From The Collected Works of Milton Friedman, compiled and edited by Robert Leeson and Charles G. Palm.

Transcription

1 Interview. Tolerant of Nuts: Milton Friedman on His Chicago Days. Interviewed by Jason Hirschman. Whip at the University of Chicago, 20 October 1993, pp Used with permission of the Special Collections Research Center, University of Chicago Library. Whip: Let s turn to the University of Chicago. Actually, when you were in college, you studied to become an actuary. It sounds strange to think of Milton Friedman, calculating insurance premiums. Friedman: [Laughs] You must realize that I lived in much less sophisticated society than you know. I grew up in a poor house-hold, and through secondary school developed a great liking for mathematics. I kept asking people, can I use mathematics for anything to make a living? The only answer I ever found that the only discipline that could use mathematics and enable you to make a living was being an actuary. And so when I went to college I thought I would become an actuary! As I went to college, I discovered that there were more ways in which you could use mathematics in other disciplines. In addition to which of course, I was in college from 1928 to the 1932, the period when the Great Depression was emerging and making economics the subject that seemed most relevant. When I came to Chicago for graduate work, I came on a scholarship for economics. Whip: You came in the fall of In your Nobel acceptance, you noted that it was one of the most financially difficult years for yourself. Friedman: It was the most financially difficult year I ever had. Whip: You also noted in your Nobel speech that you never doubted you would go to college, due to work and scholarship, despite the financial burden. Things are a little different now. Students and universities turn to the federal government for money. What has been the effect of that? 1

2 Friedman: There is no doubt that the effect has been to lead to a deterioration in the quality of our higher educational system. Let me not misstate that we have some very good institutions of higher learning, including Chicago. But there are also some very poor institutions of higher learning. Many institutions which are said to be institutions of higher learning hardly deserve that term. People value what they get in accordance to what they put into it not only in money but also in other ways. In so many cases, particularly in large state universities, the cost of going to school is very small. It attracts people who really go there not to get an education, but to have a pleasant interlude between high school and work in the real world. It is a way to get away from home, to live among young people with lots of facilities. And if you re not serious about education, you don t have to work very hard and have lots of time for leisure. That s o.k., as far as they are concerned. It s not o.k. to the taxpayers who are subsidizing them. In my opinion, this also tends to have a very negative effect on those students who really want an education. It drives down the standards and reduces the quality of schooling available to the serious students. We boast the large fraction who go to college, but in my opinion, half of them have no business going to college. All of that is because of government subsidization of higher education. In fact, I have often said that government subsidization of higher education is unquestionably the most inequitable program government carries out. The people who benefit are primarily in the upper income bracket. The people in lower income brackets contribute to paying the cost. How I put it when I m being demagogic: the people in Watts pay taxes to send the children of Beverly Hills to college. Whip: Let s turn back to the U of C. Early on, were your ideas always accepted with in the economic department and the university, or did you receive any resistance? Friedman: In the economic department? No. The economic department has long had, ever since it was founded in 1890, a tradition of accepting a wide variety of views, of being 2

3 very tolerant of ideas. Resistance in the sense that you may not be able to persuade people is one thing. Petty personal or non-academic resistance, no. Whip: We have other, strong department too, our sociology department for example. How did other departments feel about this free-marketeer? Friedman: [Laughs] Chicago has always been tolerant of nuts. Whip: That s a good thing, I guess. Friedman: Yes, it is! It s a good thing. The Chicago trustees used to have a wonderful arrangement, in which once a year they had a dinner for the faculty and trustees. There were talks given by representatives of the administration, trustees, and faculty. In the year in which I gave my talk I spoke about the fertility of Chicagoans producing Chicago schools Chicago school of education, Chicago school of sociology, Chicago school of economics. I attributed it almost entirely to the extent to which the city of Chicago as well as the university was tolerant of nuts! Tolerant of diverse ideas. I believe that is a very important part of the success of a university. Whip: It seems that today, with political correctness on the rise, that universities are moving away from intellectual diversity diversity of ideas. Friedman: I agree and that s one of the great problems which have arisen. The whole business of political correctness is a disgrace and a scandal. There ought not to be anything in the universities about political correctness. They ought to be concerned entirely about intellectual correctness. Whip: Hoover Institution fellow Thomas Sowell has criticized university professors for spending too much time researching and too little time teaching. How did you approach teaching while you were a professor at the University of Chicago? Friedman: There are two different questions here. What Dr. Sowell was referring to is the fact that while universities are supposed to perform a teaching function, in judging 3

4 performance, eminence and so on, they tend to give very little attention to the quality of the teaching and concentrate almost entirely on the publish-or-perish aspect. In my experience, I did a great deal of teaching and I benefited from teaching as much as the students did. I think there is no better way to understand the subject than to teach it. You think you understand it, and then you try to explain it to someone else. You start to realize that you really don t understand it. In one sense I never thought of researching and teaching as different; for many years at Chicago I tried to teach courses in a field other than that in which I was doing research, because I think there is a danger of people who stress a particular area to get narrow, and tend not to key up with developments in other parts of the discipline. For many years my research was almost entirely in the field of money, and my teaching was almost entirely in the field of economic theory. I think that was a very healthy and good thing and I enjoyed it. I benefited from it. I think researching and teaching can be highly complementary, but I do accept Dr. Sowell's judgment that the standards by which people are appointed and promoted give much too much emphasis to the research aspect and not enough to the teaching aspect. Whip: The North American Free Trade isn't really a free trade agreement. It's more like managed trade Friedman: It s the North American Managed Trade Agreement. Whip: Do you still support it? Friedman: I support it. It's a step in the right direction, but I don't support it wholeheartedly as I would support a true free trade agreement. I would much prefer the United States unilaterally dismantling its restraints on trade. Whip: What about these Perot supporters, or Perot himself, who keep saying there is an unfair advantage. Friedman: I think Perot is a demagogue in whom I have no confidence whatsoever. His arguments are logically absurd. The idea that free trade is going to suck jobs outside of the 4

5 United States is a bunch of nonsense. It may be that the departure from free trade in this treaty will have bad effects, but the free trade component, which is what Perot is really taking about, will certainly have good effects for Mexico and the United States. One reason, despite my reservations, for why I support it is because it opens up the possibility of bringing in other countries like Argentina, Chile, Columbia, Peru some of those. Those countries are moving much more in the right direction than we are. Whip: You ve said that they seem to be going where we were fifty years ago, and we re going where they were ten years-ago. Friedman: Right, right! Take a country like Chile or Mexico. They ve moved effectively and efficiently in the direction of freeing their economy. Argentina is doing the same thing. Throughout Latin America that is the trend. Maybe if we can start with NAFTA, and widen it to include them, they ll have a good influence on us! Whip: And a lot of these country moving away from universal health care and government involvement in the health care profession. Friedman: My own belief is that you'll not going to enact the kind of national health care that Clinton is intending to propose. Whip: You don t think they ll gather up enough support for a universal right to health care for every person? Friedman: I don t believe so. The fundamental problem with health care comes from too much government in it now. Whip: More than 40% is funded by the government. Friedman: Not only that. The major source is the government s incentives. I wrote a column in the Wall Street Journal entitled, Why Buy Medical Care at the Company Store? The chief defect of our present medical system is the provision of medical care by employers 5

6 rather than the people themselves. After all, if an employers provides you with medical care, why shouldn't they provide you with food? How about housing, or clothing? What makes medical care special? Why should that be handled by the employer, and everything else by the individual out of his wages? The answer is, as a result of price and wage control during World War II, in order to evade the wage control, employers searched for fringe benefits they could give to hired workers. They hit upon medical care, and did not report as part of the wages for federal taxation. The IRS took about two or three years to wake up to that. When they did wake up to that, they tried to get employers to include the cost of medical cares as part of the wages they paid to their employees, and subjected to tax. But by this time the workers thought they were entitled to it and raised a big fuss. Congress passed a law exempting medical care from taxation to the employee. The result of that is, if the employee wants to provide for his own medical care, he has to do it with after-tax income. If he s in the 30% tax bracket, for example, in order to spend a $100 in medical care, he has to earn $130. But the employer can provide him to $130 of medical care because the medical care for him is not treated as taxable income. That s the key problem. It may seem crazy, but that s the major source of our problem in medical care. Whip: Despite all our faults, you seem to remain fairly optimistic about America s long term future. Friedman: We are a very strong country, enormously wealthy. We have done very well despite the handicaps thrown up due to the increasing role of government. I have a great deal of faith that somehow or other the people are going to devise a mechanism for stopping the growth of government. I don t know what it will be. Term limits are one step in that direction. Perhaps others will be devised. If you get choice in schools if it would pass in California this fall you would see choice spread across this country like wildfire. It may not pass this fall. But in a year or two it will. Maybe not in my lifetime, but it will in yours. The picture 6

7 isn t all black. The level of public opinion is much better is much better than the level of public practice. Though I m economist, if you ask what are the major problems in the United States, they are not economic. We have a very high standard of living. We re wasting an enormous amount, and we could have a higher one. The real problem of this nation are not economic. Crime in the streets. The development of a permanent underclass. The poor livability of the central city. The growth in children having children. The decline in civility. Whip: Aren t they all influenced by government in the welfare state? Friedman: Absolutely. No question about it. We have all these social problems, almost of everyone of which is traceable to a government mistake. Not all. The change in cultural values that came in the 1960s derived from Vietnam, yet you also have to say it has an autonomous source in the development of the nation s culture. We have to get down to those real problems. They are soluble. There are no doubt that the two things that would do most to improve the inner city and reduce crime would be to end the present war on drugs legalizing drugs and secondly, the voucher system in schooling. That would be capable of transforming the situation in the inner city is a very brief period of time. Sooner or later both of those are going to be done. My favorite quotation, which came to mind when you asked me how I could be optimistic, is from Adam Smith. I m sure you ve heard this quote many times before. It was one of George Stigler s favorites too. When during the American Revolutionary War, a young man approached Adam Smith and said, The fall of Yorktown is going to be the ruination of Britain. Adam Smith responded, Young man, there is a deal of ruin in a nation. 7