[Economy] Learn about Milton Friedman's <Freedom to Choose>
In his inaugural address as the 20th president on the 10th, President Yoon Seok-yeol said, "We will rebuild this country into a country where the people are the true masters based on liberal democracy and a market economy system." The keyword that penetrated the 17-minute inaugural speech that day was 'freedom'. President Yoon repeated the word 'freedom' 35 times in his speech. He set 'freedom' as a universal value to be shared in order to solve internal and external problems, and interpreted prosperity, abundance, and economic growth as the concept of 'expansion of freedom'. Unlike the inaugural speeches of previous presidents, it was an inaugural speech that focused on proclaiming an abstract political philosophy.
President Yoon said that he was greatly influenced by the book <Freedom to Choose> by Milton Friedman, an American neoliberal economist .
Let's take a brief look at Milton Friedman's liberalism here.
Milton Friedman
July 31, 1912, along with Hayek, American economist 'Milton Friedman' (1912 ~ 2006) representing neoliberalism
.Nobel Prize in Economics, American economist, born 1912 (New York) - died 2006 (California)
.A representative economist representing neoliberalism along with Friedrich Hayek
An American economist who advocated monetarism, and has been evaluated as an economist who has greatly influenced mainstream economics along with microeconomics since the 1970s.
Milton Friedman (July 31, 1912 – November 16, 2006) was an American economist and popular intellectual. As an advocate of liberal market economy, he made major contributions to macroeconomics, microeconomics, economic history, and economic statistics. In 1976, he was awarded the Nobel Prize in Economics for his work in consumption analysis, the theory and history of currency, and his arguments on the complexities of stabilization policies. However, he is also criticized by world progressives for being a financial imperialist minion who created theories for the efficient implementation of neo-imperialism.
Friedman, along with Keynes, is considered the most influential economist of the 20th century. Friedman maintained an academic rivalry with Paul Samuelson. In 'Capitalism and Freedom' (1962) he argued that the role of government in free markets as a means of creating political and social freedom should be reduced. In the television series 'Free to Choose' (aired on PBS in the 1980s), Friedman explains how free markets work and how free markets work to solve political and social problems that cannot be solved by other systems. principle was emphasized. The content of the series was later published as a book with his wife, Rose Friedman, as co-author. The book was widely read and published as a column in Newsweek.
He also devised the Friedman test in the field of statistics. Thinking of himself as a more classical liberal, he emphasized the advantages of markets and the disadvantages of government intervention. Friedman's political philosophy refined the views of conservatives and liberals in the United States and had a profound influence on the economic policies of the Richard Nixon and Ronald Reagan administrations in the United States and many other countries since the 1980s.
Some criticize Milton Friedman as a person who came from a family of Jewish immigrants and grew up to be a prominent economist after overcoming difficult family circumstances, as “a person who fully demonstrated what the American dream of the 20th century was.”
Summary
.Born: July 31, 1912, Brooklyn, New York, USA
.Died: November 16, 2006, San Francisco, California, USA
.Spouse: Rose Friedman (1938 - 2006)
.Nationality: USA
Affiliation: Hoover Institution (1977–2006), Columbia University (1964–1965), University of Chicago (1946–1977), University of Cambridge (1954–1955), Columbia University (1937–1941; 1943–1945), National Institute of Economics (1937–1940)
.Alma mater: Columbia University (Ph.D. 1946), University of Chicago (M.S. 1933), Rutgers University (B.A. 1932), Raway High School (Graduated 1928)
Influenced by: Adam Smith, John Stuart Mill, Irving Fisher, Thomas Payne, Frank Knight, Simon Kuznets, Jacob Weiner, Harold Hotelling, Arthur F. Burns, Friedrich Hayek, Homer Jones, Henry Simons, George Stigler, Henry Schultz, Henry George
Influenced by: Margaret Thatcher, Gary Becker, Mart Lar, Alan Greenspan, Anna Schwartz, Ben Bernanke, J. Bradford DeLong, Thomas Sowell, Herbert Stein, Harry Markowitz, Philip D. Kegan, Hernando de Soto Polar , William F. Berkeley Jr., David D. Friedman, Scott Summer, Ronald Reagan, Ron Poland Paul, Walter E. Williams, Keito Laboratories, Augusto Pinochet, Chicago Boys, Fraser Institute
.Contributions: Microeconomics, Monetaryism, Macroeconomics, Floating Exchange Rate System, Permanent Income Theory, Natural Unemployment Rate, Friedman Test
Awards: American Medal of Science (1988), Presidential Medal of Freedom (1988), Nobel Prize in Economics (1976), John Bates Clark Medal (1951)
.A representative economist representing neoliberalism along with Friedrich Hayek
.American economist who advocated monetarism and was evaluated as an economist who had a profound influence on mainstream economics along with microeconomics since the 1970s
.Major Books: 'Capitalism and Freedom', 'Free To Choose', 'Brilliant Promises, Melancholic Performance' (Bright Promises, Dismal Performance), etc.
Milton Friedman's 'Freedom'
To briefly introduce his book, Friedman criticized the use of modern liberalism in the sense of liberalism and argued for the revival of the original classical liberalism. He pointed out that liberalism is being used in two senses in modern Anglo-American society, progressive liberalism and original liberalism. The original meaning of liberalism, as it was used in the late 18th and early 19th centuries, was to recognize individual freedom as the only ultimate value and to oppose unjustified interference by the government in individual social activities by valuing individual rights and responsibilities. It was the argument, that is, libertarianism . Therefore, to avoid confusion with the liberalism (progressive liberalism, progressiveism) of the 20th century, which advocated the revival of government intervention for welfare and equal distribution as a prerequisite for liberalism, it was named libertarianism or neoliberalism. did it
Neoliberals called themselves liberals, which opponents called neoliberals to distinguish them from classical liberals. What they claim to be the evil created by neoliberalism is, to be precise, tyrannicalism that has always existed since history, even before neoliberalism prevailed.
The rationale for this is that in countries with less freedom, values that cannot be (or should not be) exchanged with money, such as sex, fair trial, human rights, and educational opportunities, are easier to solve with money than in liberal countries including the United States. argument. As the number of interventions increases, freedom decreases and the room for intervention increases, creating a vicious cycle where human freedom gradually decreases. Therefore, it is believed that more freedom is guaranteed when the restrictions necessary for human life are set by rules and left to individual discretion.
Economically, he argues for privatization according to market logic . He explains the collage between American railroad companies and politicians in the 1970s, which he cited as an example. insist that it be followed.
And contrary to the biggest prejudice, neoliberalism, unlike classical liberalism, does not reject the social security system . For those who are able to work, we have asked to increase their motivation to work, but we have never been told not to give a single penny to starvation for those whose work is impossible or limited, such as orphans, the disabled, and the elderly. On the contrary, it is positive for basic livelihood security because the social cost increases that such a class suffers economically.
Although social security is not essential, a system that guarantees a minimum cost of living based on the number of households has claimed a negative income tax for the low-income class, that is, the second-highest class. They argued that if the income is 1 million won, 500,000 won should be paid as a '(-) tax', that is, a subsidy. Currently, the negative income tax that Friedman argued is also accepted in Korea, and since the 2000s, the National Tax Service has been implementing the EITC system. They also claim that there is nothing like the profits that landlords have earned from rising house prices in funding the government, and claiming that their profits are privileges and unearned income, even filthy illegitimate profits! Myths and Truths about Classical Economics - Milton Friedman and Subprime - Friedman didn't just call it unfair profit. It's not that it's morally wrong, so it's not the same reason. If homeowners say their wealth has increased due to the increase in land prices, they build new houses corresponding to the increase in land prices and have to reinvest the increase in land prices. He points out that this is because he spends on his luxury, saying, “I made money because I was good at it.” That is why the government emphasized that homeowners should be taxed and that the tax source should be used to continuously increase the supply of housing.
However, it should not be misunderstood, perhaps, like Milton Friedman and Henry George, he was never talking about the withholding of the increase in land prices, and he was talking about the rate of taxation to some extent. This is because, of course, the share of public rental housing continues to increase as the ownership rate will fall, and of course, the supply of private housing will decrease and the supply of private housing will decrease. Milton Friedman would welcome public rental housing as a welfare policy, but he would not have agreed that public rental housing should play a role in providing housing for the entire nation.
Friedman was also very interested in the education gap. In the 1970s, the United States, like Korea, was concerned about the education gap according to income level and argued that private education coupons should be given to low-income families. Right now, despite his poverty, he has become a world-class scholar thanks to his excellent education, so it is worth paying attention to his education. A similar private education support system was briefly reviewed during the Lee Myung-bak administration in Korea.
“Neoliberalism, who are you?
Friedman emphasized that freedom is indispensable for the development of civilization. He said that in the various trials of free individuals, beneficial new things are created, through which the development of civilization takes place.
“Government can never replicate the variety and diversity of individual actions.”
_ Capitalism and Freedom p.17
Furthermore, Friedman, as a libertarian, emphasized that freedom itself is the ultimate goal when freedom is important. For this reason, economic freedom is said to be an end in itself.
He also emphasized that economic freedom is an important means for political freedom. Historically, economic and political freedom were only possible under capitalism. Capitalism does not guarantee democracy. Even in capitalist societies, such as Germany under Nazi rule, Spain and Italy under fascism, and Japan under militarism, political freedom can be deprived of political freedom. However, democracy cannot be realized in a non-capitalist society. In other words, capitalism is not a sufficient condition for political freedom, but a necessary condition.
Friedman explained the reason why political freedom can exist only in capitalism from the following economic point of view. For political freedom to exist, there must be a movement to change the existing system, and for this, there must be freedom of the press and association. However, this requires funds. In a society without economic freedom, such as a socialist society, there is no way to finance this movement, but in a capitalist society it is possible.
In addition, economic freedom separates economic and political power.
“Political freedom means that an individual is not coerced by his peers.”
_ Capitalism and Freedom p.30
In other words, the fundamental threat to freedom is the concentration of power. A market economy distributes economic power among many economic agents. In contrast, political power is fundamentally difficult to disperse. Therefore, capitalism that guarantees economic freedom prevents the concentration of power by combining political and economic power, and consequently protects political freedom. From this point of view, Friedman, like Adam Smith of the past, maintained a very critical stance on monopoly and oligopoly within economic agents. Encourage a company to grow by having a competitive edge and expand its business field. However, he insisted that it should not undermine the competitive basis of the market. Similarly, he argued that in political power, the concentration of power in a specific group (oligarchy) or overrepresentation of policy by a specific group should be prevented.
Welfare policy
Recently, misunderstandings about the basic income system are widespread. The basic principle of the basic income system is based on the 'negative income tax' that Friedman argued as a welfare system. To help us understand the basic income system, we need to understand the purpose of the negative income tax system advocated by Friedman. Friedman argued that various public welfare systems produced undesirable side effects rather than realizing their original purpose of eradicating poverty. Therefore, he argued that all existing public welfare systems should be abolished and a negative income tax should be introduced instead.
This system was originally proposed by a British female politician named Juliet Rice-Williams in the 1940s, but Friedman slightly modified it.
According to this system, it was proposed that the government set the duty-free point and subsidy rate for income tax appropriately, and that the government pays negative income tax, that is, subsidy in cash, on income below the duty-free point.
For example, if the income tax exemption is 20 million won per year for a family of four and the subsidy rate is 60%, a family of four with an annual income of 20 million won neither pays income tax nor receives subsidies. A family of four with an annual income of 10 million won not only pays no taxes, but also receives a subsidy of 6 million won by applying a subsidy rate of 60% to the 10 million won, which is the difference between 20 million won and 10 million won. In other words, your total income is 16 million won, which is the sum of your income and subsidies. A four-person household with no income at all receives a subsidy of 12 million won, which is the difference of 20 million won multiplied by the subsidy rate of 60%, so the total disinfection is 12 million won. This system has several advantages.
.The beneficiary is free to use it for the purposes most needed by the beneficiary because the subsidy is given in cash and the use is freely determined by the beneficiary. For this reason, this system provides greater utility to beneficiaries than targeted in-kind subsidies (public health benefits, affordable public housing, food subsidies, tuition subsidies, etc.). If it is acknowledged that the beneficiary is a free person who can judge for himself, it is self-evident that the cash grant would be more efficient than the in-kind grant that specifies the use.
It is a policy that only helps the poor. Therefore, it is possible to avoid the shortcomings of systems that benefit the rich as long as they belong to a specific group (agricultural product price support system, elderly pension system, income restrictions, license system, etc.).
.Do not distort the market price mechanism. The minimum wage system, import restriction system, and agricultural product price system reduce the efficiency of the market economy by distorting the price mechanism.
.The effect of reducing the will to work is small. Even if the income is below the duty-free shop, a certain percentage of the income earned by getting a job leads to a net increase in my income. So people are willing to work. Friedman suggested a 50% subsidy rate, fearing that too high a subsidy rate would reduce the motivation to work.
.It can greatly reduce the operating cost of public welfare system. If this system is introduced and all other existing public welfare systems are abolished, the operating costs of miscellaneous existing systems will be saved. According to Friedman's calculations, in 1961, when the operating costs of the US public welfare system were saved, it was enough to provide $3,000 per household to the 20% of the lowest-income earners in the United States.
Although this system has been implemented at the level of some local governments in the United States, as Friedman argued, no country has eliminated all other public welfare systems and replaced them with only this system.
Friedman also proposed a support system for education . Government support is reasonable because a stable democratic society cannot be achieved without most citizens having a certain level of education and knowledge, and a stable democratic society cannot be achieved without widespread consensus on values. . However, he intended to encourage competition among educational institutions and expand educational options by subsidizing educational expenses to the parties and allowing the parties to choose their schools, rather than the government directly supporting public schools alone. This applies equally to all levels of education.
This is an education voucher system, in which both public and private schools coexist, and a certain amount is provided to parents on the condition that it be used for 'approved' school education with certain requirements, and parents and students are free to choose a school. to be. At this time, the government issues this certificate to the selected school and pays tuition, and the school submits this certificate to the government to receive money. This reduces the dissatisfaction of parents who pay taxes to run public schools without receiving government benefits because they send their children to private schools, while introducing competition and diversity in education, and also improving uniform salaries for teachers. said that he could devise Also, in the case of vocational education, since the benefits only go to the person concerned, in principle, the person should fully bear the cost, and instead, it was proposed to provide a student loan with a special loan from the government.
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