Milton Friedman Holds Secret to Plugging Well

It doesn't seem to matter in America which party wins a given election. Either way, America loses.

The oil spill in the Gulf of Mexico reveals why.

President Barack Obama wants an "ass to kick." Republicans want to kick Obama. The truth is that both parties are more interested in pointing fingers than refining their own beliefs and biases in response to the disaster. The environmental calamity exposes fundamental, fatal flaws in the philosophies of both parties.

Therein lies the one prospect for good news from the gushing catastrophe: If the U.S. is to escape from the downward spiral it finds itself in, at least one of the parties must internalize the lessons of the spill.

The truth is that both parties are more interested in pointing fingers than refining their own beliefs and biases in response to the disaster.

The traditional Democratic view sees free enterprise as the source of many evils, and government's proper role as to stand between fragile citizens and the market. This vision has evolved from comic-book fantasy. Obama's team is the Justice League of America, floating above Earth, scrambling a Superman with an "O" on his chest whenever evil threatens the poor citizens of "Smallville."

While Superman might be nice to have around occasionally, the problem is how Democrats have expanded his enemies list. Profits are evil, so government must punitively raise taxes on insurers, oil companies, drug companies and any others that become too successful. Private contracts tend to be unjust, because predatory businessmen will trick citizens into making agreements that are not in their interest, so government must step in and dictate the terms.

Imperfect Heroes

If Democrats live in the DC Comics universe, where the heroes are perfect and the villains easy to identify, Republicans live in the Marvel universe, where the heroes, such as Wolverine and Spider-Man, are reluctant, best left alone, and potentially villains themselves. There are no omniscient, benevolent rulers here. Sooner or later power will be wielded by the likes of Nancy Pelosi, so the role of government should be constrained as much as possible.

Both parties have taken their view to an extreme.

Civil society requires that government provide an umbrella under which free enterprise can flourish. Milton Friedman, in a legendary treatise, listed four roles for government: enforcing the rules of the game, watching out for natural monopolies, controlling "neighborhood" effects such as pollution, and protecting those who can't do so themselves.

Democrats, of course, see a much broader role for government. Their government has become what Bastiat warned about: "the great fiction, through which everybody endeavors to live at the expense of everybody else."

Zero for Four

The government that tries to do everything accomplishes nothing. It fails to deliver the four essentials that even Friedman viewed as prerequisites for a successful society.

The Obama administration was so distracted by green jobs and sparring with business that it failed to establish a rational government response plan for deepwater oil spills, even after the Timor Sea blowout of 2009. That discharge, the third worst in Australia's history, spewed an estimated 30,000 barrels of oil during 10 weeks--a pittance only when compared with the BP Plc spill in the Gulf. As a wakeup call, the Timor Sea spill should have been the marine equivalent of 9/11.

The Republican Party's opposition to all things government is just as ill-considered.

If drilling in treacherous conditions is to be allowed, for instance, then a competent, well-funded government is needed to plan and practice a rapid response to an accident. This comes directly from Friedman's analysis: a private individual will not factor in the costs to society of a terrible spill and therefore won't invest adequately in machines to clean it up.

Hungry Voters

Citizens at times hunger for the order that government should provide, so they grant power to Democrats--who inevitably take it too far. Republicans neglect the fact that some government activism is required to accomplish Friedman's goal of "improving the operation of the invisible hand without substituting the dead hand of bureaucracy."

Policy in the U.S. has become the unpredictable outcome of a game between a party that irrationally believes government can and should do almost everything, and a party that irrationally believes government can and should do almost nothing.

Sooner or later, one of the parties--or, perhaps, another one--will recognize the necessary, limited number of functions for government that are a prerequisite for a society within which free citizens can generate happiness and prosperity, without financial crises and oil spills.

It will matter when such a party emerges, and wins.

Kevin A. Hassett is a senior fellow and the director of economic policy studies at AEI.

Photo Credit: iStockphoto/Larry Cole

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About the Author

 

Kevin A.
Hassett
  • Kevin A. Hassett is the State Farm James Q. Wilson Chair in American Politics and Culture at the American Enterprise Institute (AEI). He is also a resident scholar and AEI's director of economic policy studies.



    Before joining AEI, Hassett was a senior economist at the Board of Governors of the Federal Reserve System and an associate professor of economics and finance at Columbia (University) Business School. He served as a policy consultant to the US Department of the Treasury during the George H. W. Bush and Bill Clinton administrations.

    Hassett has also been an economic adviser to presidential candidates since 2000, when he became the chief economic adviser to Senator John McCain during that year's presidential primaries. He served as an economic adviser to the George W. Bush 2004 presidential campaign, a senior economic adviser to the McCain 2008 presidential campaign, and an economic adviser to the Mitt Romney 2012 presidential campaign.

    Hassett is the author or editor of many books, among them "Rethinking Competitiveness" (2012), "Toward Fundamental Tax Reform" (2005), "Bubbleology: The New Science of Stock Market Winners and Losers" (2002), and "Inequality and Tax Policy" (2001). He is also a columnist for National Review and has written for Bloomberg.

    Hassett frequently appears on Bloomberg radio and TV, CNBC, CNN, Fox News Channel, NPR, and "PBS NewsHour," among others. He is also often quoted by, and his opinion pieces have been published in, the Los Angeles Times, The New York Times, The Wall Street Journal, and The Washington Post.

    Hassett has a Ph.D. in economics from the University of Pennsylvania and a B.A. in economics from Swarthmore College.

  • Phone: 202-862-7157
    Email: khassett@aei.org
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    Phone: 202-862-5862
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