1 00:00:06,29 --> 00:00:11,629 It gives me the great pleasure to present to you today Professor Milton Friedman. 2 00:00:26,559 --> 00:00:37,659 I want to talk today about the contrast between myths that are widely believed by the public 3 00:00:37,660 --> 00:00:44,660 at large, and what I regard as the reality, which typically contradicts those myths. 4 00:00:46,239 --> 00:00:54,218 As you are all aware, there has been a drastic shift in public attitudes and public opinions 5 00:00:54,230 --> 00:01:00,578 in the past fifty years or so with respect to the role of the individual on the one hand, 6 00:01:00,579 --> 00:01:05,349 and the role of government and collective institutions on the other. There has been 7 00:01:05,349 --> 00:01:12,350 a shift in the philosophy and attitudes of the public from a belief in individual responsibility, 8 00:01:13,520 --> 00:01:20,520 from a belief in a society in which the role of government was as an umpire, to a belief 9 00:01:21,79 --> 00:01:27,969 in a society in which the emphasis is on social responsibility, and the role of government 10 00:01:27,969 --> 00:01:36,298 as big brother and protector of the individual. As always when such shifts arise in public 11 00:01:36,299 --> 00:01:47,179 opinion, they are largely produced and reinforced by the development of myths about prior experience. 12 00:01:47,189 --> 00:01:54,189 Someone once wrote, and I'm not sure who it was, that a myth is like an air mattress: 13 00:01:55,429 --> 00:02:02,9 there's nothing in it but it's wonderfully comfortable, and deflation causes an uncomfortable 14 00:02:02,9 --> 00:02:13,229 jolt. Well my purpose today is to give you that jolt. When myths get established and 15 00:02:13,230 --> 00:02:21,119 are adopted they tend to be so strongly held, they tend to become so much a part of you, 16 00:02:21,120 --> 00:02:27,940 that when anyone comes along and differs with them and contradicts them, he risks automatically 17 00:02:27,940 --> 00:02:35,520 being dismissed as a crackpot. But I shall nonetheless take the risk of being dismissed 18 00:02:35,530 --> 00:02:42,959 as a crackpot because it seems to me so urgent that we deflate these myths, recognize what 19 00:02:42,959 --> 00:02:51,339 the reality is, in order to be able to provide a basis for a change in our philosophy, a 20 00:02:51,340 --> 00:02:57,720 reversal of the direction of our thought. In my opinion, if we do not do so, if we continue 21 00:02:57,720 --> 00:03:02,659 on the road we have been going, if we continue to rely more and more on government and less 22 00:03:02,659 --> 00:03:10,399 and less on the individual, we are condemned to a future of tyranny and misery. And therefore, 23 00:03:10,409 --> 00:03:15,149 it seems to me essential for the future of this country that we recognize these myths 24 00:03:15,150 --> 00:03:24,400 for what they are, and adjust our thinking to a correct perception of our present and 25 00:03:24,400 --> 00:03:25,970 our past. 26 00:03:25,970 --> 00:03:34,290 I am encouraged in this venture by another quotation, one which comes from a nineteenth-century 27 00:03:34,340 --> 00:03:41,180 American humorist by the name of Josh Billings who wrote somewhere, "It ain't what people 28 00:03:41,180 --> 00:03:48,290 know that causes trouble; it's what they know that ain't so." And that's what I am going 29 00:03:48,290 --> 00:03:52,590 to devote this talk to, to trying to tell you about some things you know that ain't 30 00:03:52,590 --> 00:03:59,670 so. I am going to try to cover five myths that are part of your thinking, and if they 31 00:03:59,670 --> 00:04:03,980 are not part of your thinking they will tend to become so after you take your first course 32 00:04:03,980 --> 00:04:07,659 in American history. 33 00:04:07,659 --> 00:04:13,899 The first of those myths is the robber baron myth, the myth that somehow or other in the 34 00:04:13,900 --> 00:04:20,899 nineteenth century there was an era of rugged unrestrained individualism in which heartless 35 00:04:21,160 --> 00:04:28,900 monopoly capitalists exploited the poor unmercifully and ground them beneath their heels. The second 36 00:04:28,900 --> 00:04:34,650 myth I am going to talk about is the Great Depression myth, the myth that the Great Depression 37 00:04:34,650 --> 00:04:41,210 from 1929 until the late '30s was produced by a failure of private enterprise. The third 38 00:04:41,210 --> 00:04:48,109 myth I want to talk about is the demand for government service myth, the myth that government 39 00:04:48,110 --> 00:04:54,000 has had to step in because of a failure of the private market and a great widespread 40 00:04:54,000 --> 00:05:01,280 demand for government services. The fourth myth I am going to talk about was suggested 41 00:05:01,280 --> 00:05:06,690 by Mr. Eccles in his introduction; it's the free lunch myth, the myth that there is such 42 00:05:06,690 --> 00:05:12,690 a thing as a free lunch. And the final myth I want to talk about is the Robin Hood myth, 43 00:05:12,690 --> 00:05:17,120 the myth that somehow or other government operates by taking money from the rich and 44 00:05:17,120 --> 00:05:20,810 giving it to the poor. 45 00:05:20,810 --> 00:05:26,819 Let me start with the first of those myths, the robber baron myth, the myth that the nineteenth 46 00:05:26,819 --> 00:05:31,560 century was a period in which the rich became richer and the poor poorer, that it was a 47 00:05:31,560 --> 00:05:38,419 century in which you had a conflict between Wall Street and the working man, that it was 48 00:05:38,419 --> 00:05:46,320 a period in which particularly the farmers of the Middle West were being ground beneath 49 00:05:46,320 --> 00:05:51,760 the rapacious activities of the Wall Street financiers, in which there was widespread 50 00:05:51,800 --> 00:05:59,750 farm distress and misery. This myth had its origins in the nineteenth century. It produced 51 00:05:59,760 --> 00:06:04,620 the widespread greenback movement that you will learn about in your history books, a 52 00:06:04,620 --> 00:06:11,930 party which at one time reached significant size, a party devoted to the idea that all 53 00:06:11,930 --> 00:06:16,729 of the problems of the time could be solved if only the government would print enough 54 00:06:16,729 --> 00:06:24,80 of those nice pieces of paper which are colored green on the back and which are called greenbacks. 55 00:06:24,80 --> 00:06:28,889 It was a period that also gave rise to the free silver movement; to William Jennings 56 00:06:28,889 --> 00:06:35,389 Bryan, the silver-tongued orator from North Platte if I remember rightly--from these areas, 57 00:06:35,389 --> 00:06:42,150 who gave his famous speech on the cross of gold in 1896 in Chicago at the Democratic 58 00:06:42,150 --> 00:06:48,508 Convention in which he asked whether mankind shall be crucified on a cross of gold, a speech 59 00:06:48,509 --> 00:06:53,680 which got him the presidential nomination of the Democratic Party. And he subsequently 60 00:06:53,680 --> 00:07:00,800 was the nominee of the Democratic Party for several subsequent elections, but fortunately 61 00:07:00,810 --> 00:07:03,520 was never elected. 62 00:07:03,520 --> 00:07:05,240 (laughter) 63 00:07:05,240 --> 00:07:13,150 That was the myth. What was the reality? The reality is that there is almost no period 64 00:07:13,150 --> 00:07:20,120 in human history which saw as rapid and widespread an increase in the well-being of the ordinary 65 00:07:20,120 --> 00:07:27,300 man as the nineteenth century. That was the period when millions of people from all over 66 00:07:27,300 --> 00:07:33,690 the world streamed to these shores. They came here with empty hands in the hope and the 67 00:07:33,690 --> 00:07:38,90 belief that they could make a better life for themselves and their children, and they 68 00:07:38,90 --> 00:07:45,530 succeeded. I suspect that most of the people in this room who are American residents and 69 00:07:45,550 --> 00:07:52,930 citizens today are descendants of the people who came to these shores in that period. I 70 00:07:52,930 --> 00:08:02,530 know, to take the immediate local case, the Eccles family derives from a Scotsman who 71 00:08:02,560 --> 00:08:08,160 came to this country in the middle of the nineteenth century. My parents came here in 72 00:08:08,169 --> 00:08:13,729 the 1890s from a part of Europe which is today part of the Soviet Union although at that 73 00:08:13,729 --> 00:08:18,409 time it was part of Hungary. And I suspect most of the people in this room have similar 74 00:08:18,409 --> 00:08:23,979 backgrounds. Now, do you suppose those people kept coming to these shores in order to be 75 00:08:23,979 --> 00:08:28,770 exploited? Do you think they came here to be ground under the heels of rapacious monopoly 76 00:08:28,770 --> 00:08:36,228 capitalists? Not a bit of it. A few people might have been led here under misapprehension. 77 00:08:36,229 --> 00:08:41,470 You conceivably could have had an initial inflow of people who thought they were going 78 00:08:41,470 --> 00:08:46,890 to improve their lot and ended up being worse off, but you would not have had a continuing 79 00:08:46,890 --> 00:08:53,20 inflow. They would not have sent back to the old country for their relatives and friends. 80 00:08:53,20 --> 00:08:57,689 You would not have had a flow of millions upon millions year after year. And of course 81 00:08:57,690 --> 00:09:02,380 they were not exploited; they were not ground under the heels. They got jobs, they spread 82 00:09:02,380 --> 00:09:08,70 out West--to the Middle West, to the Far West, to where we are now--and they made of what 83 00:09:08,70 --> 00:09:15,340 was a desolate country a country that was prosperous and green and productive, and improved 84 00:09:15,340 --> 00:09:17,820 their own lot. 85 00:09:17,820 --> 00:09:23,130 With respect to agriculture in particular, that was a period when the number of farmers 86 00:09:23,130 --> 00:09:31,100 increased. It was a period when the price of farm land rose. Now of course, then as 87 00:09:31,100 --> 00:09:37,340 now every farmer would have liked it better if he had done still better. What happened 88 00:09:37,340 --> 00:09:44,230 then, of course, was that the spread of farms, increasing productivity, the development of 89 00:09:44,230 --> 00:09:51,230 machinery, the bringing under the plow of productive land led to a great increase in 90 00:09:51,320 --> 00:09:57,160 production which led to a decline in the prices of farm products. So it's true, the prices 91 00:09:57,160 --> 00:10:03,569 of farm products went down. But that was a sign of success; it was not a sign of failure. 92 00:10:03,600 --> 00:10:10,560 And the evidence that it was a sign of success was the rise in the price of farm land. After 93 00:10:10,670 --> 00:10:17,189 all, if this decline in the price of products had been a sign of failure, if it had been 94 00:10:17,190 --> 00:10:22,640 an indication that the farmer was being ground under the heels of Wall Street, why would 95 00:10:22,640 --> 00:10:26,140 people have been willing to pay higher and higher prices for the land from which those 96 00:10:26,140 --> 00:10:33,569 crops were produced? So the actual story is one of great growth of productivity in agriculture, 97 00:10:33,570 --> 00:10:39,400 a great development of agriculture in this country. 98 00:10:39,400 --> 00:10:50,100 If we turn to the charge that that was a period of heartlessness, a period in which the rich 99 00:10:50,160 --> 00:10:57,959 were willing to say "Let the public be damned," as one man was quoted incorrectly as saying, 100 00:10:57,960 --> 00:11:02,990 if we turn to that charge, let me call to your attention that the nineteenth century, 101 00:11:02,990 --> 00:11:09,560 the period when we came the closest we've ever come to pure unrestrained individualism, 102 00:11:09,560 --> 00:11:15,599 a period when government spending- the spending of the federal government in Washington- amounted 103 00:11:15,600 --> 00:11:20,610 to less than 3 percent of the national income, when essentially you had no restrictions on 104 00:11:20,610 --> 00:11:26,150 immigration and few restrictions on economic activity, let me point out that that was also 105 00:11:26,150 --> 00:11:32,939 the period of the greatest flowering of charitable activity in the United States. That was the 106 00:11:32,940 --> 00:11:38,80 period when you had the establishment of many independent private schools and colleges around 107 00:11:38,80 --> 00:11:47,680 the country. It was a period when the private non-profit eleemosynary hospitals grew and 108 00:11:47,680 --> 00:11:52,689 sprouted in every city in the land. It was a period of the Carnegie libraries. It was 109 00:11:52,690 --> 00:11:57,380 a period of the founding of the Society for the Prevention of Cruelty to Animals. You 110 00:11:57,380 --> 00:12:03,240 name it and you will find that the charitable, eleemosynary activities date back to that 111 00:12:03,240 --> 00:12:06,250 period of the nineteenth century. 112 00:12:06,250 --> 00:12:14,990 So the robber baron myth is a myth, one that should be deflated. It gets its appeal from 113 00:12:14,990 --> 00:12:21,990 a common fallacy, from the fallacy that one man's gain must be another man's loss. Of 114 00:12:22,140 --> 00:12:27,250 course it is true that many men became wealthy during that period. There were robber barons, 115 00:12:27,250 --> 00:12:32,610 there always are robber barons. People are people. Some are good, some are bad, some 116 00:12:32,610 --> 00:12:39,560 are in between. And of course, some people did try to mistreat other people. That is 117 00:12:39,560 --> 00:12:48,199 part of the course of history unfortunately. But the main part of the story is that the 118 00:12:48,200 --> 00:12:53,630 process whereby some people became wealthy was also the process which opened up the country 119 00:12:53,630 --> 00:12:59,60 and provided opportunities for millions of other people to have a modest competence, 120 00:12:59,60 --> 00:13:04,859 to be able to improve their own lot. It was the robber barons who were instrumental in 121 00:13:04,860 --> 00:13:09,910 building the railroads that joined the country together, who were instrumental in developing 122 00:13:09,910 --> 00:13:15,50 the industries of this country, and in thereby providing the opportunities for the ordinary 123 00:13:15,50 --> 00:13:21,290 man to improve his lot in life. Everybody can benefit. You can have some people become 124 00:13:21,290 --> 00:13:28,990 wealthy not at the expense of other people, but by enabling other people to become wealthy. 125 00:13:28,990 --> 00:13:34,120 We had robber barons then and we have robber barons today, but there is a big difference 126 00:13:34,120 --> 00:13:40,370 between the robber barons then and the robber barons today. The robber barons then primarily 127 00:13:40,370 --> 00:13:45,860 could get money only if people freely gave it to them. They got their money by selling 128 00:13:45,860 --> 00:13:50,920 a service and nobody had to buy it, and if people bought it it was because it was a better 129 00:13:50,920 --> 00:13:57,120 service than it was before. The robber barons today are in large part able to get their 130 00:13:57,120 --> 00:14:02,620 money by sending a policeman to take the money out of your pocket. Now that's a figurative 131 00:14:02,620 --> 00:14:08,370 expression not a literal expression. But how do you become wealthy today? By getting government 132 00:14:08,370 --> 00:14:16,210 assistance. To mention only one very famous example, by getting government to assign you 133 00:14:16,230 --> 00:14:29,830 some TV licenses, or by getting any one of a large variety of other sources of government 134 00:14:29,840 --> 00:14:37,600 support. If you look at where modern wealth comes from, it almost always comes from political 135 00:14:37,610 --> 00:14:44,80 influence which enables you to get benefits at the expense of the public at large. Now 136 00:14:44,80 --> 00:14:50,260 that is a zero sum game. When the money is transferred from some to others through force 137 00:14:50,260 --> 00:14:56,540 and coercion of the taxpayer, then it need not be that the one man's benefit is also 138 00:14:56,540 --> 00:15:04,699 the other man's benefit. Then it can and often is that the party who gains- gains at the 139 00:15:04,760 --> 00:15:07,390 expense of the party who pays. 140 00:15:07,390 --> 00:15:12,630 So robber barons will always be with us. The crucial question is whether we have a form 141 00:15:12,630 --> 00:15:19,630 of economic organization in which one robber baron keeps the other robber baron in check, 142 00:15:19,910 --> 00:15:25,40 or whether we have a form of economic and political organization in which one robber 143 00:15:25,40 --> 00:15:28,949 baron can help the other robber baron- at the expense of the public. 144 00:15:28,950 --> 00:15:34,350 I want to turn to the second of these myths, the Great Depression myth. There is hardly 145 00:15:34,350 --> 00:15:39,540 any view that is more widespread than the view that somehow or other the Great Depression 146 00:15:39,540 --> 00:15:47,670 was produced by a failure of private business. That view is held not only by those who are 147 00:15:47,670 --> 00:15:52,510 in favor of a greater role of government, it is held by almost everybody. I venture 148 00:15:52,510 --> 00:15:56,790 to suggest that if you go to any bankers, the people who are here today at this banking 149 00:15:56,790 --> 00:16:04,390 conference- and if you talk to them, I venture to say that nine out of ten of them--if they 150 00:16:04,410 --> 00:16:12,870 hadn't heard what I'm going to say--would say, "Well of course the Great Depression 151 00:16:12,870 --> 00:16:17,940 was a failure of private business. It was due to an overextension, over speculation, 152 00:16:17,940 --> 00:16:25,420 in the 1920s, or it was due to excessive concentration of wealth in the hands of the wealthy at the 153 00:16:25,420 --> 00:16:31,640 expense of the poor in the 1920s, or it was due to speculative investment abroad, or what-not, 154 00:16:31,640 --> 00:16:37,240 but it was a failure of private business and government had to step in in order to rescue 155 00:16:37,240 --> 00:16:41,190 private business from its own failure." 156 00:16:41,190 --> 00:16:47,910 Nothing could be farther from the truth. The Great Depression was produced, in my opinion, 157 00:16:47,910 --> 00:16:53,719 and I may say this is not a random opinion; I will be glad to refer you to a several-hundred-page 158 00:16:53,720 --> 00:16:58,310 book in which it is documented; I won't tell you who the author is... 159 00:16:58,310 --> 00:17:01,689 (laughter) 160 00:17:01,690 --> 00:17:10,790 Mr. Eccles did that- the Great Depression was produced by a failure of government, by 161 00:17:10,790 --> 00:17:16,389 a failure of monetary policy. It was produced by a failure of the Federal Reserve System 162 00:17:16,390 --> 00:17:22,120 to act in accordance with the intentions of those who established it. It was produced 163 00:17:22,119 --> 00:17:28,489 by a failure of the Federal Reserve System, despite the presence of knowledge on the part 164 00:17:28,490 --> 00:17:34,280 of many of the people in the system about the right course of action. 165 00:17:34,280 --> 00:17:40,210 It is interesting to speculate for a moment about why this myth is so widespread. The 166 00:17:40,210 --> 00:17:47,650 answer is really very simple in this case: private enterprise has no press agents, the 167 00:17:47,670 --> 00:17:54,200 free market has no press agents, the government has a great many press agents. The Federal 168 00:17:54,200 --> 00:17:59,360 Reserve has a great many press agents, and the Federal Reserve of course would never 169 00:17:59,360 --> 00:18:05,909 admit, never proclaim, that it produced the Great Depression. On the contrary. And again, 170 00:18:05,910 --> 00:18:13,630 I don't mean to be criticizing individuals. We're talking about the way institutions operate. 171 00:18:13,630 --> 00:18:17,990 You and I are the same as all the rest of us; we're all the same. The hardest thing 172 00:18:17,990 --> 00:18:22,600 in the world is for anybody to admit that he made a mistake. If any one of us makes 173 00:18:22,600 --> 00:18:25,860 a mistake, we can always find somebody else to blame. 174 00:18:25,860 --> 00:18:33,520 And if you read, as I have for my sins had to read, the annual reports of the Federal 175 00:18:33,520 --> 00:18:40,320 Reserve System over a fifty-year period, there is only one element of humor that lightens 176 00:18:40,320 --> 00:18:49,270 that task. That is the cyclical fluctuation in the powers of the Federal Reserve. In a 177 00:18:49,270 --> 00:18:53,910 good year, when things are good, when the economy is booming, you will read that the 178 00:18:53,910 --> 00:19:01,980 Federal Reserve by its wise policy, by its efficacious management of money, has produced 179 00:19:01,980 --> 00:19:08,980 this fine situation. However, let things get bad and all of a sudden the tone of the annual 180 00:19:08,990 --> 00:19:15,370 report is different. Then you discover that despite the best efforts of the Federal Reserve, 181 00:19:15,370 --> 00:19:26,590 outside forces combined to produce difficulties. Even at the depth of the depression in 1933, 182 00:19:26,590 --> 00:19:33,490 when in the spring of that year the Federal Reserve System- which had been established 183 00:19:33,490 --> 00:19:38,770 in order to prevent banking panics and keep banks from closing, when the Federal Reserve 184 00:19:38,770 --> 00:19:46,450 System itself closed its doors and you had a banking holiday for seven days, and when 185 00:19:46,480 --> 00:19:52,290 over the previous three years a third of the banks of this country closed their doors and 186 00:19:52,290 --> 00:19:58,170 went broke because, in my opinion, of the poor policy followed by the Federal Reserve 187 00:19:58,170 --> 00:20:04,240 System. Even in 1933, if you read the annual report you will discover how much worse things 188 00:20:04,240 --> 00:20:10,280 would have been if the Federal Reserve hadn't behaved so well. Now as I say, I don't blame 189 00:20:10,280 --> 00:20:13,790 the members of the Federal Reserve for that; any one of us would do the same thing. We 190 00:20:13,790 --> 00:20:16,450 have to find somebody to blame. 191 00:20:16,450 --> 00:20:23,880 But as an objective scholar I can tell you what the facts are. The facts were that from 192 00:20:23,880 --> 00:20:32,410 1929 to 1933, the total quantity of money in the United States, the amount of currency, 193 00:20:32,410 --> 00:20:38,980 the amount of bank deposits, what Mr. Eccles referred to as M2--that total amount of money 194 00:20:38,980 --> 00:20:46,610 declined by one-third. The total number of banks went down by one-third. And why did 195 00:20:46,610 --> 00:20:51,500 the quantity of money decline? It declined because the Federal Reserve System failed 196 00:20:51,500 --> 00:20:56,300 to prevent the decline. The Federal Reserve System could have prevented the decline at 197 00:20:56,300 --> 00:21:01,639 all times. There never was a moment during that period when the Federal Reserve did not 198 00:21:01,640 --> 00:21:06,600 have the power to prevent the decline in the quantity of money. If it had prevented the 199 00:21:06,600 --> 00:21:11,230 decline in the quantity of money you might still have had a recession, but it would have 200 00:21:11,230 --> 00:21:16,400 been a garden variety recession. It would have been over in the middle of 1930 or early 201 00:21:16,400 --> 00:21:22,20 in 1931 at the latest. It would not have been a major catastrophe not only for this country 202 00:21:22,20 --> 00:21:29,20 but throughout the rest of the world. Moreover, this is not only hindsight. At all times the 203 00:21:34,140 --> 00:21:40,260 people at the Federal Reserve Bank of New York and at a number of other banks were pleading 204 00:21:40,260 --> 00:21:45,180 with the Federal Reserve Board in Washington to do the right thing. At all times there 205 00:21:45,180 --> 00:21:49,970 were people in Congress who were arguing that the Federal Reserve System should take a different 206 00:21:49,970 --> 00:21:56,970 course. At all times there were outside commentators. One of the Canadian banks was particularly 207 00:21:59,50 --> 00:22:04,700 prescient, but there were other commentators who were pointing out the disastrous effects 208 00:22:04,700 --> 00:22:09,220 on the American economy of the restrictive policies that the Federal Reserve System was 209 00:22:09,220 --> 00:22:15,950 following which were causing, permitting and facilitating a whole series of bank runs. 210 00:22:15,950 --> 00:22:22,20 So the Great Depression was not produced by a failure of business. On the contrary, it 211 00:22:22,20 --> 00:22:28,480 was produced by a failure of government, and a failure of government in an area in which 212 00:22:28,480 --> 00:22:33,950 responsibility had been assigned to government since the founding of this country. The Constitution 213 00:22:33,950 --> 00:22:40,950 of the United States gives Congress the power to coin money and set the value thereof, and 214 00:22:41,530 --> 00:22:46,889 it was in the management of this fundamental function of government that government failed 215 00:22:46,890 --> 00:22:48,780 and produced the Great Depression. 216 00:22:48,780 --> 00:22:55,60 We have learned from that failure. The Federal Reserve will not fail in the same way again. 217 00:22:55,60 --> 00:22:59,60 This time it will fail in a different way. 218 00:22:59,60 --> 00:23:01,490 (laughter) 219 00:23:01,490 --> 00:23:08,470 This time it has been failing not by producing a great depression but by producing an inflation 220 00:23:08,470 --> 00:23:14,60 because just as you will hear the story that it was business that was responsible for the 221 00:23:14,60 --> 00:23:19,620 depression, so you will today hear the story that it is labor and management that are responsible 222 00:23:19,620 --> 00:23:25,929 for inflation. It is the same kind of myth. Inflation is made in one place and one place 223 00:23:25,930 --> 00:23:32,930 only, Washington, D.C. And in Washington, D.C. the chief immediate source of inflation 224 00:23:33,760 --> 00:23:40,760 is the Greek temple on Constitution Avenue which houses the Federal Reserve Board. A 225 00:23:42,460 --> 00:23:48,890 major accomplice of course sits in the halls of Congress in Washington. They are a major 226 00:23:48,890 --> 00:23:54,420 accomplice because you tell them to be. The American people have been telling Congress 227 00:23:54,420 --> 00:24:00,130 for many years, "Spend more money on us, please," but they have been telling Congress, "Don't 228 00:24:00,130 --> 00:24:05,710 raise our taxes." Congress has been listening. It's been spending more money on you, but 229 00:24:05,710 --> 00:24:11,480 on the other hand it's been very unwilling to raise taxes. As a result, it has imposed 230 00:24:11,480 --> 00:24:18,480 inflation as a tax. That's one tax that you don't have to vote for but you have to pay. 231 00:24:19,260 --> 00:24:26,129 Let me turn to the third of the myths I want to cover. This is the myth closely related 232 00:24:26,130 --> 00:24:33,130 to the Great Depression myth. It is the myth that somehow or other the private market has 233 00:24:34,200 --> 00:24:41,200 failed to provide certain important services and the government has had to step in in response 234 00:24:43,140 --> 00:24:48,460 to an overwhelming public demand in order to provide those services. 235 00:24:48,460 --> 00:24:53,940 The reality is very different. The reality is that if you look at every program that 236 00:24:53,940 --> 00:25:00,90 the government has adopted in the direction of extending its scope, it took an enormous 237 00:25:00,90 --> 00:25:07,90 propaganda campaign by special propaganda groups to get those measures passed. There 238 00:25:07,309 --> 00:25:13,80 was no underlying public demand for those measures. On the contrary, the demand had 239 00:25:13,80 --> 00:25:18,679 to be created, it had to be developed, it had to be produced, and it was created, it 240 00:25:18,680 --> 00:25:24,750 was developed, it was produced by people who sincerely- I'm not questioning their sincerity- 241 00:25:24,750 --> 00:25:28,750 who sincerely want to see an expansion in the scope of government. 242 00:25:28,750 --> 00:25:35,360 Let me take some of the most prominent examples. Let me take the example which today is the 243 00:25:35,360 --> 00:25:42,110 greatest sacred cow of them all, Social Security. Was there an overwhelming demand for Social 244 00:25:42,110 --> 00:25:47,899 Security in the 1930s when the law was adopted? Far from it. There was no public demand for 245 00:25:47,900 --> 00:25:55,840 it. It had to be sold. How was it sold? By the slickest devices of Madison Avenue, by 246 00:25:55,840 --> 00:26:03,270 imaginative packaging and deceptive labeling. Social Security was sold as an insurance scheme. 247 00:26:03,270 --> 00:26:07,710 It is not an insurance scheme. There is very little relationship between the amount of 248 00:26:07,710 --> 00:26:13,450 money any one individual pays and the amount of money he is entitled to receive. Social 249 00:26:13,450 --> 00:26:21,290 Security is a combination of a bad tax system with a bad way of distributing welfare. It's 250 00:26:21,290 --> 00:26:27,510 got two components and I have never known anybody, whatever his political or other persuasion, 251 00:26:27,510 --> 00:26:34,80 who would defend either component separately. If you look at the tax system, who can defend 252 00:26:34,80 --> 00:26:43,000 a wage tax, a tax on wages up to a maximum, a tax on work, a tax which discourages employers 253 00:26:43,000 --> 00:26:49,300 from hiring people and discourages people from going to work, and a tax which is borne 254 00:26:49,300 --> 00:26:59,570 by the lowest wage groups. It's a regressive tax. You could never- in a million Sundays 255 00:26:59,570 --> 00:27:07,120 you could never have gotten such a tax passed as a tax. Look at the benefit arrangements. 256 00:27:07,120 --> 00:27:13,340 Here you have an arrangement under which the amount of money a person receives does not 257 00:27:13,340 --> 00:27:18,370 depend on his poverty or his indigence; it depends on the accident of what industry he 258 00:27:18,370 --> 00:27:26,290 worked in. If he happened to work in a covered industry, he gets a benefit. If he happened 259 00:27:26,340 --> 00:27:33,250 to work in a non-covered industry, he doesn't. If he has only worked a certain number of 260 00:27:33,250 --> 00:27:42,50 quarters and not more, no matter how indigent he is, he doesn't get anything. If he is sixty-five 261 00:27:42,110 --> 00:27:47,899 and he decides to continue to work, earning more than a modest amount per year, not only 262 00:27:47,900 --> 00:27:53,370 doesn't he get a benefit but, to add insult to injury, he has to pay taxes on the wages 263 00:27:53,370 --> 00:27:59,928 he is receiving in order to finance the benefit he is not receiving. 264 00:27:59,929 --> 00:28:02,809 (laughter) 265 00:28:02,809 --> 00:28:09,520 If a man who is sixty-five years old has a million dollars in income from property and 266 00:28:09,520 --> 00:28:16,350 doesn't work, he gets his full Social Security benefit tax free. If the same man goes to 267 00:28:16,350 --> 00:28:21,510 work and earns $20,000 a year, he is in the position I just described- he doesn't get 268 00:28:21,510 --> 00:28:26,640 any benefits. Is there anybody who would justify that system of distributing benefits? And 269 00:28:26,640 --> 00:28:34,720 I could go on to all the difficulties with it. I've only touched the surface. 270 00:28:34,840 --> 00:28:42,928 Note the misleading language. The Social Security system consistently refers to the taxes you 271 00:28:42,929 --> 00:28:49,679 pay as a "contribution." Now tell me, do you regard taxes as contributions? 272 00:28:49,679 --> 00:28:50,980 (laughter) 273 00:28:50,980 --> 00:28:56,130 The word "contribution" denotes voluntary arrangements. If you buy an insurance program 274 00:28:56,130 --> 00:29:01,610 you are contributing freely. If you contribute to the United Way freely, you are contributing 275 00:29:01,610 --> 00:29:07,790 freely. But if you pay taxes on your wages as a condition for being employed, that's 276 00:29:07,790 --> 00:29:14,500 a tax; that's not a contribution. Again, it always refers to the payments people get as 277 00:29:14,500 --> 00:29:21,160 "benefits." They are not benefits; they are subsidies. What you have is a system of subsidizing 278 00:29:21,160 --> 00:29:23,760 people on the one hand- and of taxing them... 279 00:29:23,760 --> 00:29:27,610 What about the claim that it is insurance, that there is a relationship between the two? 280 00:29:27,610 --> 00:29:33,928 Well, there is a minor relationship. It is true that, on the whole, those people who 281 00:29:33,929 --> 00:29:41,660 pay more will receive more, other things the same, but every student of the subject has 282 00:29:41,660 --> 00:29:47,420 pointed out that the relationship is very small, that most payments are independent 283 00:29:47,420 --> 00:29:53,380 of most receipts. Moreover, what you really have is not a system under which people are 284 00:29:53,380 --> 00:29:58,820 providing for their own security as the Social Security system will say it, as they describe 285 00:29:58,820 --> 00:30:03,990 it. In their pamphlets they describe it as a way in which 90 percent of American workers 286 00:30:03,990 --> 00:30:09,250 are providing for their own future. That's nonsense. What people today are doing is paying 287 00:30:09,250 --> 00:30:15,630 taxes today to pay the subsidies to the people who are receiving benefits today. What you 288 00:30:15,630 --> 00:30:21,410 have is a system of taxing the young, at any point in time, to subsidize the old. Now, 289 00:30:21,410 --> 00:30:25,750 there may be nothing wrong with that. For the moment I am not discussing that issue. 290 00:30:25,750 --> 00:30:31,250 I am discussing whether Social Security was a response to a broad scale public demand, 291 00:30:31,250 --> 00:30:37,760 or whether it had to be sold to the people by the worst devices of Madison Avenue, and 292 00:30:37,760 --> 00:30:42,260 the answer is it clearly was the latter. What you have is a system under which people today 293 00:30:42,260 --> 00:30:51,60 are being taxed to pay benefits today to the people who are receiving them. So far, those 294 00:30:51,70 --> 00:30:56,500 people who have been receiving payments have received much more than the actuarial value 295 00:30:56,500 --> 00:31:01,490 of what they paid. That's because you've had a growing working force, you've had higher 296 00:31:01,490 --> 00:31:08,490 wages being paid- the wage tax had gone up very sharply. But the number of recipients 297 00:31:11,100 --> 00:31:15,770 is growing relative to the number of people paying and that's why Social Security is currently 298 00:31:15,770 --> 00:31:22,340 in so much financial trouble. That's why the so-called reserve, which is not a reserve 299 00:31:22,340 --> 00:31:29,230 at all, the so-called reserve has been getting smaller and smaller, and that's why you have 300 00:31:29,230 --> 00:31:34,660 all the agitation for Congress to do something to make Social Security again financially 301 00:31:34,660 --> 00:31:39,640 responsible. Again, for the moment, I am not discussing whether Social Security or the 302 00:31:39,640 --> 00:31:45,740 separate parts are good or bad, but only whether it can be regarded as a program adopted in 303 00:31:45,740 --> 00:31:48,260 response to a great public demand. 304 00:31:48,260 --> 00:31:53,260 Let me take another more recent movement. Consider the imposition on you and me and 305 00:31:53,260 --> 00:32:00,260 on our automobiles of all sorts of safety equipment-so-called safety equipment. Nothing 306 00:32:00,820 --> 00:32:06,580 to prevent us individually from buying it, but now we are required to buy it by government. 307 00:32:06,580 --> 00:32:12,730 Why? Was there a great public demand? Not at all, there was a man named Ralph Nader. 308 00:32:12,730 --> 00:32:18,450 Now, maybe he arose in response to a public demand, but if so it was a public demand for 309 00:32:18,450 --> 00:32:22,370 entertainment, not for safety. 310 00:32:22,370 --> 00:32:24,889 (laughter) 311 00:32:24,890 --> 00:32:30,830 But Ralph Nader launched a major propaganda campaign, and as a result of this propaganda 312 00:32:30,830 --> 00:32:37,830 campaign, as a result of a great selling effort also characterized by misrepresentation-as 313 00:32:38,520 --> 00:32:46,960 you know, his original weapon was a book Unsafe at Any Price, which damned the Corvair as 314 00:32:46,960 --> 00:32:53,840 being an unsafe and knowingly unsafe car. Later studies have demonstrated that his claim 315 00:32:53,840 --> 00:32:59,490 was not justified, but that did not prevent it from having its effect. It did not prevent 316 00:32:59,490 --> 00:33:01,760 it from adopting it. 317 00:33:01,760 --> 00:33:05,980 But, the extent to which this did not result from a great public clamor can be shown by 318 00:33:05,980 --> 00:33:16,60 what has happened whenever the agency that was established to administer auto safety 319 00:33:16,100 --> 00:33:22,230 regulations has overstepped its bounds. You will recall that a few years ago, it tried 320 00:33:22,230 --> 00:33:27,179 to impose the requirement of an interlock, that no car could be started unless the seat 321 00:33:27,179 --> 00:33:32,750 belts were fastened. And that produced such a great public outcry that Congress stepped 322 00:33:32,750 --> 00:33:39,750 in and it had to be rescinded. You are now having a similar kind of a controversy about 323 00:33:39,809 --> 00:33:40,970 the airbag. 324 00:33:40,970 --> 00:33:47,960 Or again, let me take a very different example, one which has not yet emerged fortunately, 325 00:33:47,960 --> 00:33:52,799 the drive for national health insurance. Is there a widespread drive for national health 326 00:33:52,799 --> 00:33:59,230 insurance? Not so you can notice it. Indeed, the proponents of it have been trying to get 327 00:33:59,230 --> 00:34:04,710 it passed year after year, and so far they haven't gotten it passed. As I say, fortunately, 328 00:34:04,710 --> 00:34:09,569 because if so-called national health insurance were passed it would bear as little relationship 329 00:34:09,569 --> 00:34:14,119 to insurance as Social Security does. It's not a program for national health insurance 330 00:34:14,119 --> 00:34:22,759 at all. It's a program for socialized medicine. It's a program for making physicians government 331 00:34:22,760 --> 00:34:29,619 employees. It's a program for creating long waiting lines and inferior medical service, 332 00:34:29,619 --> 00:34:36,240 but that isn't the way it's labeled. The pressure for it is having to be created and built up 333 00:34:36,239 --> 00:34:37,368 by propaganda. 334 00:34:37,369 --> 00:34:43,780 Or again, let me take another modern version. Has the FDA's ban on saccharin been in response 335 00:34:43,780 --> 00:34:48,490 to a great public outcry for it? 336 00:34:48,489 --> 00:34:55,810 Let me turn to the fourth of my myths, the free lunch myth; the belief that somehow or 337 00:34:55,810 --> 00:35:03,960 other government can spend money at nobody's expense. I don't know how many of you have 338 00:35:03,960 --> 00:35:08,980 ever heard of a wonderful description of government that was made by a French economist by the 339 00:35:08,980 --> 00:35:16,420 name of Frédéric Bastiat about 150 years ago. He said government is that fiction whereby 340 00:35:16,530 --> 00:35:23,330 everybody believes that he can live at the expense of everybody else. And that is the 341 00:35:23,390 --> 00:35:31,618 free lunch myth, the myth that somehow or other government can provide goods and services- 342 00:35:31,619 --> 00:35:39,920 can spend money at nobody's expense. Now, the particular form which that myth takes 343 00:35:39,920 --> 00:35:47,200 is very specific. It has two parts. One part is the belief that somehow or other you can 344 00:35:47,230 --> 00:35:54,230 tax business without consumers or workers or individuals paying for it. Somehow business 345 00:35:54,600 --> 00:36:03,89 is a big cornucopia out there that can be taxed at no cost. And the other form the myth 346 00:36:03,90 --> 00:36:08,170 takes is that you can create money at no cost, that if you turn the printing press, if you 347 00:36:08,170 --> 00:36:12,770 produce those greenbacks, that will enable people to become richer with nobody becoming 348 00:36:12,770 --> 00:36:13,560 poorer. 349 00:36:13,560 --> 00:36:20,290 Well, let me look at the first problem. Can you tax business? What's business? There is 350 00:36:20,290 --> 00:36:28,450 no business to be taxed. There are people. Only people can pay taxes. Can I tax this 351 00:36:28,630 --> 00:36:35,380 floor? Can I tax the building? The building can't pay taxes. Only people can pay taxes. 352 00:36:35,380 --> 00:36:42,109 So when you talk about a tax on business it has to be paid by somebody. Either it's paid 353 00:36:42,109 --> 00:36:48,500 by the stockholder or it's paid by the customer or it's paid by the worker. There is no other 354 00:36:48,500 --> 00:36:57,380 way it can come from. There is no Santa Claus, no tooth fairy... 355 00:36:57,400 --> 00:36:58,640 (laughter) 356 00:36:58,640 --> 00:37:04,000 ...that's going to provide a source by which the government can spend money that doesn't 357 00:37:04,000 --> 00:37:11,760 come from somebody. Somebody has to pay and yet over and over again you hear the claim, 358 00:37:11,760 --> 00:37:18,80 "Oh, we must not increase taxes on individuals; we'll increase taxes on business." 359 00:37:18,80 --> 00:37:24,509 In connection with the current discussion of Social Security, this fiction arises. There 360 00:37:24,510 --> 00:37:30,700 is the fiction that the Social Security tax is half on the individual and half on the 361 00:37:30,700 --> 00:37:40,560 employer, that the individual only pays 5.75 percent and the employer pays an equal amount. 362 00:37:40,560 --> 00:37:46,799 That's nonsense. That's bookkeeping, that's not economics, that's not reality. The part 363 00:37:46,840 --> 00:37:52,359 that the employer pays is part of his wage cost. If an employer considers whether it 364 00:37:52,359 --> 00:37:59,49 is worth his while to hire an additional worker, he has to consider as part of his cost not 365 00:37:59,50 --> 00:38:05,210 only what he pays to the worker but also the extra taxes he will have to pay to the government. 366 00:38:05,210 --> 00:38:10,369 It makes no difference to the employer at all if he pays the worker a bigger check, 367 00:38:10,369 --> 00:38:14,590 and the worker pays a larger part of that directly to the government, or he pays the 368 00:38:14,590 --> 00:38:20,240 worker a smaller check but in addition has to send a check to Washington. What matters 369 00:38:20,240 --> 00:38:26,29 to him is the total number of dollars it costs him to hire an additional person. So the fact 370 00:38:26,30 --> 00:38:34,670 is, the logic is, the reason is that the so-called tax on the employer is paid by the employee. 371 00:38:34,790 --> 00:38:41,609 Now, this has always been clear from economic reasoning... general economic reasoning, but 372 00:38:41,609 --> 00:38:52,569 it has also been subjected to empirical tests. In a book even from that temple of belief 373 00:38:52,600 --> 00:38:59,230 in greater and bigger government, the Brookings Institution in Washington, published a couple 374 00:38:59,230 --> 00:39:06,430 of years ago, demonstrated empirically that the tax on the employer was really paid by 375 00:39:06,660 --> 00:39:10,970 the employee, that it was shifted to the employee. And it can't be any other way, as you will 376 00:39:10,970 --> 00:39:17,819 see if you think about it. So business doesn't pay that tax and yet, despite this, you have 377 00:39:17,820 --> 00:39:24,750 the great move in Congress right now in remedying the problem of Social Security to impose a 378 00:39:24,750 --> 00:39:30,350 larger fraction of the tax on business, on the alleged grounds that somehow or other 379 00:39:30,350 --> 00:39:35,89 that spares the worker. It doesn't have any such effect. It reduces the incentive to hire 380 00:39:35,90 --> 00:39:39,730 people and thus is imposed on the worker. 381 00:39:39,730 --> 00:39:46,730 Again, if you look at the taxing of corporate profits, the distinction you have to draw 382 00:39:47,119 --> 00:39:53,970 is between who writes the check and who fundamentally bears the cost. It may well be that an official 383 00:39:53,970 --> 00:40:01,339 of a corporation writes the check for the tax on profits- so-called profits. He writes 384 00:40:01,340 --> 00:40:07,750 the check, but who pays it? He doesn't pay it. Here is the poor fellow who may be earning 385 00:40:07,750 --> 00:40:13,260 a modest competence, he may be writing a check for ten million dollars, that isn't coming 386 00:40:13,260 --> 00:40:19,930 out of his hide. Where is that ten million dollars coming from? It has to come from the 387 00:40:19,930 --> 00:40:25,750 proceeds of the goods and services which the enterprise sells, and that ten million dollars 388 00:40:25,750 --> 00:40:32,750 is ten million dollars less available either for cutting prices or for paying out dividends 389 00:40:33,70 --> 00:40:39,290 or for paying wages and salaries. The tax is borne by people. And for this reason, I 390 00:40:39,290 --> 00:40:45,349 must say I have always myself been strongly in favor of eliminating altogether the tax 391 00:40:45,349 --> 00:40:51,530 on corporations so it is open and above board that you are taxing people and that you do 392 00:40:51,530 --> 00:40:55,540 not conceal that fact by appearing to tax corporations. 393 00:40:55,540 --> 00:41:01,369 Well again- with respect to money, can you print money at no cost? It's very cheap to 394 00:41:01,369 --> 00:41:08,40 turn out those pieces of paper, but does that get society something for nothing? Not at 395 00:41:08,40 --> 00:41:14,210 all, it's simply a different form of taxation. If you print money, people have more money 396 00:41:14,210 --> 00:41:22,50 to spend. If they spend more money on the same amount of goods, prices go up, and in 397 00:41:22,150 --> 00:41:27,880 effect, everybody is paying a tax through inflation. Once again, it is only a form of 398 00:41:27,880 --> 00:41:29,180 taxation. 399 00:41:29,180 --> 00:41:35,339 Let me turn to my final myth because it is in some ways the most pervasive, the most 400 00:41:35,340 --> 00:41:42,150 dangerous, and the most deep-seated. That is the Robin Hood myth, the myth that government 401 00:41:42,150 --> 00:41:51,910 has benefited the poor at the expense of the rich. That's the myth. Those are the terms 402 00:41:52,30 --> 00:41:54,609 on which many a governmental program is sold. 403 00:41:54,609 --> 00:42:02,210 What is the reality? The reality has been described in an article in the Journal of 404 00:42:02,210 --> 00:42:09,60 Law and Economics by my colleague George Stigler under the title of "Director's Law." And Director 405 00:42:09,60 --> 00:42:14,450 is the name of Aaron Director who was a professor at the University of Chicago Law School, and 406 00:42:14,450 --> 00:42:16,180 I might also say my brother-in-law. 407 00:42:16,180 --> 00:42:21,580 (laughter) 408 00:42:21,580 --> 00:42:29,900 Director's Law is that almost invariably government programs benefit the middle-income class at 409 00:42:29,920 --> 00:42:39,820 the expense of the very poor and the very rich. Now that may seem to you strange, but 410 00:42:39,820 --> 00:42:46,820 let me first explain why it makes logical sense and second give you some empirical evidence 411 00:42:46,910 --> 00:42:56,190 starting right here at home with higher education and the state financing of higher education. 412 00:42:56,190 --> 00:43:05,119 On the logical level, you have a political system under which laws are passed by 51 percent 413 00:43:05,119 --> 00:43:10,900 of the people voting one way against 49 percent of the people. Now, the way to get a law passed, 414 00:43:10,900 --> 00:43:16,380 therefore, is to form a coalition covering 51 percent of the people. You might think 415 00:43:16,380 --> 00:43:21,780 that you would take the bottom 51 percent versus the top 49 percent, but the more you 416 00:43:21,780 --> 00:43:25,190 think about it, the more you realize that that's not a very effective way to form a 417 00:43:25,190 --> 00:43:33,590 coalition. Why? Because those people who are at the bottom tend to be much less skillful 418 00:43:33,810 --> 00:43:39,109 in political activity for the very reasons that leave them at the bottom in the economic 419 00:43:39,109 --> 00:43:43,590 scale. They are at the bottom in the economic scale because they have low skills or low 420 00:43:43,590 --> 00:43:48,420 abilities or low entrepreneurial capacity, or have been unfortunate to have been born 421 00:43:48,420 --> 00:43:53,740 handicapped or in groups that are discriminated against. But those same features make them 422 00:43:53,740 --> 00:43:58,330 relatively less effective in political activity. Who are the most effective people in political 423 00:43:58,330 --> 00:44:04,869 activity? Those of us in the middle classes. We are the people who are literate, we are 424 00:44:04,869 --> 00:44:08,310 the people who write for the newspapers, we are the people who mount the hustings, we 425 00:44:08,310 --> 00:44:13,650 are the people who provide the candidates. Well you might say, why doesn't the coalition 426 00:44:13,650 --> 00:44:21,20 come from the top all the way down 51 percent? Well, the answer is that gee, those people 427 00:44:21,20 --> 00:44:25,800 at the top-that's a place we can get a lot of money from, and it's worth sacrificing 428 00:44:25,800 --> 00:44:32,90 a few votes to get a large fraction of a tax base. And therefore the logically most reasonable 429 00:44:32,90 --> 00:44:37,940 coalition is sort of 51 percent of the people, running from the lower middle class through 430 00:44:37,940 --> 00:44:42,240 the upper middle class and leaving out the very rich at the top and the very poor at 431 00:44:42,240 --> 00:44:47,80 the bottom. Now, it doesn't always work that way. Sometimes the very rich are able to use 432 00:44:47,80 --> 00:44:52,930 their money to get an effective coalition, but most of the time that's the way it works. 433 00:44:52,930 --> 00:45:01,89 Now, let me illustrate in the real world. One of my favorite examples is state finance 434 00:45:01,140 --> 00:45:09,750 of higher education. This is always sold on the ground of providing opportunities to everybody 435 00:45:09,750 --> 00:45:17,270 in the society to get an education, but what are the facts? I doubt that there is any program 436 00:45:17,290 --> 00:45:25,420 financed by government in the United States which is as regressive in its financial impact 437 00:45:25,420 --> 00:45:30,200 as the financing of higher schooling. Who are the people who go to school? Who are the 438 00:45:30,200 --> 00:45:38,40 people who are attending this university? Mostly people who come from middle, upper-middle 439 00:45:38,50 --> 00:45:45,810 or lower-middle income class families. If there are a few among you who come from lower-income 440 00:45:45,840 --> 00:45:51,660 families, you are going to be among the middle and upper-income classes; you are the richer 441 00:45:51,660 --> 00:45:57,80 among the poor. They are the people who go to school; they are the people who get the 442 00:45:57,80 --> 00:46:02,90 benefit from it. Your training here will enable you to get higher incomes than you otherwise 443 00:46:02,90 --> 00:46:08,170 could. Who pays for it? Well you pay for it, and your family and friends pay for it but 444 00:46:08,170 --> 00:46:13,680 not through tuition. I am told your tuition covers about 15 percent of the cost of your 445 00:46:13,680 --> 00:46:21,230 schooling. The taxpayers pay for it, including the people who don't go to school. Some years 446 00:46:21,230 --> 00:46:28,170 ago, there was a study made for the state of California which showed that 50 percent 447 00:46:28,170 --> 00:46:32,800 of the students at state-supported institutions of higher education came from the top 25 percent 448 00:46:32,800 --> 00:46:40,720 of the income class and 5 percent came from the bottom 25 percent of the income class. 449 00:46:40,720 --> 00:46:46,520 This is a program- when I talk in California and want to be demagogic, I say it's a program 450 00:46:46,520 --> 00:46:52,160 to impose taxes on the people in Watts to send the children from Beverly Hills to college. 451 00:46:52,160 --> 00:46:59,140 Now, you here in Utah know better what the local equivalents of that are. Now, I'm not 452 00:46:59,140 --> 00:47:05,150 blaming you as individuals. I couldn't do that because I myself am a beneficiary of 453 00:47:05,150 --> 00:47:11,130 state-supported higher education. I went through a school that has since become a state university, 454 00:47:11,130 --> 00:47:16,770 Rutgers University in the state of New Jersey, on a state scholarship. Now, I think I benefited 455 00:47:16,770 --> 00:47:22,599 from going to the university and I think maybe even the country at large did, although I 456 00:47:22,599 --> 00:47:25,940 know there are many people who disagree with that. 457 00:47:25,940 --> 00:47:27,580 (laughter) 458 00:47:27,580 --> 00:47:32,40 But there's no reason why I shouldn't have paid for it. What did the poor citizens in 459 00:47:32,40 --> 00:47:36,630 New Jersey get? The day I graduated from college I left New Jersey and I've hardly ever been 460 00:47:36,630 --> 00:47:39,700 back since. 461 00:47:39,700 --> 00:47:41,939 (laughter) 462 00:47:41,940 --> 00:47:46,290 There is a strong case to be made that everybody who wants to go to universities should have 463 00:47:46,290 --> 00:47:52,540 an opportunity to do so, provided he is willing to pay for it- not necessarily right now. 464 00:47:52,540 --> 00:47:57,160 It is highly desirable to have arrangements under which he could borrow now to pay it 465 00:47:57,160 --> 00:48:03,830 back later out of the higher income that his education will make possible. But there is 466 00:48:03,830 --> 00:48:11,930 no justification for imposing taxes on lower-income people to finance the schooling of people 467 00:48:11,930 --> 00:48:17,970 who are or will be in the higher-income groups. And yet, how much political movement is there 468 00:48:17,970 --> 00:48:27,410 to impose full cost tuition on colleges? There is nobody who would have a ghost of a chance 469 00:48:27,480 --> 00:48:34,420 of being elected to a legislature or to the state house on that program. It's the hardest 470 00:48:34,420 --> 00:48:39,910 thing in the world legislatively to get higher tuitions imposed. Why? Because the middle 471 00:48:39,910 --> 00:48:44,649 class looks after itself, because of Director's Law. 472 00:48:44,650 --> 00:48:51,000 Now, what's true of higher education is true in every other area. Consider Social Security. 473 00:48:51,000 --> 00:48:56,609 Now Social Security is also sold as a program to benefit the poor. What are the facts? Social 474 00:48:56,609 --> 00:49:02,980 Security is a program which imposes unduly heavy taxes on the lower-income groups in 475 00:49:02,980 --> 00:49:11,60 the society to provide higher benefits to upper-income groups in the society. How does 476 00:49:11,80 --> 00:49:15,619 it work? It's not because of the regressive nature of the wage tax. It's not because of 477 00:49:15,619 --> 00:49:21,990 the structure of benefits. It's because of a very simple phenomenon. At what age do younger 478 00:49:21,990 --> 00:49:28,279 men from the lower classes go to work? Sixteen, seventeen, eighteen, nineteen. That's when 479 00:49:28,280 --> 00:49:33,170 they start to pay Social Security taxes. At what age are you people going to go to work 480 00:49:33,170 --> 00:49:38,710 and start paying Social Security taxes? Some of you may in part-time jobs have been doing 481 00:49:38,710 --> 00:49:49,980 so, but you will be full-time Social Security payers only when you reach your middle twenties. 482 00:49:49,980 --> 00:49:55,470 So they will pay taxes for more years than you will pay taxes. 483 00:49:55,470 --> 00:50:01,830 Next, which one is going to receive benefits for longer? Every demographic study has shown 484 00:50:01,830 --> 00:50:06,259 that the average expected length of life of the middle and upper-income classes is longer 485 00:50:06,260 --> 00:50:13,000 than the average length of life of people from the lower-income classes. So those poor 486 00:50:13,000 --> 00:50:22,360 suckers are going to pay taxes for more years and receive payments for fewer years than 487 00:50:22,520 --> 00:50:30,60 you and I will. Now some of us, by virtue of continuing to work between 65 and 72, will 488 00:50:30,60 --> 00:50:37,60 not be in that favored class. But already the fraction of people who work between 65 489 00:50:37,99 --> 00:50:44,490 and 72 has been cut to a small part of what it used to be because of the incentive offered 490 00:50:44,490 --> 00:50:50,129 by Social Security. And overall there is little doubt, therefore, that Social Security is 491 00:50:50,130 --> 00:50:55,150 a program which transfers income from low-income classes to high-income classes. 492 00:50:55,150 --> 00:51:00,740 The same thing is true of almost every other social program you can mention. I have often 493 00:51:00,740 --> 00:51:07,149 challenged people to find a single governmental program in which the people who pay taxes 494 00:51:07,150 --> 00:51:13,680 have higher incomes than those who get the benefits. I know only one and that is direct 495 00:51:13,680 --> 00:51:20,680 relief and public assistance, the Aid to Families of Dependent Children. It's not a good program, 496 00:51:20,849 --> 00:51:25,660 it's a terrible program, it's a welfare mess, but so far as I can find out it's the only 497 00:51:25,660 --> 00:51:32,98 program that demonstrably transfers income from higher-income classes to lower-income 498 00:51:32,99 --> 00:51:39,699 classes. And that's why it is such an unpopular program. Director's Law shows up in the unpopularity 499 00:51:39,750 --> 00:51:46,230 of the welfare mess as well as in the popularity of Social Security, housing programs, and 500 00:51:46,230 --> 00:51:49,760 the like. I could go down a great many others but time will not permit. 501 00:51:49,760 --> 00:52:02,150 I come to my conclusion that if we are going to look forward to the future, to an end of 502 00:52:02,150 --> 00:52:08,859 this reduction in our freedom and the growth in centralized government, we must begin to 503 00:52:08,859 --> 00:52:16,219 dismantle these myths which are so widely accepted by people, which have become an unthinking 504 00:52:16,220 --> 00:52:27,980 part of their philosophy and of their beliefs. And I hope that in the course of this hour 505 00:52:28,140 --> 00:52:33,259 I have deflated your air mattress and given you an uncomfortable jolt. Thank you.