Milton Friedman – Economic Self Interest

Posted on February 23rd, 2009

Sometimes when the debate gets heated we can lose track of basic principles and start cutting deals just to resolve a dispute. As necessary as that may be from time to time, it is important not to lose sight of the essentials.

At the end of the video Milton Friedman asks, “Just tell me where in the world do you find these angels who are going to organize society for us?”

My answer is that I don’t even trust myself to do that. But I do trust what Adam Smith metaphorically called the invisible hand, that is, the self-regulating nature of the marketplace.

While many economists have turned their attention to long-run growth, politicians unfortunately have shorter time horizons. We (politicians) often combine little knowledge of economics with a large appetite for providing quick fixes to a perceived crisis. We (politicians) should be more skeptical of quick fixes and grand governmental schemes.

While these quick fixes can indeed delay economic downturns beyond an election, it does not provide long-term success and in fact makes the problem worse, often much much worse. Just ask former President Bush. It amazes me that President Obama would dare continue those same failed policies (big government & deficit spending) but on a grander scale this early in his Presidency. The tactic might save a few Democratic seats in 2010, but history suggests that the piper will come to claim his due around 2011 when even a seriously massive expansion of the failed Bush economic policies won’t be able to delay the inevitable.

By reforming entitlements and reducing government spending President Obama might cost the Democratic Party a few seats in the U.S. Legislature in 2010 but would virtually insure his re-election in 2012. Just ask former President Clinton, who worked with the Republicans in Congress to do just that in the early part of his first term. (More about the Clinton-Republican welfare reform successes in a later post.) Clinton failed to maintain this policy and Republicans forgot their basic principles. They delayed the inevitable with government deficit spending which resulted in the recession and “bubble bursts” that probably helped George W. Bush be elected in 2000. Over the following eight years, Bush and the Republicans, (with the assistance of Democrats mind you) continued the spending spree that “patched” up the economy enough to allow Bush to be re-elected in 2004. Nonetheless, “the chickens eventually came home roost.”

Even though that wellspring is almost – if not completely – dry, I doubt President Obama will turn away from the same failed policies of the last eight years. Republicans had better turn away, or there will be a lot of conservatives/libertarians who turn away from the Republican party in the futile hope of forming a more principled minority opposition. Both political parties need to stop thinking in terms of short-term economic “patches” that may or may not temporarily benefit our party for the next election and start thinking more in terms of the long-term solutions that benefit all of us.

We now know much more about the factors that generate long-run economic growth and the ONLY thing we can trust is the invisible hand of the marketplace. Those are the basic principles / essentials that we must not forget.

Reference: The Troubling Return of Keynesianism

Tags: economic policy
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2 Responses to “Milton Friedman – Economic Self Interest”

1. Mark Martin Says:
   February 24th, 2009 at 1:30 am

   It appears that even some Keynesian economists do not support the “Stimulus” Bill:

   Would Keynes Have Supported The Stimulus Bill?

2. Josh Says:
   February 25th, 2009 at 1:58 pm

   Finally, someone who makes economic sense! Keep up the good work, Rep. Martin. Thank you for serving our state.