Free To Choose

The election of 1932, held during the Depression, “marked a major change in both the public’s perception of the role of government and the actual role assigned to government” (92). Since 1929, federal, state, and local government spending has risen from 12% to 40% of national income. In fact, “the role of the federal government in the economy has multiplied roughly tenfold in the past half-century” (92).

In 1933, President Franklin D. Roosevelt’s Brain Trust of advisors firmly believe that “active intervention by government—and especially central government—was the appropriate remedy” (93). To that end, FDR starts numerous government programs and departments; among these are Social Security, unemployment insurance, and public assistance.

World War II requires the government to take control of the economy with “fixing of prices and wages by edict, rationing of consumer goods, prohibition of the production of some civilian goods, allocation of raw materials and finished products, control of imports and exports” (94). Victory in war and improvements in the economy are “widely interpreted as demonstrating the capacity of government to run the economic system more effectively than ‘unplanned capitalism’” (94).

The result is predictable: “Government has expanded greatly” (95). However, nationalization of industries in the US and Europe has failed so thoroughly that “only a few die-hard Marxists today regard further nationalization as desirable” (95). Instead, the “expansion of government now takes the form of welfare programs and of regulatory activities” (95).

President Johnson’s 1964 War on Poverty enlarges these programs and adds Medicare, food stamps, and public housing. In 1978, the Department of Health, Education and Welfare wields a budget 50% larger than that of the armed services. The programs routinely fail in their objectives, but these outcomes “are attributed to the miserliness of Congress in appropriating funds, and so are met with a cry for still bigger programs” (97).

The first welfare system appears in 1880s Germany, then spreads to Britain in 1911. Right- and left-wing governments support this change: both “profess a paternalistic philosophy” (97). Britain and Sweden experiment with socialism and welfare systems but suffer high unemployment, high taxation, and economic stagnation; in the 1970s, both countries begin to turn away from these policies. New York City experiments with high welfare, pension, education, and medical spending, and nearly goes bankrupt.

In the US, Social Security starts small and becomes huge; in the 1970s, it is supporting nearly 40 million retirees from taxes paid by current workers. There is no guarantee these workers will, in turn, receive benefits, since available reserves cover only a fraction of future benefits. The system is neither an investment pool nor an insurance program; rather, “[i]t is more like a chain letter” (104). Taxes paid into the system are only vaguely related to benefits paid out. Eventually, there will be more retirees collecting benefits than workers paying for it. Moreover, the system relies on forced taxation, unlike previous voluntary family arrangements: “The earlier transfers strengthened the bonds of the family; the compulsory transfers weaken them” (106).

The US welfare system helps the poor but penalizes those who try to get back to work; it also issues payments to middle-income families, college students, and welfare cheats. Urban renewal programs destroy more homes than they build, and rent-controlled housing projects “frequently become slums and hotbeds of crime, especially juvenile delinquency” (109). The chief beneficiaries are builders, nearby businesses, and upper-middle-class families who wangle subsidized properties; previous residents, mainly poor people of color, are cast aside.

The Friedmans state that “[t]he government’s share of total expenditures on medical care has almost doubled, from 25 percent in 1960 to 42 percent in 1977” (112). The extra money causes private health care costs to go up: “If the present trends continue, the end result will inevitably be socialized medicine” (113).

Britain nationalizes medicine in 1948; since then, staffing has greatly increased but hospital bed occupancy has declined and no new hospitals have been built: “Many must wait for years to have an operation that the health service regards as optional or postponable” (114). In America, calls continue for a similar national health system on the theory that the government will run medicine more cheaply and a purported throng of indigents will be served, “[b]ut help for a few hardship cases hardly justifies putting the whole population in a straitjacket” (115).

When people spend for their own account, they are careful to be efficient, but when money is taken from one person and spent on another, there is little incentive to do so wisely. The costs of administering public programs further reduce the benefit: “In our opinion these characteristics of welfare spending are the main source of their defects” (117).

Spending also becomes corrupted by legislators, lobbyists, bureaucrats, and cheaters, all of whom try to siphon money for their own interests. Ironically, “the poor are left to fend for themselves and they will almost always be overpowered by the groups that have already demonstrated a greater capacity to take advantage” of the system (118).

To remedy all this, pressures mount to increase spending even more. Yet the more spent, the more arrogant and corrupt become the administrators and the more recipients display “childlike dependence” (118). Thus, “the end result is to rot the moral fabric that holds a decent society together” (119).

The Friedmans suggest two remedies. First, replace the hodgepodge of welfare programs with a simple cash supplement, or “negative” income tax. Second, wean the nation slowly off of Social Security, replacing it with a system of private choice and paying off current worker’s accumulated benefits with future annuities or government bonds: “Such a comprehensive reform would do more efficiently and humanely what our present welfare system does so inefficiently and inhumanely” (120).

Chances for reform are small, though, owing to vested interests and the politically-unpalatable fact that many current welfare recipients would get smaller benefits than they are used to receiving.

Does liberty conflict with equality?

In 19th-century America, equality means “‘equality of opportunity’ in the sense that no one should be prevented by arbitrary obstacles from using his capacities to pursue his own objectives” (128). Individuals are politically equal as well: “Every person was to be his own ruler—provided that he did not interfere with the similar right of others” (129). Furthermore, “[e]quality and liberty were two faces of the same basic value—that every individual should be regarded as an end in himself” (128). That is, interference with people’s freedoms creates political inequality.

The scourge of slavery removed, Americans take freedom and equality fully to heart: “There were to be no arbitrary obstacles. Performance, not birth, religion, or nationality, was the touchstone” (133). The country prospers with “an enormous release of human energy that made America an increasingly productive and dynamic society in which social mobility was an everyday reality” (133). The new wealth makes possible a vast increase in charitable activity.

This process is not perfect, and many citizens suffer unfair restrictions; “[h]owever, the rapid rise in the economic and social position of various less privileged groups demonstrates that these obstacles were by no means insurmountable” (134).

In the 20th century, however, the meaning shifts toward “equality of outcome,” which is “is in clear conflict with liberty” (128). The idea now is that each person should have a fair share of everyone’s efforts, but who shall decide what is fair, and how shall fairness be imposed? All answers put equality into conflict with liberty: “The end result has invariably been a state of terror: Russia, China, and, more recently, Cambodia offer clear and convincing evidence. And even terror has not equalized outcomes” (135).

Should children with less musical ability be given the extra training normally reserved for the more talented? The Friedmans state that “[t]he ethical issues involved are subtle and complex” (136). Differences among people are valuable: “What kind of a world would it be if everyone were a duplicate of everyone else?” (137). Muhammad Ali earns millions, but he is unlikely to have undergone the severe life of a boxer “if he were limited to the pay of an unskilled dockworker” (137).

Everyone takes chances to obtain useful results; there is no incentive to do so if the outcome is foreordained. If others—i.e., governments—assume the risks, they will severely restrict opportunities: “It is no accident that increasing government intervention into personal decisions has gone hand in hand with the drive for ‘fair shares for all’” (138). Productivity growth comes from people taking chances to create opportunities. Under a fairness system, that productivity is lost, along with the huge charitable and cultural institutions made possible from the fortunes built by entrepreneurs.

Those who campaign for compulsory economic equality—among them government officials, academics, journalists and media figures—tend to have high salaries, in part due to their campaigns for complete fairness. The logic of their theories, however, should limit their incomes to the worldwide average of $200 per day: “Persons who believe that a society of enforced equality is preferable can also practice what they preach” (142). Even in Israel, where such self-abnegation is practiced in the kibbutz settlements and nationally admired, only 5% of citizens participate.

In Britain, where income redistribution has gained a large foothold, the beneficiaries are not so much the poor as the bureaucrats, labor unions, and millionaires who know how to game the system: “A vast reshuffling of income and wealth, yes; greater equity, hardly” (144). It is unlikely that masses of people can for long be made to “give up much of what they produce to finance payments to persons they do not know for purposes they may not approve of” (145). As a result, British productivity has lagged in the US and Japan, among other nations.

Does capitalism increase inequality? Inequality does exist in market economies, but in aristocratic and collectivist societies, the inequality is far greater. In Soviet Russia, for example, the ruling class “has access to special shops, schools, and luxuries of all kind; the masses are condemned to enjoy little more than the basic necessities” (146). Don’t dictators desire the market-based benefits of technological innovation? Aside from advances in transportation and medicine, throughout history they always have had servants to tend to their needs and artisans to clothe and entertain them.

Forced fairness reduces both freedom and the hoped-for equality of outcome: “On the other hand, a society that puts freedom first will, as a happy by-product, end up with both greater freedom and greater equality” (148). True, some may become rich, but freedom “prevents those positions of privilege from becoming institutionalized; they are subject to continued attack by other able, ambitious people” (148).