The news came across yesterday from Arts & Letters Daily that Milton Friedman had passed away (see the ALD post for links to the major newspapers). This is an email I wrote to some people I know:
One thing you might not find on any of these stories (correction - this was mentioned in the New York Times obituary, if not others) is that Friedman, who will be lionized by everyone as probably the best known free market economist of the 20th century, made one gigantic error which affects all of us to this very day.
A little known fact about Friedman is that in 1942, Friedman took a U.S. Treasury
post. In that position, he found himself as part of a committee charged with coming up with a tax policy which would help pay for America's massive war mobilization effort.
What Friedman's committee recommended was that Congress extend the income tax policy, which had up until that time been largely a tool of class warfare, and extend it to the masses of the American public. Up until that time the income tax, which had been passed in 1913 via Constitutional amendment, had usually affected only the top 5 or so percent of the American public. What that committee recommended was that the federal government start withholding income taxes on each and every paycheck from broad masses of the working and middle classes. This could be achieveable from an administration aspect because the Congress had already passed Social Security in the 1930's, ergo the federal government already had a system in place to keep track of everyone's income. All they had to do was extend the system that was already in place.
Needless to say, this recommendation was put into place and was awfully successful at what it was intended to do. The federal government's grip of the economy went from about 5 percent of GDP to 20 percent and has never gone down ever since. There was a brief rollback of money flowing into Washington after the war, but that ended in 1950 when Truman got America embroiled in Korea. America has remained in a semi-mobilized state of war since that time.
This endless river of money has also allowed successive Presidents and Congresses to divert ever greater sums of money towards an endless array of programs enacted to supposedly combat various social problems. For example, it is doubtful that we would be having the divisive battle over light rail (or any other kind of rail) if it weren't for the river of money flowing to Washington. This river of money has also been another source of divisiveness because of the fact that the federal government has used that money to roll the states over and over again into doing its bidding, arguably doing much to centralizing political power in Washington. How many times has the federal government told the states to do things or have their highway money taken away from them for example? Remember the issue of raising the drinking age in the 1980's? Many other examples abound.
Enough for now. Enjoy your day.
Posted by The Mighty Wizard at November 17, 2006 10:27 AM