Milton Friedman’s Radical Idea

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The American public policy discussion is currently abuzz about economic inequality. French economist Thomas Piketty doused gasoline on the discussion with his work Capitalism in the Twenty-First Century. Last month, President Barack Obama dared Congress to combat inequality in a forceful State of the Union Address, and his budget proposal this week walks the walk. Even conservatives like Jeb Bush and Mitt Romney have recently discussed policy solutions to shrink the gap between the ultra-wealthy and the middle class – a surprising pivot from just a few years ago.

A wide array of policy proposals claim to tackle the problem, but at its core, the solution will require that Americans get more money in the hands of those that don’t currently have it. In other words, we’ll need to ensure that everyone in the United States has a basic level of income to feed, shelter and medically care for themselves. The policy, Voxplained:

Basic income is not a radical socialist idea – it’s a solidly conservative one, designed by the intellectual architect of conservative economics and the messiah of a free-market society – Nobel-prize winning University of Chicago professor Milton Friedman. He was a proponent of school vouchers, financial deregulation, and dismantling Keynesian programs of the New Deal (which, for the record, I am not). However, he was also a proponent of social welfare.

In Capitalism and Freedom (1962), Friedman proposed a solution to the inherent threat of income inequality in capitalism. He called this solution a negative income tax – a tax-funded subsistence payment to any individual who made less than required to live in America. Here I’ve included the entire chapter on the subject, just in case you don’t believe me that this idea came from a staunch conservative:

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I just finished “Capital in the Twenty-First Century”

Capital in the Twenty-First Century

There’s been a lot of debate and political controversy around French economist Thomas Piketty’s new work “Capital in the Twenty-First Century,” so naturally I had to read it as soon as I possibly could. The book discusses economic inequality throughout the world (though primarily France, Britain and the United States), which has been a contentious issue for the last few years on both sides of the Atlantic. I finished it this last week, and my thoughts are as follows:

My political leanings aren’t much of a secret, but in reading “Capital” I wanted to put aside any preconceptions and just see what I could learn. That turned out to be pretty easy. “Capital” is much less prescriptive than one might assume. On top of that, there’s hell of a lot of data and history crammed into this 600-page thesis.

“Capital” isn’t for newcomers to macroeconomics. I’m not an econ PhD by any stretch of the imagination, but I have read a number of other texts on the subject, and without that base knowledge the book would have been borderline unreadable. If you’re looking for a more palatable entry point, I recommend Charles Wheelan’s “Naked Economics.”

For those familiar with the topics, “Capital” is not an ideological screed nor an exercise in scare tactics. Malthus was wrong, Piketty says – uncontrolled growth will not be humanity’s downfall. Marx, too, was wrong, as he underestimated the power of productivity growth, education and innovation as rising tides that lift all boats. However, Piketty argues, the prominent 20th century economists, who hailed capitalism as an ultimate solution to inequality and universal prosperity, were also wrong. To paraphrase Churchill, capitalism, like democracy, is the least worst option. As it turns out, capitalism itself inherently produces and perpetuates the types of wealth inequality we saw in the 19th century.  It needs adjustment and correction, and does not inherently self regulate. The “invisible hand” is dealing much more to a select few.

Even if you don’t subscribe to these views, the breadth of data accumulated in the first two sections is staggering. Not being an economics expert, the history of capital, productivity and growth since the year 0 A.D. fascinated me in a way that academic texts rarely do.

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