Tag: milton friedman

School Inc. Under Attack: Milton Friedman, PBS, and the Quixotic Pursuit of “Balance” in Public Broadcasting

Our departed colleague Andrew Coulson spent the last years of his life producing School Inc., a wonderful and informative documentary about the possibilities of private, choice-based schooling. I highly recommend it. Amazingly, at least to me, PBS agreed to air the documentary, and in April it debuted on PBS stations around the country.

Unsurprisingly, a chorus of critics are angered that PBS would air such a program. Media Matters for America seems to call for the outright censorship of any critique of public education on public television by wondering, “why would a public broadcast channel air a documentary that is produced by a right-wing think tank and funded by ultra-conservative donors, and that presents a single point of view without meaningful critique, all the while denigrating public education?” Diane Ravitch, a prominent critic of private schools, complains that “uninformed viewers who see this very slickly produced program will learn about the glories of unregulated schooling, for-profit schools, [and] teachers selling their lessons to students on the Internet,” but “what they will not see or hear is the other side of the story.” Now a petition has been started calling for PBS to air “the other side” of the story by showing the anti-private school film Backpack Full of Cash.

I have nothing against showing the “other side” to Andrew’s series, but we need to put this debate in context. When it comes to PBS and the Corporation for Public Broadcasting, the “other side” that doesn’t get heard is usually the conservative or libertarian side, and CPB has generally been deeply antagonistic to those ideas. That Ravitch and others are now the ones complaining is at least somewhat ironic.

Two Minimum Wage Charts for Andy Puzder

Donald Trump has tabbed Andy Puzder to lead the Department of Labor. Puzder is the CEO of CKE, the restaurant outfit (read: Hardee’s and Carl’s Jr.). CKE, thanks to Puzder saving it from the bankruptcy hammer, employs 75,000 workers (read: jobs). Puzder knows that “high” minimum wages, such as the $15 per hour one thrown around by progressives, is a job killer for low-skill workers.

During his nomination hearings, Andy Puzder will no doubt be grilled about his views on “high” minimum wages. His inquisitors will trot out glowing claims about the wonders of a $15 per hour minimum wage, as did President Obama in his 2014 State of the Union address. As the President put it: “It’s good for the economy; it’s good for America.” Not so fast.

The glowing claims about minimum wage laws don’t pass the most basic economic smell tests. Just look at the data from Europe. The following two charts tell the tale and should be tucked into Andy Puzder’s briefing portfolio.

There are six European Union (E.U.) countries in which no minimum wage is mandated (Austria, Cyprus, Denmark, Finland, Italy, and Sweden). If we compare the levels of unemployment in these countries with E.U. countries that impose a minimum wage, the results are clear. A minimum wage leads to higher levels of unemployment. In the 21 countries with a minimum wage, the average country has an unemployment rate of 11.8%. Whereas, the average unemployment rate in the seven countries without mandated minimum wages is about one third lower — at 7.9%.

On the Great Inflation Canard

Charles W. Calomiris and Peter Ireland, two distinguished economists and friends, wrote an edifying piece in The Wall Street Journal on 19 February 2015. That said, their article contains a great inflation canard.

They write that “Fed officials should remind markets that monetary policy takes time to work its way through the economy—what Milton Friedman famously referred to as “long and variable lags”—and on inflation.” That’s now a canard.

For recent evidence, we have to look no further than the price changes that followed the bursting of multiple asset bubbles in 2008. The price changes that occurred in the second half of 2008 were truly breathtaking. The most important price in the world — the U.S. dollar-euro exchange rate — moved from 1.60 to 1.25. Yes, the greenback soared by 28% against the euro in three short months. During that period, gold plunged from $975/oz to $735/oz and crude oil fell from $139/bbl to $67/bbl.

What was most remarkable was the fantastic change in the inflation picture. In the U.S., for example, the year-over-year consumer price index (CPI) was increasing at an alarming 5.6% rate in July 2008. By February 2009, that rate had dropped into negative territory, and by July 2009, the CPI was contracting at a -2.1% rate. This blew a hole in a well-learned dogma: that changes in inflation follow changes in policy, with long and variable lags.

Milton Friedman was certainly correct about the period covered in the classic, which he co-authored with Anna J. Schwartz: A Monetary History of the United States, 1867-1960. Recall that the world of that era was one in which the fixed exchange rates ruled the roost. That’s not today’s world. Indeed, many important currencies now float. Since the world adopted a flexible exchange-rate “non-system”, changes in inflation can strike like a lightning bolt.

Audit the Fed: What Would Milton Friedman Say?

Senator Rand Paul (R-KY) introduced a bill (S.264) which is popularly known as “Audit the Fed” (ATF). The bill picked up 30 initial co-sponsors. Although the Fed is already extensively audited in the accounting sense of the term, the ATF bill would expand the scope and scale of Fed auditing. Indeed, monetary policy decisions, which have been exempt from any sort of “auditing” since 1978, would see their auditing exemption lifted if the bill becomes law.

There is popular support for the idea that the Fed should be audited. More than three-quarters of registered voters would give the general idea of auditing the Fed a green light. It’s no surprise, then, that there has been bipartisan support for similar proposals in the past. However, none of these have become law because the push-back from Fed officials and other “experts” has been strong. Today is no different, with the Fed and the Obama White House all singing the same tune: “It’s Dangerous.” 

The real issue at stake is whether the Fed should be independent. The opponents of the ATF bill naturally think that the law would imperil the Fed’s autonomy and that this would be objectionable.

What would Milton Friedman say? Well, we don’t know for certain because unfortunately he is unable to read S.264. That said, Friedman weighed in on the issue of central bank independence on several occasions. Indeed, an essay he penned in 1962 was titled “Should there be an Independent Monetary Authority?” (In: In Search of a Monetary Constitution, edited by Leland B. Yeager, Harvard University Press). Friedman concluded that “The case against a fully independent central bank is strong indeed.”

Milton Friedman’s position on this issue was quite clear at the time. There is little doubt as to whether he would see the situation at hand any differently. 

Friedman and Hanke on Bitcoin

In 2008, Bitcoin was mysteriously introduced to the world in an obscure, technical paper written under the pseudonym Satoshi Nakamoto. By late 2013, the financial press was filled with reportage on Bitcoin and its dramatic price increase.

Well ahead of Satoshi Nakamoto, Nobelist Milton Friedman, champion of free market economics and noted expert on money and banking, anticipated the coming of digital currencies, and foresaw the potential impacts that they would have on finance and economics.

In a 1999 interview, Prof. Friedman concluded:

I think that the Internet is going to be one of the major forces for reducing the role of government. The one thing that’s missing, but that will soon be developed, is a reliable e-cash, a method whereby on the Internet you can transfer funds from A to B without A knowing B or B knowing A. The way I can take a $20 bill hand it over to you and then there’s no record of where it came from.

You may get that without knowing who I am. That kind of thing will develop on the Internet and that will make it even easier for people using the Internet. Of course, it has its negative side. It means the gangsters, the people who are engaged in illegal transactions, will also have an easier way to carry on their business.

Prof. Friedman’s anticipation of Bitcoin is truly remarkable. He even understood the concept well enough to anticipate something like the Silk Road scandal involving illegal Bitcoin transactions.

In April 2013, Nathaniel Popper of The New York Times reported on Bitcoin in an article titled “Digital Money is Gaining Champions in the Real World”. In his reportage, Popper asked me if I thought Bitcoin had the makings of a speculative mania like the 17th century Dutch tulip bulb frenzy. My response was clear and unambiguous: “To say highly speculative would be the understatement of the century.”

Subsequently, the price action in Bitcoin confirms my diagnosis (see the following chart). In January 2013, one could buy a Bitcoin for about $13. By late November, one Bitcoin would have set a buyer back over $1100. And what about Bitcoin’s price volatility? As shown in the chart, Bitcoin’s volatility is truly fantastic.

While the price currently fluctuates around $600, Bitcoin remains far from secure. Serious discrepancies in price exist even between exchanges. For example, the price of a Bitcoin on the Mt. Gox exchange has fallen by over 50% in the past week, while the price of the exact same Bitcoin on the BitStamp exchange has fallen by only 3% in the same time period.

For Europe’s Youth, Minimum Wages Mean Minimal Employment

Yesterday, in the wake of Tuesday’s State of the Union address, I poured cold water on President Obama’s claim that a hike in the minimum wage for federal contract workers would benefit the United States’ economy, pointing specifically to unemployment rates in the European Union. The data never lie: EU countries with minimum wage laws suffer higher rates of unemployment than those that do not mandate minimum wages. This point is even more pronounced when we look at rates of unemployment among the EU’s youth – defined as those younger than 25 years of age.

In the twenty-one EU countries where there are minimum wage laws, 27.7% of the youth demographic – more than one in four young adults – was unemployed in 2012. This is considerably higher than the youth unemployment rate in the seven EU countries without minimum wage laws – 19.5% in 2012 – a gap that has only widened since the Lehman Brothers collapse in 2008.

I will conclude yet again with a piece of wisdom from Nobelist Milton Friedman, who correctly noted that “the minimum wage law is most properly described as a law saying employers must discriminate against people who have low skills. That’s what the law says.

School Choice Enrollment Reaches Record High

Just in time for National School Choice Week, the Friedman Foundation for Educational Choice has released its annual ABCs of School Choice report, detailing every private school choice program in the nation. The number of students participating in school choice programs has reached a record high of more than 301,000 students nationwide, up from about 260,000 in 2012-13. More than half of those students are participating in scholarship tax credit programs.

The Friedman Foundation’s report is an invaluable resource for understanding the dozens of school choice programs and their various rules and regulations. A new feature in this year’s report is an infographic ranking every school choice program along two criteria: eligible population and purchasing power. The Friedman Foundation’s view is that choice programs should have universal eligibility and that the purchasing power of the vouchers or scholarships should be on par with the per student spending at government schools.

Universal access to a variety of schooling options is certainly a noble goal, essential to fostering equality of opportunity. However, it should be noted that wealthier families can already afford school choice. Universal access to school choice does not require universal access to school choice programs. Targeting support to low- and middle-income families is a more efficient way to ensure universal school choice as it directs scarce resources to those who need them most. Of course, measuring access is a lot more difficult than measuring program eligibility, so this is not a deficiency of the Friedman report.

There are other important criteria by which we should judge school choice programs, particularly the amount of regulatory interference imposed on private schools (e.g. - mandating state tests) and the amount of freedom granted to parents to tailor their child’s education (e.g. - New Hampshire’s tax-credit scholarships for homeschoolers). Perhaps the Friedman Foundation will consider these and other criteria for future reports.