Jul 08, 2024

Getting Ahead: Two Economists: Keynes Vs. Friedman

Posted Jul 08, 2024 8:53 PM

By Patricia Jones, Alliance Community Task Force: Creating Opportunity

Two economists of the 20th century, Milton Friedman and John Maynard Keynes, greatly influenced our attitudes about the role of government in the economy. For about a hundred years, our nation has swung between the theories of these two great economists.

John Maynard Keynes developed theories to help us get through the Great Depression. His theories, known as Keynesian economics, advocate for government intervention to prevent recessions. He believed the government should help to create jobs. Then people would have money to spend, which leads to more production and more jobs in the private sector.

President Roosevelt adopted Keynesian economic policies through the New Deal. The Works Progress Administration (WPA) and the Civilian Conservation Corps (CCC) employed millions of job seekers to build public works projects, including the construction of public buildings, schools, parks, bridges, and roads.

We have Keynes and Roosevelt to thank for Social Security, electrification, crop insurance, and the Federal Housing Administration (FHA). Workers benefits from the National Labor Relations Act, which protects unions, and the Fair Labor Standards Act, creating the 40-hour work week, overtime, and minimum wage.

During the 1930’s the government enacted the National Banking Act, Federal Deposit Insurance Corporation (FDIC), and the Securities and Exchange Commission to stabilize our monetary system.

A famous quote from Keynes says, “Capitalism is the extraordinary belief that the nastiest of men for the nastiest of motives will somehow work together for the benefit of all.”

In 1962 Milton Friedman published the book Capitalism and Freedom, encouraging more support for capitalism. He contended that government intervention often has the opposite effect of what was intended. Most good things and ideas in the United States and the world come from the free market, not the government. The government, despite its good intentions, should stay out of areas where it does not need to be. Friedman strongly influenced President Reagan and the Republican Party.

According to Friedman, the government should enforce law and order and property rights. The government should have control over money. Regulations should limit negative "neighborhood effects” like pollution. Free trade with no tariffs between nations was to be encouraged. No occupations should require licenses.

In order to redistribute income during the time of robber barons and worker abuses, the progressive income tax was introduced in the early 1900s. Until World War II only the wealthiest Americans had to pay the tax. However, the wealthy were granted so many loopholes that the income tax system didn’t work. Friedman supported replacing it with a flat income tax with no deductions and everybody paying the same percentage. He also supported a negative income tax, giving everyone a guaranteed minimum income, rather than having inefficient welfare programs.

A famous Friedman quote: “Nobody spends somebody else’s money as carefully as he spends his own. Nobody uses somebody else’s resources as carefully as he uses his own. So if you want efficiency and effectiveness, if you want knowledge to be properly utilized, you have to do it through the means of private property.”

Both economists believed that the government plays an important role in the economy. They believed there were times to have tax cuts and times to have tax increases. Both were opposed to monopolies and believed the government should prevent them. But Keynes supported the expansion of government during hard economic times, and Friedman believed government solutions were nearly as bad as the problems they were trying to solve.