The questioner nicely captured the main fallacies that the majority of people accept today. Here are the highlights of those fallacies —
- there are no good examples of free economies working.
- resources cannot be allocated efficiently without govt. involvement.
- that the economy is driven by demand (spending) rather than productivity, so government taxation and spending is critical to economic growth.
This fallacy regarding government taxation and spending is so pernicious — so few people acknowledge the obvious point, that government cannot spend what it does not take from the private sector (via explicit taxation, or through money printing (inflation)), so any 'stimulus' the government creates at one time, will be cancelled out (and then some due to waste) when the taxes are taken to pay for it.
In his response, I thought Friedman made a great succinct statement that perfectly addresses the root cause of the problems we're facing today. Here's part of Milton's response --
No, the third part of your thing is just pure fallacy from beginning to end. Because if those people who are now government employees were employed in creative activity and productive activity they would also be spending their money. And we'd have a greater total around.
All you're doing ... let's suppose for a moment, take the extreme case, that that 40% [used for government spending] is being used just to have people sit around — the fact that they spend their money doesn't alter the situation.
The only product there is, is what the 60% produce, and that 60% is divided among the 100%. If those 40% are also producing goods, then there are more goods to go around among everybody.
You are just involved in a fallacy of looking at dollars, which is important sometimes, instead of looking at the real product, the goods and services that people produce and people consume.
Spending isn't good, what's good is producing. What we want to have is more goods and services. And as I say, the obvious indication that that's clear, is that if your logic were right, it would apply at 50%, 60%, 70%, 90%, 98%, 100% — and obviously you would see that that would be a bunch of nonsense at that stage.
...
We express some of our values through doing things through government, and there's nothing wrong with doing that, provided we keep in control, and don't let the government become the master instead of the servant.
And the real problem is, in my opinion, that as we move from the local community to the state, from the state to the federal government, it becomes increasingly difficult for us to control the mechanism we have established, and that mechanism tends to control us.
That was the great wisdom of the founding fathers of this country, of the people who wrote the Constitution. That Constitution was designed to limit government's powers in order to preserve the freedom of the individuals. And what has happened in the past 50 years is that the fundamental character of the Constitution has really been changed.
We have broadened enormously the conception of what is a governmental power and what is not, and have departed from that limited government, until we have created a Frankenstein, an unlimited government that threatens to destroy us.
All you're doing ... let's suppose for a moment, take the extreme case, that that 40% [used for government spending] is being used just to have people sit around — the fact that they spend their money doesn't alter the situation.
The only product there is, is what the 60% produce, and that 60% is divided among the 100%. If those 40% are also producing goods, then there are more goods to go around among everybody.
You are just involved in a fallacy of looking at dollars, which is important sometimes, instead of looking at the real product, the goods and services that people produce and people consume.
Spending isn't good, what's good is producing. What we want to have is more goods and services. And as I say, the obvious indication that that's clear, is that if your logic were right, it would apply at 50%, 60%, 70%, 90%, 98%, 100% — and obviously you would see that that would be a bunch of nonsense at that stage.
...
We express some of our values through doing things through government, and there's nothing wrong with doing that, provided we keep in control, and don't let the government become the master instead of the servant.
And the real problem is, in my opinion, that as we move from the local community to the state, from the state to the federal government, it becomes increasingly difficult for us to control the mechanism we have established, and that mechanism tends to control us.
That was the great wisdom of the founding fathers of this country, of the people who wrote the Constitution. That Constitution was designed to limit government's powers in order to preserve the freedom of the individuals. And what has happened in the past 50 years is that the fundamental character of the Constitution has really been changed.
We have broadened enormously the conception of what is a governmental power and what is not, and have departed from that limited government, until we have created a Frankenstein, an unlimited government that threatens to destroy us.
And note that his 'Free to Choose' series is now over 30 years old — the trend toward greater government control that he described, is even more firmly in place now than it was then.
Of course, most people would just pretend that Friedman's statements in the video are false, even though they're incapable of making a convincing argument to refute them.
As an example, here's a comment to the video I noticed on YouTube, regarding Friedman's emphasis of the value of productivity over spending —
"if no one spends no one produces..." (some version of this is repeated often)
Even after Friedman specifically explained the obvious point that increased productivity is what raises living standards (rather than spending and consumption), someone still posted a comment attempting to reverse cause and effect — as if their comment is obviously true, and needs no defense. Of course, the comment is an obvious fallacy, since if you haven't produced something (or borrowed what someone else has produced), you will have nothing to spend — productivity must come first, since all market activity is an exchange of what people have produced.
The comment is just obvious question begging — 'what is being spent, if no one has produced anything?'
Imagine you're stranded on a deserted island — will you not work as productively as you can to survive, if no one comes to spend money? So a better comment would be, 'If no one produces, there is nothing to spend.'
The original series can be watched here — http://www.freetochoose.tv/
https://www.youtube.com/user/FreeToChooseNetwork
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