Milton Friedman: Romantic



November 20, 2006

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We tend to romanticize the opposite of what we don’t like, and in political economy the tendency reaches full flower.  To those who hate “the market,” the government is a knight in shining armor. To those who hate the government, “the market” can do no wrong.

Milton Friedman, the economist who passed on this week, was in the latter camp. The market to him was not just the combined actions of a bunch of people with all their silliness and hang-ups. It was a thing, the holiest of holies, the hand of God on this earth.  Friedman came of age in the shadow of the young Soviet Union and its appeal for Depression-era intellectuals. Like many of his generation he got stuck in that drama, and never grew past it.

The threat always was the authoritarian state.   He could not see that freedom could be threatened from the other side as well – that is, by the corporation that emerged from his cherished market. Private property and freedom were synonymous to him; so much so that he saw nothing wrong with helping a brutal dictator such as Pinochet in Chile adopt policies that fit his model.

I first encountered Friedman in college, when I took a course in urban problems under the late Edward Banfield. Banfield was a skeptic of the Great Society; and he invited Friedman to provide a counter to the liberal orthodoxies of the day. I do not remember exactly what he said; just the image of a smallish man who looked a bit comic in his capacious suit.  But I do remember thinking, “This is not real.”

Friedman did not need to convince me of the foibles of government.  Time and Readers Digest had been the periodicals in my household.  My formative political reading had been Barry Goldwater’s Conscience of a Conservative, and other books along that line.  Property.  Freedom.  What fourteen-year old does not yearn for those?

But I was having questions about the corporate economy as well.  Big government, big business – was there really that much difference?. How could you look at the offerings of commercial television, the waste machines called cars, the traffic that was clogging cities, the muck that was filling the air – both physically and cognitively —  and not have an inkling that this thing called  “the market” had problems of its own, and that these were getting worse?

How could we humans be so smart as “consumers,” but so gullible and foolish in our role as citizens in a democracy? I just couldn’t see it.

Friedman seemed untroubled. He dwelt in a world of light and darkness, the market and the state.  It struck me more as theology than as economics.  The “dismal science” somehow had become a strangely romantic one, a yellow brick road that would lead forever upward so long as the hated government didn’t get involved.  Critics typically have focused on the “distribution” problem; that is, the way his prescriptions typically made the rich richer.  There was that, but also deeper ones as well.

By all accounts Friedman was a genial man, and that was my impression.  He did not show the tendentious canine quality of the market partisans at, say, the Wall Street Journal editorial page.  He did not seem to harbor the resentments found often on the Right.  But Friedman seemed so infatuated with the idea of the market that he couldn’t come to grips with the daily actuality of it. What it was, was less important than what it represented in his mind.

There is no denying the appeal of Friedman’s writings, such as Free To Choose.  Like Barry Goldwater and Ayn Rand, they are compelling within their own narrow frame, given the assumptions that they work from and portions of reality they choose to acknowledge. Partly this is a function of language. Much of market economics is essentially a language trick.  The conclusion is encoded into the words themselves.

Thus, a market produces “goods” and “services.”   There are no bads and no disservices.  The accumulation that results is all wealth with no illth – that is, accumulation that works ill.  Once you have consented to use such words, then you have accepted the narrative that is embedded in them. It is a Happyland by definition. Who could be against more “goods”?

Then too there is the myth of the individual.  Everything that happens in the Friedman romance is the result of individuals and their choices. Like most market partisans, he could not see that the corporation disrupts this scenario in a fundamental way.  In his version it is little more than a nerve center that aligns individual consumption choices with the capital of individual investors and the work of individual employees.

The consumer is king.  The corporation scurries to his and her beck and call. It holds little sway in and of itself.  Again, who does not like to think of him or her self as ruling the economic roost?

In this view corporations cannot affect, say,  the path of technology by choosing the route most profitable for themselves.  They cannot design products that will wear out quickly and cost a fortune to repair, because the market would punish them if they did.   They cannot create a cognitive environment that reinforces some forms of behavior over others.  Certainly corporations cannot use their weight to wear us down. We’d send the requisite “market signals” and the power equilibrium would be restored.

We sovereign consumers, moreover, are all “rational” as economists understand that term.  They all make their decisions on an unfailing calculus of personal loss and gain.  We all know what is best, each and every one of us.  Therefore the sum total of our individual choices is the best possible good of all.  (And they say politicians pander.) The more choices we have, the more good will result.

This notion is cynical and romantic and the same time.  It is cynical, because it sees humans as self-interest machines; and romantic, because it sees us as such unfailing ones;  and that the sum of our shrewd individual selfishness is the common good.  Yes, I know, Mr. Smith and his invisible hand.  But do these people ever look at what actually happens in the economy, as opposed to their Happyland preconception of it.?  Do they look at what “choice” really means in practice?

Research shows for example what most of us know already– that beyond a certain point more choices make us miserable instead of happy.  We get flummoxed, confused.  (e.g. Bush’s prescription drug benefit.)  Barry Schwartz, author of The Paradox of Choice, told me of research that shows that the more choices employees have for a 401(k) program, the less likely they are to participate. A legion of choices can be not heaven but hell.

At a more basic level, the notion that we all know best – well, maybe Milton just didn’t get out enough.  How could he explain the shelves upon shelves of bookstore space devoted to volumes for people who make bad choices – in work, business, eating, mates, everything?  What about addiction, which has metastasized throughout the realm of buying?  Americans say they eat too much, drink too much, use credit cards too much – shop too much period.

How can anyone argue that the sum total of individual choices is the maximum happiness of all. when Americans themselves say that their own “free” choices are making them miserable?

One of Friedman’s more publicized positions was that corporations exist only to make money, and that it was destructive to expect them to do anything else. I suspect he took a kind of adolescent delight in playing shock prof in this manner, but he really meant it. He was not a greedy man.  Money and profit were of intense interest to him, but in a symbolic way. I think it had something to do with the fluidity and rootlessness of money, the way it is free of boundary, obligation and restraint.

This is the adolescent fantasy that could make Friedman et. al. so appealing.  Whether as a consumer or a corporation, we get to do what is gratifying and convenient and cast responsibility aside – and feel righteous about it.  I sometimes wondered if a part of them never really grew up.

The second time I encountered Friedman was about ten years ago, when I wandered into a meeting of the American Economics Association in San Francisco, He was on a panel on journalists and economics, and it was pretty much a gripe session (Paul Krugman in particular). Friedman did not share in the bile.  As I said he was not an angry man.  He was sharp and spry even in his eighties, a fact I suspect was not unrelated to his disposition.

He came out with another of his shock-prof lines.  “The term ‘need’, when used in economics, is always a fallacy,” he said.  It struck me as a kind of Rosetta Stone.  If we could understand why human need does not count in economic logic, then we’d be close to understanding the fallacy of the belief system as a whole.

There are a number of reasons I think. For one thing need cannot be quantified according to the neat metric of money; and economists stake their claim to “science” on the basis of quantification and arcane math. They prefer the notion of “demand”, which is desire that comes with money attached.  There is no problem quantifying that.

Since need does not find automatic self-expression in a market context it must be a “value judgment.”  In economics that is a pejorative — and never mind that to ignore need is a value judgment too.  (For that matter what other kind of judgment is there?)
To make that judgment – that need matters – would be to concede that something outside the realm of capital and business has a legitimate role in economics.  This is where the slope gets really slippery.

If the market does not feed the hungry then something else must or else they will starve.  So long as this is kept outside of economics it can be deemed provisional, something at which to hold the nose.  To let it inside the tent would cause no end of trouble. Usually that trouble is associated with government and its programs.  But there’s also the commons, which is the realm of society and nature that belongs to us all.

If need is relevant to economics then clean air must be, and a healthy atmosphere. So too traditional Main Streets and the social interaction and cohesion they provide. Wal-Mart might provide more cash flow and GDP; but those Main Streets provide a benefit flow that Wal-Mart can’t.  The same can be said for an internet that is free of corporate enclosures, university research labs that are not beholden to corporate interest, a gene pool that no person or corporation owns.

If need matters then these must matter too because they meet real needs. That thought is truly threatening to those who think markets should be not just one thing but everything.  “Demand” by definition channels the thought process into a market context.  Need by contrast opens up a wider realm of possibility.  This includes the possibility that the corporate market itself has been destroying the realm of productivity that meets needs that it – the market – can’t.

This realm – the commons — is not amenable to the conventional modes of economic measurement.  It does not work through the textbook “laws.”  Commons involve reciprocity, trust and social norms, rather than acquisitiveness and greed.  They provide stability and maturity to balance the market’s adolescent grasping; and they give expression to the “we” side of human nature as opposed to the market’s relentless and solipsistic “me.”

Little wonder the economic mind veers instinctively away.  Yet the commons sector will become increasingly important. The corporate market will not go away, but it is on the down slope of its historical curve, working harder and harder just to keep itself in business.  Coming next is neuro-marketing, through which corporations will use research on our neural pathways to push the buttons that induce us to buy more stuff.  Maybe Friedman was right in a way he did not intend.  Maybe we really don’t need much of the stuff produced.

But corporations do need our belief that we need it.  The need is on the other foot – the producer’s. Meanwhile many things we do need – such as clean air and water, the spontaneous sociability of Main Streets, public spaces, the open internet – are getting destroyed as corporations make a desperate grab for what remains of time and space.  At some point the light will dawn that we need to protect commons productivity with as much determination as we protect the corporate kind.

Wellbeing will depend on it, and freedom as well.  This is the final irony, the wry historical twist. There was a time when property truly was the banner of freedom, a bulwark against despotic royal rule. Today, however, the threat comes also from the corporate side.  What throws Third World farmers (and First World ones as well) into jail for the heinous crime of breeding their own seeds?

What has locked down the pathways of cultural transmission and university research, through the extension of the copyright and patent laws?  What is going to fill the landscape with subdivisions and malls and thereby deny our grandkids the freedom to hunt and fish and swim in the open spaces we enjoyed? You could make a very long list.

If the freedom to choose means anything it means the freedom to choose the choices that we get to make. An open internet or an enclosed one?  Commons water or corporate water? Research into healthful living and natural remedies or just into more expensive and proprietary pharmaceuticals with which to treat disease?

Milton Friedman was amiable and sincere.  He did indeed provide a beacon of sorts for those locked in the repression of the Soviet state.  Their reality matched his drama.  But he looked backward and called it forward.  He saw the old threat but not the new one; and so his answers  can take us deeper into today’s problems in the name of solving yesterday’s.

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