Free Trade for All

Did Milton Friedman Give Two Pennies for the Poor?

Lanny Ebenstein's recent biography of economist Milton Friedman has garnered significant critical attention.
Paul Wellman

Lanny Ebenstein, former school board member, failed mayoral candidate, and current UCSB lecturer, has a new book with which to burnish his reputation as Santa Barbara’s most prominent Libertarian. Milton Friedman, the first biography of the great economist published since his death in November 2006 at age 94, has garnered positive reviews from publications like The Economist and the Financial Times. It’s easy to see why: Finely written, the book manages to make accessible and even exciting the life and ideas of its eponymous subject, the grand pooh-bah of monetarism, low taxes, and really, really free Free Trade. Here Ebenstein discusses Friedman’s legacy, arguing that he wasn’t an anarchist, was wrong about Clinton, but was right about low taxes and less government.

In your book, you write admiringly of how Milton Friedman fought for lower taxes, freer trade, and less government regulation of commerce. But you don’t mention that from the mid ’70s to today, when his ideas became orthodox among policymakers, economic inequality in the U.S. skyrocketed. Friedman’s idea was that rewarding people for economic productivity by lowering taxes will increase economic growth. There’s no question that economic inequality has increased in our society over the last thirty years, but it’s a trend that started before the mid 1970s. And I think social issues played a large part in it.

Lanny Ebenstein's recent biography of economist Milton Friedman has garnered significant critical attention.
Paul Wellman

At this point, the countries that are emphasizing growth-oriented policies-which are typically lower taxes, less regulation, less government role-are doing better than countries that don’t emphasize those policies. If you look at the former Soviet Union and the United States, South Korea and North Korea, East and West Germany, there’s no question about which society was more successful over time.

You’re comparing communism with capitalism. Critics of Friedman aren’t embracing communism. They’re saying that some government regulation can prevent unemployment, inequality, and unfair business practices. Friedman seemed quite absolutist in his support of laissez-faire free trade. Friedman wasn’t an anarchist. He didn’t think there should be no government. His view was that there’s far too much government. His public statements were in part intended to influence public opinion, and he stated them in clear and definitive forms, but I think that his academic positions were somewhat more nuanced.

Should we be troubled by that disparity? He believed that when you write for a public audience you have to paint in broader strokes. I think you could make that criticism of economists on the left, too. In practical politics, you have to speak broadly.

You write, “Friedman supported a deficit if it meant that government spending would be restrained.” Isn’t the notion that we should avoid a budget surplus to keep spending down circular reasoning? Friedman’s view was that government spending is so counterproductive to a nation’s economy that it would be better to have a budget deficit and a smaller government than a larger government and a balanced budget.

How would Friedman have assessed the Bush administration’s economic policy, which has been to issue large tax cuts while simultaneously increasing spending? Friedman generally supported tax cuts at any time for any reason. He supported the tax cuts of the Bush administration. But he would have disagreed with the increase in spending.

You concede in the book that the Clinton administration raised taxes, reduced the deficit and actually managed to turn it into a surplus, and decreased military spending, among other things, and during his presidency America experienced the most astonishing period of economic growth in its history. Friedman’s view was that much of the economic success of the Clinton years was built on the policies of Ronald Reagan, and that the election of a Republican Congress in 1994 was important in restraining the government spending that would have otherwise occurred : But I agree with you. I think in many respects Clinton ran a sound fiscal policy.

You write that Friedman believed that “businesses have no responsibility other than to their stockholders.” Especially considering the spate of corporate scandals over the last few years, is it moral and practical to absolve corporations of social responsibility? Friedman would have been for ethical and appropriate accounting procedures. Enron and these other corporate scandals would have horrified him. His view, and it’s one that I don’t particularly agree with, was that it is vital that businesses distribute all of their profits to their shareholders, as opposed to engaging in charitable contributions.

But the statement “businesses have no responsibility other than to their stockholders”-that’s much broader than whether or not businesses should engage in charity. He’s literally saying: They don’t have a responsibility to the greater social good, to shared moral principles, to issues of exploitation, and so on. I think his general point was that businesses serve the greater public good when they provide a product at the lowest price possible. And government regulation of the economy is unnecessary and interferes in commerce. One of the aspects of the profit system is that some people are better at utilizing resources than others. It’s good for society if resources are directed by individuals who are better at economic enterprise than people who aren’t.

The perennial criticism of laissez-faire free trade is that its advocates assume it operates like a meritocracy; people who work hard and have talent float, and people who don’t, sink. The criticism is: That’s utopian. Friedman agreed that the market is imperfect. The question is: Is there a better system, and in particular, do governments interfering in free trade result in a better system? His answer was no.

So his argument is that government regulation, whether it’s the U.S. or the World Trade Organization or whatever, doesn’t work to correct those imperfections. Two points. The first is that particular interests-rather than the general interest-often control regulation. And the second point, which is more fundamental, is: He just believed in freedom! If I want to trade you my labor for your money, or I want to buy a good from you and you’re willing to sell me that good, you and I should be able to do that, and the government shouldn’t interfere.


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