Conservative Approach to Poverty and Inequality

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Milton Friedman

In his book Capitalism and Freedom, Milton Friedman proposes solutions to poverty and inequality. Throughout the text Friedman describes his philosophy as liberal which has no similar meaning in today's use of the word. Liberal to him meant the classical liberal philosophy of limited government and free markets. His rational for many of his policy proposals would appeal to classical liberal ideas. Throughout the text, Friedman praises the capitalist system and how it has outperformed communist regimes. At the time of publishing it was well understood that capitalism was superior, but there were serious questions as to poverty and inequality in capitalist society. Friedman proposed solutions to these problems.[1]

  1. The Negative Income Tax
  2. The Flat Tax
  3. Voucher schools
  4. Labor Reform


The Negative Income Tax (NIT)

The NIT is a progressive income tax system where people earning below a certain amount receive supplemental pay from the government instead of paying taxes to the government. Under this system people earning below a certain income level would pay zero taxes, and those above the threshold would subsidize the people who do not pay taxes and theoretically bring them out of poverty.[2] Instead of claiming welfare benefits, the poor would receive payments from the government by simply filing a tax return; theoretically this would eliminate the need for the expensive bureaucracy of the welfare system. [3] Major criticisms of the negative income tax include the notion that this system would encourage some individuals to exit the labor market in favor of receiving government payments for free, and the fact that while this may eliminate one bureaucracy, there would still need to be significant oversight for this program to be effective, thus creating a completely new system that would likely be just as expensive. [4]

The Flat Tax

Friedman opposed the graduated income tax based on his philosophy that certain actions by government are immoral, such as the coercion of funds from the rich to redistribute to lower income people. He proposed the flat tax as s complete substitute for the graduated income tax. His plan was to flat tax above an exemption income defined broadly with exemptions only allowed for strict expenses of earning income. This program would be combined with an abolition of corporate income tax, with income being attributed to the stockholders who would pay the flat tax on their capital gains. Also the elimination of tax exemption of interest on state and local securities, the elimination of capital gains exemptions, and the elimination of numerous deductions now allowed. Friedman wanted to level the playing field, for example the special monopoly privileges granted by government, tariffs, and other legal enactments benefiting particular groups. Friedman projected his fiscal proposals to be a gain in government revenues which could go toward education and subsidizing housing.[1]


Voucher Schools

Friedman agrees with the democratic tenant that the state must foster an educated society through the procurement of schooling. He offers a voucher system as an improvement since it will compete with the public schools and have a handful of positive effects. Friedman supports the voucher system because the quality of schooling could increase since the private schools must compete for their customers (as opposed to public schools where kids are forced to be there), and poor families would benefit since they would have an opportunity to send their kid to a good school as opposed to limiting their options to a public school which offers little hope for the future.[1] According to Friedman voucher schools would allow low income families more opportunities to give a head start for the child’s future.


Labor Reform

Friedman attacks the practice of occupational licensure and the conduct of labor unions. Occupational licensure is criticized for the inefficient process of attaining a license, where hopefull applicants waste time on irrelevant details. For example, veterinarians in the state of Washington may not minister to an ailing cow or cat unless they have first signed a non-Communist oath. The problem of licensing of occupations is more than a trivial illustration of the problem of state intervention, that it is a serious infringement on the freedom of individuals to pursue activities of their own choice. Friedman criticizes the American Medical Association(AMA) as one of the biggest violators of union privaledge. The AMAs policies restrict the number of hopeful medical professionals with various means the worst of which is the control of salaries so that employers are not able to expand job opportunities. The AMA is also capapble of controlling medical schools so that fewer students can gain admission. For example, in the 1930s, the Council on Medical Education and Hospitals wrote a letter to the various medical schools saying the medical schools were admitting more students than could be given the proper kind of training. In the next year or two, every school reduced the number it was admitting, giving strong evidence that the recommendation had some effect.[1]

References

  1. 1.0 1.1 1.2 1.3 http://site.ebrary.com/lib/uconn/docDetail.action?docID=10275474
  2. http://en.wikipedia.org/wiki/Negative_income_tax
  3. http://www.investopedia.com/terms/n/negativeincometax.asp#axzz1tZXRBL7N
  4. http://www.investopedia.com/terms/n/negativeincometax.asp#axzz1tZXRBL7N
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