Friday, April 10, 2009

Give Them Money

I came across this article from the Boston Globe about Milton Friedman the other day and it struck me as quite in line with my own thinking (h/t to James Wimberley for leading me to it). Milton Friedman, an icon of conservative economic thinking, proposed a "negative income tax", best described in the article.
His proposal, which he called the negative income tax, was to replace the multiplicity of existing welfare programs with a single cash transfer — say, $6,000 — to every citizen. A family of four with no market income would thus receive an annual payment from the I.R.S. of $24,000. For each dollar the family then earned, this payment would be reduced by some fraction — perhaps 50 percent. A family of four earning $12,000 a year, for example, would receive a net supplement of $18,000 (the initial $24,000 less the $6,000 tax on its earnings).

Given the state of conservative thinking on economics, both liberals and conservatives are likely to be amazed. How could this champion of capitalism and markets propose a "give away" such as this?

It is my opinion that this conundrum can be understood by realizing that it is modern conservatism that has abandoned capitalism and markets, not Milton Friedman. Consider the idea that the governments relation to the economy is not as some intrusive external thing that "interferes" with the real market, but rather is simply part of the economy. The government provides services, such as security, copyright protection, incorporation, secure air waves, etc. each of which have value. The government then collects money from those who use the services. This company of the US Government is owned and operated by shareholders who are the citizens. Each citizen owns one share, each share is a voting share and the shares are not transferable. In this view of things, all of which is consistent with market principals, Milton Friedman's scheme is no more than having the company pay out a dividend to its shareholders. Hardly an anti-capitalist idea.

The one distinction between a simple dividend and Friedman's idea though is that his plan is targeted only at the poor. However, recognize that most middle income and wealthy folks derive other dividend benefits from being citizens, from student loans for the middle class to very low prices for the Government services to the wealthy, so they do receive a dividend. Friedman's plan simply is a means of paying the dividend to the poorer citizens as well.

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