Free to Choose Chapter 10: The Tide Is Turning

In one massive government building, employees spend their days trying to convince Americans to stop smoking. In another building, a few miles away, other employees spend their days spending taxpayer money to help farmers grow more tobacco. Both groups are hardworking. Both groups believe they are serving the public good. And both groups are paid with your money. That image – a government at war with itself – is where the Friedmans begin their final chapter. And it captures everything that has gone wrong.

This is post 15 in my Free to Choose retelling series.

The Mood Was Shifting

By the late 1970s, something was changing in the Western world. People were losing faith in big government. Not because of any single event. Because of decades of evidence.

In Britain, Margaret Thatcher won the 1979 election on a promise to reverse socialist policies that both Labour and Conservative governments had followed since World War II. In Sweden, the Social Democrats lost power for the first time in over forty years. In France, the government made a dramatic turn toward lifting price and wage controls. In the United States, a tax revolt swept the nation. California passed Proposition 13, and state after state adopted constitutional amendments to limit taxes.

The Friedmans saw this as more than a passing mood. The intellectual current that had pushed the West toward bigger government for most of the twentieth century – what they call the tide of Fabian socialism and New Deal liberalism – had finally crested. The question was not whether it would recede. The question was what would replace it. Would the next tide move toward freedom? Or toward something darker – total government control?

How Tides of Ideas Work

The Friedmans step back and explain how intellectual tides shape entire nations, often without anyone noticing.

Consider Japan and India. When Japan modernized in 1867, the prevailing wisdom in the world was Adam Smith’s: free trade, private enterprise, limited government. Japan’s leaders were not idealists about freedom. They wanted national power. But they adopted free-market policies because that was simply what modern countries did at the time. The result was extraordinary economic growth.

When India gained independence in the mid-twentieth century, its leaders were passionate about democracy and individual liberty. But by then, the prevailing wisdom had changed. Central planning and five-year plans were what modern countries did. India adopted those policies. The result was decades of stagnation and poverty.

The irony is sharp. Japan’s authoritarian leaders built an economy that lifted millions out of poverty because they followed the right ideas. India’s democratic leaders trapped millions in poverty because they followed the wrong ones. Both were simply swimming with the intellectual current of their era.

The same pattern shaped American history. The founders who wrote the Constitution in 1787 were steeped in ideas about limiting government power. Every clause, every amendment in the Bill of Rights, was designed to keep government small and decentralized. “Congress shall make no law” – those words appear again and again.

But by the early twentieth century, the intellectual tide had turned. Professors, journalists, and intellectuals had moved toward socialism. The Friedmans make a striking claim: the Socialist Party of America, which never won more than 6 percent of the presidential vote, was the most influential political party of the early 1900s. It could afford to stand on pure principle because it never had to win elections. And over time, both Democrats and Republicans adopted nearly every plank from the Socialist Party’s 1928 platform into law.

Once the climate of opinion shifted, even the Constitution could not hold back the growth of government. The words did not change. Their meaning did. Courts reinterpreted old limits into new permissions. As one legal scholar put it, the Supreme Court engaged in an “exercise of the amending power” under the guise of interpretation.

When People Stop Playing Along

Ideas shape policy. But at some point, policy runs into reality, and reality pushes back.

The Friedmans share stories of ordinary people who simply stopped cooperating with government overreach. Pat Brennan and her husband started a delivery service in Rochester, New York, competing with the U.S. Post Office. They offered faster delivery at lower cost. Their business thrived – until the Post Office took them to court and won. A law from the 1800s gave the government a monopoly on first-class mail.

Brennan was not a revolutionary. She was a small businesswoman who saw something absurd and tried to fix it. “People are deciding that their fates are their own,” she said, “and not up to somebody in Washington who has no interest in them whatsoever.”

In Britain, confiscatory taxes turned the entire country into what one observer called “a nation of fiddlers.” Small grocers bought goods through channels that left no paper trail. Company directors ran personal expenses through their businesses. The tax system was so widely seen as unfair that cheating became a social norm. Everyone helped everyone else do it.

In Sweden, the highest taxes in the Western world produced a quiet revolution. People worked less. They bartered services to avoid the tax man. A lawyer with a toothache would trade legal work for dental work – saving both parties from income tax. Barter is supposed to be a sign of a primitive economy. In Sweden, it became the sophisticated response to a government that took too much.

The pattern is consistent. When governments push too hard, people find ways around the rules. First comes resentment. Then creative avoidance. Then a general decline in respect for law itself. That last stage, the Friedmans warn, is the most dangerous.

The Invisible Hand of Politics

Why do government programs so often produce the opposite of what they promise? The Friedmans offer one of their sharpest ideas here: there is an invisible hand in politics, and it works in the exact opposite direction of Adam Smith’s invisible hand in economics.

In a free market, people pursuing their own self-interest are led to promote the general good – even without intending to. In politics, people who intend to promote the general good are led to serve special interests – even without meaning to.

The mechanics are simple. Take the merchant marine subsidy. It costs taxpayers about $600 million a year and benefits about 40,000 people in the shipping industry. That works out to $15,000 per person per year – a strong incentive to lobby hard for the program. But spread across 200 million Americans, the cost is about $3 per person. Nobody is going to organize a protest over three dollars. Nobody is going to vote against a congressman over it.

Multiply that logic across thousands of programs. Each special interest group fights hard for its small piece of the pie. The general public, which pays for all of it, has no way to fight back program by program. The cost of any single program is too small to notice. The total cost is enormous.

This is how a democracy ends up with a government that spends more than the majority wants. The majority does rule – but it is a strange kind of majority. It is a coalition of minorities, each getting its special deal in exchange for tolerating everyone else’s special deal. A congressman collects enough groups of 2 or 3 percent of voters, each passionate about one issue, and assembles a 51 percent majority. That is how legislation actually works.

The Iron Triangle

The Friedmans describe a self-reinforcing system with three sides.

First, the politicians. They need votes and campaign money. Supporting a special interest program costs them nothing politically because the general public barely notices.

Second, the bureaucracy. As government grows, so does the army of unelected officials who actually run things. A federal legislator cannot possibly read every law he votes on. He depends on staff, lobbyists, and fellow legislators. The real decisions are often made by people nobody elected. The bureaucracy becomes both the tool through which special interests get what they want and a powerful special interest in its own right.

Third, the beneficiaries. The 40,000 shipping workers. The farmers. The postal unions. Each group knows exactly what it stands to gain and fights fiercely to keep it.

This triangle is remarkably stable. Politicians, bureaucrats, and beneficiaries all have strong reasons to keep the system going. The only losers are ordinary taxpayers, who are too scattered and too busy to fight every battle.

The Friedmans add a dark observation. Success in business increasingly depends not on making better products, but on knowing the right people in Washington. A “revolving door” has developed between government and the private sector. A few years as a civil servant is now an apprenticeship for a lucrative business career – not because of the skills you learn, but because of the contacts you make and the inside knowledge you gain.

Friedman’s Proposed Cure: An Economic Bill of Rights

Fighting big government program by program is hopeless, the Friedmans argue. Cut one head off the hydra and two more grow back. Every special interest will defend its own program while agreeing that others should be cut.

The founders showed a better way: broad constitutional rules that limit government power across the board. The genius of the First Amendment is that it does not evaluate each case of free speech on its merits. It simply says “Congress shall make no law.” That package deal protects everyone because each of us cares more about our own freedom when we are in the minority than about restricting others when we are in the majority.

The Friedmans propose the same approach for economic freedom. Here are the amendments they sketch out:

A spending limit. Cap total government spending as a fraction of national income. Force special interests to compete with each other for a share of a fixed budget, instead of colluding to make the budget bigger. A legislator who can say “your cause is good, but which other program should we cut to pay for it?” is in a much stronger position than one who can only say “this will raise taxes a little.”

A flat tax. Replace the current income tax – with its high rates riddled with loopholes – with a single low rate (under 20 percent) applied to all income above a personal allowance. No deductions except business expenses. The Friedmans say this would actually raise more revenue than the existing system while being vastly simpler and fairer. Abolish the corporate income tax entirely, which they call a hidden tax that discourages investment.

Free trade. Extend to Congress the same prohibition that already applies to states: no tariffs on imports or exports. This sounds radical, but trying to repeal tariffs one by one is even more hopeless. A blanket rule lets all consumers unite against the special interests of individual industries.

No wage and price controls. Prices are information. Prices set in a free market are a form of free speech. Protect them the same way the First Amendment protects actual speech.

Sound money. Require the monetary base to grow between 3 and 5 percent per year. No more, no less. Take the printing press out of politicians’ hands.

Inflation protection. Index all government contracts, tax brackets, and bond values to inflation. Remove the government’s incentive to inflate by making sure inflation no longer quietly raises tax revenue.

The Friedmans are honest that these proposals are tentative. They need expert scrutiny. Some may be impractical. But the principle matters more than the details. The only way to beat concentrated special interests is with broad rules that protect everyone at once.

The Power of Ideas

The Friedmans end their book where they began – with the power of ideas. Tides of opinion move slowly. Adam Smith published The Wealth of Nations in 1776, and the policies he championed did not fully take hold until decades later. The Fabian socialists started writing in the 1880s, and their ideas did not reshape British policy until the twentieth century.

The same slow process, they believe, is working in the other direction. The intellectual case for big government has been eroding for years. Its supporters are on the defensive. Young people are no longer excited by New Deal liberalism. The ideas of Adam Smith – and yes, even Karl Marx – generate more energy than the cautious middle-ground policies that have dominated for half a century.

The two ideas at the heart of American life – human freedom and economic freedom – are still alive. We have been straying from them. We have convinced ourselves that it is safe to concentrate power in government hands, as long as the intentions are good. But good intentions and concentrated power are a dangerous combination. The greatest threat to human freedom, the Friedmans write, is the concentration of power, whether in the hands of government or anyone else.

The final sentence of the book is a statement of faith. We are still free to choose which way to go. That freedom itself is the reason for hope.

Key Takeaway

The Friedmans close their book with a call to action wrapped in cautious optimism. The tide of opinion that pushed the Western world toward bigger government for most of the twentieth century has crested. People are pushing back – in voting booths, in their daily behavior, in their growing refusal to cooperate with systems they see as unfair. But pushing back program by program is a losing game. The only lasting solution is broad constitutional rules that limit government power the way the First Amendment limits government speech. Ideas move slowly, but they move. And the idea that people should be free to choose how to live their own lives is not dead. It is waking up.

Book: Free to Choose by Milton and Rose Friedman | ISBN: 978-0-15-633460-0

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