Beware of Lurking Socialism

Posted: Jan 10, 2006 11:28 AM

SAN FRANCISCO -- Milton Friedman, who has done more than any economist alive to advance free-market principles, remains as upbeat as ever about the future of the global economy as well as our own.

But he cautions us to beware of "creeping socialism" here at home.

In an hour-long interview with the famous 1976 Nobel Prize winner in economics in his spacious hilltop apartment, the high priest of free markets and free trade demonstrated anew why he has been a persuasive and powerful defender of economic freedom across the planet.

Still as feisty as ever, Friedman is disappointed with the Republicans' sharp rise in spending over the last four years, which he says has betrayed the GOP's principles of limited government. "I'm disgusted by it," he said. "For the first time in many years Republicans have control of Congress. But once in power, the spending limits were off and it's disgraceful." But the former University of Chicago economics professor is generous in his praise for Bush's tax cuts and his efforts to overhaul the tax code.

"I give Bush very good marks on the tax cuts on dividends and capital gains and for appointing a good tax reform commission that came up with very good proposals." The U.S. economy, he continues, "is doing remarkably well. We've never in the history of the United States had as good an economy as we've seen in the last 20 years."

He attributes the economy's success to, among other things, a steady monetary growth by the Federal Reserve that "has been gradual and relatively low," relatively stable price levels, and modest inflation that has been held to between 2 to 3 percent. The result: "We've had two very tiny recessions in the last 15 years."

How long will the present expansion continue? Economist John Taylor at the nearby Hoover Institution at Stanford University, where Friedman is a senior fellow, says "we're in a new world where expansions will be a lot longer and slowdowns a lot shorter."

Friedman agrees "there will be larger expansions," but with this proviso: "If they continue with present policies."

Globally, he is disappointed that more progress has not been made on free trade, which he sees as pivotal in growing the wealth of nations, particularly among the poorest countries. But he doesn't like the Central American Free Trade Agreement, which the administration negotiated and that Congress passed earlier this year. "No one could read that agreement and call it a free trade agreement. It is over one thousand pages long and contains list after list of exemptions."

Yet he remains bullish about the progressive movement of the world economy toward freer markets and freer political systems. "You will have a more prosperous world, and in the case of China and India you will have a reduction in government control," he predicts.

China's free market economy and its embrace of foreign investment is slowly but surely applying increased pressure on its leaders to allow the Chinese more personal freedoms. "Sooner or later China will move to a free political system," he said. He dismisses all those doom-and-gloom books that forecast a coming war with China as fear mongering. "Bad news sells, but I think those fears are overdrawn. Their economic growth will be a real blessing (to the United States). We are better off if they are better off."

Where pessimists narrowly see only negative trends, Friedman keeps his eye on the bigger picture, filled with economic and technological trends that are changing the world for the better.

The Internet, he notes, was expanding individual freedom, economically and politically, especially in China, where political dissidents have used it to lobby for change and plot protests. The privatization movement has seen huge government-run enterprises, even in socialist countries, sold off to the private sector. This trend is particularly strong in Asia where China is privatizing its public housing and Japan is selling off its Post Office.

Western Europe, however, is still an economic mess, held down by a costly welfare state, high taxation and government-imposed labor laws that are obstacles to growth, he says.

"Italy, Germany and France are doing very poorly, experiencing low economic growth and high unemployment," he said. They need a strong dose of privatization, government downsizing and an overhaul of their labor laws.

As for our economy, "the best laws we could pass would be to cut taxes and cut government spending and leave more money in the economy."

Still, Friedman cautions us not to take economic freedom for granted. "Public opinion is free market" but in practice government is playing a more intrusive role in our lives. "This is a great country. We've been able to hold socialism back and keep it at bay, but we haven't defeated it," he said.

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