Every day, we are plagued with a slew of choices to make — which shampoo to buy, which menu item to pick, should we study this chapter or skip it? Some decisions are a little more serious, like should a Samsung recall a phone that can potentially explode and kill people? Or, when is it appropriate to fire a worker?
But, importantly, though making these choices can often be tedious, the fact that we have so many to make is nothing short than an economic miracle. Often, the number of choices available to us go unrecognized, until the opportunity to choose between them becomes limited. Indeed, some choices we make may not be the wisest choice, which results in others trying to make those choices for us through government programs, regulations, policy, and laws.
Milton Friedman, an optimistic economist, was partial to the economics of decision making and suggest giving individuals the benefit of the doubt, even if they do make the “wrong” decision. The opportunity to choose in the first place was just as important as making the “right” choice. This was the basic theme behind most of his economic theories. To Friedman, “Nobody spends other people’s money as wisely as he spends his own.”
Milton Friedman won the Nobel Prize in Economics in 1976 for “his achievements in the field of consumption analysis, monetary history and theory, and for his demonstration of the complexity of stabilization policy.” Friedman was, and remains, to be one of the most remembered economists of the past half-century. On top of his expertise in economics, he was such an important thought leader that even after life, his ideas still resonate to this day.
As you can tell, the guy won the Nobel Prize because he had his hand in everything! He craved knowledge and was known to be uninhibited when dropping knowledge bombs on virtually any topic. This kind of frankness led to him serving in many high power capacities, from the economic advisor for Richard Nixon to the President of the American Economic Association (AEA).
How We Buy Stuff
If you were to get a raise this year, would you spend more money this year? What if you just receive a one-time gift from your grandmother, such as an inheritance, would the rate at which you buy stuff increase or would you stay on your same consumption path, buying the same stuff you’ve been buying? The prevailing theory put forth by John Maynard Keynes was that individuals and households adjust their expenditures on consumption to reflect their current income.
Friedman did not agree. In 1957, he published a book, A Theory Of The Consumption Function, in which he challenged the Keynesian view. In this book, he showed that people’s annual consumption is a function of their “permanent income,” which was a measure of the average income people expect from period to period. This means that just by giving individuals a check, like the one from grandma, doesn’t mean that they will increase their consumption behavior. It’s all based on what consumers expect to make over a long period of time. This turned the idea that we can control consumption in the economy like a lever by just giving people money, on it’s head. It’s all about individual expectations not the money they have in their pockets right now — well, so the theory goes.
Choose Yo’ School
The school choice debate we see in the news today was popularized by Milton Friedman. He used economics to show that by allowing kids to be able to choose the school they want to attend, it will force schools to improve. In 1955, he formally expressed his thoughts on this in an article, “The Role of Government in Education.”
He thought the best solution would be to swap out public schools with schools that were privately run but publicly funded. To do this, the government would provide vouchers for each student (well, most likely their parents), who could then take that voucher to their school of choice. As schools would now be funded directly by the student, it would be important for them to cater to the student, thus improving their quality. This school voucher program idea is still hotly debated today!
Negative Taxing the Poor
When it came to taxes, Friedman had some strong opinions there as well. He believed in using a negative income tax system. In this system, the poorest people would be supported by a basic living income from the government. He believed market forces were extremely powerful and provided people with amazing opportunities to prosper. Yet, he also admitted that the market will not be able to guarantee that everyone will get a piece of the pie. To this day, lawmakers and academics alike are trying to find ways to implement Friedman’s negative income tax, though they’ve changed the terminology slightly by calling it a universal basic income.
A National Sensation
Milton Friedman was one of the most popular economists of the last half-century, so much so that he was able to have his own TV show called Free to Choose in the 1980’s. This show was so popular they brought the series back in for a second time in the 1990’s. He discussed everything from the power of markets to discussing his beliefs on the problem of our educational system. He had guest debaters that he brought on ranging from head of the Massachusetts Department of Education to the head of the Federal Reserve to the future Nobel winning economist Thomas Sowell. He appeared on the cover of Time Magazine as well.
Friedman was a rare economist — one who was able to communicate his ideas between both the academic and public worlds. Milton Friedman was able to explain his economic reasoning in such a way that even someone who was completely unfamiliar with economic concepts could understand. He was a man who sought out to have a conversation, to challenge people’s thoughts and engage in a thorough discussion.
Though he sought out conversation with people that weren’t completely bought into his ideas, he was not easily moved. His debating skills were often unmatched, which has resulted in his ideas still being lively debated today. Most importantly, he made economics cool and thrown into the limelight for the first time ever.