Milton Friedman shows why capitalism is the economic view of grown-ups

Here’s one video:

And another:

Socialism only makes sense when you don’t think things through. There is a finite number of things in the universe. If you want to fix one situation, you’re going to break something else. The only question to decide, then, is who should decide how money is spent. Is it the government who decides? Or individuals? Which party is better at choosing? Which party has more to gain or lose from good and bad choices? Which party has the incentive to make the right choice, because they earned the money, and is responsible for the result of spending it one way or another?

The real world is not perfect. There are risks and trade-offs everywhere in life.

(H/T Laura at Pursuing Holiness)

11 thoughts on “Milton Friedman shows why capitalism is the economic view of grown-ups”

  1. What’s interesting about the second clip is that Prof. Friedman supports trial lawyers and punitive damages as an important part of the market. Conservatives have continually tried to limit both. One of the conditions for a free market is information about products and prices. Companies can cheat on the free market system, thus reaping higher profits, by hiding information. Part of the governments job in maintaining a free market is punishing that type of cheating, that’s where trial lawyers and punitive damages come in. So why do conservatives oppose them?

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    1. Great point. I would reply by saying that frivolous law suits and excessive penalties undermine the rule of law, which is a basic building block of the capitalist economy. So there has to be balance – perhaps something like “loser pays” or caps on frivolous awards. We are losing doctors right now due skyrocketing medical malpractice insurance. Doctors who have done nothing wrong are ceasing their practices.

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      1. I think the problem with the formulation, “frivolous law suits” and “excessive penalties” is, who gets to determine what is “frivolous” or “excessive,” judges and juries or politicians?

        Doctors are tempted to think that all suits for malpractice are frivolous. Large corporations always consider penalties to be excessive. Those issues are better left to juries of our peers and to judges than to politicians, who raise money from the very people they are regulating.

        I’ve always though it strange that conservatives are so disdainful of the jury system, a system of competition between two opponents, and so anxious to replace it with government regulation. Is that free enterprise or socialism?

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        1. I think you’re leaning too far to one side of the issue. Just as certain, most patients who suffer would claim malpractice, and many injured by corporations will insist it was neglect or greed and deman punitive damages that are indeed excessive. For some, a decent injury is seen as a ticket to “wealthyville”.

          I don’t know that I could find too many conservatives who are disdainful of the jury system, though they might have a problem with who is on the jury. What is a “peer”? It’s supposed to be people somewhat similar to the accused, assuming the accused isn’t guilty. So if a doctor is being sued for malpractice, should the jury be stocked with people who are patients or people who are also doctors or medical people? If the accused is a president of a corporation, shouldn’t the jury contain at least a few presidents of corporations?

          The point of capping punitive damages lies partly in the reasoning that juries aren’t perfect or perfectly selected. I know of a case where the claimant was a person who got advice from a financial organization to find a better policy for the car. The fool dropped his current policy (not something the organization ever advised) and then went shopping for the new policy. An accident ensued and the fool blamed the org for the lack of coverage. The jury decided that the organization, being an entity with some dough, should pay punitive damages. This is plainly unjust, even if the org was worth gazillions and the claimant stone poor.

          John Edwards made his bones with such cases, as I understand it, and the whole idea of “ambulance chasers” is founded on it. How else but with some kind of caps can we deal with it?

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          1. You ask how we can deal with it, i.e. the litigation crisis? My first question is: Is there a litigation crisis? Or is the litigation crisis just the conservatives version of the Health Care crisis?

            Secondly, I would suggest that the large, rich, extremely powerful, well connected business, who wish to change the law to limit the costs of lawsuits against them aren’t doing so out of some sense of benevolence.

            Thirdly, conservatives should not want to substitute the judgment of politicians for the judgment of 12 people selected from the Boston phone book, as it were.

            Fourth, you fail to take into account the anecdotes of juries which have failed to award damages to people who really had been injured.

            Fifth, with respect to medical malpractice, California enacted limits on malpractice lawsuits in the 1970s. The law is commonly called MICRA, the medical insurance crisis reduction act. Did it reduce the cost of malpractice insurance for doctors? I don’t know, but I suspect not. Did it reduce the amount of money that insurance companies paid out to injured patients? Definitely. What you, and most conservatives fail to understand is that the perfect world for insurance companies is one where everyone is legally required to buy their product, and at the same time the insurance companies are legally protected from ever having to pay off on those policies. That is Nirvana for Insurance companies. It is the profit maximizing point they are striving to get to.

            Sixth, the mistake most conservatives make about free markets is thinking that businesses are somehow good and benevolent. It is the greediness of businesses which makes the free market work. It is the greediness of their competitors which keeps business from earning more than a reasonable return on their investment. As a result business are always looking for ways to protect themselves from the greediness of their competitors.

            They sometimes do this by forming alliances with their competitors. These are what are commonly known as monopolies, or oligopolies. If they can do this successfully they will all earn much more profit than in a competitive market. This rarely works because if one of the allies can figure out how to cheat on the agreement he will make even more profit than he would under the alliance. Since option one rarely works business try to get the government to eliminate their competitors, so they can be protected form competition and earn more than a normal return on their investment.

            The point conservatives miss is that business never support the passage of new laws out of benevolence. They want new laws passed to increase profits. This goes for laws seeking to limit punitive damages, medical malpractice liability, or products liability.

            Anyway, that’s all I have time for now but if you really want to see what’s going on with punitive damages read the California Supreme Court case which limited the amount of punitive damages. Johnson v. Ford Motor Co., (2005) 35 Cal. 4th 1191 in that case Ford Motor Company committed a fraud on it’s clients but the supreme court rescued them from the punishment for their fraudulent behavior? Why? Because it would be bad for businesses to be punished for their fraudulent behavior. The courts protected Ford from the consequences of their bad behavior. Conservatives need to remember that the next time they complain about Obama and Government Motors.

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  2. This is really interesting. Friedman is so easy to listen to and I love his reasoning- bursting with commmon sense!!
    He’s so great at disarming objections, showing flawed assumptions and double standards.
    Compared to you, WK, I would probably say I am centre-left economically speaking. I believe in government providing schools, hospitals and a welfare state. However, I am open to changing my mind and watching some clips of milton friedman on youtube has already made me more sympathetic to the free market.

    I know you’ve recommended “The Politically Incorrect Guide to Capitalism” so I will be buying that at some point. Are there any books/podcasts/articles which you could point me to as a beginner’s case for capitalism? I study economics at school so I’m familiar with it, but I have been taught all about market failures ie over-consumption and production of demerit goods and vice versa for merit goods and how government intervention can solve those problems. So I kind of look at economics from that perspective but I’m certainly open to changing my mind.

    So aside from resources to get hold of, I have quite a few reservations abotu capitalism. What gives someone or a company the right to go to another part of the country or another country altogether and claim certain natural resources or large plots of land for themselves? I’m thinking in particular of countries in Africa, whereby oil companies from the US and Europe fly over to africa, claim land for themselves, start drilling and take back the profit to their home countries. What gives someone the right to go up to a piece of land in someone else’s country and say “Mine”? Furthermore, when thinking abotu the supply of water, for example, why should the water supply from a river such as the River Thames be claimed by a private company, who then restrict the water supply and charge extortionate prices to the public knowing that there is no alternative for them?
    Would it not make more sense for this water supply to be publicly owned so that the consumers then actually have a say about the running of the supply and to make sure that extortionate prices are not charged?

    Thanks, in advance, for your responses WK.

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  3. We had a case in this country where a woman died after the power was cut to her house. She was on an oxygen machine.

    Naturally, there was a massive fuss. But it turned out later that the machine was not *for* life support, the drugs she’d stopped taking were really what was supposed to be keeping her alive, the family did nothing to get her care after the cut, and the guy who turned off the electricity had left it on in a previous house where someone was sick.

    There were, in other words, a whole list of things that could have saved her life and most were things she herself could have done – only one of those things was the responsibility of the electricity company.

    But the media (via a unionist family spokesperson) called it a “life support machine” and it was all politics from there.

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  4. On top of my previous points, I have another question. This may sound stupid, but when you get old and a lot of the people in your generation pass away, many people are left with no family and no friends. They live in isolation and loneliness and stay at home most of the time. In this case, who is responsible if man dies when his electricity gets cut off? It’s certainly not the responsibility of his friends and family- for he has none. Is it not here the job of the governemtn, which ultimately, in a democracy, is a government government of the people, by the people and for the people? Should they not be the ones to help this man out as he has no friends, no family and no money? Or should we just let him die?

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    1. It’s the responsibility of the man himself, to create the kind of society and family he wants, to raise his children well and to take care of his community so they will take care of him.

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