Arnold Kling  

Friedman on the Battle of Ideas

More on Privatization... Adequacy of Personal Savings...

Nobel Laureate Milton Friedman writes,

Hardly anyone today, from the far Left to the far Right, regards socialism in the traditional sense of government ownership and operation of the means of production as either feasible or desirable. Those who profess socialism today mean by it a welfare state.

Over the same period, the actual role of government in the US also changed drastically -- but in precisely the opposite direction. In the first post-war decade, 1945 to 1955, government non-defence spending, federal, state and local, equalled 11.5 per cent of national income, varying from a high of 16 per cent in 1949 to a low of 8.5 per cent in 1952. From then on, spending rose rapidly. By 1983, government non-defence spending reached 30 per cent of national income, nearly triple the average amount in the first postwar decade.

...To summarise: After World War II, opinion was socialist while practice was free market; currently, opinion is free market while practice is heavily socialist. We have largely won the battle of ideas; we have succeeded in stalling the progress of socialism, but we have not succeeded in reversing its course.

It is true that the term "socialism" has much less positive connotations than was the case half a century ago. When the Russians had defeated Hitler and launched the first spacecraft, and memories of the economic collapse of the 1930's were still fresh, it was easy to question the viability of the free market system. Not so today.

However, the tendency that Friedman notes for government to expand and for the scope of the market to shrink seems destined to continue. Another Nobel Laureate, Robert Fogel, points out that the biggest increases in consumer demand for this century are likely to be found in education, health care, and leisure time (including retirement). With public schools, Medicare, and Social Security, government is the dominant player in each of these sectors.

I do not think that we have have won the battle of ideas. The Left has not conceded defeat; it has merely become passive-aggressive. Simply by holding on to public provision of schooling, Medicare, and Social Security, those who distrust markets can ensure that government will play an ever-larger role in our lives.

My sense is that the vast majority of citizens are indifferent, confused, or content regarding the expansion of the welfare state. They neither understand the economic argument for the benefits of a smaller profile for government nor appreciate the philosophical argument for freedom and responsibility.

Thanks to Glenn Reynolds for the pointer.

For Discussion. What are the most compelling arguments for scaling back the welfare state? What are the most compelling arguments for maintaining or expanding it?

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COMMENTS (22 to date)
David writes:

Perhaps the financial "burden" of subsidizing the living expenses of the poor and less fortunate should be placed more squarely on the wide and profitable shoulders of corporate America.

These orgnizations enjoy blanket financial immunity for their leaders, and prosper hansdomely in America's free market system.

Perhaps they should give back a little. I'm not suggesting direct payments to the poor, but rather simply paying a living wage to the working men and women whose hard work brings record profits.

In many cases (i.e. Wal-Mart), the government uses taxpayer dollars to compensate for abysmally low wages (i.e. uninsured healthcare expenses).

Sharing obscene corporate profits with the workers would lift many out of government assistance entirely.

There is a class war going on between capital and labor in this country, and capital started it, is waging it well, and is winning it.

asg writes:

Arnold wrote:

My sense is that the vast majority of citizens are indifferent, confused, or content regarding the expansion of the welfare state. They neither understand the economic argument for the benefits of a smaller profile for government nor appreciate the philosophical argument for freedom and responsibility.

If the purpose of the above comment was to illustrate how right Arnold is about this, it could not have done better.

Steve writes:

I think one of the biggest problems for the welfare state is the same big problem for socialism: the incentive compatibility problem.

Incentives are a trickey thing, get them slightly wrong and you have a big mess on your hand. While the market has its own problems with incentives, I think there is more at work at correcting for the problems. With the Welfare State and Socialism the government is usually in charge, and one thing about the government is that nobody seems to be resonsible for anything save a few figure heads whose removal does nothing to the problem.

Brock writes:

It's tempting to think that David's post is satire, but even if it is, I have met people who speak that way. Just two weeks ago I went to an event at my law school discussing Wal*Mart. Hoo-boy.

Anyway, best arguments?

I'll try my hand at Education:

You must carefully tailor your arguments to address the main reasons why so many are opposed to voucher-ization. Few systems continue for decades on inertia alone, many people LIKE the system we have.

The Teacher's unions like the current system for the obvious reason that they can continue to milk the taxpayers. The civil servants who pay them aren't spending their own money, so who cares? Some teachers will be tempted by the opportunity to earn more money or work in a dynamic teaching environment, but most of them just really like living on easy street. Their jobs are guaranteed, their promotions automatic, benefits fixed, and retirement assured. Since most humans know a sweet deal when they see one, there's really no way to convince them to give this up.

Wealthy, urban dwellers like the public school system because it provides legal segregation. In the cities segregation has never gone away, it just has taken on new forms. Small, suburban communities have segregated themselves with distance. Metropolitan dwellers segregate themselves by paying once for their children's private school, and again (in taxes) to keep the poor kids in public schools. A voucher system which would disolve these barriers upsets the little bubbles they've built around their communities. A voucher system they'll vote for must allow them to pay over & above whatever the voucher is worth to maintain these bubbles. Something like "Hey, you already pay $$$ to send your kids to Horace Mann, wouldn't you like some government help with that? It'll still cost $$$-voucher, but every little bit helps, right?" They don't really need the money, but they do need to know that Horace Mann Academy will be just as elite and exclusive under the new system. This is a polite way of telling them.

Those suburban dwellers I mentioned could perhaps be tempted with the thought of school choice, but the schools they have are pretty decent for the most part. Choice would seem to produce marginal benefits in the short run, benefits not worth all the up-front effort. Sure, in the long run innovation in education would create better schools, but lil' Johnny would be all grown up by then, so why should they bother? You'd probably have to show them how they can lower their property taxes right that moment. Show them how taxes can be reduced XX% immediately, and they might go for it.

The slam-dunk constituency is of course the urban poor. They're the ones who really get shafted by the current system. From what I've read though, most of them are already sold on the idea. It's the wealthy urbanites and middle-class suburbanites you have to convince.

A bit cynical? You bet. Incentives matter. Some people are moved to great action by charity, but most people are not. To get a lot of people to move in a big way, you've got to show them what's in it for them. "School Choice" mostly benefits the poor, not the middle class or wealthy. Those two demographics want something besides a decent education for their kids, because they've already got that.

Brock writes:

Steve's absolutely right. There used to be over 100,000 school districts in the country, now there are fewer than 15,000. With schools run by multi-town agencies, PTA meetings went from being an oversight committee to a debate club. There is no one person any more who has the both the power to change public schools, and the accountability for its failures.

Just like most other government programs.

LeftBlank writes:

You state forthrightly your opposition to public education, Medicare and Social Security. I applaud your honesty. I wish that President Bush would be upfront too that his proposal for personal savings account is in fact a plan to phase out Social Security and eventually end the program. Then we could have an honest debate. Likewise, I would like to see advocates of vouchers acknowledge that the purpose is to eliminate public education as we know it. I also await the trojan horse the right intends to use to destroy Medicare. That would be a debate worth having, an honest debate, which the right (in my opinion) would lose. I would like to hear a conservative explain to me why I should a) be forced to save my own money in particular investments (so-called Social Security savings accounts) mandated by the government b) pay for other people's children to attend private schools, many of them operated by religions I regard as heretical c) want to live in a society that is happy to allow the elderly poor to go without medical care and live in abject poverty, which were the conditions in effect that caused us to create these programs in the first place. I am perfectly content to throw a few bones to the poor if it means they will be less likely to try to murder me on the street with those handguns the right thinks everyone should be able to own.

Anyway, you ought to be careful with the labels. I still support free trade, want taxes to be as low as possible, and think there's plenty of government waste (see Halliburton and military pork for starters) to be eliminated. Does this make me a socialist? Hell, I support legal restrictions on abortion and think Bush should have vetoed campaign finance reform. Does that make me a liberal?

The right is as full of fuzzy headed thinkers as any camp. More so. And the right's current position on Social Security is rife with dishonesty.

Jon Davison writes:

LeftBlank stated that these programs were created because the status quo wasn't good enough, and I think everyone agrees with that. But nobody is advocating replacing social security with nothing at all, or any other program as you seem to suggest.

Along with scuttling the labels, maybe we could do away with assuming that the other side is always going to do the worst possible thing we would imagine them to do.

Moreover, I'll take my chances with handgun ownership. Do the math, you're obviously not stupid. Total US population divided by total # handgun related deaths and injuries in any given year. You're far more likely to die of a high fat diet or running into another car, we're wasting precious effort worrying about handguns. Besides, Britain banned handguns years ago and the handgun related death rate over there is skyrocketing. Handguns are manufactured in every corner of the world, what do you suggest doing to enforce any "ban" on them?

Boonton writes:

"Those who profess socialism today mean by it a welfare state" errr no. I don't think I'm an exceptionally picky guy but I think we should keep in mind what words mean.

Socialism means gov't ownership of the means of production. What is that? The means of production is real capital. For example, the NY subway system is the 'means of producing' a service (transporting people) that is owned by the gov't (or gov't agency).

During the Great Depression and afterwards socialists felt that gov't should take over the larger industries and run them. The crude logic was that gov't could run the industries at cost splitting what used to be profits for capitalists between the workers and consumers. Classic socialist policy; nationalize the coal mines. It's not clear that government spending as a % of GDP would have any real connection to socialism. In fact, if things had gone according to plan gov't spending as a % of GDP would not be all that great since gov't owned industries would all break even with their costs offset by their revenues.

The welfare state was an alternative to socialism. Private industry would continue to operate but gov't's job was to manage demand by transferring money into the system when lack of demand threatened the economy with recession. This was a proposal to counter socialism, not a stepping stone towards it.

Would gov't really be less socialist if we returned to a period where spending was 'only' 11% of GDP but the gov't owned major industries such as energy production, manufacturing & heavily regulated others to the extent that they might as well own them?

Sanusi Rafindadi writes:

I think the most important justification for the welfare state is the existence of externalities in the production process. Over time, however, we become increasingly aware that there is a way of getting around this problem. In fact, more and more goods that were hetherto thought to be best produced by government are now better produced privatetely. But As long as private production of some goods and services continue to generate spillovers, regulation (which is by no means costless) rather than state ownership is justifiable. The problem with the free market remains the its very advantage-the profit maximising motive! However, as the government grows larger with regulations, it hands gets dirtier and sticky, now thats the problem with the welfare state.

Tom writes:

What are the most compelling arguments for scaling back the welfare state? What are the most compelling arguments for maintaining or expanding it?

The most compelling argument for scaling back (eliminating) the welfare state: The welfare state (I'm including the regulatory state in that term) reduces economic output and crowds out private charity. Without the welfare state, Americans as a whole would be far better off, and more willing and able to provide for those in need.

The most compelling argument for maintaining or expanding the welfare state: It's a security blanket for the insecure and a public feeding trough for politicians, civil servants, and those who benefit from public patronage. Not a very compelling argument, intellectually, but it's the one that keeps the welfare state intact.

Boonton writes:
Without the welfare state, Americans as a whole would be far better off, and more willing and able to provide for those in need.

Kind of makes you wonder why a population that was already very devoted to private charity choose to enact the welfare state to begin with.

spencer writes:

It is an unproven thesis that the modern mixed economy crowds out private sector growth. If you compare the change in US living standards from the civil war to WW I or to just prior to the great depression you find that per capita real growth rates were lower than in the 1950-2000 era. Moreover, in the later period volatility was massively reduced. For example in the earlier era the stock market was in a bear market almost 50% of the time.

It is a great economic theory, that makes a lot of sense, but where are the facts to support the theory?

LeftBlank writes:

Mr. Davison:

Please look at the post at the very top of the page. My reading is that the author opposes public provision of education, Social Security and Medicare. To "privatize" these programs is to end them. I was applauding the author's honesty. Right now, Social Security is a guarantee. If I invest badly and lose all my money, the federal government will provide me with some kind of payment until the end of my days. But if instead of that guarantee I had some kind of federally coerced savings account (in addition to my private-sector 401K and IRAs and pension) and I invest badly, or outlive my investments, then I will be out on the street with no money if Social Security does not exist. And rest assured, the proposals mentioned so far will result in a phasing out of benefits for those retiring 20, 30 or 40 years hence -- it will be driven by the fiscal mess that we are poised to create by borrowing a huge amount of money to create this transition to personal accounts. It is claimed that we need to do this because SS is fiscally unsound, which is simply a lie. The models suggesting it is in trouble assume 1.6 percent annual growth for the next several decades. If that projection is true, I don't think we'll be doing all that well in the stock market, either.

So when the poor turn to robbery and revolution, with or without handguns (knives are better for hte close in work), and true socialism makes a comeback, we'll have conservatives to thank, I suppose. More likely what we'll see is a populist movement based on protectionism that will throw our economy into chaos, as demagogues take advantage. Is that the world you want?

Lawrance George Lux writes:

What are the most compelling arguments for scaling back the welfare state? What are the most compelling arguments for maintaining or expanding it?

Scaling back the welfare state:
1) Personal and Household income rises in real terms;
2) Personal and Household taxation decreases in real terms;
3) The Standard of Living rises in real terms.

Reasons to maintain a Welfare State:
1) Business interests have co-opted the welfare system to maintain Sales from and out of the Poor.
2) Business uses the rationale of Welfare transfers to argue for lower Business taxes.
3) Business uses the Government to maintain Production Contracts impossible to garner from the Private Sector.

Some may notice that Business is the current propellent of the welfare state. lgl

Rob Read writes:

The left wing view of the poor is so negative. Basically If anyone loses money they will become a criminal!

It's obvious to me that their policies are based on jealousy that they project onto others.

The left wing says: We should bribe criminals, to protect us. Pay the dane-geld! No wonder they want to cave into terrorists.

Mr Beef writes:

"If I invest badly and lose all my money, the federal government will provide me with some kind of payment until the end of my days. But if instead of that guarantee I had some kind of federally coerced savings account (in addition to my private-sector 401K and IRAs and pension) and I invest badly, or outlive my investments, then I will be out on the street with no money if Social Security does not exist."

Why do I keep seeing this 'argument'? Essentially, your point is that under the current system I'm better off because I get a miserable but guaranteed benefit package from the government in exchange for a significant chunk of my income, with the stipulation that I work almost continuously from age twenty to retirement. Oh yeah, and if I stupidly die too early, or don't have the proper dependencies (spouse, kids, a uterus), or move to another country, then my investment is worth much less or jack. Oh, and let's hope that the Fed doesn't go bankrupt or decide to end the program before I hit the proper age.

Or, more simply, SS is like a savings account that you can't access until you're in your sixties, doesn't pay any interest, and has a 50% withdrawal fee*. Fantastic!

OR...I suffer the weighty responsibility of making my OWN decisions, benefit (and suffer) from my OWN choices, and having to live with the results. Which are almost certainly better, since all I need to do is take that evil SS lucre and hide it under the mattress and I still come out ahead. You're basically arguing that letting me do what I will with my own damn money is worse than being forced to burn it in a retirement scheme that would never survive in the free market...because I could, with great effort and tireless searching, manage to craft an investment strategy even more wasteful than SS and bankrupt myself.

In short, I (I or anyone else) can't be trusted to make my/our own decisions because I/we might screw up. But! Government can be so trusted because, well, you're sure that those monkeys in Congress care more than I do about my well-being forty years after they leave office and twenty years after they're dead. That's disgusting.

I'll freely admit this isn't the worst SS 'for' argument I've seen, though; Krugman's latest ran in the local paper's 'Views' today and I about blew my blood vessels. What kind of clown college gave that man a degree?


Mcwop writes:
In fact, if things had gone according to plan gov't spending as a % of GDP would not be all that great since gov't owned industries would all break even with their costs offset by their revenues.

Like Amtrak?

rakehell writes:

So many forget that the welfare state is a response to socialism and fascism. They forget the decades of labor unrest that lead to its creation. If it is scaled back too far, more union activity will be the result. I think that business would prefer to deal with the government than unions. The welfare state is the price they pay for a compliant work force.

That said, I do think that some sectors such as education could be more market-oriented, the way that food stamps are. But social security is a bit different. The whole point of social security is that it supplements the market. People's lifespans do not coincide with the ups and downs of the market. Prior to social security's creation people did have private retirement accounts--and many of those were wiped out in the Crash. Recall all the talk in the 90s of ordinary people retiring early off stock market proceeds? There was similar talk during the stock boom of the 20s. (F. Scott Fitzgerald wrote a great essay that touched on that subject). I get the sense that too many people believe brokerages' marketing. It's true that a diversified portfolio of stocks beats other investments, but only on average. Apparently you even have to withdraw on certain days in order to get a decent return.

In response to Mr. Beef’s comment: One wonders what the economy would look like without social security and everyone managing their own private accounts like he says. Would anyone buy a stock? I am a bit sketchy on the economics, but wouldn’t we have a situation like in Japan where everyone is saving and no one wants to invest? Wouldn’t pension funds be under immense pressure to hew to such a prudent line that they would only buy government bonds? Would anyone be able to get financing to start a new business? Would credit cards be common? IPOs, start-ups, venture capital?

It occurs to me that so much of our contemporary economy's dynamism is based on people's willingness to take risks. The standard charge against social security is moral hazard, but I am wondering if it actually allows people to become more entrepreneurial. Without a social safety net, would people become too risk-averse to strike out with businesses of their own? Would they be more likely to join unions to mitigate risk? (And recall, unions typically forbid freelancing, though many turn a blind eye to it).

When you hear entrepreneurs describe their early experiences, they often say "people said I was crazy to strike out on my own, to leave a good job with a retirement plan."

A.West writes:

Most compelling argument against the welfare state: it's not economics, its ethical - egoism. If people accept that one has the moral right to enjoy one's own life for its own sake, and have no ethical duty to sacrifice your interests to those of others, that's a slam dunk argument against the welfare state. See Ayn Rand's "Atlas Shrugged" for the best argument for egoism as applied to economics.

Most compelling arguement for the welfare state:
"you are your brothers' keeper" Altruism has been the prevailing ethics for thousands of years, and as long as it is, the welfare state will remain, regardless of the utilitarian arguments economists may make against it.

Boonton writes:


How about if the welfare state results in a better economy? In that case your 'right to enjoy your own life' may be enhanced because of the welfare state even if you never actually collect directly from it.

Lancelot Finn writes:

The best reason to scale back the welfare state is that it is completely unjust. It is unjust because it privileges those who were born on the soil of rich countries, which can sustain welfare states, over those who were born on the soil of poor countries which cannot afford them. Lefties and socialists should understand that their own principles of egalitarianism and social justice compel them to attack the welfare state. and push for productive and open economies in the rich world, with open borders, and to attack the welfare state until such time as it is feasible to implement it on a global scale.

I've written more about the injustice of immigration restrictions in an unfinished work called "Borders": it starts here, and here, here, and here are the parts that relate most closely to the immigration question.

Boonton writes:

This is just nonsense. By this reasoning it is unjust for the Catholic Church to help a homeless person in NYC until it feeds every starving person in India & Africa. This is especially silly if my theory is true that a modest welfare state makes an industrialized economy stronger. In that case the welfare state indirectly helps the world's poor by opening up additional opportunities for trade.

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