Monday, November 20, 2006
Reflections on the Influence of Milton Friedman and the Needs of a Just Society
Milton Friedman, who died recently, was an influential economist and advisor to three Presidents. He established the following dicta in the thinking of conservatives:
1. Free markets are better at making economic decisions than governments.
2. Individuals make better economic decisions than government.
3. Government is unable to create jobs. Any new jobs resulting from government action only take money away from other jobs. Government can only redistribute jobs, not create new ones.
Although many Conservatives accept these statements as axioms, our history as a nation contains counterexamples. Friedman’s dicta are true part of the time, but not all the time.
The first and second dicta (or axioms) assert that individual decisions about spending money and the supply and demand forces that set prices give “better” results than prices and spending priorities of governments. My question is, better for whom? If you consider a sum of money that, in one situation is taken by a government in taxes, and in another situation is spent by the individual, it may be true that letting the individual spend the money is better for him or her than letting the government spend it. However, the result may not be better for society as a whole.
It is easy to cite examples that contradict the third dictum. The Internet was a government invention. The result has been a profound change in the way information is transmitted and the creation of a whole new industry with many jobs. Other examples of government creating infrastructure that created new industries and new jobs are the Erie Canal, the interstate highway system, and the U. S. Postal Service. There are many others.
At present we Americans have serious problems that will not be solved simply by government inaction and letting free markets work on them. Two important ones are the breakdown of our system of health care and the lack of good public transit systems in our cities.
Our health care system has always depended on medical doctors acting as private entrepreneurs, like grocers and barbers, providing medical treatments in return for fees. This model seemed to work fairly well when I was a child in a small town in Michigan. I would go to the village doctor for immunization shots, eye examinations, health check-ups, and treatment for various diseases. The doctor would extend credit to those patients who were temporarily short of money. Some patients never were able to pay. Care in hospitals worked the same way. No one was denied medical attention or treatment for lack of money.
This small-town model may actually still prevail in some parts of the country. I don’t know; I have not lived in a small town since I left home in 1944. Since that time I have lived in Washington, DC, in Champagne and Urbana, Illinois, in Fayetteville, Arkansas, in New York City, and in Los Angeles. I recall that my wife spent time in a hospital in Fayetteville; the bill for the stay was nine dollars a day. Today a stay in a hospital costs more than a thousand dollars a day. At the time that my wife and I were living in Arkansas, I was a professor at the University earning a salary of $4800 a year. Today a starting salary for a professor is at least fifteen times that much. If the cost of hospital stays were still in the same ratio to professors’ salaries, the cost would be $135 per day. This is an example of how medical costs in the United States have risen much faster than the inflation index.
Of course, Fayetteville may not be a good example. While we were living in New York, my wife was in a hospital there to give birth to our first child. The total bill, including the services of the doctor, was about two hundred fifty dollars. The year was 1952. I was earning $5600 a year as an employee of Columbia University, working on a Navy project to study the transmission of sound under water over long distances.
It is clear to most Americans that our system of health care needs repair. Relying on Friedman’s dicta isn’t going to bring about any improvement. Depending on market forces won’t provide health care to persons who can’t pay for it. The existing institutions – doctors, hospitals, insurance companies – will continue to make profits under the present system as long as they are not obliged to provide any care for those who can’t pay. A corollary of Friedman’s dicta is that government should not interfere and enact laws that require hospitals to care for the indigent. As long as the existing system is restricted to providing medical services to those who can afford them, that part of society will continue to be well-served. One of the big problems is that hospital emergency rooms are obliged to care for anyone. Our compassionate laws do not allow a seriously injured person to die just outside the entrance to a hospital for lack of money.
Perhaps I am unfair to the late Professor Friedman. I have not taken into account the existence of compassionate benevolent organizations, such as churches. These organizations take care of the poor. In Professor Friedman’s society, they would care for those poor wretches who can’t afford the medical care provided to the more affluent members of society. Unfortunately, there are too many poor wretches and too few benevolent organizations.
As a long-time resident of Los Angeles, I am aware of the limitations and inadequacies of the public transit system of this city. In all of my working experience here I have never held a job where it would have been convenient to take public transportation from my home to my job site. I had to use an automobile to commute to work. During the last twenty years of my working life the commute was either twenty or thirty-six miles one way. Like millions of others, I drove on our excellent freeway system. During part of my working life I commuted with other workers, either car-pooling or riding in a van pool. Even then I had to use my car to drive from my home to the meeting place for the van, a distance of about four miles. If I had ridden the bus, the bus routes were laid out so that I would have had to make one transfer. During rush hour the buses I would have taken ran at intervals of half an hour.
Car pooling and van pooling are results of following Friedman’s dicta and letting free markets solve the problem of getting me to and from work. Although I was able to ride a pool van to get to work, millions of other commuters drove in their cars with one person per car. That is easily the most expensive way to transport workers back and forth from their homes to their jobs. A fraction of the cost of operating and maintaining and insuring all those autos would have provided an excellent and extensive rapid transit system. However, such a reordering of priorities and resources was beyond the ability of our political leaders and contrary to the prejudices of the voting and tax-paying public. People would rather pay the cost of owning and operating a car than the increase in taxes necessary to maintain an effective and convenient public transit system. Many conservative or libertarian politicians advocate building additional freeways, perhaps with double decks, to accommodate the ever increasing number of private automobiles used to transport workers between home and work.
Friedman’s dicta allow private entrepreneurs to offer commuting services. A number of private bus companies have come into existence, principally to provide transportation between communities outside of Los Angeles and various job sites that employ large numbers of workers. I have not examined the operation of any of these bus lines with respect to just where they pick up and discharge passengers. I assume that the discharge locations are at several aerospace firms in the city that employ thousands of workers. One bus carrying fifty workers is certainly more economical than fifty cars carrying the same workers. In addition, the one bus is less demanding of highway facilities than fifty cars. These private bus lines represent a limited validation of Friedman’s dicta, but they also show the limits of what can be achieved by relying on free markets and government inaction.
I am convinced that relying on private entrepreneurs and free markets will never provide a system of public transportation in a large city that is fair to all residents. Private enterprise will develop profitable routes that serve the more affluent part of the population; that is, people who can pay the price will enjoy convenient and comfortable transportation between their homes and jobs. The poorer part of the population have just as great a need for good public transit, but their needs will be met by methods that are less comfortable, less convenient, and less reliable. A good, comprehensive, and convenient transit system for a large city is not a profit-making proposition. Where such systems exist in the world they are subsidized by local governments. Everyone in the city pays to keep the transit system in operation. Receipts at the fare box are never sufficient to pay the cost of operating and maintaining a good system.
The same argument can be applied to public health care facilities. Years ago the County of Los Angeles maintained many free clinics where one could go to receive certain simple but useful medical procedures, such as immunizations against smallpox, measles, and influenza. These and other services were provided free of charge to any resident of the county. Because of cutbacks in revenue, largely due to the passage of the property tax limitation (known as Proposition 13 in California), these free clinics have been closed. People desiring or needing medical care who can’t pay are now forced to go and wait in hospital emergency rooms. The crowding in these rooms is a serious problem not merely for the indigent waiting for medical care but for the affluent who are stricken with heart attacks or strokes and need immediate attention. They also have to wait.
Just as a good public transit system requires a subsidy from local government, so also does a good system of basic medical care. If the people are willing to provide less than satisfactory public transit and less than satisfactory public health facilities they are not living up to traditional American values of fairness to all. We have a conflict of values between fairness and efficiency. Friedman’s dicta provide a means of utilizing resources in the most productive and profitable way possible. They do not provide fairness in social policy.
1. Free markets are better at making economic decisions than governments.
2. Individuals make better economic decisions than government.
3. Government is unable to create jobs. Any new jobs resulting from government action only take money away from other jobs. Government can only redistribute jobs, not create new ones.
Although many Conservatives accept these statements as axioms, our history as a nation contains counterexamples. Friedman’s dicta are true part of the time, but not all the time.
The first and second dicta (or axioms) assert that individual decisions about spending money and the supply and demand forces that set prices give “better” results than prices and spending priorities of governments. My question is, better for whom? If you consider a sum of money that, in one situation is taken by a government in taxes, and in another situation is spent by the individual, it may be true that letting the individual spend the money is better for him or her than letting the government spend it. However, the result may not be better for society as a whole.
It is easy to cite examples that contradict the third dictum. The Internet was a government invention. The result has been a profound change in the way information is transmitted and the creation of a whole new industry with many jobs. Other examples of government creating infrastructure that created new industries and new jobs are the Erie Canal, the interstate highway system, and the U. S. Postal Service. There are many others.
At present we Americans have serious problems that will not be solved simply by government inaction and letting free markets work on them. Two important ones are the breakdown of our system of health care and the lack of good public transit systems in our cities.
Our health care system has always depended on medical doctors acting as private entrepreneurs, like grocers and barbers, providing medical treatments in return for fees. This model seemed to work fairly well when I was a child in a small town in Michigan. I would go to the village doctor for immunization shots, eye examinations, health check-ups, and treatment for various diseases. The doctor would extend credit to those patients who were temporarily short of money. Some patients never were able to pay. Care in hospitals worked the same way. No one was denied medical attention or treatment for lack of money.
This small-town model may actually still prevail in some parts of the country. I don’t know; I have not lived in a small town since I left home in 1944. Since that time I have lived in Washington, DC, in Champagne and Urbana, Illinois, in Fayetteville, Arkansas, in New York City, and in Los Angeles. I recall that my wife spent time in a hospital in Fayetteville; the bill for the stay was nine dollars a day. Today a stay in a hospital costs more than a thousand dollars a day. At the time that my wife and I were living in Arkansas, I was a professor at the University earning a salary of $4800 a year. Today a starting salary for a professor is at least fifteen times that much. If the cost of hospital stays were still in the same ratio to professors’ salaries, the cost would be $135 per day. This is an example of how medical costs in the United States have risen much faster than the inflation index.
Of course, Fayetteville may not be a good example. While we were living in New York, my wife was in a hospital there to give birth to our first child. The total bill, including the services of the doctor, was about two hundred fifty dollars. The year was 1952. I was earning $5600 a year as an employee of Columbia University, working on a Navy project to study the transmission of sound under water over long distances.
It is clear to most Americans that our system of health care needs repair. Relying on Friedman’s dicta isn’t going to bring about any improvement. Depending on market forces won’t provide health care to persons who can’t pay for it. The existing institutions – doctors, hospitals, insurance companies – will continue to make profits under the present system as long as they are not obliged to provide any care for those who can’t pay. A corollary of Friedman’s dicta is that government should not interfere and enact laws that require hospitals to care for the indigent. As long as the existing system is restricted to providing medical services to those who can afford them, that part of society will continue to be well-served. One of the big problems is that hospital emergency rooms are obliged to care for anyone. Our compassionate laws do not allow a seriously injured person to die just outside the entrance to a hospital for lack of money.
Perhaps I am unfair to the late Professor Friedman. I have not taken into account the existence of compassionate benevolent organizations, such as churches. These organizations take care of the poor. In Professor Friedman’s society, they would care for those poor wretches who can’t afford the medical care provided to the more affluent members of society. Unfortunately, there are too many poor wretches and too few benevolent organizations.
As a long-time resident of Los Angeles, I am aware of the limitations and inadequacies of the public transit system of this city. In all of my working experience here I have never held a job where it would have been convenient to take public transportation from my home to my job site. I had to use an automobile to commute to work. During the last twenty years of my working life the commute was either twenty or thirty-six miles one way. Like millions of others, I drove on our excellent freeway system. During part of my working life I commuted with other workers, either car-pooling or riding in a van pool. Even then I had to use my car to drive from my home to the meeting place for the van, a distance of about four miles. If I had ridden the bus, the bus routes were laid out so that I would have had to make one transfer. During rush hour the buses I would have taken ran at intervals of half an hour.
Car pooling and van pooling are results of following Friedman’s dicta and letting free markets solve the problem of getting me to and from work. Although I was able to ride a pool van to get to work, millions of other commuters drove in their cars with one person per car. That is easily the most expensive way to transport workers back and forth from their homes to their jobs. A fraction of the cost of operating and maintaining and insuring all those autos would have provided an excellent and extensive rapid transit system. However, such a reordering of priorities and resources was beyond the ability of our political leaders and contrary to the prejudices of the voting and tax-paying public. People would rather pay the cost of owning and operating a car than the increase in taxes necessary to maintain an effective and convenient public transit system. Many conservative or libertarian politicians advocate building additional freeways, perhaps with double decks, to accommodate the ever increasing number of private automobiles used to transport workers between home and work.
Friedman’s dicta allow private entrepreneurs to offer commuting services. A number of private bus companies have come into existence, principally to provide transportation between communities outside of Los Angeles and various job sites that employ large numbers of workers. I have not examined the operation of any of these bus lines with respect to just where they pick up and discharge passengers. I assume that the discharge locations are at several aerospace firms in the city that employ thousands of workers. One bus carrying fifty workers is certainly more economical than fifty cars carrying the same workers. In addition, the one bus is less demanding of highway facilities than fifty cars. These private bus lines represent a limited validation of Friedman’s dicta, but they also show the limits of what can be achieved by relying on free markets and government inaction.
I am convinced that relying on private entrepreneurs and free markets will never provide a system of public transportation in a large city that is fair to all residents. Private enterprise will develop profitable routes that serve the more affluent part of the population; that is, people who can pay the price will enjoy convenient and comfortable transportation between their homes and jobs. The poorer part of the population have just as great a need for good public transit, but their needs will be met by methods that are less comfortable, less convenient, and less reliable. A good, comprehensive, and convenient transit system for a large city is not a profit-making proposition. Where such systems exist in the world they are subsidized by local governments. Everyone in the city pays to keep the transit system in operation. Receipts at the fare box are never sufficient to pay the cost of operating and maintaining a good system.
The same argument can be applied to public health care facilities. Years ago the County of Los Angeles maintained many free clinics where one could go to receive certain simple but useful medical procedures, such as immunizations against smallpox, measles, and influenza. These and other services were provided free of charge to any resident of the county. Because of cutbacks in revenue, largely due to the passage of the property tax limitation (known as Proposition 13 in California), these free clinics have been closed. People desiring or needing medical care who can’t pay are now forced to go and wait in hospital emergency rooms. The crowding in these rooms is a serious problem not merely for the indigent waiting for medical care but for the affluent who are stricken with heart attacks or strokes and need immediate attention. They also have to wait.
Just as a good public transit system requires a subsidy from local government, so also does a good system of basic medical care. If the people are willing to provide less than satisfactory public transit and less than satisfactory public health facilities they are not living up to traditional American values of fairness to all. We have a conflict of values between fairness and efficiency. Friedman’s dicta provide a means of utilizing resources in the most productive and profitable way possible. They do not provide fairness in social policy.
Labels: fair society, Milton Friedman, Proposition 13, public health, Public Transportation
