Milton Friedman's 'No Free Lunch'

Milton Friedman, former presidential advisor, Nobel prize winner, and coauthor of Income from Independent Professional Practice, was a world-renowned economist, well known and respected throughout the economic community for prominent advocation of free markets in society. In Friedman’s video ‘There Is No Such Thing as a Free Lunch’, Friedman discusses many popular political aphorisms, as well as one particular aphorism that he helped popularize with the title of his book, published in 1975, ‘There’s No Such Thing as a Free Lunch’. Friedman also examines how many economists believe there is no such thing as a free lunch because everything has a cost. For example, working long hours may increase income, but in the long run, so much time was wasted that could have been used to do something else. Additionally, he adds that governments control many aspects of our lives because they control taxes, government spending, federal benefits, and government programs; though well-intentioned, these regulations can cause unexpected problems. However, he goes on to explain that, in reality, there is a free lunch in the form of free markets.

Friedman argues in his speech that there is a free lunch in both the real and economic worlds. He defines a free lunch as an economic system with free markets and private property. A free market is a free lunch because there are no forced transactions or conditions; they allow people to capitalize on their own creations, ideas, and talents. In a capitalist market such as the United States, anyone can utilize their talents and efforts to sell products and services they want to sell, rather than create products that the government mandates; the laws of supply and demand regulate production and labor, rather than government policies and systems. Private property is another example of a free lunch because it allows people to be independent and live free from excessive government control without having to share the land with other people. When people own their own property, they are safe from the government overstepping its boundaries and taking land from citizens; people can also use their property to grow crops that they can live off of, providing them with a free lunch.

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To exemplify his claims, he discusses the difference between East Germany and West Germany. After World War II, East Germany was communist, while West Germany was a republic and had a free market system. The only difference between the two parts of the country was the economic and political systems they employed, and West Germany prospered while East Germany was riddled with poverty and suffering; this proves that countries prosper from free lunches. Friedman also asserts that government intervention is almost never the catalyst for growth and prosperity; when a government is actively trying to orchestrate a positive outcome and does not allow the free market to run its course, it is detrimental to the overall health of the nation.

In 1993, as Friedman was delivering his speech, the United States was in a deficit of 255 billion dollars, and he asserts that the views of the president at the time, Bill Clinton, were detrimental to the economy. President Clinton and his administration preferred a method that increased taxes for the American people, as well as sacrifice. Friedman’s views were that the American people should have less sacrifice and more benefits, using the Rural Electrification Act (REA) as an example. The REA helped install communication lines for the rural Midwest in the mid-1900s. He mentioned that if we stopped funding this area, the American people benefit from having to pay less in taxes compared to the few in the rural Midwest that would be hurt. The farmers are already receiving subsidies for producing food for the United States, so their sacrifice would be minimal. In some ways, one can consider their situation a free lunch.

Additionally, Friedman argues that businesses and companies receiving government subsidies are practically acquiring a free lunch. At the time, the car industry could get special government funding if it could reduce emissions. After the vehicle was produced, the car manufacturer would sell it and people would most likely buy it because it was more environmentally friendly and possibly more efficient. These car manufacturers were getting a free lunch for the fact that they profit from selling their vehicles and the government has given them aid to produce these vehicles. This is similar to how the government is pushing for electric vehicles currently.

Friedman believes that foreign-produced goods should not be purchased. According to Friedman, liberals tend to not buy American goods if it is more expensive, but in doing so, American producers are being harmed, which in turn hurts the economy; this results in more money leaving the country instead of staying in our economy. Special interest groups are also an issue because some will lobby against local farmers or producers in order to line their own pockets. Friedman declares that the United States is a “government of the people, by the bureaucrats, for the bureaucrats”, because as American citizens we vote for others who in turn are supposed to then represent our interests, when in fact this hands over too much power to bureaucrats.

Another misconception influenced by politicians is when President Clinton proclaimed how he is responsible for a change in the economy, without acknowledging the type of change as being good or bad. However, upon further investigation into the statement, Friedman states that Clinton’s changes affected the economy negatively. First, Friedman states that President Reagan’s and President Bush’s economies were two different periods, they were not one continuous period as suggested by others. Friedman would continue with this idea and categorize all three presidents from Reagan to Clinton. Reaganomics had principles that promoted less regulation, restrained government spending, and pushed for policies that would cause less inflation. Reaganomics was not completely in effect, but many ideas were and it was more than a prosperous start. On the other hand, Bushonomics and Clintonomics did damage to Reaganomics with policies that pushed an increase in tax rates, more government regulation, and more government spending. Friedman concluded this claim by saying that President Clinton’s economy was a successor to President Bush’s economy, which was the reverse of Reagan’s economy, and that Reagan’s economy was the best of the three.

Friedman continued by explaining the two markets, categorized as the economic market and the political market. The economic market operates under the incentive of profit, and the political market operates under the incentive of authority to the people. Throughout history, Friedman observed a trend in which the economic market’s importance had declined while the political market’s importance had expanded. For many years, the nation has been starving the working class to feed the political market. Friedman also points out that society tends to focus on becoming richer today, with the sacrifice of being less secure in the future.

Though the political leaders that control government policies and programs may be well-intentioned, government programs usually cause more harm than good in our society. Friedman uses an aphorism to illustrate that when private ventures fail, they are closed down but when government ventures fail, they are expanded. This aphorism explains that when private ventures do not succeed, they are closed down because of a lack of funds and no results. However, when government ventures fail, they are expanded using taxpayers’ money in hopes to solve issues in the project. The government often believes that more money will solve the problem. Friedman explains that more money does not solve problems, but incentives will fix these issues. Friedman discusses how government spending only increases over time because of this never-ending cycle. This is why Friedman states: “Electing the right people will not solve the people’s problems, but to solve the world’s problems we must change the incentive of people”. One way of changing the incentive that has worked in the political world is giving terms to government officials. Setting a time on the number of things an official can do effectively cuts the endless loop. An example of government programs harming being well-intentioned is the Unemployment Act of 1946. The Unemployment Act was a program that allowed the government to assume responsibility for full employment if a person lost their job. After this was enacted, unemployment had increased to 5.7 percent. In the years prior, unemployment averaged 4.6 percent. The act was meant to decrease the unemployment rate, but instead, it only increased. Another example of unintended consequences is rent control. Before rent control in New York, apartment buildings were relatively well maintained and there were places available to rent out and live. Since rent control went into effect, apartment buildings decreased in both the quality of living and the number of apartments available. Government involvement caused problems not only for the people they were trying to help but also for the apartment owners who now could not make enough profit, so they had to either shut down their buildings or decrease the quality of the buildings. Additionally, the homelessness problem is also a government problem. Since the emptying of mental institutions, homelessness has increased and mentally ill people now fill the streets because they have nowhere else to go. All these government programs were meant to solve issues but instead, they created more problems not just for the people that the government was trying to help but also for innocent bystanders. In his speech, Friedman addresses that the only way to solve government programs is through private markets. Throughout the years, resources have been moved from private markets to government markets. The issue is that when government markets receive money from taxpayers, they spend money more carelessly than private ventures because their own personal finances are not at stake. Friedman argues that the only way to solve these issues is by changing the intellectual community. Friedman reasons that one vote among millions will not change anything, but when you change the incentives of the people and the way they think, you can change and improve society's problems.