Don't despair

These days, it is easy to believe that the entire American system is doomed to collapse into an economic swamp of no return. The headlines give us a daily overdose of politicians railing against profits, bonuses, Wall Street, greed, and incompetence, and Americans for the most part are overwhelmingly sick of bailouts and TARP money and Washington solutions that seem to lead to more problems, more headlines, and more incompetence.

In times like this, it might be helpful to step back and consider where America was at the time of the above television interview from December 07, 1975 with economist Milton Friedman (1912 - 2006), and to draw some encouragement and wisdom from the late professor.

At the time of the interview in 1975, Professor Friedman (who would later win the Nobel Prize in Economics) was very concerned about the massive growth of government in the United States and its interference with economic liberty.

In fact, he was so pessimistic that he put the chances at "a good deal less than 50%" that the slide towards greater and greater government could be corrected. In the above interview, if you advance the progress bar to about 24 minutes and 14 seconds into the clip (24:14), you will find the following exchange between interviewer Richard D. Heffner and Milt Friedman:

Richard Heffner: "Where are we going, in your estimation? Quite honestly, quite directly."

Milton Friedman: "Sure. There is a balance, you're quite right: I am not in favor of eliminating government entirely. I think government has grown all out of proportion to its scope. Where are we going? I believe that that depends on us, that that's not in the cards -- we are masters of our own destiny. But IF we take the road we have been on, we are heading toward a destruction of our free society and toward a totalitarian society. We are, unfortunately, headed down the route which Chile has already taken essentially to its end, which Britain has taken much farther than we have. Now, I hope -- we still have time to avoid it, but we will not avoid it unless the people of this country recognize the danger and take very difficult and important steps to set a limit on the extent to which they are going to permit government to interfere with their lives."

Richard Heffner: "If you thought that we would not avoid it, that we were going to continue down the present paths -- the path to serfdom, perhaps -- would you then try to develop some different kind of philosophy, some different kind of approach, that might enable us to make the jump from the freedom that you embrace and the near-serfdom that seems likely in the future?"

Milton Friedman: "I don't believe so, because I think that if you go down that road, I don't believe there is any philosophy in the world which will enable you to avoid it. I believe -- I would -- my own reaction is very different. It is to say we don't have to go down that road. I may think the chance -- I really DO think -- that the chance is a good deal less than 50% that we'll be able to avoid it. We may well be fighting a losing battle, but if it's the right battle, if it's the only alternative to serfdom, then we ought to fight it, and try to convert that fifteen, twenty-five, thirty percent chance, whatever it is, into a certainty. There are some sources of support on our side, fortunately."

Richard Heffner: "Tell me, give me the name of two, please!"

Milton Friedman: "I will be glad to. Number one is the extraordinary ability and ingenuity of the American people in finding ways to get around laws. That's a major source of strength for freedom. And number two is the inefficiency of government. People go around complaining about waste in government. I am always reminded of a favorite -- of a wonderful saying of an old teacher of mine, he was a teacher of statistics, and he made this statement about statistics, in which he said, 'Pedagogical ability is a vice, rather than a virtue, if it is devoted to teaching error.' Well I say, 'Thank God for government waste.' If government is doing bad things, it's only the waste that prevents the harm from being greater. And the waste of government has two very important elements. Number one, if government were now spending the amount it spends, which is 40% of our income -- governments federal, state and local in the United States have total spending which equals 40% of total national income -- if they were spending that efficiently, we'd be slaves now. And in the second place, the waste is so obvious that it arouses a counter-movement in the population at large, people are disillusioned with government, and it increases the chance that they will recognize where this road is taking them, and get off that train before it goes all the way."

From the perspective of history, we can see that as dark as the middle of the 1970s were for the economy, Friedman's pessimism about the chances of turning the situation around were too pessimistic.

His two sources of support that he mentioned turned out to be more than enough to prevent America from sinking forever into the morass of government oppression and stagnation that he feared.

Those two sources of hope identified in the interview are, firstly, the ingenuity of the American people, as we've discussed in previous blog posts such as this one, and secondly the inefficiency of government and the tendency of government solutions to alienate and disillusion people to the point that they realize the folly of the path to greater and greater government interference with their property and their lives.

As discouraging as the massive increase in government interference in the private sector over the past months has been, this previous history of the irrepressible ingenuity of the American people, and their ultimate distrust and disillusionment with government intrusion and control, is a sign of hope.

We would like to sound a note of optimism, even amidst the disturbing panic of the moment. We believe that America will remain a seedbed of innovation and the creation of new value into the future. As we expressed in previous posts on the work of Joseph Schumpeter and Clayton Christensen, innovation and ingenuity are the most important component of future economic growth.

Government intrusion may be on the rise, but we believe as Milton Friedman did in 1975 that there are important elements in the American economy and the American character that will prevent government from growing to the point that it destroys the entire system. However, we may have to endure some painful and unnecessary periods of inefficiency and waste before people become disillusioned and "recognize where this road is taking them."

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