On the Soapbox

Since his death on Thursday, I have read a number of Milton Friedman tributes and obituaries. My favorite one so far has been this one at Salon by left-of-center economist Brad DeLong, which I think captures Friedman's world-view fairly well. DeLong's obituary is both amusing and insightful, and I highly recommend that people read it.

I think that Friedman's particular brand of libertarianism very closely matches my own. He believes in limited government, but unlike Ayn Rand and her wayward ilk, he believes that government does have a role to play because the natural order (e.g., markets) is imperfect and that, as a result, intervention is sometimes necessary. Like all economists, he is aware that perfect free markets do not (and will never) exist for a variety of reasons ranging from externalities to asymmetric information. For example, here is his take on externalities:

"Free markets" is a very general term. There are all sorts of problems that will emerge. Free markets work best when the transaction between two individuals affects only those individuals. But that isn't the fact. The fact is that, most often, a transaction between you and me affects a third party. That is the source of all problems for government. [source]

The DeLong obituary brings up the example of the London congestion tax, and in the case of environmental policy, Friedman has voiced support for controlling atmospheric emissions through a cap-and-trade system (the most well-known example of a cap-and-trade system to reduce pollution is the Kyoto Protocol). I have read comments from the left end of the political spectrum denouncing Friedman as heartless and as not caring about the losers problem of economics. While Friedman did support abolishing Social Security, welfare, and the minimum wage (all three of which I would like to see abolished as well), his calls for their abolition were not made in vacuum. Most people are not aware that he had championed for the negative income tax¹ as their replacement. Unfortunately, the NIT never gained political traction, and today, Friedman is remembered more for his attacks against the minimum wage than for his support of the NIT.

Although I agree with Friedman in principle, I sometimes do not come to the same conclusions that he does. For example, while he advocates selling off public lands, I think that the market's tendency to fail to properly price future value (a common problem with non-renewable resources) will make this a bad idea. Friedman justified government intervention based on pragmatic cost-benefit analyses: if the benefit to be gained from a market correction outweighed the cost of giving the government that extra bit of power, then there should be intervention, otherwise, it's not worth it. I personally am not as skeptical of government as he is because, at least amongst civil servants (politicians are a different story), there are many people who genuinely believe in doing good and not abusing power. This is not to say that government can be trusted, but that because people tend to have a non-zero sense of ethics and principle, the cost of granting that power to government may be lower than he estimates, and thus there are a larger number of circumstances where the cost-benefit analysis works out. I also think he sometimes overestimates the efficacy of private institutions that could take over some of the roles of government. In the case of selling off public lands, the private institutions that have power and influence right now are generally industrial in nature (which is partly the fault of government having taken the place of private institutions in conservation and partly the fault of markets being unable to price long timescales), and in the time it would take for opposing private groups to gather in strength to counterbalance industry, a lot of irreversible damage could be done. In any case, the differences in conclusions come mostly from technical points and not from points of principle, which is why I, too, will say that Milton Friedman will be missed.

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¹ Although I will not go into detail about the NIT here--the pros and cons of the NIT is something that I've been planning to write about in a separate blog post for some time now--the NIT would have not only served the same social welfare functions, it would have actually been even more effective at doing so.