Friday, January 23, 2009

Post No. 77: Rethinking the Role of Government

Due to the current economic situation in which we find ourselves, many expect President Obama to have government monitor and regulate more areas of our lives, similar to the approach taken by FDR following his election. Many are concerned that this might amount to government control of various industries, and have even gone so far to label such policies as “socialist” in nature.

We here at the Institute read anything and everything. We are often reminded of a comment from a prospective colleague, to whom we considered extending an invitation to join us as a fellow. Upon informing him that we considered all works to be of equal value, and that we reviewed them all, he responded that he only examined those works which supported his views and positions, since to do otherwise would be a waste of his time, and therefore inefficient.

Needless to say, we withdrew the invitation to join us, since his view of information was inconsistent with our philosophy. Probably 10-20 times a week, we come across something that makes us re-think issues about which we have previously written. This blog, like the Constitution, constitutes a “living document.” (Snicker.)

While visiting friends last evening, we came across “Capitalism and Freedom” by Milton Friedman, a Nobel Laureate in Economics. Published in 1962, our reading of this relatively thin volume made us rethink some of the comments which we made, and those made by others, about our current economic situation. You may find the following excerpts to be of interest. Keep in mind that the book, a collection of papers presented at various lectures, was published in 1962. In a subsequent post, we will provide you with other excerpts from the book, including the original meaning of “liberalism.” You’ll be surprised.

"In a much quoted passage in his inaugural address, President Kennedy said, “Ask not what your country can do for you – ask what you can do for your country.” It is a striking sign of the temper of our times that the controversy about this passage centered on its origin and not on its content. Neither half of the statement expresses a relation [,] between the citizen and his government[,] that is worthy of the ideals of free men in a free society."

"[Paragraph break added.] The paternalistic “what your country can do for you” implies that government is the patron, [and] the citizen the ward, a view that is at odds with the free man’s belief in his own responsibility for his own destiny. The organismic, “what you can do for your country” implies that government is the master or the deity, the citizen, the servant or the votary. To the free man, the country is the collection of individuals who compose it, not something over and above them."

"[Paragraph break added.] He is proud of a common heritage and loyal to common conditions. But he regards government as a means, an instrumentality, neither a grantor of favors or gifts, nor a master or god to be blindly worshipped or served. He recognizes no national goal except as it is the consensus of the goals that the citizens severally serve. He recognizes no national purpose except as it is the consensus of the purposes for which the citizens severally strive."

"The free man will ask neither what his country can do for him nor what he can do for his country. He will ask rather “What can I and my compatriots do through government” to help us discharge our individual responsibilities, to achieve our several goals and purposes, and above all, to protect our freedom?"

"[Paragraph break added.] And he will accompany this question with another: How can we keep the government we create from becoming a Frankenstein that will destroy the very freedom we establish it to protect? Freedom is a rare and delicate plant. Our minds tell us, and history confirms that the great threat to freedom is the concentration of power. Government is necessary to preserve our freedom, [and] it is an instrument through which we can exercise our freedom; yet by concentrating power in political hands, it is also a threat to freedom. Even though the men who wield this power initially be of good will and even though they are not corrupted by the power they exercise, the power will both attract and form men of a different stamp."

"How can we benefit from the promise of government while avoiding the threat to freedom? Two broad principles embodied in our Constitution give an answer that has preserved our freedom so far, though they have been violated repeatedly in practice while proclaimed as precept."

"First, the scope of government must be limited. Its major function must be to protect our freedom both from the enemies outside our gates and from our fellow-citizens: to preserve law and order, to enforce private contracts, [and] to foster competitive markets. Beyond this major function, government may enable us at times to accomplish jointly what we would find it more difficult or expensive to accomplish severally."

"However, any such use of government is fraught with danger. We should not and cannot avoid using government in this way. But there should be a clear and large balance of advantages before we do. By relying primarily on voluntary cooperation and private enterprise, in both economic and other activities, we can insure that the private sector is a check on the powers of the governmental sector and an effective protection of freedom of speech, of religion, and of thought."

"The second broad principle is that government power must be dispersed. If government is to exercise power, better in the county than in the state, [and] better in the state than in Washington. If I do not like what my local community does, be it in sewage disposal, or zoning, or schools, I can move to another local community, and though few may take this step, the mere possibility acts as a check. If I do not like what my state does, I can move to another. If I do not like what Washington imposes, I have few alternatives in this world of jealous nations."

"The very difficulty of avoiding the enactments of the federal government is of course the great attraction of centralization to many of its proponents. It will enable them more effectively, they believe, to legislate programs that – as they see it – are in the interest of the public, whether it be the transfer of income from the rich to the poor or from private to governmental purposes."

"[Paragraph break added.] They are in a sense right. But the coin has two sides. The power to do good is also the power to do harm; those who control the power today may not tomorrow; and more important, what one man regards as good, another may regard as harm. The great tragedy of the drive to centralization, as of the drive to extend the scope of government in general, is that it is mostly led by men of good will who will be the first to rue its consequences."

"The preservation of freedom is the protective reason for limiting and decentralizing governmental power. But there is also a constructive reason. The great advances of civilization whether in architecture or painting, in science or literature, in industry or agriculture, have never come from centralized government. Columbus did not set out to seek a new route to China in response to a majority directive of a parliament, though he was partly financed by an absolute monarch."

"[Paragraph break added.] Newton and Leibnitz; Einstein and Bohr; Shakespeare, Milton, and Pasternak; Whitney, McCormick Edison, and Ford; Jane Addams, Florence Nightingale, and Albert Schweitzer; no one of these opened new frontiers in human knowledge and understanding, in literature, in technical possibilities, or in the relief of human misery in response to governmental directives. Their achievements were the product of individual genius, of strongly held minority views, of a social climate permitting variety and diversity."


  1. After reading the post and considering it for a day (off and on), I realized one thing. I have not rethought the role of government in my lifetime. I have been dismayed by what I saw as changes, amazed by others' view of what it is, and happy to find people who agreed with me about it. This last being fairly rare.

  2. The following is a comment posted by The Logistican on another blog regarding stimulating the economy:

    We're theoretically talking about, preferably, stimulating the economy, or at a minimum, preventing further backsliding, in the short term and as soon as possible.

    I may be wrong, however, I believe that our application of certain policies going forward should be analyzed in different ways for different time frames. In our current, unstable situation, what arguably works during stable times is somewhat inapplicable. Additionally, what arguably works over the long term is somewhat inapplicable.

    No one has proposed something which makes sense to me and makes me feel comfortable. (To create an analogy, having the same type of conversation with your spouse which has worked well for 5 years during marital stability, is probably not going to work as your spouse is packing their bags and about to head out the door in anger.)

    I was a business owner for most of my adult life, and thus definitely appreciate keeping my money. I also know how the economy affects my business decisions. However, my sense, keeping in mind that I am not an economist, is that our most URGENT need is building something, job creation (affirmative in nature), coupled with minimizing the number of existing jobs being lost or eliminated (maintaining the status quo).

    (Arguably, the government does not have any money to use and thus we can essentially forget about it. Should it decide to simply print money, it will be devalued money. But theoretically, it at least has the power to print money and create jobs. Whether that is good policy and practice is a separate issue.)

    Let's look at the private sector. If I might divide our society / economy into three, major groups, I believe that we can pair the (1) super-rich and mega corporations in one group, (2) the middle (wide) class and medium sized companies in another, and the (3) poor in the last. Now let's talk about the effect of tax cuts IN THE SHORT RUN.

    I doubt that tax cuts will alter the behavior of the third group. I suspect that those in the second group are too afraid to spend, or too concerned about losing all of the material things that they accumulated, and thus will not spend, nor will the businesses expand or even maintain their workforces. They will continue to lay off folks and retrench. They will await an external improvement of the economy before doing anything of an affirmative nature, and thus not use their tax savings, but rather simply save it. They'll continue to contract until their concerns are eased. That's what I would do as a business owner. Arguably, there would not be any affirmative/positive impact, although there might be a longer-term impact.

    Right now, it is my understanding that there are very few mega corporations in a comfortable position financially. If they manage to save some money through tax cuts, I doubt that they will, in the short term, voluntarily use that money in an affirmative fashion. (I think that they would during relatively stable, less volatile economic times. However, for them to do something of an affirmative nature right now in these uncertain economic waters would be foolhardy and imprudent. Furthermore, the wealthy had lots of wealth associated with investments, which have loss significant value.

    So here's the bottom line in my view. No one is going to step forward and use their tax savings in an affirmative fashion during bad economic times. They will hold their hands until conditions improve. That's not stimulus.

  3. "The free man will ask neither what his country can do for him nor what he can do for his country. He will ask rather “What can I and my compatriots do through government” to help us discharge our individual responsibilities, to achieve our several goals and purposes, and above all, to protect our freedom?"

    This is government, or what government should be. A group of people selected by the larger group to carry on the business and get done what the people can not handily do alone.

    The problem today is government taking over our liberties one by one and our people willingly giving up these liberties because too many of us lack the will to be free. Oh yes, we mouth the words, but actions speak and the actions of Americans today is to quickly give up our freedoms to the state if the state will just take the responsibility of "being free" away from them. Being free is hard work. Accepting responsibility for ones self is hard work. Making decisions for ones self is even harder. You can't be a lazy, laid back slug and be free. America has a lot of slugs slithering around today. I am just not sure where they came from.

    I have been trying to pinpoint just when Americans lost their manhood (for lack of a better word), and I think it began when the military draft was lifted. It would be impossible to muster the number of men and women in today's America to fight a war such as WWII. Not because of the moral beliefs against violence or killing as evidenced by the violence and killing in our streets. But because of a weakness of character and an unwillingness to be personally responsible. The military instills these values and they stay with most of those who were thus indoctrinated. The military also instills a sense of unity and teamwork and the need to rely on ones neighbor and be strong enough for the neighbor to rely on you.

    This needs more thought. BB

  4. Interesting. What would, in your view, provide a stimulus that would be anything but short term? In my view, a saner tax policy that does not punish success would be helpful long term though it would not do anything to short term. It would have to be there for a short term recovery to be sustained long term. I don't think it's coincidental that the economic downturn kicked in as the the specter of tax increased (the result of the Bush tax cuts coming to an end).

    But what will kick start the economy? What can be done to start it rolling again? Government created jobs, as suggested by plans to rebuild infrastructure, are very short term. And, once the jobs are completed, offer nothing long term. Companies expanded to handle the contracts will shrink again. A look at any post war period will provide sufficient data to support that. Companies that primarily rely on government contracts are not sustainable.

    Companies that are sustainable are ones that have a sufficient diversity in customer base.

    Consider the man who has multiple skills, He has the best chance of weathering economic downturns because he is adaptable. When one skill is not in demand, another may be.

    Training someone to fill potholes allows that man to get a job filling potholes. When the potholes are all filled, he'd best know how to
    do something else if he expects to keep employed.

    So, too, do industries. They need to be able to produce another product, perform another service. The corporations, those mega ones you spoke of, will survive because they are diversified. They'll cut back and employees will be lost but the corporation will survive.

    Short term solutions will not work unless we plan for long term. Right now, I do not see long term planning even being considered.

    FDR did not really get us out of the Depression, his policies and programs just helped us ride it out until demand increased and new markets opened up. Unfortunately, that came about due to global war. After the war, our economy was sustained by rebuilding from the aftermath.

    We are once again in a global economic downturn, not just our own. It will take a global set of events to turn it around.

  5. Douglas: Did you agree, disagree, have no opinion, or have a different perspective than Friedman?

  6. Brenda: Thank you. There is virtually nothing with which we can disagree as outlined in your comment. The increasing lack of work ethic and diligence on the part of the American public has evolved gradually. However, we believe that occurs with all societies as they "progress," and do not have to labor and toil to simply exist.

    Material possessions and the pursuit of "happiness" have their societal price. Vacations, recreation, leisure time, more time with the kids, maternity/paternity leave, flex time, 40 hour work weeks, the Americans with Disabilities Act, and all of that have a societal cost. We are not saying that we should not have or desire these things; we're just saying that America can not have it both ways.

    There is a societal cost associated with this lifestyle. Most significantly, it makes you less competitive vis-a-vis other nations with citizens who are far hungrier and far more willing to sacrifice what we take for granted.

  7. Once again, we are not economists, however, we doubt that there is anything that can be done in the short term, other than the proposals already set forth, by the Fed, the Treasury, and using the New Deal as a model, as problematic as they may be.

    We believe that everything is dependent on invention and innovation. We could perhaps make it easier for companies to get new experimental drugs to market without further testing; permit the Patent Office to issue more patents; shield companies from legal liability and allow them to get their new products to market without further testing; develop programs for engineers to disclose their inventions to venture capitalists to prosecute them; and discontinue the use of public funds for all activities not deemed essential to our survival.

    Realistically, we're probably going to need to have a number of people starving and fighting one another to generate the level of sufficient motivation to really do something about our situation, don't you think? Right now, aren't most of our citizens sitting on their asses waiting for someone else or our politicians to spark the economy? Do you personally know of any individuals actually doing something of substance to spark the economy?

    For the most part, virtually all of us are waiting on someone else or some other entity to do something.

  8. Right this moment, there is a book presentation on C-Span2 Book TV, by an author who has written a book suggesting that the New Deal policies of FDR were actually flawed and detrimental to our long-term prosperity. "New Deal or Raw Deal: How FDR's Economic Legacy has Damaged Ameria."

  9. I disagree with Friedman on somethings and agree on others. I think this country is founded on the concept of the individual as superior to the State. Either of the concepts expressed by Kennedy s "wrong" in that sense. I don't that really what Kennedy was saying, however. I think he was saying, when you think about your country, think about serving it more than it serving you.

    Friedman spoke more of feelings of responsibility to the State, something with which I disagree. We owe nothing to the State and it owes us only protection from enemies from without and within. That responsibility is, in my view, and equal one. Beyond defending it, our debt is non existent.

    Back in the days of the Draft, a friend of mine engaged in a discussion regarding it. His opponent felt we had an obligation to serve in defense of our freedom. My friend felt that having the obligation meant we were not truly free.

  10. I've often told people that one of the potential problems with me functioning as a parent or a spouse is the fact that some significant aspect of my worldview changes roughly every two years. I've always suspected that in order to have a reasonably decent marriage and provide guidance to children, there needs to be a tad more consistency in worldview.

    That being said, Friedman's comments, and the comments of many in recent months about socialism and a free market society, have had me thinking about this issue while I've slept.

    Consider this: Imagine a country with 100 citizens. Imagine that there are 100 books, 100 bags of wheat, 100 bottles of water, 100 coats, 100 beds, 100 TVs, $100, and 100 of everything.

    Imagine that you are in charge of distribution.

    Which one of the following options is preferable in the short term, and the long term:

    (a) Each citizen gets one of each item;

    (b) Each citizen gets 1/2 of everything (I know that you can not divide a coat, but play along with me), and the other half is available for any one or more citizens to get should they put in the effort;

    (c) All of society's resources are placed together, and those most capable or best situated to get them, can acquire as much as they can and want using whatever efforts they deem necessary.

    Too simplistic an analysis?

  11. Why do you think that the Japanese are willing to work 12 hour workdays, but that many employees in the U.S. would balk at such, even if they received time and a half ? Is this a factor in the current economic situation in which we find ourselves?

  12. Excellent thoughts. Different point of view. Sincerely I never thought in this direction. I think humans as like other animals always accustomed to follow the leader. In eyes of common people like me, Government has that role. In fact we through systematic efforts let next generation to accommodate that portion. Interestingly very thought stirring.

  13. Thanks much for visiting us again phoenix2life. It's been a while. Until we read Friedman's argument, we had only heard the position expressed in sound bites by politicians. Soundbites do not really afford one to have an opportunity to fully consider the merits of the position. After reading this excerpt, we really had to re-examine our thoughts about the issue. We'll post more in February.

    You also made us think about something about which we had not previously given much thought, that being whether ALL animals "follow the leader" in some form or fashion. Of course we are aware that some of them do, but we never considered whether it is a universal trait. It is something which we should explore further. Thanks for raising the issue.

  14. Later today, at 3:00 pm E, C-Span2 Book TV will present a program featuring former Presidential Candidate Steve Forbes discussing his book, “How Capitalism Will Save Us: Why Free People and Free Markets are the Best Answer in Today’s Economy.


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