent in the debt, Congress’s Joint Committee on Taxation estimates that the Buffett rule, which would have imposed a minimum effective tax rate of 30 percent on those with annual income of $1 million or more, would generate less than $5 billion a year, the equivalent of one day of federal spending. (The JCT estimate assumes the Bush tax cuts expire at the end of 2012.)

Friedman said government mismanagement turned what would have been a modest contraction into the Great Depression. Specifically, the Federal Reserve allowed the money stock to contract by a third from 1929 to 1933. He preferred a monetary-policy rule — money growth of 3 percent to 5 percent a year — in order “to prevent monetary policy from being subject to the day-by-day whim of political authorities.”

Instead, we have the spectacle of Republican presidential candidate Mitt Romney discouraging the Fed from additional action and Sen. Chuck Schumer, D-N.Y., imploring Fed chief Ben Bernanke to “get to work.”

Obama demonstrated just that in what will go down in history as his “you-didn’t-build-that” speech. “I’m always struck by people who think, well, it must be because I was just so smart” or “worked harder than everybody else,” he said, seemingly belittling those who take ownership of their success.

I had pretty much finished “Capitalism and Freedom” by the time I boarded the plane at 9:30 p.m. for the last leg of my journey. I may have wanted something that was light in weight. What I got was something heavy in ideas.

Caroline Baum, author of “Just What I Said,” is a Bloomberg View columnist.

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