Monday, July 17, 2006

Capitalism and Freedom

I'll let Kevin Drum's post on public vs. private education lead off my review of "Capitalism and Freedom" by Milton Friedman.
First, there's that 8th grade reading score, which is a whopping 5.7 points (about half a grade level) below that of private schools. That's a big difference.

Second, these scores confirm a widely-reported and disturbing trend: public schools seem to do OK at the elementary level, but student scores start to drop significantly in secondary school. In this study, the delta between public and private schools dropped 6.8 points in reading and 3.5 points in math between 4th and 8th grades. If the study had been extended to 11th grade, I suspect that decline would have continued.

I don't have any answers here except for a guess: namely that the pedagogy wars don't really matter much. Phonics vs. whole word? New math vs. old? Open classrooms vs. strict discipline? Without disparaging the people who work hard trying to figure this stuff out, it seems as if practically any of these approaches can succeed or fail depending on how well they're implemented.

But what does seem to show up over and over again is the effect of concentrated poverty. Nearly everything I've read suggests that when the number of kids in poverty reaches about 50% in a school, teaching becomes nearly impossible — and that this matters much more in secondary school than in elementary school.

(First off, Drum asserts that there really isn't much of a difference between public vs. private; the portion that I selected doesn't make that clear, but I was mostly interested in the paragraphs selected. Sorry, if I misrepresent the point of Kevin's post.) Friedman addresses the point of concentrated poverty on the public schools in "Capitalism and Freedom". His policy suggestion is vouchers which allow parents to choose their child's school based on factors they deem important rather than having the state decide based on geography. Friedman argues this would alleviate some of the problems of concentrating poverty in certain schools. Of course, another reason of poverty being concentrated geographically is the state's entry into building housing for those poverty, concentrating all of the impoverished into a small geographic area. Friedman's solution to this is to give the poor cash to use how they wish. The main part of this cash would come in the form of the negative income tax, which today is called the Earned Income Tax Credit.

Friedman's writing is truly inspiring (admittedly, I am predisposed to believing in what he is writing). Above, I chose 3 policies that I believe the government has failed it's citizens; housing, education and poverty. As Friedman argues, government control in and of itself is to blame. This control has really affected other aspects of the system, for instance Housing and Urban Development affecting the education system. Whereas, giving the power to the people would not have affect the schools as much as concentrating poverty in one location.

Friedman's argument is against the concentration of power instead, to borrow from George H.W. Bush, of the thousand points of light. This week is the FDA's 100th anniversary. Friedman also takes down the idea of giving licensing function to the government, specifically the FDA and licensing of doctors. In this OC Register editorial by Satya Thallam, you can find the Friedman influence.
The FDA requires that a manufacturer of a new drug must prove both safety and effectiveness (the latter mandate added in 1962). By increasing the time and cost necessary to bring a drug to market, fewer drugs are developed, and even approved drugs forgo years of beneficial use. Fortunately, things have been improving, with the FDA now on par with the speedier approval times of similar agencies in Europe.

Economist Sam Peltzman has shown that the number of new drugs approved declined precipitously after imposition 44 years ago of the effectiveness requirement. He also showed that the proportion of inefficacious drugs didn't change in wake of the added requirement, writing that the "penalties imposed by the marketplace on sellers of ineffective drugs … left little room for improvement by a regulatory agency." His conclusion has been confirmed by other researchers.

But even if the FDA does little in the way of ensuring effectiveness, we should sing its praises for keeping us safe, right?

Noble intentions aside, any reasonable concept of safety is at best relative. The safe use of a drug is dependant on innumerable particulars, unique to the individual. By attempting to create a safety standard for something as variable as physiology, the FDA imposes onto the marketplace a rule that is at once clumsy and constricting.

Manufactured insulin may be essential to some and deadly to others. Radiation therapy and the AIDS cocktail often entail debilitating side effects. What should be the rule for considering them safe or not?

While the regulation of dosage, side effect and precautionary information helps the FDA mitigate this one-size-fits-all problem, the agency's failure to account for variation is seen in significant off-label usage, the unregulated prescription of drugs for uses other than the ones they were approved for.

Consumers are protected by a dynamic mixture of expert consultation, individual experimentation, independent and industry certification and the tort system. The FDA should be mindful of this existing system, because no one lobbies for the patients who die, or delay treatment, while waiting for a promising therapy to be approved.

The FDA's mission is ubiquitous; it affects every aspect of our lives. And so the story goes, we have the sausage- (and law-) making process to thank.


The policy prescriptions Friedman espouses in "Capitalism and Freedom" will probably never be extremely popular, but generations will read this book and be inspired by it's expression of freedom. It is a wonderful book that is as relevant today as it was in 1962.

The Wikipedia page for the book describes the impact of "Capitalism and Freedom".
The effects of Capitalism and Freedom were great yet varied in the realm of political economics. Some of Friedman's suggestions are being tested and implemented in many places, such as the flat income tax in Slovakia, a floating exchange rate which has almost fully replaced the Bretton Woods system, and school vouchers for Hurricane Katrina evacuees, to cite a few prominent examples. However, many other ideas have scarcely been considered, such as the end of licensing, and the abolition of corporate income tax (in favor of an income tax on the stock holder). Though politicians often claim that they are working towards "free trade," an idea the book supports, no one has considered taking his suggestion of phasing out all tariffs in 10 years. Nevertheless, Friedman popularized many ideas previously unknown to most outside economics. This and other works helped Milton Freedman to become a household name. The Times Literary Supplement called it "one of the most influential books published since the war." However, many of the ideas described in this book remain radical (or, according to critics, reactionary) and controversial to this day.


To see Friedman explain his theories, Radley has a link to a '60's era taxpayer subsidized television interview.

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