Milton Friedman’s Weird Abolition List

An excerpt from Chapter 5 of *Unbeatable*

Greetings from Kyushu, Japan! Here’s the latest excerpt.

[from Chapter 5: To Be Brutally Honest: What Ought to Be Done But Won’t]

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In Milton Friedman’s Capitalism and Freedom, first published in 1962, the 20^th century’s highest-profile free-market economist presented a list of government policies worthy of abolition; or, in his words, of “some activities currently undertaken by government in the U.S., that cannot, so far as I can see, validly be justified in terms of the principles outlined above.”[i] Friedman named fourteen interventions to ax:

1. Parity price support programs for agriculture.

2. Tariffs on imports or restrictions on exports, such as current oil import quotas, sugar quotas, etc.

3. Governmental control of output, such as through the farm program, or through prorationing of oil as is done by the Texas Railroad Commission.

4. Rent control, such as is still practiced in New York, or more general price and wage controls such as were imposed during and just after World War II.

5. Legal minimum wage rates, or legal maximum prices, such as the legal maximum of zero on the rate of interest that can be paid on demand deposits by commercial banks, or the legally fixed maximum rates that can be paid on savings and time deposits.

6. Detailed regulation of industries, such as the regulation of transportation by the Interstate Commerce Commission. This had some justification on technical monopoly grounds when initially introduced for railroads; it has none now for any means of transport. Another example is detailed regulation of banking.

7. A similar example, but one which deserves special mention because of its implicit censorship and violation of free speech, is the control of radio and television by the Federal Communications Commission.

8. Present social security programs, especially the old-age and retirement programs compelling people in effect (a) to spend a specified fraction of their income on the purchase of retirement annuity, (b) to buy the annuity from a publicly operated enterprise.

9. Licensure provisions in various cities and states which restrict particular enterprises or occupations or professions to people who have a license, where the license is more than a receipt for a tax which anyone who wishes to enter the activity may pay.

10. So-called "public-housing" and the host of other subsidy programs directed at fostering residential construction such as F.H.A. and V.A. guarantee of mortgage, and the like.

11. Conscription to man the military services in peacetime. The appropriate free market arrangement is volunteer military forces; which is to say, hiring men to serve. There is no justification for not paying whatever price is necessary to attract the required number of men…

12. National parks, as noted above.

13. The legal prohibition on the carrying of mail for profit.

14. Publicly owned and operated toll roads, as noted above.

He ends with a disclaimer: “This list is far from comprehensive.” But explicitly tagging these fourteen policies for abolition still sends a strong signal about what government interventions he finds most odious.

While I have no quarrel with any of Friedman’s abolitions, the man has a weird set of priorities. When he wrote, only two of the fourteen policies he singled out for condemnation were burning a noticeable share of the economy.[ii] In 1962, Social Security already cost more than 2% of GDP.[iii] Conscription plausibly pushed 1-3% of the adult labor force into the military.[iv] The other twelve policies Friedman named were marginal. Though international trade was low, so were U.S. tariffs.[v] Only 5-10% of workers required licenses to do their jobs, roughly one-fourth the modern share.[vi] While the named regulations often had large effects on narrow industries, they were still small relative to the U.S. economy.

Why is there so little overlap between Friedman’s list and my Biggest Losers? Part of the explanation is that times have changed since 1962. Medical subsidies were low.[vii] Housing and nuclear regulation were mild.[viii] Although Friedman failed to foresee the explosion of all three, he was hardly negligent to ignore them at the time.[ix]

Yet the main reason for the lack of overlap is that Friedman’s list was never a plan for free-market transformation of the economy. He wasn’t trying to rank policies by “how much would a free market differ from the status quo?” So he includes rounding errors like the postal monopoly and public toll roads. And he omits migration restrictions, which were even more draconian in 1962 than they are today.[x] Trade barriers on goods were second on his list back when the effective tariff rate was a mere 10%, but the word “immigration” never appears in Capitalism and Freedom.[xi] Education subsidies, already massive in 1962, are also conspicuously absent from the list.[xii] Instead, Friedman credulously repeats cliches about education’s positive externalities for “citizenship” and “leadership” – and voices guarded support for creating a federal student loan program.[xiii] Capitalism and Freedom inspired generations of free-market education reformers not by opposing government subsidies, but by arguing for voucherizing whatever subsidies exist.[xiv]

The chapter before you is, unlike Friedman’s list, a plan for free-market transformation of the economy. The core of the plan: abolition of all six of my Biggest Losers. What would happen in a world of open borders, by-right development, no universal redistribution, no health or education subsidies, and nuclear laissez-faire? In each case, I start by sketching, with brutal honesty, the likely consequences of abolition. Then I respond to objections, both demagogic and substantive, in detail. Next, I move on to a longer list of Lesser Losers – labor law, means-tested redistribution, competition policy, underpricing of roads and parking, environmental regulation, drug prohibition and other paternalistic policies, the court system, and more. All of my abolitionist scenarios are far from the status quo, so I freely admit that my specific predictions are speculative. But I strive not to turn speculation into a license for sugarcoating.

After sketching the highlights of my plan for radical free-market reform, I turn to the looming reductio ad absurdum: “Why have government at all?” Quick version: While what I call “the exotic privatizations” are underrated by mainstream economists, the case in their favor remains underdeveloped. While I suspect that abolishing central banks, ending natural monopoly regulation, and even privatizing the police and courts would ultimately be preferable to the demagogic status quo, I’m not blind to the downside risks. Therefore I prudently focus on the radical free-market reforms whose net benefits are foreseeably massive, while remaining cautiously optimistic about taking deregulation, privatization, and austerity to infinity and beyond.

Immigration restrictions. Housing regulation. Universal redistribution. Education subsidies. Medical subsidies. The near-ban on nuclear power. I call these government policies “the Biggest Losers” because they combine astronomical costs with benefits that are dubious at best. The cost of redistribution and subsidies is largely upfront; U.S. taxpayers directly spend trillions annually on pensions, schools, and healthcare. The cost of strangling immigration, housing, and nuclear power is largely under-the-table; the U.S. would be many trillions of dollars richer if people were free to move, free to build, and free to split atoms. But competent cost-benefit analysis counts upfront and under-the-table costs equally. As students learn on the first day of Econ 1, what matters is opportunity cost – what you could have had instead. If we didn’t have the Biggest Losers, what could we have instead?

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[i] C&F, p.35.

[ii] [check everything]

[iii] In 1962, Social Security was 13.4% of federal outlays, and federal spending was 17.7% of GDP, so roughly 2.4% of GDP. https://www.ssa.gov/history/percent.html; https://fred.stlouisfed.org/series/FYONGDA188S.

[iv] Almost 4% of the U.S. labor force was in the military in 1962. Contemporary conscription was not universal; in fact, less than 10% of eligible men were conscripted during the Vietnam era. But many more men “volunteered” for lower-risk military positions to avoid conscription, so the total labor market distortion was probably large. (Wikipedia; better cite?) https://fraser.stlouisfed.org/files/docs/publications/employment/1960s/empl_051962.pdf; https://dwp.dmdc.osd.mil/dwp/api/downloadZ?fileId=42452&groupName=milTop (1962 xls file)

[v] The effective tariff rate in 1962 was around 10% - high by modern standards, but a small fraction of what they were before the Cold War. Exports as a share of GDP were under 5%. https://www.stlouisfed.org/on-the-economy/2020/march/evolution-total-trade-us; https://www.pewresearch.org/short-reads/2018/03/22/u-s-tariffs-are-among-the-lowest-in-the-world-and-in-the-nations-history.

[vi] https://onlinelibrary.wiley.com/doi/full/10.1111/j.1467-8543.2010.00807.x. About 5% needed licenses in the 1950s, about 10% in the 1970s, and about 30% by the mid-2000s.

[vii] Check

[viii] [check] Friedman never mentions privatization of government land in general, but to his credit he does advocate the privatization of national parks! (C&F, p.)

[ix] Friedman was writing prior to the 1965 passage of Medicare, the other major universal program run by the United States federal government. [Plus more]

[x] The number of people who received permanent resident status in 1960 amounted to only .15% of the U.S., about half the modern rate. The inflow at the peak of the open borders era was about eight times that. https://en.wikipedia.org/wiki/History_of_immigration_to_the_United_States#1920_to_2000

[xi] The word “immigrant” appears once: “[T]he major problem in the United States in the nineteenth and early twentieth century was not to promote diversity but to create the core of common values essential to a stable society. Great streams of immigrants were flooding the United States from all over the world, speaking different languages and observing diverse customs. The ‘melting pot’ had to introduce some measure of conformity and loyalty to common values.” (C&F, page #) Friedman’s Free to Choose, published eighteen years later, describes the open borders era favorably, yet fails to propose even a modest liberalization of immigration. (F to C, pages) Around the same time, he gave a public lecturing praising open borders, but only in the absence of the welfare state – while praising illegal immigration precisely because they are largely ineligible for redistribution.

Twenty years later, Friedman strangely opposed the adoption of a “blue card” making migrants eligible for work but not welfare. (https://openborders.info/friedman-immigration-welfare-state; https://www.betonit.ai/p/milton_friedman_10html)

[xii] Check

[xiii] In reality, there is little sign that K-12 education has any effect on civic knowledge. [cite CAE] Here is Friedman on federal student loan programs: “But if the danger is real, so is the opportunity. Existing imperfections in the capital market tend to restrict the more expensive vocational and professional training to individuals whose parents or benefactors can finance the training required. They make such individuals a "non-competing" group sheltered from competition by the unavailability of the necessary capital to many able individuals. The result is to perpetuate inequalities in wealth and status.” (C&F, page #) Note that this argument could just as easily justify a comprehensive system of federal loans for business creation!

[xiv] Despite some doubts, Friedman largely accepts education subsidies as long as (to use the modern slogan), they fund students, not systems. He does however oppose subsidies for vocational education in favor of student loans – possibly private, possibly government . (C&F, page #)