This is part of a series on Milton Friedman’s “Free to Choose.”
In my previous post, I summarized Friedman’s beliefs about the Federal Reserve, its proper role, and how its failure is what leads us to economic problems (not capitalism). In his following chapter, “Cradle to Grave,” Friedman explains how the welfare state began to take off during the FDR administration.
FDR’s first election “marked a major change in both the public’s perception of the role of government and the actual role assigned to government.” This is clearly seen in the amount of national income spent by the government (national, state and local). For the federal government, FDR’s administration and Congress began to fundamentally change the way our economy had worked. They passed into law a nationwide minimum wage, the Securities and Exchange Commission, the National Labor Relations Board and more. Some of his damage to our economy (such as the National Recovery Administration and the Agricultural Adjustment Administration) was, thankfully, ruled unconstitutional by the Supreme Court.
WWII led to massive budgets and power within the federal government, and because the government was able to employ lots of people for the single purpose, unemployment shrunk and people began to believe in Keynesian principles. However, Friedman explains the problem with this thinking, which is worthy to quote at length:
It is one thing for government to exercise great control temporarily for a single overriding purpose shared by almost all citizens and for which almost all citizens are willing to make heavy sacrifices; it is a very different thing for government to control the economy permanently to promote a vaguely defined ‘public interest’ shaped by the enormously varied and diverse objectives of its citizens.He thinks it mistaken to believe that Keynesian economics works for something broad and diverse like an economy. WWII had a specific objective for which people could be unified to join together in (which led to people’s willingness to make sacrifices). Yet the public perception was that the government should begin to take care of us. This perception led to the welfare state being inflated by LBJ and his supposed “War on Poverty” (creation of Medicare and Medicaid). Examples such as Jimmy Carter’s Department of Education and Barack Obama’s Patient Protection and Affordable Care Act (better known as “Obamacare”) provide us epitomes of socialism. The present day examples of central economic planning are not the perfect description of socialism, which is best described as the means of production being planned by the government. But rather, it is a masked version of socialism because it transfers the results of production. And this masking of socialism still has the same consequences, albeit ones that take longer to witness (and perhaps easier to hide or to deceive people into thinking that such results are good). Consider this recent news article which seeks to show that Mitt Romney’s budget would mean guns over butter. What seems to be more necessary and helpful to a person, a gun or butter? The deception is in the unsaid assumption: “Government should provide butter.” It tugs at our heartstrings that people should have butter (or food), but it duplicitously avoids the truth about how wealth is created or what the role of government ought to be. In my next post, I’ll provide some examples of how the welfare state is uncontrollable and what Friedman thinks we should do to solve the problems.
