I recently assigned Milton Friedman’s classic article “The Social Responsibility of Business is to Increase its Profits” to one of my more advanced classes, which got me thinking about Friedman’s argument for the first time in a while. Then, just the other day, Matt Yglesias wrote this:

[Friedman’s argument] implies that a business executive has not only the right as a citizen of a democratic country but a moral obligation to dedicate his energy and that of the firm he manages toward erecting regulatory barriers to competition and to begging for bailouts and subsidies…. [A]n entrepreneur who’s obsessed with creating great products is… guilty of some kind of ethical failing… my point is basically that for the system to work you need some kind of thicker ethics than “greed is good.”

From the very same article that Yglesias links to, Friedman makes it clear that he recognizes this. He concludes with this quote from his book Capitalism and Freedom: “there is one and only one social responsibility of business–to use it resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud”.

Friedman may be partially to blame for the initial appearance of a disagreement on this point, since he chose to advance his position (in terms of what he emphasizes in this article and in interviews on the subject) by basically saying “businesses should try to be greedy and increase profits” without necessarily following up with the obvious caveat that this is only a tenable position if businesses are conforming to certain basic rules.

If I had to pick one book that has shaped my political philosophy, it would have to be Milton Friedman’s Capitalism and Freedom. It was a wakeup call, of sorts. All of his ideas made sense to me and were written from a radical perspective that I had never even thought of.

Many of the things he recommended seemed radical at the time but have now become accepted or at least respectable ideas: school vouchers, flexible exchange rates for currency, negative income tax instead of traditional welfare state measures, and a flat tax. However, I found it most difficult to grasp his recommendation to end the mandatory licensing of doctors. I still feel fairly uneasy about such a proposition and more importantly I think it is the least politically feasible of all his views.

If you want to think about the benefits of doctor licensure in consequentialist terms, consider these points:

  • Do the licenses really completely protect consumers against medical malpractice (not really).
  • Do the licenses potentially raise overall medical costs (yes, because there is a much smaller supply of doctors, they charge more)
  • Are the requirements necessary to be certified set at the right level (potentially, but look how many years one has to go to medical school to get a license).
  • Does the fact that a doctor has a license make you more trustworthy of that doctor (yes, I am going to assume).
  • If there are no licenses, will people acting as doctors do a worse job because they can (maybe, but probably not. Think of other professions that don’t have licenses).

I remember reading a story a while ago that said the Florida attorney general tried taking the Florida Bar Exam and failed. The attorney general wouldn’t have been able to be a lawyer in Florida. This example shows that while occupational licensing may have the (supposed) intention of protecting the consumer, it can really just act as an effective cartel for those already in the profession. The cartel will limit the supply of those in the industry and effectively raise their wages. I think we can see this in the fact that some places require babysitters to have a license.

I am definitely not convinced completely that we don’t need licenses for doctors. If anything, I think we should have an “optional” licensing system. For example, doctors can be given a gold star if they have certain qualifications (which would make people more confident going to them) but doctors without those qualifications cannot be legally excluded from working. For instance, I could treat you with “alternative” medicines if you really trust me to do so. This seems more plausible. I know Carson supports the ending of licensing for doctors so maybe he’ll have something to say about it.

The following is a short video of Friedman speaking to the Mayo Clinic about the idea:

Video courtesy of Will Wilkinson.

Naomi Klein, one of the anti-globalization movement’s favorite writer’s, has decided she will disaffiliate herself with UK Channel 4’s upcoming film rendition of her best-selling book The Shock Doctrine: The Rise of Disaster Capitalism. The Independent reports:

A source at Channel 4 said the [Klein] was so disappointed with [their] vision of her book – which she reportedly felt did not carefully lay out the thesis or explain the economics but instead made unproven assertions – that she sought to distance herself from the film after seeing the early cuts.

Sadly, for those of us who’d love to hear her voice narrate overdramatic and inaccurate juxtapositions of Milton Friedman quotes with dying children, we’ll have to stick to a short video she made before.

For those who don’t know, Klein’s book argues that liberalizations of markets are remarkably unpopular and come about only in times of crises. Among her many flaws, she uses Milton Friedman quotes horribly out of context and bases her entire book on the idea that free market ideology only succeeds when people are in a state of shock. One terrible inaccuracy, as many critics pointed out, was when she revised history by claiming Tiananmen Square showed students’ unwillingness to accept market reforms – when, in reality, the opposite is true.

I don’t think anyone would disagree that people, in a state of shock, accept some change that they wouldn’t otherwise. That was Friedman’s point. Where Klein goes berserk is by assuming that moves towards free trade or ending of price controls were never popular and came about only through undemocratic means. I have to hand it to her: of all the anti-globalization writers, Naomi Klein manages to be both the least insightful and most popular.

Tyler Cowen bashes the book here. Read Johan Norberg’s excellent rebuttal of Naomi Klein’s book here. Or, for a short teaser on his paper, check out this video:

The legendary man would have been 97 years old today.