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Milton Friedman Speaks: Myths That Conceal Reality (B1226) - Full Video — Transcript

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0:09Reality.
0:10Caputured in user
0:11friendly symbols and
0:12processed for understanding.
0:14♪ Music ♪
0:32The Idea Channel.
0:57I want to talk today about
1:01the contrast between myths
1:05that are widely believed
1:07by the public at large and
1:09what I regard as the
1:10reality which typically
1:13contradicts those myths.
1:16As you are all aware,
1:18there has been a drastic
1:20shift in public attitudes
1:23and public opinions in the
1:24past fifty years or so
1:27with respect to the role
1:29of the individual on the
1:30one hand and the role of
1:31government and collective
1:32institutions on the other.
1:35There has been a shift in
1:36the philosophy and
1:37attitudes of the public
1:39from a belief
1:41in individual responsibility,
1:43from a belief in a society
1:45in which the role of
1:46government was as an umpire,
1:50to a belief in a
1:51society in which the
1:54emphasis is on social
1:55responsibility and the
1:57role of government as big
1:59brother and protector
2:01of the individual. As always
2:03when such shifts arise in
2:06public opinion, they are
2:08largely produced and
2:10reinforced by the
2:12development of myths about
2:15prior experience. Someone
2:17once wrote, and I'm not
2:20sure who it was, that a
2:22myth is like an air mattress:
2:23there's nothing
2:26in it but it's
2:27wonderfully comfortable,
2:29and deflation causes an
2:31uncomfortable jolt.
2:35Well my purpose today is to
2:37give you that jolt. When
2:42myths get established and
2:43are adopted they tend to
2:46be so strongly held, they
2:48tend to become so much a
2:49part of you, that when
2:52anyone comes along and
2:53differs with them and
2:54contradicts them, he risks
2:57automatically being
2:58dismissed as a crackpot.
3:02But I shall nonetheless
3:04take the risk of being
3:05dismissed as a crackpot
3:07because it seems to me so
3:09urgent that we deflate
3:11these myths, recognize
3:13what the reality is,
3:15in order to be able to
3:16provide a basis for a
3:18change in our philosophy,
3:21a reversal of the
3:23direction of our thought.
3:25In my opinion, if we do
3:26not do so, if we continue
3:28on the road we have been
3:29going, if we continue to
3:31rely more and more on
3:32government and less and
3:33less on the individual,
3:35we are condemned to a future
3:37of tyranny and misery.
3:40And therefore it seems to me
3:41essential for the future
3:42of this country that we
3:44recognize these myths for
3:45what they are and adjust
3:50our thinking to a correct
3:52perception of our present
3:54and our past. I am
3:57encouraged in this venture
3:59by another quotation,
4:02one which comes from a
4:04nineteenth-century
4:05American humorist by the
4:06name of Josh Billings
4:08who wrote somewhere,
4:10¨It ain't what people know
4:12that causes trouble, it's
4:14what they know that ain't so."
4:17And that's what I
4:18am going to devote this
4:19talk to, to trying to tell
4:20you about some things you
4:21know that ain't so. I am
4:25going to try to cover five
4:27myths that are part of
4:29your thinking, and if they
4:30are not part of your
4:31thinking they will tend to
4:32become so after you take
4:33your first course in
4:34American history.
4:38The first of those myths is
4:39the robber baron myth,
4:42the myth that somehow or other
4:44in the nineteenth century
4:46there was an era of rugged
4:48unrestrained individualism
4:50in which heartless
4:51monopoly capitalists
4:53exploited the poor
4:54unmercifully and ground
4:56them beneath their heels.
4:59The second myth I am going
5:00to talk about is the Great
5:01Depression myth, the myth
5:04that the Great Depression
5:05from 1929 until the late
5:07thirties was produced by a
5:08failure of private
5:09enterprise. The third myth
5:12I want to talk about is
5:13the demand for government
5:15service myth, the myth
5:18that government has had to
5:19step in because of a
5:21failure of the private
5:22market and a great widespread
5:24demand for government
5:25services. The fourth myth
5:29I am going to talk about
5:31was suggested by Mr.
5:32Eccles in his
5:33introduction; it's the
5:34free lunch myth, the myth
5:36that there is such a thing
5:37as a free lunch. And the
5:39final myth I want to talk
5:40about is the Robin Hood
5:42myth, the myth that
5:43somehow or other
5:44government operates by
5:46taking money from the rich
5:47and giving it to the poor.
5:51Let me start with the
5:52first of those myths, the
5:53robber baron myth, the
5:55myth that the nineteenth
5:57century was a period in
5:58which the rich became
5:59richer and the poor
6:00poorer, that it was a
6:02century in which you had a
6:04conflict between Wall
6:05Street and the working
6:07man, that it was a period
6:09in which particularly the
6:11farmers of the Middle West
6:14were being ground beneath
6:16the rapacious activities
6:18of the Wall Street
6:19financiers, in which there
6:21was widespread farm
6:22distress and misery. Now this
6:25myth had its origins in
6:26the nineteenth century.
6:28It produced the widespread
6:31greenback movement that
6:32you will learn about in
6:33your history books,
6:34a party which at one time
6:37reached significant size,
6:40a party devoted to the
6:41idea that all of the
6:42problems of the time could
6:44be solved if only the
6:46government would print
6:47enough of those nice
6:48pieces of paper which are
6:50colored green on the back
6:51and which are called
6:52greenbacks. It was a
6:55period that also gave rise
6:56to the free silver
6:57movement; to William
6:58Jennings Bryan, the
6:59silver-tongued orator from
7:01North Platte if I remember
7:03rightly--from these areas,
7:05who gave his famous speech
7:08on the cross of gold in
7:101896 in Chicago at the
7:12Democratic Convention in
7:13which he asked whether
7:14mankind shall be crucified
7:16on a cross of gold,
7:18a speech which got him the
7:20presidential nomination of
7:21the Democratic Party.
7:23And he subsequently was the
7:24nominee of the Democratic
7:26Party for several
7:29subsequent elections,
7:30fortunately never elected.
7:35That was a myth.
7:36What was the reality?
7:39The reality is
7:41that there is almost no
7:43period in human history
7:46which saw as rapid and
7:47widespread an increase in
7:49the well-being of the
7:50ordinary man as the
7:52nineteenth century.
7:54That was the period when
7:56millions of people from
7:57all over the world
7:58streamed to these shores.
8:01They came here with empty
8:02hands in the hope and the
8:04belief that they could
8:05make a better life for
8:06themselves and their
8:07children, and they succeeded.
8:08I suspect that
8:10most of the people in this
8:12room who are American
8:15residents and citizens
8:16today are descendants of
8:19the people who came to
8:20these shores in that period.
8:22I know, to take
8:24the immediate local case,
8:26the Eccles family derives
8:29from a Scotsman who came
8:33to this country in the
8:34middle of the nineteenth
8:35century. My parents came
8:38here in the 1890's from a
8:40part of Europe which is
8:42today part of the Soviet
8:43Union although at that
8:44time it was part of Hungary.
8:45And I suspect
8:47most of the people in this
8:48room have similar
8:49backgrounds. Now do you
8:51suppose those people kept
8:52coming to these shores in
8:53order to be exploited?
8:55Do you think they came here
8:56to be ground under the
8:57heels of rapacious
8:58monopoly capitalists?
9:01Not a bit of it. A few people
9:03might have been led here
9:04under misapprehension. You
9:06conceivably could have had
9:07an initial inflow of
9:09people who thought they
9:11were going to improve
9:12their lot and ended up
9:14being worse off, but you
9:15would not have had a
9:16continuing inflow. They
9:18would not have sent back
9:19to the old country for
9:20their relatives and
9:22friends. You would not
9:23have had a flow of
9:24millions upon millions
9:26year after year. And of
9:27course they were not
9:28exploited, they were not
9:30ground under the heel.
9:31They got jobs, they spread
9:33out West--to the Middle
9:34West, to the Far West, to
9:35where we are now--and they
9:37made of what was a
9:38desolate country a country
9:41that was prosperous and
9:43green and productive,
9:45and improved their own lot.
9:47With respect to
9:48agriculture in particular,
9:51that was a period when the
9:52number of farmers
9:53increased. it was a period
9:55when the price of farm
9:56land rose. Now of course,
10:01then as now every farmer
10:03would have liked it better
10:04if he had done still better.
10:05What happened then, of course,
10:08was that the spread of
10:11farms, increasing
10:13productivity, the
10:14development of machinery,
10:16the bringing under the
10:17plow of productive land
10:20led to a great increase in
10:21production which led to a
10:23decline in the prices of
10:24farm products. So it's
10:26true, the prices of farm
10:28products went down.
10:30But that was a sign of
10:31success; it was not a sign
10:32of failure. And the
10:34evidence that it was a
10:36sign of success was the
10:38rise in the price of farm land.
10:39After all, if this
10:42decline in the price of
10:44products had been a sign
10:46of failure, if it had been
10:47an indication that the
10:48farmer was being ground
10:50under the heels of Wall Street,
10:52why would people
10:53have been willing to pay
10:54higher and higher prices
10:55for the land from which
10:56those crops were produced?
10:58So the actual story is one
11:00of great growth of
11:02productivity in
11:03agriculture, a great
11:04development of agriculture
11:06in this country.
11:09If we turn to the charge that
11:14that was a period of
11:15heartlessness, a period in
11:17which the rich were
11:21willing to say "Let the
11:22public be damned," as one
11:24man was quoted incorrectly
11:27as saying, if we turn to
11:29that charge, let me call
11:30to your attention that the
11:31nineteenth century,
11:33the period when we came the
11:35closest we've ever come
11:37to pure unrestrained
11:38individualism, a period
11:40when government
11:41spending--the spending of
11:42the Federal government in
11:44Washington--amounted to
11:46less than 3 percent of the
11:47national income, when
11:49essentially you had no
11:50restrictions on
11:51immigration and few
11:52restrictions on economic
11:54activity, let me point out
11:56that that was also the
11:57period of the greatest
11:58flowering of charitable
11:59activity in the United States.
12:01That was the
12:03period when you had
12:05establishment of so many
12:06independent private
12:07schools and colleges
12:08around the country. It was
12:10a period when the private
12:13non-profit eleemosynary
12:15hospitals grew and
12:17sprouted in every city in
12:19the land. It was a period
12:21of the Carnegie libraries.
12:23It was a period of the
12:24founding of the Society
12:25for the Prevention of
12:26Cruelty to Animals. You
12:27name it and you will find
12:29that the charitable,
12:31eleemosynary activities
12:33date back to that period
12:34of the nineteenth century.
12:36So the robber baron myth
12:39is a myth, one that should
12:41be deflated. It gets its
12:43appeal from a common
12:46fallacy, from the fallacy
12:49that one man's gain must
12:50be another man's loss.
12:52Of course it is true that
12:54many men became wealthy
12:56during that period. There
12:57were robber barons, there
12:58always are robber barons.
12:59People are people.
13:01Some are good, some are bad,
13:03some are in between.
13:04And of course some people did
13:07try to mistreat other
13:09people. That is part of
13:10the course of history
13:11unfortunately. But
13:15the main part of the story
13:17is that the process whereby
13:19some people became wealthy
13:21was also the process which
13:23opened up the country and
13:24provided opportunities for
13:26millions of other people
13:28to have a modest
13:29competence, to be able to
13:30improve their own lot.
13:32It was the robber barons who
13:34were instrumental in
13:35building the railroads
13:36that joined the country
13:37together, who were
13:38instrumental in developing
13:40the industries of this
13:41country, and in thereby
13:43providing the
13:44opportunities for the
13:45ordinary man to improve
13:46his lot in life.
13:49Everybody can benefit. You can
13:50have some people become
13:53wealthy not at the expense of
13:54other people, but by
13:56enabling other people to
13:57become wealthy. We had
13:59robber barons then and we
14:01have robber barons today,
14:03but there is a big
14:04difference between the
14:05robber barons then and the
14:06robber barons today.
14:08The robber barons then primarily
14:10could get money only if people
14:13freely gave it to them.
14:14They got money by selling
14:16a service and nobody had
14:18to buy it, and if people
14:20bought it it was because
14:21it was a better service
14:22than it was before.
14:24The robber barons today are
14:26in large part able to get
14:27their money by sending a
14:28policeman to take the
14:30money out of your pocket.
14:32Now that's a figurative
14:33expression not a literal
14:34expression. But how do you
14:36become wealthy today?
14:38By getting government
14:39assistance. To mention
14:42only one very famous
14:44example, by getting
14:45government to assign you
14:46some TV licenses, or by
14:55getting any one of a large
14:56variety of other sources
14:59of government support.
15:01If you look at where modern
15:04wealth comes from,
15:06it almost always comes from
15:07political influence which
15:09enables you to get
15:11benefits at the expense of
15:12the public at large.
15:14Now that is a zero sum game.
15:17When the money is
15:18transferred from some to
15:19others through force and
15:21coercion of the taxpayer,
15:23then it need not be that
15:24the one man's benefit
15:26is also the other man's
15:27benefit. Then it can and
15:29often is that both parties,
15:33That the party who gains gains at
15:34the expense of the party who
15:35pays. So robber barons
15:37will always be with us.
15:40The crucial question is
15:41whether we have a form of
15:43economic organization in
15:45which one robber baron
15:47keeps the other robber
15:48baron in check or whether
15:51we have a form of economic
15:52and political organization
15:54in which one robber baron
15:55can help the other robber
15:56baron at the expense of
15:57the public. I want to turn
15:59to the second of these
16:00myths, the Great
16:01Depression myth. There is
16:04hardly any view that is
16:05more widespread than the
16:07view that somehow or other
16:08the Great Depression was
16:10produced by a failure of
16:12private business.
16:14That view is held not only
16:17by those who are in favor
16:19of a greater role of
16:20government, it is held by
16:21almost everybody.
16:22I venture to suggest that if
16:23you go to any bankers, the
16:25people who are here today at
16:26this banking conference and
16:28if you talk to them,
16:29I venture to say that nine
16:30out of ten of them--if
16:32they hadn't heard what I'm
16:35going to say-- that nine out of
16:38ten of them would say, Well of
16:40course the Great Depression
16:43was a failure of private
16:45business. It was due to an
16:46overextension,
16:47overspeculation, in the
16:481920's, or it was due to
16:51excessive concentration of
16:53wealth in the hands of the
16:55wealthy at the expense of
16:56the poor in the 1920's,
16:58or it was due to
16:59speculative investment
17:00abroad, or what-not,
17:02but it was a failure of
17:03private business and
17:04government had to step in
17:06in order to rescue private
17:08business from its own
17:09failure. Nothing could
17:12be farther from the truth.
17:14The Great Depression was
17:15produced in my
17:17opinion--and I may say
17:19this is not a random
17:20opinion; I will be glad to
17:22refer you to a
17:23several-hundred-page book
17:24in which it is documented;
17:27I won't tell you who the
17:28author is, Mr. Eccles did
17:32that--the Great Depression
17:36was produced by a failure
17:39of government, by a
17:41failure of monetary
17:42policy. It was produced by
17:44a failure of the Federal
17:45Reserve System to act in
17:47accordance with the
17:48intentions of those who
17:50established it. It was
17:52produced by a failure of
17:53the Federal Reserve System
17:55despite the presence of
17:58knowledge on the part of
17:59many of the people in the
18:00system about the right
18:02course of action. It is
18:04interesting to speculate
18:06for a moment about why
18:07this myth is so widespread.
18:10The answer is really
18:11very simple in this
18:12case: private enterprise
18:15has no press agents, the
18:18free market has no press
18:19agents, the government has
18:22a great many press agents.
18:24The Federal Reserve has a
18:25great many press agents,
18:27and the Federal Reserve of
18:29course would never admit,
18:31never proclaim, that it
18:32produced the Great Depression.
18:34On the contrary.
18:35And again,
18:36I don't mean to be
18:37criticizing individuals.
18:40We are talking about the
18:41way institutions operate.
18:44You and I are the same as
18:45all the rest of us; we're
18:46all the same. The hardest
18:48thing in the world is for
18:49anybody to admit that he
18:50made a mistake. If any one
18:52of us makes a mistake, we
18:54can always find somebody
18:55else to blame. If you
18:57read, as I have for my
19:00sins had to read,
19:02the annual reports of the
19:03Federal Reserve System
19:04over a fifty-year period,
19:08there is only one element
19:09of humor that lightens
19:10that task. That is the
19:14cyclical fluctuation in
19:17the powers of the Federal
19:18Reserve. In a good year,
19:20when things are good, when
19:21the economy is booming,
19:23you will read that the
19:24Federal Reserve by its
19:26wise policy, by its
19:29efficacious management of
19:30money, has produced this
19:32fine situation. However,
19:35let things get bad and all
19:37of a sudden the tone of
19:38the annual report is
19:39different. Then you
19:40discover that despite the
19:42best efforts of the
19:43Federal Reserve outside
19:46forces combined to produce
19:49difficulties. Even at the
19:52depth of the Depression in
19:541933 when in the spring of
19:59that year the Federal
20:01Reserve System which had
20:03been established in order
20:04to prevent banking panics
20:05and keep banks from
20:07closing, when the Federal
20:08Reserve System itself
20:09closed its doors and you
20:12had a banking holiday for
20:13seven days, and when over
20:17the previous three years a
20:19third of the banks of this
20:20country closed their doors
20:22and went broke because,
20:24in my opinion, of the poor
20:26policy followed by the
20:27Federal Reserve System,
20:30even in 1933 if you read
20:31the annual report you will
20:33discover how much worse
20:34things would have been if
20:35the Federal Reserve had
20:36not behaved so well.
20:39Now as I say, I don't blame
20:41the members of the Federal
20:42Reserve for that; any one
20:43of us would do the same
20:44thing. We have to find
20:45somebody to blame. But as
20:47an objective scholar I can
20:49tell you what the facts are.
20:50The facts were that
20:54from 1929 to 1933 the
20:58total quantity of money in
20:59the United States, the
21:01amount of currency, the
21:03amount of bank deposits,
21:05what Mr. Eccles referred
21:06to as M2--that total
21:08amount of money declined
21:10by one-third. The total
21:13number of banks went down
21:15by one-third. And why did
21:17the quantity of money
21:18decline? It declined
21:20because the Federal
21:21Reserve System failed to
21:22prevent the decline. The
21:24Federal Reserve System
21:25could have prevented the
21:26decline at all times.
21:28There never was a moment
21:29during that period when
21:31the Federal Reserve did
21:32not have the power to
21:33prevent the decline in the
21:34quantity of money. If it
21:36had prevented the decline
21:37in the quantity of money
21:39you might still have had a
21:40recession, but it would
21:41have been a garden variety
21:42recession. It would have
21:44been over in the middle of
21:451930 or early in 1931 at
21:47the latest. It would not
21:49have been a major
21:50catastrophe not only for
21:52this country but
21:53throughout the rest of the
21:54world. Moreover, this is
21:58not only hindsight. At all
22:02times the people at the
22:05Federal Reserve Bank of
22:06New York and at a number
22:08of other banks were
22:10pleading with the Federal
22:11Reserve Board in
22:12Washington to do the right
22:13thing. At all times there
22:15were people in Congress
22:17who were arguing that the
22:18Federal Reserve System
22:19should take a different
22:20course. At all times there
22:24were outside commentators.
22:27One of the Canadian banks
22:28was particularly
22:29prescient, but there were
22:30other commentators who
22:32were pointing out the
22:34disastrous effects on the
22:35American economy of the
22:37restrictive policies that
22:38the Federal Reserve System
22:39was following which were
22:41causing, permitting and
22:43facilitating a whole
22:44series of bank runs. So
22:46the Great Depression was
22:48not produced by a failure
22:50of business. On the
22:51contrary, it was produced
22:53by a failure of
22:54government, and a failure
22:56of government in an area
22:58in which responsibility
23:00had been assigned to
23:01government since the
23:02founding of this country.
23:03The Constitution of the
23:04United States gives
23:06Congress the power to coin
23:08money and set the value
23:10thereof, and it was in the
23:12management of this
23:13fundamental function of
23:14government that government
23:16failed and produced the
23:18Great Depression. We have
23:20learned from that failure.
23:22The Federal Reserve will
23:23not fail in the same way
23:24again. This time it will
23:26fail in a different way.
23:31This time it has been
23:33failing not by producing a
23:35great depression but by
23:36producing an inflation
23:38because just as you will
23:41hear the story that it was
23:42business that was
23:43responsible for the
23:44Depression, so you will
23:46today hear the story that
23:48it is labor and management
23:49that are responsible for
23:50inflation. It is the same
23:52kind of myth. Inflation is
23:54made in one place and one
23:56place only, Washington, D.C.
23:59And in Washington, D.C.
24:00the chief source, immediate
24:02source of inflation is the
24:04Greek temple on Constitution
24:05Avenue which houses
24:08the Federal Reserve Board.
24:11A major accomplice
24:14of course sits in the
24:15halls of Congress in
24:17Washington. They are a
24:19major accomplice because
24:20you tell them to be. The
24:23American people have been
24:24telling Congress for many
24:25years, "Spend more money
24:27on us, please", but they
24:29have been telling us,
24:30"Don't raise our taxes".
24:32Congress has been listening.
24:33It's been spending
24:34more money on you,
24:36but on the other hand
24:37it's been very unwilling
24:38to raise taxes. As a
24:39result, it has imposed
24:42inflation as a tax.
24:44That's one tax that you
24:45don't have to vote for
24:47but you have to pay.
24:49Let me turn to the third
24:51of the myths I want to cover.
24:53This is the myth closely
24:56related to the Great
24:57Depression myth. It is the
24:59myth that somehow or other
25:03the private market has
25:04failed to provide certain
25:06important services and the
25:10government has had to step
25:11in, in response to an
25:14overwhelming public demand
25:16in order to provide those
25:17services. The reality is
25:19very different. The
25:21reality is that if you
25:22look at every program that
25:24the government has adopted
25:26in the direction of
25:27extending its scope,
25:29it took an enormous
25:30propaganda campaign by
25:32special propaganda groups
25:34to get those measures
25:35passed. There was no
25:38underlying public demand
25:40for those measures. On the
25:42contrary, the demand had
25:43to be created, it had to
25:45be developed, it had to be
25:46produced, and it was
25:48created, it was developed,
25:49it was produced by people
25:52who sincerely--I'm not
25:53questioning their sincerity--
25:54who sincerely wanted
25:56to see an expansion
25:57in the scope of government.
25:58Let me take some of
25:59the most prominent
26:00examples. Let me take the
26:02example which today is the
26:03greatest sacred cow of
26:07them all, Social Security.
26:10Was there an overwhelming
26:11demand for Social Security
26:13in the 1930's when the
26:14law was adopted? Far from it.
26:16There was no public
26:17demand for it. It had to
26:19be sold. How was it sold?
26:22By the slickest devices of
26:24Madison Avenue, by
26:26imaginative packaging and
26:27deceptive labeling. Social
26:30Security was sold as an
26:32insurance scheme. It is
26:34not an insurance scheme.
26:36There is little
26:37relationship between the
26:38amount of money any one
26:39individual pays and the
26:40amount of money he is
26:41entitled to receive.
26:43Social Security is a
26:44combination of a bad tax
26:46system with a bad way of
26:49distributing welfare.
26:51It's got two components
26:53and I have never known
26:54anybody, whatever his
26:56political or other
26:57persuasion, who would
26:58defend either component
26:59separately. If you look at
27:01the tax system, who can
27:04defend a wage tax, a tax
27:07on wages up to a maximum,
27:09a tax on work, a tax which
27:11discourages employers from
27:13hiring people and
27:15discourages people from
27:16going to work, and a tax
27:19which is borne by the
27:20lowest wage groups. It's
27:22a regressive tax. You could
27:23never in a million Sundays,
27:30could never have gotten such
27:32a tax passed as a tax.
27:36Look at the benefit
27:37arrangement. Here you have
27:39an arrangement under which
27:41the amount of money a
27:42person receives does not
27:44depend on his poverty or
27:45his indigence; it depends
27:47on the accident of what
27:48industry he worked in. If
27:50he happened to work in a
27:51covered industry, he gets
27:53a benefit. If he happened
27:56to work in a non-covered
27:58industry, he doesn't. If he
28:02has only worked a certain
28:03number of quarters
28:04and not more, no matter
28:05how indigent he is, he
28:07doesn't get anything.
28:10If he is sixty-five and he
28:12decides to continue to
28:14work, earning more than a
28:16modest amount per year,
28:18not only doesn't he get a
28:19benefit but to add insult
28:20to injury he has to pay
28:21taxes on the wages he is
28:24receiving in order to
28:25finance the benefit he is
28:27not receiving. If a man
28:33who is sixty-five years
28:35old has a million dollars
28:36in income from property
28:38and doesn't work, he gets
28:40his full Social Security
28:42benefit tax free. If the
28:45same man goes to work and
28:47earns $20,000 a year, he
28:50is in the position I just
28:51described--he doesn't get
28:52any benefits. Is there
28:53anybody who would justify
28:54that system of
28:56distributing benefits? And
28:57I could go on to all the
28:59difficulties with it.
29:01I have only touched
29:02the surface. Note the
29:05misleading language. The
29:09Social Security System
29:11consistently refers to the
29:12taxes you pay as a
29:14"contribution". Now tell
29:16me, do you regard taxes as
29:18contributions? The word
29:21"contribution" denotes
29:23voluntary arrangements.
29:24If you buy an insurance
29:26program you are
29:27contributing freely.
29:28If you contribute to the
29:29United Way, you are
29:31contributing freely. But
29:34if you pay taxes on your
29:35wages as a condition for
29:37being employed, that's a
29:38tax; it's not a contribution.
29:41Again, it always
29:42refers to the payments
29:43people get as "benefits".
29:45They are not benefits;
29:46they are subsidies.
29:48What you have
29:50is a system of subsidizing
29:51people on the one hand and
29:52of taxing them on the other.
29:53What about the
29:54claim that it is
29:55insurance, that there is a
29:56relationship between the two?
29:58Well there is a minor
29:59relationship. It is true
30:02that on the whole those
30:04people who pay more will
30:06receive more, other things
30:08the same, but every
30:10student of the subject has
30:12pointed out that the
30:13relationship is very
30:14small, that most payments
30:17are independent of most
30:18receipts. Moreover, what
30:21you really have is not a
30:22system under which people
30:23are providing for their
30:24own security as the Social
30:26Security System will say
30:27it, as they describe it.
30:29In their pamphlets they
30:31describe it as a way in
30:32which 90 percent of
30:33American workers are
30:34providing for their own
30:35future. That's nonsense.
30:37What people today are
30:39doing is paying taxes
30:40today to pay the subsidies
30:42to the people who are
30:43receiving benefits today.
30:45What you have is a system
30:47of taxing the young at any
30:49point in time to subsidize
30:50the old. There may be
30:52nothing wrong with that.
30:54For the moment I am not
30:55discussing that issue. I
30:56am discussing whether
30:58Social Security was a
30:59response to a broad scale
31:00public demand or whether
31:02it had to be sold to the
31:04people by the worst
31:05devices of Madison Avenue,
31:08and the answer is it
31:09clearly was the latter.
31:10What you have is a system
31:11under which people today
31:13are being taxed to pay
31:14benefits today to the
31:16people who are receiving
31:17them. So far, those people
31:22who have been receiving
31:23payments have received
31:24much more than the
31:26actuarial value of what
31:27they paid. That's because
31:29you have had a growing
31:30working force, you've had
31:31higher wages being paid,
31:36the wage tax had gone up
31:38very sharply. But the
31:40number of recipients is
31:41growing relative to the
31:42number of people paying
31:44and that's why Social
31:45Security is currently in
31:46so much financial trouble.
31:48That's why the so-called
31:50reserve, which is not
31:52a reserve at all,
31:56has been getting smaller
31:57and smaller and that's why
31:59you have all the agitation
32:00for Congress to do
32:01something to make Social
32:03Security again financially
32:04responsible. Again, for
32:07the moment, I am not
32:08discussing whether Social
32:09Security or the separate
32:10parts are good or bad but
32:12only whether it can be
32:13regarded as a program
32:15adopted in response to a
32:17great public demand.
32:18Let me take another more
32:19recent movement. Consider
32:22the imposition on you and
32:23me and on our automobiles
32:25of all sorts of safety
32:26equipment--so-called
32:28safety equipment.
32:31Nothing to prevent us individually
32:32from buying it, but now we
32:34are required to buy it by
32:36government. Why? Was there
32:38a great public demand? Not
32:40at all, there was a man
32:42named Ralph Nader. Maybe
32:44he arose in response to a
32:45public demand, but if so
32:48it was a public demand for
32:49entertainment not for
32:50safety. Ralph Nader
32:56launched a major
32:58propaganda campaign and as
33:00a result of this
33:01propaganda campaign, as a
33:02result of a great selling
33:03effort also characterized
33:05by misrepresentation--
33:09as you know, his original
33:11weapon was a book "Unsafe
33:14at Any Price", which damned
33:15the Corvair as being an
33:17unsafe and a knowingly
33:18unsafe car. Later studies
33:22have demonstrated that his
33:24claim was not justified, but
33:26that did not prevent it from
33:27having its effect. It did not
33:29prevent it from adopting it.
33:31But, the extent to which
33:32this did not result from a
33:34great public clamor can be
33:36shown by what has happened
33:38whenever the agency that
33:44was established to
33:45administer auto safety
33:46regulations has
33:47overstepped its bounds.
33:49You will recall that a few
33:50years ago it tried to
33:53impose the requirement of
33:54an interlock, that no car
33:55could be started unless
33:57the seat belts were
33:58fastened. That produced
34:00such a great public outcry
34:02that Congress stepped in
34:03and it had to be rescinded.
34:07You are now having
34:08a similar kind of controversy
34:09about the airbag.
34:11Or again, let me
34:12take a very different
34:13example, one which has not
34:15yet emerged fortunately,
34:18the drive for national
34:19health insurance. Is there
34:21a widespread drive for
34:22national health insurance?
34:24Not so you can notice it.
34:27Indeed the proponents of
34:29it have been trying to get
34:30it passed year after year,
34:31and so far they haven't
34:32gotten it passed. As I
34:34say, fortunately, because
34:35if so-called national
34:36health insurance were
34:37passed it would bear as
34:39little relationship to
34:40insurance as Social
34:41Security does. It's not a
34:43program for national
34:44health insurance at all.
34:45It's a program for
34:46socialized medicine. It's
34:48a program for making
34:49physicians government
34:52employees. It's a program
34:55for creating long waiting
34:57lines and inferior medical
34:58service, but that isn't
35:00the way it is labeled.
35:03The pressure for it is having
35:04to be created and built up
35:06by propaganda. Or again,
35:09let me take another modern
35:10version. Has the FDA's
35:12ban on saccharin been in
35:13response to a great public
35:15outcry for it? Let me
35:19turn to the fourth of my
35:22myths, the free lunch
35:23myth, the belief that
35:25somehow or other
35:26government can spend money
35:27at nobody's expense.
35:32I don't know how many of
35:33you have ever heard of a
35:35wonderful description of
35:37government that was made
35:38by a French economist by
35:39the name of Fredàric
35:40Bastiat about 150 years
35:42ago. He said government is
35:45that fiction whereby
35:47everybody believes that he
35:49can live at the expense of
35:50everybody else. And that
35:53is the free lunch myth,
35:55the myth that somehow or
35:57other government can
36:00provide goods and services
36:02and spend money at
36:03nobody's expense. The
36:06particular form which that
36:07myth takes is very
36:10specific. It has two
36:13parts. One part is the
36:15belief that somehow or
36:16other you can tax business
36:19without consumers or
36:21workers or individuals
36:23paying for it. Somehow
36:24business is a big
36:28cornucopia out there that
36:29can be taxed at no cost.
36:32And the other form the
36:33myth takes is that you can
36:35create money at no cost,
36:37that if you turn the
36:38printing press, if you
36:39produce those greenbacks,
36:40that will enable people to
36:41become richer with nobody
36:43becoming poorer. Let me
36:45look at the first problem.
36:46Can you tax business?
36:48What's business? There is
36:50no business to be taxed.
36:54There are people. Only
36:55people can pay taxes. Can
36:58I tax this floor? Can I
37:00tax the building? The
37:02building can't pay taxes.
37:04Only people can pay taxes.
37:05So when you talk about a
37:06tax on business it has to
37:09be paid by somebody.
37:10Either it's paid by the
37:13stockholder or it's paid
37:15by the customer or it's
37:17paid by the worker. There
37:18is no other way it can
37:19come from. There is no
37:25Santa Claus, no tooth fairy
37:30that's going to provide
37:31a source by which the
37:32government can spend
37:33money that doesn't come
37:34from somebody. Somebody
37:35has to pay and yet over
37:40and over again you hear
37:42the claim, "Oh, we must
37:44not increase taxes on
37:45individuals; we'll
37:46increase taxes on business".
37:48In connection with
37:49the current discussion
37:50of Social Security,
37:52the same fiction arises.
37:53There is the fiction that
37:56the Social Security
37:57tax is half on the
38:00individual and half on
38:01the employer, that the
38:04individual only pays 5.75
38:07percent and the employer
38:08pays an equal amount.
38:11That's nonsense.
38:12That's bookkeeping, that's
38:13not economics, that's not reality.
38:17The part that the
38:17employer pays is part of
38:19his wage cost. If an
38:21employer considers whether
38:22it is worth his while to
38:25hire an additional worker,
38:27he has to consider as part
38:28of his cost not only what
38:30he pays to the worker but
38:31also the extra taxes he
38:33will have to pay to the
38:34government. It makes no
38:36difference to the employer
38:37at all if he pays the
38:39worker a bigger check and
38:41the worker pays a larger
38:42part of that directly to
38:43the government, or he pays
38:45the worker a smaller check
38:47but in addition has to
38:48send a check to
38:49Washington. What matters
38:50to him is the total number
38:52of dollars it costs him to
38:53hire an additional person.
38:55So the fact is, the logic
38:57is that the so-called tax
39:02on the employer is paid by
39:03the employee. This has
39:06always been clear from
39:09general economic
39:10reasoning, but it has also
39:12been subjected to
39:13empirical tests. A book
39:16even from that temple of
39:22belief in greater and
39:24bigger government, the
39:25Brookings Institution in
39:27Washington, published a
39:29couple of years ago,
39:30demonstrated empirically
39:34that the tax on the
39:35employer was really paid
39:37by the employee, that it
39:38was shifted to the
39:39employee. And it can't be
39:40any other way, as you will
39:41see if you think about it.
39:42So business doesn't pay
39:43that tax and yet, despite
39:46this, you have the great
39:48move in Congress right now
39:50in remedying the problem
39:51of Social Security to
39:54impose a larger fraction
39:56of the tax on business on
39:59the alleged grounds that
40:00somehow or other that
40:01spares the worker. It
40:02doesn't have any such
40:03effect. It reduces the
40:04incentive to hire people
40:06and thus is imposed on the
40:08worker. Again, if you look
40:12at the taxing of corporate
40:13profits, the distinction
40:16you have to draw is
40:17between who writes the
40:19check and who
40:20fundamentally bears the
40:21cost. It may well be that
40:24an official of a
40:25corporation writes the
40:27check for the tax on
40:28so-called profits. He
40:31writes the check, but who
40:32pays it? He doesn't pay
40:34it. Here is the poor
40:36fellow who may be earning
40:39a modest competence, he
40:41may be writing a check for
40:42ten million dollars, that
40:43isn't coming out of his
40:44hide. Where is that ten
40:46million dollars coming
40:47from? It has to come from
40:50the proceeds of the goods
40:52and services which the
40:53enterprise sells, and that
40:55ten million dollars is ten
40:56million dollars less
40:58available either for
40:59cutting prices or for
41:02paying out dividends or
41:03for paying wages and
41:04salaries. The tax is borne
41:07by people. For this
41:09reason, I have always
41:11myself been strongly in
41:13favor of eliminating
41:14altogether the tax on
41:16corporations so it is open
41:18and above board that you
41:19are taxing people and that
41:21you do not conceal that
41:23fact by appearing to tax
41:24corporations. With respect
41:27to money, can you print
41:28money at no cost?
41:31It's very cheap to turn out
41:32those pieces of paper, but
41:34does that get society
41:36something for nothing? Not
41:37at all, it's simply a
41:39different form of
41:40taxation. If you print
41:42money, people have more
41:44money to spend. If they
41:46spend more money on the
41:48same amount of goods,
41:50prices go up and in effect
41:53everybody is paying a tax
41:54through inflation. Once
41:56again, it is only a form
41:57of taxation. Let me turn
42:00to my final myth because
42:02it is in some ways the
42:03most pervasive, the most
42:05dangerous, and the most
42:07deep-seated. That is the
42:09Robin Hood myth, the myth
42:12that government has
42:13benefited the poor at the
42:15expense of the rich.
42:18That's the myth. Those
42:21are the terms on which
42:23many a governmental
42:24program is sold. What is
42:26the reality? The reality
42:29has been described in an
42:31article in the Journal of
42:32Law and Economics by my
42:34colleague George Stigler
42:35under the title of
42:36"Director's Law." And
42:39Director is the name of
42:40Aaron Director who was a
42:41professor at the
42:42University of Chicago Law
42:44School, and I might also
42:45say my brother-in-law.
42:51Director's law is that
42:54almost invariably
42:56government programs
42:57benefit the middle-income
42:59class at the expense of
43:01the very poor and the very
43:02rich. Now that may seem to
43:07you strange, but let me
43:10first explain why it makes
43:13logical sense and second
43:15give you some empirical
43:16evidence starting right
43:18here at home with higher
43:20education and the state
43:23financing of higher
43:24education. On the logical
43:27level you have a political
43:30system under which laws
43:33are passed by 51 percent
43:35of the people voting one
43:36way against 49 percent of
43:39the people. The way to get
43:40a law passed, therefore,
43:41is to form a coalition
43:43covering 51 percent of the
43:44people. You might think
43:46that you would take the
43:47bottom 51 percent versus
43:49the top 49 percent, but
43:52the more you think about
43:53it, the more you realize
43:54that that's not a very
43:55effective way to form a
43:56coalition. Why? Because
43:58those people who are at
44:00the bottom tend to be much
44:02less skillful in political
44:05activity for the very
44:06reasons that leave them at
44:08the bottom in the economic
44:09scale. They are at the
44:11bottom in the economic
44:12scale because they have
44:13low skills or low
44:14abilities or low
44:15entrepreneurial capacity,
44:16or have been unfortunate
44:17to have been born
44:18handicapped or in groups
44:20that are discriminated
44:21against. But those same
44:22features make them
44:24relatively less effective
44:25in political activity. Who
44:27are the most effective
44:28people in political activity?
44:29Those of us in
44:31the middle classes. We are
44:32the people who are
44:33literate, we are the
44:34people who write for the
44:35newspapers, we are the
44:37people who mount the
44:38hustings, we are the
44:39people who provide the
44:40candidates. Well you might
44:42say, why doesn't the
44:43coalition come from the top
44:44all the way down 51 percent?
44:46The answer is that
44:48those people at the
44:51top--that's a place we
44:52can get a lot of money
44:53from and it's worth
44:55sacrificing a few votes to
44:57get a large fraction of a
44:59tax base. And therefore
45:01the logically most
45:02reasonable coalition is 51
45:04percent of the people,
45:06running from the lower
45:07middle class through the
45:08upper middle class and
45:09leaving out the very rich
45:10at the top and the very
45:12poor at the bottom.
45:13It doesn't always work that way.
45:14Sometimes the very
45:16rich are able to use their
45:17money to get an effective
45:20coalition, but most of the
45:21time that's the way it works.
45:22Let me illustrate
45:24in the real world.
45:29One of my favorite examples
45:30is state financing of
45:32higher education. This is always
45:35sold on the ground of
45:37providing opportunities to
45:39everybody in the society
45:41to get an education,
45:42but what are the facts?
45:44I doubt that there is any
45:45program financed by
45:48government in the United States
45:49which is as
45:52regressive in its
45:53financial impact as the
45:54financing of higher schooling.
45:58Who are the
45:59people who go to school?
46:01Who are the people who are
46:02attending this university?
46:04Mostly people who come
46:06from middle, upper-middle
46:08or lower-middle income
46:10class families. If there
46:13are a few among you who
46:14come from lower-income
46:16families, you are going to
46:17be among the middle and
46:18upper-income classes;
46:21you are the richer among the
46:22poor. They are the people
46:25who go to school, they are
46:27the people who get the
46:28benefit from it. Your
46:29training here will enable
46:30you to get higher incomes
46:31than you otherwise could.
46:33Who pays for it? Well you
46:36pay for it, and your
46:37family and friends pay for
46:38it but not through
46:39tuition. I am told your
46:41tuition covers about 15
46:42percent of the cost of
46:43your schooling. The
46:45taxpayers pay for it,
46:47including the people who
46:49don't go to school. Some
46:51years ago there was a
46:53study made for the state
46:54of California which showed
46:56that 50 percent of the
46:58students at
46:59state-supported
47:00institutions of higher
47:01education came from the
47:02top 25 percent of the
47:03income class and 5 percent
47:06came from the bottom 25
47:08percent of the income
47:09class. When I talk in
47:13California and want to be
47:14demagogic, I say it's a
47:16program to impose taxes on
47:18the people in Watts to
47:19sent the children from
47:20Beverly Hills to college.
47:24You here in Utah know
47:25better what the local
47:26equivalents of that are.
47:27I'm not blaming you as
47:30individuals. I couldn't
47:32do that because I myself
47:34am a beneficiary of
47:35state-support of higher
47:37education. I went through
47:39a school that has since
47:40become a state university,
47:41Rutgers University in the
47:42state of New Jersey, on a
47:43state scholarship. I think
47:46I benefited from going to
47:47the university and I think
47:50maybe even the country at
47:52large did, although I know
47:53there are many people who
47:54disagree with that. But
47:58there's no reason why I
47:59shouldn't have paid for
48:00it. What did the poor
48:01citizens in New Jersey get?
48:03The day I graduated
48:04from college I left New
48:05Jersey and I've hardly
48:06ever been back since.
48:12There is a strong case to
48:13be made that everybody who
48:15wants to go to
48:16universities should have
48:17an opportunity to do so,
48:19provided he is willing to
48:20pay for it--not
48:21necessarily right now.
48:23It is highly desirable to
48:24have arrangements under
48:25which he could borrow now
48:27to pay it back later out
48:28of the higher income that
48:30his education will make
48:32possible. But there is no
48:34justification for imposing
48:36taxes on lower-income
48:39people to finance the
48:41schooling of people who
48:42are or will be in the
48:43higher-income groups.
48:45And yet how much of a
48:47political movement is
48:48there to impose full cost
48:49tuition on colleges? There
48:54is nobody who would have a
48:57ghost of a chance of being
48:58elected to a legislature
49:00or to the state house on
49:01that program. It's the
49:04hardest thing in the world
49:05legislatively to get
49:07higher tuitions imposed.
49:08Why? Because the middle
49:10class looks after itself,
49:13because of Director's
49:14law. What's true of
49:16higher education is true
49:17in every other area.
49:18Consider Social Security.
49:21Social Security is also
49:22sold as a program to
49:24benefit the poor. What are
49:25the facts? Social Security
49:27is a program which imposes
49:30unduly heavy taxes on the
49:32lower-income groups in the
49:33society to provide higher
49:37benefits to upper-income
49:39groups in the society.
49:40How does it work? It's not
49:42because of the regressive
49:43nature of the wage tax.
49:45It's not because of the
49:46structure of benefits.
49:47It's because of a very
49:48simple phenomenon. At what
49:50age do younger men from
49:53the lower classes go to
49:54work? Sixteen, seventeen,
49:56eighteen, nineteen.
49:58That's when they start to
49:59pay Social Security taxes.
50:01At what age are you people
50:03going to go to work and
50:04start paying Social
50:05Security taxes? Some of
50:07you may in part-time jobs
50:08have been doing so, but
50:10you will be full-time
50:11Social Security payers
50:16only when you reach your
50:18middle twenties. So they
50:21will pay taxes for more
50:23years than you will pay
50:24taxes. Next, which one is
50:27going to receive benefits
50:28for longer? Every
50:31demographic study has
50:32shown that the average
50:33expected length of life of
50:34the middle and
50:35upper-income classes is
50:36longer than the average
50:39length of life of people
50:40from the lower-income
50:41classes. So those poor
50:43suckers are going to pay
50:44taxes for more years and
50:48receive payments for fewer
50:51years than you and I will.
50:54Some of us, by virtue of
50:57continuing to work between
50:5965 and 72, will not be in
51:01that favored class.
51:04But already the fraction of
51:06people who work between 65
51:07and 72 has been cut to a
51:09small part of what it used
51:10to be because of the
51:13incentive offered by
51:15Social Security.
51:16And overall there is little
51:18doubt, therefore, that
51:19Social Security is a
51:20program which transfers
51:22income from low-income
51:23classes to high-income
51:24classes. The same thing is
51:27true of almost every other
51:28social program you can
51:29mention. I have often
51:31challenged people to find
51:32a single governmental
51:34program in which the
51:35people who pay taxes have
51:37higher incomes than those
51:39who get the benefits. I
51:40know only one and that is
51:43direct relief and public
51:45assistance, the Aid to
51:47Families of Dependent
51:48Children. It's not a good
51:51program, it's a terrible
51:52program, it's a welfare
51:53mess, but so far as I can
51:55find out it's the only
51:56program that demonstrably
51:58transfers income from
52:00higher-income classes to
52:01lower-income classes.
52:03And that's why it is such an
52:04unpopular program.
52:07Director's law shows up
52:09in the unpopularity of the
52:10welfare mess as well as in
52:12the popularity of Social
52:14Security, housing
52:15programs, and the like. I
52:17could go down a great many
52:18others but time will not
52:19permit. I come to my
52:22conclusion that if we are
52:26going to look forward to
52:29the future, to an end to
52:32this reduction in our
52:34freedom and the growth in
52:37centralized government, we
52:38must begin to dismantle
52:40these myths which are so
52:43widely accepted by people,
52:45which have become an
52:46unthinking part of their
52:49philosophy and of their beliefs.
52:51And I hope that
52:56in the course of this hour
52:58I have deflated your air
53:00mattress and given you an
53:01uncomfortable jolt.
53:03Thank you.
53:25May we go with the
53:26first question.
53:27I feel I might have a
53:29slight bias, having been
53:31in Washington and worked
53:32with the Republican
53:33National Committee at the
53:34time that President Ford lost.
53:36I can't help but
53:39wonder what your feelings
53:40are about the present
53:42economic position of the
53:44United States,
53:45in particular what your
53:46feelings are about Carter
53:47and his policies, and if
53:50they may be a little bit
53:51swayed coming from Georgia
53:52rather than somewhere else.
53:53I don't believe
53:54there is any fundamental
53:55difference between the
53:56policies of President
53:57Carter and the policies of
53:59President Ford. They both
54:02have adopted policies
54:04which are politically profitable.
54:05Suppose you go
54:09back and look at the
54:11previous Administrations.
54:13Can you see any connection
54:15between the professed
54:16objectives of the people
54:19who sought office and what
54:20they did when they got
54:21into office? You know,
54:23every President of
54:24whatever party has the
54:26capacity once elected to
54:27rise above campaign promises.
54:32There was
54:34Richard Nixon, a right-wing
54:35free-enterprise politician,
54:43very effective
54:45in his pre-election statements.
54:47Nobody in this
54:48country gave better
54:49speeches against price and
54:50wage controls than Richard
54:51Nixon did. Nobody in this
54:54country was as strong an
54:55anti-communist as Richard
54:56Nixon was. Upon being
54:58elected President,
55:01he makes the trip to China,
55:03an entente with Communist
55:05China, and he proceeds to
55:07impose price and wage controls.
55:08Here is his
55:09successor, Jerry Ford,
55:11a splendid congressman,
55:12a fine man, a man firmly in
55:15favor of the free
55:16enterprise system.
55:18As President he signs the
55:20bill continuing price
55:21controls on oil.
55:23That's when he lost me.
55:27So I say to you that I think the
55:29issue is not a partisan issue.
55:30We will not solve
55:32our problem by electing
55:34the right people.
55:36We will only solve our problem
55:38by making it politically
55:39profitable for the wrong
55:41people to do the right thing.
55:55How do you do.
55:57In light of pressures from
55:59the ecology and the
56:01population, how should
56:02this alter the economic
56:03policies of our country?
56:08We have spent the past two
56:09days driving across the
56:10Middle West, the empty
56:11spaces of Nebraska and of
56:14Wyoming, and I must say
56:16pressures of ecology and
56:18population were not very
56:19obvious to us as we drove
56:20across. There are no
56:23problems of population.
56:25The United States is an
56:26underpopulated country by
56:28the standards of almost
56:29any place in the world.
56:30I'm not saying that it is
56:31desirable to have a bigger
56:32population. I think that
56:34that's a false issue so
56:36far as the United States
56:37is concerned, that what is
56:38desirable is to have a
56:39system under which
56:41parents, people who choose
56:43to have children, bear the
56:45costs and the full
56:46responsibilities of those children.
56:48If we have a
56:50system of that kind
56:53under which you do not
56:54artificially encourage
56:56population or artificially
56:57discourage population,
56:59then you will tend to have
57:02about the right population.
57:04The figment of
57:05Malthusianism is very real
57:07in some parts of the
57:08world, but it has not been
57:09real in the advanced
57:10countries of the world. It
57:11has not been real in Great
57:13Britain, it has not been
57:14real in Japan, it has not
57:15been real in the United States.
57:16The rate of
57:17population growth in the
57:18United States has been
57:19slowing down as you know.
57:21So I do not believe there
57:22is a real problem of
57:25population. In fact, as
57:27you know, most of this
57:30country has fewer people
57:31per acre now than it did a
57:32hundred years ago. People
57:34have voluntarily chosen to
57:36concentrate in large
57:37conglomerations in big
57:38cities and then they
57:39complain that there are
57:40big cities. The ecology
57:43problem, the problem of
57:44pollution and of
57:46maintaining clean water
57:47and clean air, that's a
57:48very real problem. That's
57:49not the same as the
57:50population problem, not at all.
57:51There, too, a large
57:54part of our problem arises
57:56from governmental measures
57:58that have had the opposite
57:59effects to those which are
58:00desired. Let me give you a
58:01very simple example right now.
58:03There's a big hue
58:04and cry about the steel
58:08industry and about
58:09imposing higher tariffs or
58:11import quotas on steel.
58:14Every ecologist in this
58:15country ought to be on the
58:18right side of that issue,
58:19which is a free trade issue.
58:20If Japan chooses to
58:23subsidize the export of
58:24clean air to the United
58:25States, why should we
58:26object? Isn't that what
58:29it's doing when it sends
58:30steel here? But here we
58:33have this great hue and
58:34cry that we should somehow
58:35or other subsidize steel
58:37either by tariffs or
58:38quotas or in other ways to
58:40enable steel to produce
58:41both its products and its
58:42pollution at home.
58:46Personally I'm just in
58:47favor of free trade.
58:48I want even rules. I don't
58:49want to give any subsidy
58:50to pollution. On the
58:52contrary, I would like to
58:53tax those activities that
58:55create pollution.
58:57But we're going about it in a
58:58very foolish and unwise
59:01fashion. We're going
59:02about it by trying to
59:03regulate the equipment
59:05which people use, and
59:07that's a very bad way to
59:08do it. Far better to
59:10impose an effluent tax and
59:12then leave it to the
59:13ingenuity of people to
59:14minimize the cost. So
59:15there is a real problem
59:17about pollution and
59:18ecology. It's not a
59:19growing problem, make no
59:20mistake about it. The only
59:22reason we have so much
59:23more attention devoted to
59:25ecology and pollution
59:26today than we did fifty or
59:27seventy-five years ago is
59:28that we're rich enough to
59:30be able to afford the
59:31luxury. The water is
59:35cleaner today and safer to
59:36drink than it was a
59:37hundred years ago not only
59:38in the United States but
59:39all over the world. The
59:41air is cleaner today.
59:43The automobile has been a
59:44source of less pollution
59:46not more. Have you ever
59:47seen any calculations of
59:49what the streets of our
59:50big cities would look like
59:51if we were still using
59:52horses to pull things?
59:58So there is a real problem,
1:00:00and the fact that we are
1:00:01rich enough means that we
1:00:03should pay attention to
1:00:04that problem. We can
1:00:05afford to do something
1:00:06more about it than we did
1:00:07earlier. But we must not
1:00:08go haywire and create more
1:00:11myths that somehow or
1:00:13other we've been destroying
1:00:15an untroubled continent.
1:00:21You know, there
1:00:21are more acres of woods
1:00:22growing now than there
1:00:24were a hundred years ago
1:00:24because it has been profitable
1:00:26to grow wood for lumber.
1:00:30The greatest
1:00:32protection of wild life has
1:00:36not come from governmental
1:00:37measures to protect wild life.
1:00:39It has come from
1:00:40the Audubon Society
1:00:41and from other
1:00:42private associations, and
1:00:43it has come interestingly
1:00:45enough from the people
1:00:47who are providing for profit
1:00:49private hunting preserves.
1:00:51This has given them an
1:00:53incentive to establish
1:00:54wild life sanctuaries
1:00:55privately in Canada to
1:00:57preserve the source of the
1:00:59birds and so on which
1:01:01other people hunt.
1:01:03So all I'm saying to you is
1:01:04there's a real problem here,
1:01:06but put it in perspective
1:01:08and don't
1:01:08think that the answer is
1:01:09always another
1:01:11governmental law, which
1:01:13will restrict the freedom
1:01:14of people to use their own
1:01:15resources.
1:01:19Thank you.
1:01:20Can we have the next question?
1:01:22All the economists seem
1:01:25very rhetorical on history
1:01:27and things past, and based
1:01:32on present economic
1:01:34conditions, Doctor, I
1:01:35would like to impose on
1:01:37you as a revelator and
1:01:40seer where do you think we
1:01:42are going as a nation in
1:01:45what time period?
1:01:48Well, I will be glad to answer
1:01:50that but the answer has to
1:01:55be divided into two parts.
1:01:58It's possible to state
1:01:59fairly clearly where
1:02:01we're going in the next
1:02:02year or two, but where
1:02:04we're going to go over a
1:02:05longer period than that is
1:02:07not written in the books.
1:02:08It's not foreordained;
1:02:09it depends on us. We are
1:02:12still masters of our own destiny.
1:02:14There is no
1:02:17determinism which dictated
1:02:19five thousand years ago
1:02:21where we are going to be
1:02:24next year or the next ten
1:02:26years. And so the question
1:02:27of what happens over the
1:02:28next ten to twenty years
1:02:30depends on whether the
1:02:32American people continue
1:02:34to move in the direction
1:02:35of bigger government and
1:02:37more government control,
1:02:38or whether we have a
1:02:39change in attitudes and
1:02:41beliefs and we have a
1:02:43pressure on government to
1:02:46hold it down to size, to
1:02:47cut it back, to give more
1:02:48room for individual
1:02:49freedom. But so far as
1:02:51the next year or two is
1:02:52concerned, I'll be glad
1:02:53to respond because there
1:02:56you can see pretty well
1:02:57what's in the pipeline.
1:02:59We are a little more than
1:03:02two and a half years down
1:03:03the road of an expansion
1:03:05which started in March or
1:03:08April or May of 1975.
1:03:11On the average over the
1:03:12postwar period those
1:03:13expansions have lasted
1:03:14about three and a half
1:03:15years, so we have about
1:03:17another year to go on the
1:03:18average. So 1978 ought to
1:03:21be a continued period of
1:03:23reasonably rapid growth in
1:03:26output. It is also a
1:03:29period when we will be
1:03:31facing increasing
1:03:32inflation. Inflation we
1:03:34can predict for a longer
1:03:35period than most other
1:03:36things because inflation
1:03:38in any year tends to
1:03:41reflect monetary growth of
1:03:43two years earlier. For the
1:03:45next year or two,
1:03:46therefore, it's already
1:03:48more or less foreordained
1:03:50as a result of the
1:03:51policies which the Federal
1:03:52Reserve and the Congress
1:03:53have been following that
1:03:54inflation is going to be
1:03:55higher than it has been.
1:03:58There was a temporary
1:03:59bulge in January and
1:04:01February as a result of
1:04:02the severe winter and I'm
1:04:04not saying it will
1:04:05necessarily be higher than
1:04:06that, but from December
1:04:081975 to December 1976
1:04:18inflation was at the rate
1:04:19of a little under 5
1:04:20percent for consumer prices.
1:04:21That is, I think,
1:04:22the low point for a
1:04:24considerable period ahead.
1:04:25I think the rate of
1:04:27inflation over the next
1:04:28several years will average
1:04:29somewhere between 7 and 9
1:04:31percent. Since interest
1:04:32rates tend to move up or
1:04:34down with inflation,
1:04:34I expect interest rates to
1:04:36be rising and to be higher
1:04:37than they are now.
1:04:38Of course interest rates are
1:04:40extraordinarily low right
1:04:43now in any real terms.
1:04:45But, to go along your
1:04:47line, that's more or less
1:04:48the prospect for the next
1:04:51nine months or year in
1:04:53respect of real output,
1:04:55for the next two years in
1:04:56respect of prices.
1:04:58What are the imponderables and
1:05:00uncertainties in that
1:05:01picture? The first and
1:05:03most important
1:05:04imponderable I believe is
1:05:05the energy problem.
1:05:07It's again a case like the
1:05:09Great Depression.
1:05:10The energy problem is not a
1:05:12technical problem,
1:05:13it's not a physical problem,
1:05:14it's not a problem
1:05:15produced by private business.
1:05:16It's a problem
1:05:18which was produced
1:05:19primarily, you will be
1:05:21surprised to find, by
1:05:23Richard M. Nixon on August
1:05:2515, 1971 when he imposed
1:05:29wage and price controls,
1:05:30and the only element of
1:05:33those wage and price
1:05:34controls that still exists
1:05:36of any significance is the
1:05:37control on the price of oil.
1:05:38If you had never had
1:05:41that wage and price
1:05:42control and never had the
1:05:43price of oil controlled
1:05:44you would not be having
1:05:45any energy problem at all.
1:05:47You know economists don't
1:05:48know much but there's one
1:05:50thing we know very, very well and
1:05:52that's how to produce shortages.
1:05:55Tell us what
1:05:56you want a shortage in.
1:05:58If you want a shortage
1:06:01in lettuce, we'll set a
1:06:03maximum legal price for
1:06:04lettuce below the price
1:06:06that prevails in the
1:06:07market and I guarantee
1:06:08you, you will have a
1:06:09shortage of lettuce.
1:06:10You want a shortage of
1:06:11housing? In New York City
1:06:13we'll set a maximum
1:06:14price, rent control--a
1:06:15maximum price on
1:06:16rent--you'll have a
1:06:17shortage of housing.
1:06:18You want a shortage of funds
1:06:20available to borrow for
1:06:21mortgages? Just have a usury
1:06:23law. That sets a maximum
1:06:25limit on the interest rate that
1:06:27may be charged. And if that
1:06:28usury law sets a limit below what
1:06:29would otherwise prevail in the
1:06:31market you'll have a shortage of
1:06:33funds available for mortgages.
1:06:36In the same
1:06:37way, if you want to have
1:06:38the appearance of a
1:06:39shortage in oil just set a
1:06:40maximum price on oil.
1:06:43Make it unprofitable for
1:06:45people to produce it, make
1:06:46it profitable for people to use it.
1:06:48And in what we have
1:06:50been doing in oil as
1:06:51a result of that oil price
1:06:53control imposed on August
1:06:5615, 1971, we have gone the
1:06:59standard natural route of
1:07:02government controls.
1:07:04We have gone from price
1:07:05control to an allocation of oil.
1:07:07We have a program
1:07:09whereby we implicitly tax
1:07:11heavily domestic producers
1:07:14of oil and subsidize
1:07:15imports from abroad.
1:07:18You know, it's insane.
1:07:20Here we supposedly have a
1:07:21problem about our
1:07:22excessive imports from the
1:07:23OPEC countries and yet we
1:07:25are following a policy
1:07:26which amounts to a subsidy
1:07:28of three dollars a barrel
1:07:30on every barrel of oil
1:07:31imported from OPEC and
1:07:33other foreign countries.
1:07:34How silly can you be?
1:07:37Alright, so Mr. Carter has
1:07:39come out now with an
1:07:41energy program which would
1:07:43make all of this much
1:07:44worse. It's not a program
1:07:45for energy; it's another
1:07:48case of misleading labeling,
1:07:49of misleading advertising.
1:07:51It's a tax program.
1:07:52It's a major tax program
1:07:55which would make
1:07:56the energy problem worse
1:07:58not better. It would
1:07:59reduce the incentive to
1:08:01produce energy, it would
1:08:04lead to a wasteful use of
1:08:06energy. If that energy
1:08:08program were adopted,
1:08:10which fortunately it looks
1:08:11as if it will not be, then
1:08:14I might very well change
1:08:15the forecast I have been
1:08:16giving you. Then I might
1:08:17expect a recession to
1:08:18develop in 1978 and I
1:08:21might expect under those
1:08:22circumstances double-digit
1:08:23inflation by 1979. But as
1:08:27I say, fortunately that
1:08:29program is not going to be
1:08:30adopted. However,
1:08:31unfortunately, a sensible
1:08:33program isn't going to be
1:08:34adopted either. We are
1:08:36going to continue, I'm
1:08:37afraid, with our present
1:08:39program which will have
1:08:42the effect of sort of
1:08:44mildly hobbling us,
1:08:46supporting OPEC, enabling
1:08:48that cartel to last longer
1:08:49than it otherwise would.
1:08:52At any rate, what happens
1:08:53in that energy area is a
1:08:54major imponderable for the
1:08:56short term. To go to the
1:08:58long-term prospect. That
1:09:01depends as I say entirely
1:09:02on what we do. If we
1:09:04continue down our present
1:09:05path, then if you want to
1:09:07see what's going to
1:09:08happen to us just look at
1:09:09the history of Britain
1:09:10over the past ten years.
1:09:12We've been following
1:09:13exactly the same path
1:09:14Britain has. We are about
1:09:16fifteen years behind them;
1:09:18that is to say, about
1:09:19fifteen years ago the
1:09:20British government was
1:09:21spending the same fraction
1:09:22of their national income
1:09:24as our governments are now
1:09:25spending of ours and that
1:09:27has produced, as you know,
1:09:28in Britain inflation,
1:09:31financial difficulties,
1:09:33near collapse of the
1:09:34economy. Or if you don't
1:09:36want to go so far afield
1:09:37for an example, look at
1:09:38New York City. New York
1:09:40City is the most advanced
1:09:42welfare-state community in
1:09:44the country and that has
1:09:46produced in New York City
1:09:47increasing financial
1:09:48difficulties, and
1:09:50increasing loss of control
1:09:51by the citizens of New
1:09:52York over their own
1:09:54destiny. That's where
1:09:55we're headed if we keep
1:09:56on our present line. On
1:09:57the other hand, if we stop
1:09:59this and turn around and
1:10:00start going the other
1:10:01way--this is a great
1:10:03country, we have great
1:10:04resources, we have an
1:10:06able, energetic, skillful
1:10:08people, we have lots of
1:10:09land, we have lots of
1:10:10know-how--there is no
1:10:13reason why we cannot
1:10:14continue on the path of
1:10:15increasing prosperity and
1:10:17increasing freedom that
1:10:19has characterized so much
1:10:20of our history. So I'm
1:10:21not going to predict which
1:10:22of these two paths we'll
1:10:23go down, those are the
1:10:25alternatives. Thank you
1:10:27for your question. Let's
1:10:28have the next one.
1:10:35Well, you touched on what I
1:10:37was going to ask on, saying as
1:10:38far as where we're going,
1:10:39say England. I was going
1:10:40to mention that. But I
1:10:42would like to ask if we
1:10:45were able to turn this
1:10:46around, which I don't
1:10:47know if we will be able
1:10:48to, do you think we could
1:10:49maintain a decent balance
1:10:50of payments? The balance
1:10:52of payments is no problem.
1:10:54Again, that's only a
1:10:55problem of pricing. How do
1:10:58you get a balance of
1:10:59payments problem? The same
1:11:00way you get a problem in
1:11:02oil or in houses or in
1:11:06lettuce or wheat or
1:11:08anything else, by fixing
1:11:09the price. We had balance
1:11:11of payments problems so
1:11:12long as we had fixed
1:11:13exchange rates. The
1:11:15relevant price in this
1:11:16case is the exchange rate
1:11:17between the U.S. dollar
1:11:18and other currencies and
1:11:20we had balance of payments
1:11:21problems as long as we had
1:11:22a fixed exchange rate.
1:11:24Now, fortunately, this is
1:11:26the good thing that Mr.
1:11:27Nixon did on August 15, 1971.
1:11:29You have to look at
1:11:33both sides. And the good
1:11:34thing he did was to close
1:11:36the gold window, to end
1:11:38the attempt by the U.S. to
1:11:40maintain a price of $35 an
1:11:42ounce of gold, which also
1:11:44had the effect of ending
1:11:46the fixed exchange rates
1:11:47between the dollar and
1:11:48other currencies. So long
1:11:49as we have freely floating
1:11:50exchange rates, there is
1:11:52nothing of less
1:11:53significance than the
1:11:54balance of payments.
1:11:55The market will fix it. If we
1:11:57are buying more goods
1:11:58abroad than people want to
1:11:59buy from us, then
1:12:01foreigners are
1:12:02accumulating dollars.
1:12:03And what will they do with
1:12:04those dollars? They will
1:12:06try to buy their own
1:12:07currencies. In the process
1:12:08they will bid the price of
1:12:10their own currencies up.
1:12:12The effect of that will be
1:12:13to make their goods more
1:12:14expensive to us and our
1:12:17goods cheaper to them, and
1:12:18that will restore balance.
1:12:20So what you're saying is
1:12:22that the problems are
1:12:24caused when governments go
1:12:25contrary to natural laws?
1:12:27Well no, let's not say that.
1:12:29Let's not put it
1:12:31that way. That makes it
1:12:32too easy because we really
1:12:33don't know what these
1:12:34natural laws are. The
1:12:36problems are caused when
1:12:38government acts in a bad
1:12:40way, in a way that
1:12:41specifically distorts the
1:12:46incentives and the
1:12:47opportunities that are
1:12:48open to people. Because
1:12:49there is real room for
1:12:50government; we need
1:12:51government. We need
1:12:52government to do the right
1:12:53things, and now we have to
1:12:55examine and analyze what
1:12:57are the right things to
1:12:58do. We need government to
1:12:59protect one man from being
1:13:00hit over the head by
1:13:01another man. The great
1:13:03tragedy of the modern era
1:13:04and of the expansion of
1:13:05government, in my opinion,
1:13:07is that as government has
1:13:09increasingly been doing
1:13:10things it has no business
1:13:11doing it's been doing the
1:13:13things it ought to do less
1:13:14well. So I'm not really
1:13:18willing to accept the
1:13:19simple statement about
1:13:21natural laws because that
1:13:22leads you into the
1:13:23question of defining what
1:13:24natural laws you are
1:13:25talking about. Thank you.
1:13:27Let's have the next question.
1:13:31My question deals
1:13:33with the point of using
1:13:35Madison Avenue tactics
1:13:40to ram programs through
1:13:41people's throats. Surely,
1:13:43Dr. Friedman, those who
1:13:45claim no knowledge of
1:13:46economics and indeed many
1:13:48economists, too, listen to
1:13:50you. Why do they listen?
1:13:53Well, because there is
1:13:55faith in your knowledge
1:13:56and ability to analyze
1:13:58economic problems and
1:13:59launch an academic
1:14:01campaign. Suppose in the
1:14:03future, God forbid, you
1:14:05are found to be wrong?
1:14:08Surely, Dr. Friedman, does
1:14:09not the fault lay in our
1:14:12faith than in the decision
1:14:14made us? Does not the myth
1:14:17then grow out of the
1:14:19faith, the same faith we
1:14:21use to believe in you now?
1:14:25Yes, it does, but there's
1:14:27big difference--quite a
1:14:29difference. I don't have
1:14:32any objections to Madison
1:14:34Avenue tactics. I think
1:14:35advertising serves a very
1:14:36useful function so long as
1:14:38it is competitive. I think
1:14:41it's fine for me to be
1:14:42able to talk to you, as
1:14:43long as other people can
1:14:44talk to you and you can
1:14:45hear other views, and you
1:14:46can make up your mind.
1:14:48The thing I object to about
1:14:50government use of Madison
1:14:51Avenue tactics is that it
1:14:54is unrestrained and it
1:14:56doesn't have effective
1:14:57competition; that it is
1:14:59financed not voluntarily,
1:15:03not by the people who buy
1:15:04the product; that you and
1:15:06I have to pay taxes to
1:15:08hire people to persuade us
1:15:10to pay still more taxes.
1:15:13That's the feature of it
1:15:14that I object to. I have
1:15:16no objection to
1:15:18individuals in their
1:15:19private capacity getting
1:15:21up on platforms, as I'm
1:15:22getting up on this one,
1:15:24to try to persuade people to
1:15:25one view or another. But
1:15:27should the people you and
1:15:28I pay with taxes be in
1:15:29that position? Should we
1:15:31have employees of the
1:15:32Social Security Board
1:15:34sending around propaganda
1:15:35for extending Social
1:15:36Security? Is that an
1:15:39appropriate use of
1:15:40governmental money?
1:15:42I don't think so, and
1:15:44that's what I object to.
1:15:45Granted it is not, but
1:15:48aren't the people
1:15:49supposed to be intelligent
1:15:50enough to know deceit from
1:15:51truth? No.
1:16:00They're sup posed to be intelligent
1:16:01enough to choose among
1:16:04alternative purveyors of
1:16:07supposed truth.
1:16:09The problem is the one-sidedness.
1:16:12We believe the
1:16:14whole justification
1:16:15for free press, for free
1:16:16speech, for our whole
1:16:17system of adversary
1:16:19justice--the whole
1:16:20justification--is that
1:16:23people will be best able
1:16:25to distinguish truth from
1:16:27falsity if they have an
1:16:28opportunity to hear a
1:16:30variety of different
1:16:31opinions. If you only have
1:16:34one opinion spoken,
1:16:36to shift grounds, if we go to
1:16:38the Soviet Union,
1:16:40the people in the Soviet Union
1:16:42are enormously sceptical
1:16:43about what they hear from
1:16:44their government but they
1:16:47cannot know the truth
1:16:49because they don't hear it.
1:16:50They have to
1:16:51conjecture what is the
1:16:52truth because they only
1:16:54hear one side. They don't
1:16:55believe that, don't
1:16:56misunderstand me. They
1:16:57become experts at reading
1:16:58between the lines.
1:17:01But they still don't have
1:17:02access to the full variety
1:17:03of opinion which would
1:17:05enable them to choose and
1:17:07decide intelligently and
1:17:08reasonably about what's
1:17:09right. So let's by all
1:17:12means have a clash of
1:17:13opinions. Let different
1:17:16beliefs clash in the
1:17:18market place of ideas, but
1:17:20let's not have a monopoly
1:17:22or subsidization of one
1:17:24brand of ideas versus
1:17:25another.
1:17:27Thank you very much.
1:17:35Yes sir, you
1:17:36mentioned about the
1:17:37imports of steel. I would
1:17:40like to allude to that.
1:17:41We hear from the American
1:17:42steel industry that in
1:17:44Japan, for instance, steel
1:17:46producers are producing at
1:17:47less than cost with
1:17:50support of the government
1:17:51so as to keep employment
1:17:52up there, and as a result
1:17:56the American steel
1:17:57industry here is not going
1:17:58to be able to compete.
1:18:01So they are going to shut
1:18:02down and we are going to
1:18:03have higher unemployment
1:18:04here. What is your answer
1:18:05to that? Well, that's a
1:18:07very good question and
1:18:10it's a very easy answer.
1:18:12I may say the answer I'm
1:18:12giving is not my answer.
1:18:17It was the answer that was
1:18:18given by Adam Smith, the
1:18:20man whose face appears on
1:18:21my tie I may say. It was
1:18:27given by Adam Smith in
1:18:281776 in The Wealth of
1:18:30Nations. From that time to
1:18:32this, hardly any
1:18:33professional economist has
1:18:35believed in tariffs or
1:18:36protection or anything but
1:18:37free trade. But the answer
1:18:39is very straightforward.
1:18:41Let us suppose for a
1:18:43moment that the Japanese
1:18:45flood us with steel. That
1:18:48will reduce employment in
1:18:49the American steel
1:18:50industry, no doubt.
1:18:52However, it will increase
1:18:53employment elsewhere in
1:18:55America. We will pay for
1:18:56that steel with dollars.
1:18:58What will the Japanese do
1:18:59with the dollars they get
1:19:00for the steel?
1:19:01They aren't going to burn them.
1:19:02They aren't going
1:19:04to tear them up. If they
1:19:05would, that would be best
1:19:06of all because there's
1:19:08nothing we can produce
1:19:09more cheaply than green
1:19:10pieces of paper: And if
1:19:13they were willing to send
1:19:14us steel and just take
1:19:16back green pieces of
1:19:17paper, I can't imagine a
1:19:18better deal. But they are
1:19:20not going to do that, they
1:19:21are not stupid, they are
1:19:22smart people. They are
1:19:24going to use those dollars
1:19:25to buy goods and services.
1:19:27They are going to spend
1:19:28them. In the process of
1:19:29spending them, they spend
1:19:31them directly in the
1:19:32United States and that
1:19:33directly provides
1:19:34employment in the United
1:19:35States. They may spend
1:19:37them in Brazil or in
1:19:38Germany or in China or
1:19:39anywhere else, but whoever
1:19:41gets them in turn is going
1:19:42to spend them. So the
1:19:43dollars that we spend for
1:19:45the steel will find their
1:19:46way back to the U.S. as
1:19:48demand for U.S. goods and
1:19:49services. You will have
1:19:51less employment in the
1:19:52steel industry, you will
1:19:54have more employment in
1:19:56the industries producing
1:19:57the goods we export.
1:19:58Overall, total employment
1:20:01will not be affected.
1:20:03But overall the American
1:20:04consumer will be benefited
1:20:06because he will get the
1:20:08steel more cheaply and the
1:20:10goods made from the steel
1:20:11more cheaply than he
1:20:12otherwise would. That's
1:20:14the benefit to the
1:20:15American consumer. Now why
1:20:18is the steel industry and
1:20:20similar industries--why
1:20:21are they so effective in
1:20:22their campaigns for
1:20:24protection? Because of a
1:20:26very common problem that
1:20:29affects not only this but
1:20:30lots else, and that is the
1:20:34difference between the
1:20:35visible and the invisible.
1:20:37The people who are going
1:20:38to lose their jobs in
1:20:39steel are very visible,
1:20:40they are a collective
1:20:41group, you can name their
1:20:42names. Suppose we restrict
1:20:45imports from Japan, then
1:20:47people are going to lose
1:20:48their jobs in these export
1:20:50industries. They will be
1:20:51widely spread over the
1:20:52country. You and I
1:20:53couldn't name one person,
1:20:55but that doesn't mean
1:20:56they are any less real.
1:20:58But the greater propaganda
1:20:59effect of the steel
1:21:00industry is because you
1:21:02can see the visible as the
1:21:05most potent political
1:21:06force than the invisible
1:21:08people who will lose their
1:21:09jobs. I urge on those
1:21:11people who think there's
1:21:12some sense to the steel
1:21:13industry argument to
1:21:15consider it in a more
1:21:16absurd setting. You very
1:21:18often bring out the logic
1:21:19of an argument by carrying
1:21:20it to an extreme. You
1:21:22know, you could have a
1:21:23great employment in the
1:21:25city of Logan, Utah of
1:21:28people growing bananas in
1:21:29hothouses. If we had a
1:21:32high enough tariff on the
1:21:33import of bananas it could
1:21:35become profitable to build
1:21:36hothouses and grow bananas
1:21:39in those hothouses. That
1:21:41would give employment.
1:21:43Would that be a sensible
1:21:44thing to do? If that
1:21:46isn't sensible, then
1:21:47neither is it sensible to
1:21:49artificially restrict the
1:21:52import of steel. Now with
1:21:53respect to the charge that
1:21:55the Japanese government is
1:21:55subsidizing the export of
1:21:57steel, number 1, it's
1:21:59very dubious that it's
1:22:00true. But suppose it were
1:22:01true. Then that would be a
1:22:02foolish thing for the
1:22:03Japanese to do from their
1:22:04own point of view. But why
1:22:07should we object if
1:22:08they're giving us foreign
1:22:09aid? We've given them 2768 01:22:14,563 --> 00:00:00,000 quite a bit. Thank you.

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