Milton Friedman’s Distortions

Milton Friedman is quite a revered figure – among economists, conservatives, libertarians and some leftists – partly, of course, because he was a prolific economist, but also in large part due to his debating skills. He is generally perceived as able to shut down arguments from the left with simple, easy to understand, often amusing one liners. However, I have always found him unconvincing, and here I hope to show why.

There will be, of course, numerous conceptual disagreements which I will try not to discuss in this post: the phony market-government dichotomy, where government is some exogenous entity; the general idea that self interest will lead to the best of all outcomes; the invocation of the mythical ‘free market.’ Nor is the purpose of this post to draw attention Friedman’s major intellectual arguments themselves – though I have already done that with his stance on assumptions, corporate social responsibility, and I suppose by proxy I have commented on his interpretation of the Great Depression.

Instead what I want to do here is show Friedman’s general debating techniques are highly questionable. Many of his arguments rest on an abuse of the reductio ad absurdum. Sometimes Friedman was either ignorant about the evidence or just plain dishonest. Many of the ‘facts’ he cites don’t stand up to even a brief fact check. Here are some examples:

Here, Friedman references the late 19th century land deals as ‘minor.’ One billion acres of land is not minor. Much of this land was taken from citizens directly in the interests of privately owned corporations, and/or involved widespread fraud and corruption. The sheer volume of land seized suggests the deals played a massive part in establishing the railway lines, along with many other industries across the U.S. Would these engines of growth have been built if not for the coercive grabbing of masses of land?

The fact is that even cursory glance at social mobility in the United States puts lie to Friedman’s claims about it being high. Similar results hold for most developed countries, generally only changing as they become more Social Democratic.

In general I’ve noticed Friedman makes repeated vague references to ‘all of history,’* for which he never provides specifics, and which are actually completely at odds with the evidence. I can only conclude that what he says is based not on history but on armchair analysis of what must have happened, based on his own logic. But there is strong reason to doubt this logic – as I have discussed in my previous posts A Brief Anti-Economist History and How Natural is Capitalism, Exactly?, Western Capitalism did not just spring out of nowhere due to the magic of the market.

For example, was Friedman aware of hunting restrictions such as the Black Acts, which brutally enforced limits on peasant activity and so contributed to the initial rise in the industrial workforce? The rise in enclosure acts, which did something similar? Is he aware of the large amount of U.S. tariffs during the country’s rise to prominence, and similar trends in other Western countries, as well as more recently developed countries in Asia? Such historical debates are lost in a sea of sweeping assertions about the efficacy of the apparently omnipresent ‘free enterprise system,’ with narratives that would have Friedman fail a first year history essay.

To be sure, as with all historical analysis, there is always room for discussion, but Friedman’s arguments rest upon one interpretation of ‘facts’ that are usually incomplete or a blatant misrepresentation of what actually happened.

So it’s quite easy to find instances of Friedman presenting questionable evidence to support his arguments. But what about his famous purely logical put downs? Do they stand up to scrutiny? Here is quite a widely watched YouTube clip (always worth noting that the young man is not actually Michael Moore):

The issue raised is whether Ford acted immorally by failing to install some safeguarding blocks in their infamous Pinto cars, which resulted in a large amount of deaths. Friedman suggests the problem is amoral, and simply a matter of price: nobody can place an infinite value on a human life, so whether the car should have been released rests on a monetary trade off. Friedman suggests the young man who posed the question is not interested in principle, only price. In fact this is not true; Friedman simply asserts it and builds his argument from there.

A moment’s thought will suggest that the important principle is not price, as Friedman suggested, but human life, as the young man seemed to think. Consider: if the automobile will kill 10,000 people a year unless the defect is fixed, does it really matter how much it will cost to fix the problem? Surely, if fixing the defect in the automobile is affordable, then the defect should be fixed. On the other hand, if fixing the defect in the automobile is not affordable, then defective car should not be released. However, a profit driven firm necessarily insists that lowering costs by not fixing the defect outweighs saving a certain number of lives each year. Friedman abuses the reductio ad absurdum by taking the issue – where it was clear Ford simply should have installed the boxes – out of context, and focusing on price as the important variable.

Here is another example where Friedman abuses the reductio ad absurdum:

What the man posing the question to Friedman is actually alluding to – in a roundabout sort of way – is a simple concept called the ‘income effect:’ reducing somebody’s income via taxation may well increase the amount they work (and empirical studies suggest it does), hence increasing overall production. Of course, if you increase it to 98% you will impoverish people and destroy the economy, but nobody actually suggested that.

Perhaps some might interpret this as cherry picking. So, finally, here is a full interview with Milton Friedman. I will discuss Friedman’s remarks throughout the interview:

(1) At 2:06, the presenter asks if a place such as Central Park would exist in a ‘pure market’ situation. Friedman fails to answer the question directly, but during his response he blames Central Park’s problems during the 1980s on public management. But Central Park is in fact a public private partnership, where the private firm employs 4 out of 5 of people maintaining the park. Again, Friedman either has no idea what he is talking about or is lying.

(2) At 4:10, the presenter brings up Thalidomide. Friedman’s response contains two problems. First, when he says that the FDA stalls potentially beneficial drugs from being used, he fails to distinguish between a Type 1 error – falsely rejecting, say, a perfectly safe drug – and a Type 2 error – failing to reject an unsafe one. Type 1 is generally considered worse on the logic of ‘convicting an innocent person.’

Second, Friedman suggests that the company responsible for Thalidomide did not make a profit, therefore the market would ‘signal’ for it to go bankrupt. I am not sure whether they made a profit in that particular instance. What I am sure of, however, is that the company is still around today. Again, Friedman references facts that are questionable on even a cursory inspection.

Lastly, when Friedman suggests that the airlines will make sure all of its planes are safe, he neglects the ‘weighing up logic’ we saw in the Ford Pinto video. (I am playing Devil’s Advocate, as I don’t think any sane person would defend current U.S. airport security.)

(3) From the beginning the interviewer asks Friedman about the government setting information requirements on packaging. I don’t really understand how Friedman can make the ‘if it mattered a profit seeking firm would take advantage of it’ argument when the interviewer has explicitly stated that the government had to start to enforce information requirements because private firms were not doing it.

Note also that he doesn’t actually engage with the civil rights act question explicitly.

(4) During the final video the interviewer takes Friedman through every government program and Friedman advocates abolishing the majority of them. What confuses me about this part is that Friedman advocated some of these programs elsewhere – for example in his books. In Capitalism and Freedom, he advocated building infrastructure, a negative income tax, school vouchers, praised antitrust laws and more. This highlights Friedman’s dual roles as a propagandist and serious thinker, as a man who was willing to make sensationalist claims and advocate radical policies just to get attention, even if he didn’t truly believe in them. (Some may suggest Friedman was older and had matured here, but there are examples of him criticising these things he advocated elsewhere when he was younger, too. I also see no justification anywhere, ever, for his surreal last minute ‘abolish the federal reserve‘ position).

I don’t mean to suggest what I have to say is the final word; I merely hope to point out that Friedman was somewhat disingenuous and often used logical sleights of hand to get his point across. His interviewers and opponents rarely seemed to press him on it, and to be honest I never saw him go up against anyone particularly formidable. Furthermore, Friedman’s case highlights how little weight should be placed on verbal debates: one liners that seem persuasive at first can evaporate under close scrutiny; facts can be presented with few checks and balances; questions can be dodged and twisted. Friedman was prepared to argue the more ‘free market’ position merely for the sake of it, and was undoubtedly skilled at this role. But once you unpick some of the arguments and cross-check the evidence, his world view leaves a lot to be desired.

*This type of thinking is found throughout most of videos, including the ones already embedded. Specifically, though, see 3:10 here, 1:15 here, the general narrative here.

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  1. #1 by Jon Finegold on November 28, 2012 - 1:25 am

    I haven’t read the entire post yet, but since I’ve seen the video before I did read your comments relating to Friedman’s discussion of the Pinto. Friedman’s point isn’t that it’s amoral. His question was: how much is a human life worth? Should we invest all of our resources in guaranteeing the preservation of human life (up until natural death)? We certainly could prevent more deaths like that. But, most people would answer “no.” If the moral thing to do was for Ford to install whatever device that was that needed to be installed, then should morality also impel Ford to make cars safe at the cost of everything else?

    • #2 by Will on November 28, 2012 - 4:14 am

      I think Unlearning Econ’s point was that the kid says it’s immoral for Ford to make the car, and Friedman interprets this as an argument that Ford should be forced to spend money making the car safer. This wasn’t the kid’s suggestion, the kid thought they shouldn’t sell the car at all. So Friedman is not engaging the actual question, but a different question that he’d rather engage.

      And the thing is, Friedman played this trick a lot: he would switch from efficiency arguments to moral ones and back again whenever he needed to. Whenever it could be shown demonstrably that a government intervention increased efficiency or was on net positive, he would argue that it was a violation of personal liberty and reject it for that reason. The lack of honesty about whether he was weighing in with his academic-economist hat on, or his armchair moralist hat, is problematic. Most people look to economists for expertise on what policies work best and are efficient. They fancy they can figure the morality out for themselves. In any event, when they want moral guidance, it is not to economists that they turn.*

      And moreover, Friedman deploys the argument from efficiency in cases where history shows it to be false. For instance, he argued that anti-discrimination laws were unnecessary since it was in businesses’ interest not to discriminate in hires or sales. This would have been news to any black person–or white person–in the Jim Crow south.

      *It is somewhat mitigating that Friedman most likely imported this tendency from Adam Smith, but I’d say Smith was more careful to differentiate his economics and his moral theory.

      • #3 by Colin on November 28, 2012 - 4:44 pm

        Are smart cars immoral?

      • #4 by Unlearningecon on November 28, 2012 - 4:47 pm

        I’m not sure what the point of your comment is Colin, but insofar as they produce pollution, yes they are. But they are not more immoral than any other type of car or polluting activity.

      • #5 by Jon Finegold on November 29, 2012 - 9:49 pm

        Will, I’m not sure your point about switching from moral to efficiency arguments applies here. This doesn’t seem to be a case where there is a contradiction between Friedman’s moral beliefs and his calculations on economic efficiency. And, Friedman’s point applies where we’re talking about including another cheap part or not building the car at all.

    • #6 by Unlearningecon on November 28, 2012 - 12:24 pm

      There are two interpretations of Friedman’s position on this matter:

      (1) The problem is amoral, and simply a matter of weighing up costs and benefits.

      (2) The problem is moral, and the question of resource scarcity is the moral benchmark by which to judge it.

      I say (1), you say (2). Both sound fairly reasonable. But what makes me think Friedman himself endorsed (1)? His position on corporations in general, which explicitly stated that they were amoral entities.

      Now, actually, I might agree with you over Friedman. But in this way I interpret your point as a rebuttal of Friedman’s position rather than mine: he made out that he was simply applying cold logic to the situation, when in fact his logic concealed a value judgment about the importance of efficiency and resource trade offs over all else.

    • #7 by moiracathleen (@moiracathleen) on November 29, 2012 - 10:39 pm

      Jon,
      I think UL’s point is who has the right to decide how much a human life is worth. The faceless company aiming to maximize profit or the individual purchasing the car? I would think that the answer must always be the individual rather than the company. A company will always aim to increase it’s bottom line and maximize profits.

      • #8 by Jon Finegold on November 29, 2012 - 11:47 pm

        The individual does have the ability to choose. There are various models of cars, and various manufacturers. We might be able to say that, as the agent with the best information, Ford should be at least partially liable for accidents/deaths caused before the defect in the Pinto was known by others (we also have to consider that Ford might not have been aware, I’m not sure, but these are all little details). But, it’s not as if consumers are being forced to buy Pintos.

      • #9 by Jon Finegold on November 29, 2012 - 11:49 pm

        And, IIRC, there’s a brief comment on fraud by Friedman in that same video.

      • #10 by Unlearningecon on November 30, 2012 - 11:36 am

        Yeah, Friedman says they should prosecute fraud. What he overlooks is that Ford include this in their calculations and they still came out on top. Companies have been doing this for a long time.

      • #11 by Jon Finegold on November 30, 2012 - 6:53 pm

        UL, what do you mean by “came out on top?”

      • #12 by Unlearningecon on November 30, 2012 - 8:25 pm

        I must’ve been in a morning trance when I typed that as it doesn’t make sense. What I meant is even after estimated fraud prosecutions it was not worth installing the boxes.

      • #13 by Jon Finegold on November 30, 2012 - 8:54 pm

        I don’t think the desired outcome should be the installation of the boxes. The point of litigation is to help correct market failures caused by information asymmetry. If the boxes aren’t installed, but now the consumer has the resources to know that they aren’t and what the consequences are, there is no longer a problem. This doesn’t imply that all consumers know about the problem, but that conditions are such that they are liable for informing themselves (there’s a balance in distributing liability).

      • #14 by Unlearningecon on November 30, 2012 - 9:56 pm

        But that’s the point – the litigation didn’t provide a sufficient incentive for Ford to act appropriately. Libertarians tend to suppose 100% compliance to the laws that they approve of (such as anti-fraud prosecution), but in reality the entire legal system is subject to resource constraints and can be ‘bought’ one way or another by powerful firms or individuals.

  2. #15 by Ron Ronson on November 28, 2012 - 2:33 am

    Thanks for posting all these Milton Friedman videos, I really enjoyed them. I am somewhat familiar with his work but I think that is the first time I have seen him speaking.

    I think many of the point you make against Friedman are misplaced. Jon has already highlighted one.

    Another (randomly chosen) one is “Second, Friedman suggests that the company responsible for Thalidomide did not make a profit, therefore the market would ‘signal’ for it to go bankrupt”. I think his point is that in a free market profit-maximizing drug companies would have an incentive to produce safe drugs. The company that made Thalidomide almost certainly made a loss on that one drug. So a free market in medicines would lead to those companies that consistently produce safe and efficient drugs thriving and those that do not going out of business.

    The fact that the Thalidomide company survived after that one drug in a non-free market seems irelevent to me.

    • #16 by Unlearningecon on November 28, 2012 - 12:34 pm

      Actually, evidence suggests Grünenthal did make profit from Thalidomide. I think whichever way you spin it, the market signals did not materialise on their own.

      As for your comment about a ‘free market:’ Friedman was stating his own position with regards to existing society e.g. “do you think they actually made a profit.” So I don’t think it’s relevant for him.

      More generally, though, I regard the free market as a fictitious entity, only seen by its proponents when they are unaware of/choose to ignore laws and institutions surrounding it. Are you not aware of critiques such as Ha-Joon Chang’s? What do you think of them?

      • #17 by Ron Ronson on November 28, 2012 - 3:25 pm

        I think he is right that markets are social constructs They embody a certain amount of “economic logic” but also exists within a framework created and fine-tuned by the participants (and other interested parties) for their own ends.

        It is obviously that many right-ring politicians use free-market verbiage to justify set-ups where the rules are biased to bolster rent-seeking by the “elite”. I(and it was interesting that Firiedman gave as the main reason he is against big-govt was , not that it sponsored socialism but that it led to govt/business collusion) .

        It is also obvious that anti-market verbiage can be used to justify equally unfair regimes of the left.

        My own views are that any just society must be based on co-operation. Both “socialist” and “free market” co-operation is possible. Seen in this light “free markets” while,indeed a social construct become a useful tool tool for building a society based on co-operation.

    • #18 by the king on December 6, 2012 - 3:56 pm

      Dont forget the fact that we have a plutocracy, so rich executives with no moral judgment can play Whack a Mole and simply shift from one corporation to another and absolve themselves of any responsibility since a corporation has no personal responsibility. So the old company gets penalized and shut down, but then a new one pops up in its place. Have you ever seen spammers operate on the Internet? They get shut down and penalized all the time, but their crimes pay, and they simply open up shop elsewhere. Spam operations that break the law are highly profitable, and they have not been reduced, they have only INCREASED.

      • #19 by Unlearningecon on December 7, 2012 - 12:59 pm

        Absolutely. Principal agent and collective action problems with shareholder capitalism render the question of corporate morality very problematic.

  3. #20 by Steve on November 28, 2012 - 5:42 am

    I agree that Freidman was slippery in his arguments. However, this is true with all orthodox economists to one degree or another. The two major orthodoxies presently are capitalism and socialism. Neither is a comprehensive or sufficiently deep discipline or philosophy.

    The problem is that economists and their advocates think the purpose of the economy is employment. The deepest reason the economy exists is…..so that we as individuals can consume what is produced. This most basic of purposes undercuts and resolves mere abstract and inadequate overlays like profit (capitalism) or employment (socialism) which the economists are then condemned to juggle and alternate back and forth, all the while claiming that one or the other is the real problem. It’s the foolishness of being stuck in process and forgetting/mistaking the truly deeper purpose.

    Of course both profit and employment can be appropriately balanced when they are correctly seen as secondary purposes under the primary and wise one of individual consumption. Why is this wisdom? Because it serves Man instead of FORCING man to serve these lesser purposes which are merely smokescreens behind which elites of either commerce or politics hide and dominate Humanity.

    Finally, ethics and economics have never been adequately integrated and that is another reason to consider the deeper purposes of Wisdom to resolve this fact. As I have asserted before we need to use the universal condensations of our human Wisdom in the ideas, values, purposes and experiences of Faith as in Confidence, Hope, Love and Grace, as the philosophical basis for deriving policy on both the individual and the systemic levels. Adhering to his fundamental philosophical and policy alignment is the necessary guide for our economic, financial and money systems and will help our species to survive the multiple crises converging upon it.

  4. #21 by The Arthurian on November 28, 2012 - 10:22 am

    Hope you don’t think this is off-topic. My crit of Friedman is different from yours. Friedman’s “money relative to output” (MRTO) graphs are widely accepted as evidence that inflation and MRTO move together with causality. But my background is math. When I see Milton Friedman using “real output” as a denominator, I see him taking a “money relative to actual GDP” ratio and factoring-in the price level.

    Economists seem to have trouble understanding my objection, but the arithmetic is simple. If you multiply a time series by a price series, the resulting numbers become similar to the price series. The evidence Friedman shows is based on fraudulent use of grade-school arithmetic.

    Logical sleights of hand? Exactly.

    Art
    ps, I like your closing: “Friedman’s case highlights how little weight should be placed on verbal debates…”
    I didn’t watch *any* of the videos in your post. I know you will understand.

    • #22 by Unlearningecon on November 30, 2012 - 9:58 pm

      Any criticism of Friedman is welcome in this thread (and, perhaps, on any of my posts!)

      That is a subtle but great criticism. Check out anarcho’s comment above, where he quotes Kaldor suggesting Friedman simply made it up as he went along.

      There’s no point in watching the videos, they’re just infuriating.

  5. #23 by Caleb on November 28, 2012 - 7:52 pm

    “Consider: if the automobile will kill 10,000 people a year unless the defect is fixed, does it really matter how much it will cost to fix the problem? Surely, if fixing the defect in the automobile is affordable, then the defect should be fixed. On the other hand, if fixing the defect in the automobile is not affordable, then defective car should not be released.”

    You’re off base on this. The issue is your categorization of the lack of the protective part as a “defect.” As I recall from the facts of the Pinto case, Ford made an elective, calculated decision not to include the protective part. Manufacturing companies make this type of call all the time. There are an infinite number of possible safety features for any given product, and they only include the ones they deem “worth it.” (Plus whatever are regulatorily required.) You can disagree with the call, but don’t fool yourself on what the basis of your disagreement is. It’s price, not principle.

    Friedman’s point is that if you are going to criticize Ford for not including a safety feature that would cost $n, what about a feature that costs $n+1? At some point, it will not be worth it.

    • #24 by Unlearningecon on November 28, 2012 - 7:58 pm

      Well we can call it what we want, it doesn’t really matter.

      I’m not ‘fooling’ myself about the principle of price; I simply reject Friedman’s argument. I think safety issues should be judged based on the risk, not the price. If the risk costs too much to fix then the product should not be released.

      I mean, to use the reductio ad absurdism the other way, what if a product were going to kill every other person who used it? Would it matter how much it would have cost to ‘fix’ it so that this weren’t so?

      Obviously boundaries are blurred and somewhat arbitrary. But that’s not the same as worthless.

      • #25 by Caleb on November 28, 2012 - 8:24 pm

        By that definition, the entire concept of a “motorcycle” is defective. The whole design of two wheels, no protective cage, and less weight is simply, inherently less safe and more risky than a Pinto with a firecracker up its tailpipe. Should all motorcycles be banned?

        “Would it matter how much it would have cost to ‘fix’ it so that this weren’t so?”

        If a thing is so awesome that at least some people are willing to use it even if there is a 50% death rate, I’d say its worth keeping it in the market. We can talk about necessary representations, warranties, and disclosures which should surround such a risk. But if people are fully aware and willing to take it, why not?

        “Obviously boundaries are blurred and somewhat arbitrary. But that’s not the same as worthless.”

        Granted. But boundaries which have the force and effect of law need to be as grounded, clear, and well-defined as possible. This means spelling out what “too much risk” means, and defining it with objective terms. In our society, one of the very few such objective terms is price. If you read that Wikipedia link you posted, you know that the infamous “Pinto memo” Ford produced was actually a memo to the NHTSA, and used the NHTSA’s own risk-cost valuation calculation. Ford wasn’t the only one using the formula.

        Out of curiosity, how would a pure-risk calculation (without a cost dimension) work? How much risk is too much? Does it really not matter what the cost (or the benefit) is?

      • #26 by Unlearningecon on November 29, 2012 - 9:54 pm

        There is something to be said for your approach regarding information and fraud, but bear in mind Ford included the calculation for fraud prosecution and still built the cars. I just don’t think that’s acceptable in principal, never mind the numbers. True, with motorcycles the dangers are widely known so there is no comparable fraud problem. Having said that, perhaps motorcycles are an example of what people often say with alcohol – if it were introduced now, it would likely be banned. But pragmatically a ban on motorcycles isn’t going to solve many problems and is very illiberal.

        (I’m not aware of the numbers regarding motorcycle safety).

        Out of curiosity, how would a pure-risk calculation (without a cost dimension) work? How much risk is too much? Does it really not matter what the cost (or the benefit) is?

        Well I can’t claim to know – I’m sure there are many different approaches. Estimating lost lives is subject to uncertainty but at the end of the day it’s a judgment call. When you get to a low level of risk, perhaps price can come into it as the deciding factor. But at some levels of risk price is just irrelevant.

      • #27 by Caleb on November 29, 2012 - 11:21 pm

        …but bear in mind Ford included the calculation for fraud prosecution and still built the cars. I just don’t think that’s acceptable in principal, never mind the numbers.

        At a certain level of economic, manufacturing, or technological complexity and/or scale, the chances of violating the spirit (if not the letter) of some law somewhere approaches 1. The more “sophisticated” the legal environment, the lower the threshold. After that point, it is merely a question of which laws to violate, and at what cost. You can set overarching standards for legal compliance, but even most “good faith” efforts will result in enough abrogation to offend your standard.

        I interpret most complaints of this sort to mean: ‘the cost imposed on violators of this particular law was not high enough to deter harmful behavior to the level I desire.’ Which is fair enough. But that complaint has no legal or philosophical purchase beyond the measure of that subjective analysis. Unless you want to submit some sort of objectivitst claim on the superiority of your value system over all others, I fail to see how it can.

        Well I can’t claim to know – I’m sure there are many different approaches.

        The entire point of your critiques on this blog is to point to a better method of social valuation than the status quo method of valuation, yes? If so, then you must have at least an alternative to the status quo. That is the first step; comparison is the second. If you are asking me to abandon the method of price/risk evaluation, you could at least offer me a place to look before I leap.

    • #28 by moiracathleen (@moiracathleen) on November 29, 2012 - 10:36 pm

      Caleb,
      Not all defects are manufacturing defects. You have confused the issue. The defect to which Unlearning Econ is referring is a design defect, not a manufacturing defect. UL characterized the defect as a design defect because Ford decided not to include a protective part. It has nothing to do with how the car was manufactured.

      Additionally, the motorcycle you use in your second comment is not analogous. In fact, it’s just another misuse of the reductio. The purchaser of the motorcycle is aware of the risk at the time of purchase because the risk is open and obvious. By contrast, the purchaser of the Pinto was not aware of the risk because Ford did not disclose the risk to purchasers nor did Ford give the purchasers the option to choose to purchase a Pinto with the protective part rather than without. If Ford had given purchasers that option, then it is more likely than not people would have paid money for the additional part.

      Friedman wants to twist it around by claiming that businesses have to draw the bottom line somewhere. In a free and just society, the purchaser would be able to decide how much their own life is worth rather than the faceless company aiming to maximize its own profits.

  6. #29 by Caleb on November 30, 2012 - 2:55 am

    The defect to which Unlearning Econ is referring is a design defect, not a manufacturing defect.

    “Design defect” and “manufacturing defect” are both legal terms of art. “Design defect” in particular turns on the “reasonable expectation” of the “ordinary consumer.” This is a separate, and totally distinct question from whether human life cost/benefit analysis is a valid paradigm for measuring social utility in terms of legality. To wit: if the ordinary consumer reasonably expects that a certain product will cause a death 50% of the time (per Unlearning Econ’s hypo), such a product is not “defective” in the legal sense. Yet it runs afoul of Unlearning Econ’s (and the young man debating Friedman)’s principles of social valuation.

    In fact, it’s just another misuse of the reductio. The purchaser of the motorcycle is aware of the risk at the time of purchase because the risk is open and obvious. By contrast, the purchaser of the Pinto was not aware of the risk because Ford did not disclose the risk to purchasers nor did Ford give the purchasers the option to choose to purchase a Pinto with the protective part rather than without.

    As I elude to in my first response to Unlearning Econ, (and I think he/she agrees) fraud is a distinct line of analysis. Whether a firm fraudulently capitalized on the reasonable expectations of the ordinary consumer is different from whether a firm sold an immorally dangerous product. I’m willing to entertain arguments for the former. But the latter is what Unlearning Econ is using to “discredit” Mr. Friedman.

    On point for the latter, please see page 1029 of the law review article cited in the Wikipedia page. http://www.pointoflaw.com/articles/The_Myth_of_the_Ford_Pinto_Case.pdf

    • #30 by moiracathleen (@moiracathleen) on December 1, 2012 - 8:53 pm

      Caleb:
      I am not sure why you linked to a poorly written law review article that was part of the Pfizer Distinguished Visitor Series at Rutgers Law School. As though Pfizer would ever sponsor an author that wrote an article in favor of products liability verdicts. The article basically argues that the jury (which is made up of members of the public) is not qualified to make a judgment in a products liability case. Again, the right to a trial before a jury exists for a reason. And I realize some economists might find these rights to be a nuisance to their objectives, but we have unanimously held that right to a trial by jury is an inalienable right no matter what impact it might have on our GDP or a corporation’s bottom line.

      Additionally, the author’s use of the data from the National Highway Traffic Administration is questionable. I don’t have access to the actual study he references, but I would have several questions before I would accept that study as reliable. Setting reliability aside, I am not sure it is even relevant.

      Apart from that, nothing in your comment is relevant to the issue in this post. The question presented by Unlearningecon is who has the right to decide how much risk the individual is willing to assume when they purchase a product. Why do you find it so hard to answer that question?

      Milton Friedman argues that there is a free market only if the company has the right to decide which product it sells without interference from the government or the individual. Now, Milton Friedman’s little sidestep to say it is okay to prosecute for fraud is of little help. Fraud is a separate issue. This case explains why: http://legal-dictionary.thefreedictionary.com/McPherson+v.+Buick+Motor+Co. The fact is that Milton Friedman probably would oppose any law that allows the individual to recover damages for injuries caused by a defective product. In his world, the individual chose to assume the risk and therefore the individual must deal with the consequences.

      Do you see it differently?

      I have no idea why you are trying to undermine the point made in this post by making arguments using terms like Unlearningecon’s social valuation. What Milton Friedman and too many other economists cannot accept is that some things are incommensurable, or rather that life in the real world presents issues that require subjective valuations. The question for a society is who has the right to decide when an issue requires a subjective valuation. Unlearningecon appears to adopt a view that the right to decide rests with the individual rather than the corporation. What is your view?

      • #31 by Caleb on December 2, 2012 - 8:30 am

        I am not sure why you linked to a poorly written law review article that was part of the Pfizer Distinguished Visitor Series at Rutgers Law School.

        I linked to it because I’m lazy and don’t want to do my own research and then defend the veracity of my own sources. That article was one of the major sources cited by the Wikipedia article to which Unlearning Econ linked. I figure that this act functions as a sort of waiver: If you doubt the veracity of the source you cite, or any of its sources, then you should not cite it. If you do so, then you waive any objections to the veracity of any sources in the chain of authority of the the source to which you cite.

        Of course, you are welcome to call into question any source you want independent of Unlearning Econ’s cited authorities. Just know that doing so will undermine his/her original claim, which is my ultimate argument.

        As though Pfizer would ever sponsor an author that wrote an article in favor of products liability verdicts.

        Probably not. But that question has no bearing on the veracity of the arguments fronted by the author. As I’m tiring of arguing to my progressive opponents: ‘the validity of any argument stands independent of the interest any one party has in that argument being valid.’ This holds true even if the party holding forth the argument is particularly reprehensible. Say, for instance: that Adolf Hitler says that the sky is blue, and that Adolf Hitler stands to make a billion dollars if the sky is indeed blue. Neither of these facts have any logical bearing on whether or not the sky is in fact blue. To summarize: you must evaluate the logical argument separate from its proponent. To do the opposite is the essence of the ad hominem fallacy.

        The article basically argues that the jury (which is made up of members of the public) is not qualified to make a judgment in a products liability case… And I realize some economists might find these rights to be a nuisance to their objectives, but we have unanimously held that right to a trial by jury is an inalienable right no matter what impact it might have on our GDP or a corporation’s bottom line.

        First, I request that you cite the passages which support this assertion. Not that I doubt you, but I simply fail to see this proposition as a rational conclusion to the author’s arguments.

        Second, I fail to divine the conclusion which you are driving at. If your assertion is true, what does it prove or disprove?

        Third, the limitation of the authority of the jury to consider arguments or evidence is neither uncommon nor inconsistent in our common law tradition. The entire body of the laws of evidence is premised on the hypothesis that the jury may be either incompetent or incapable of weighing certain types of evidence logically.

        So, even if true, what does this argument show?

        Additionally, the author’s use of the data from the National Highway Traffic Administration is questionable. I don’t have access to the actual study he references, but I would have several questions before I would accept that study as reliable.

        On what basis do you attack its reliability? Isn’t this the point of peer review?

        Not that all published articled are beyond reproach. But the fact that others in their field reviewed them must at least shift the burden of proving unreliability to the opponent of the evidence or argument in question. That is, you must have at least a reasonable basis for disagreeing with the facts.

        Setting reliability aside, I am not sure it is even relevant.

        How not? The entire point of the “reasonable expectation” of the ordinary consumer is establishing industry standard. That table on page 1029 shows that, at least in terms of fatalities, the Ford Pinto conformed well with its peers. In light of this fact, proving abrogation from industry standard is difficult. What relevance issue is raised here?

        The question presented by Unlearningecon is who has the right to decide how much risk the individual is willing to assume when they purchase a product. Why do you find it so hard to answer that question?

        I would say we all have this problem, as evidenced by the fact that we are arguing about it.

        As I’ve eluded to in my past arguments, the premise of UnlearningEcon’s objections to Friedman’s positions is an objective valuation of human life which exists independent any one person’s evaluation of their own life. Hence his/hers criterion of “too much risk” (whatever this may be) per human life. As opposed to a regime where each person may measure the costs/rewards of any particular life-risking scheme by their own lights.

        I’m having a hard time understanding how you can conceive of any one person’s risk outlay as “individualistic” when governed by a singular conception of human value vis-a-vis risk. A little help, perhaps?

        Milton Friedman argues that there is a free market only if the company has the right to decide which product it sells without interference from the government or the individual.

        This is, quite simply, a failure of the ideological Turing test: http://econlog.econlib.org/archives/2011/06/the_ideological.html

        To put it simply, you have failed to understand how Friedman constructed his arguments.

        Unless a person is an anarchist, one believes that the government has a role in determining what persons or groups of persons may do. What the permissible scope of those limitations are and how they may be defined is a matter of debate. But characterizing the possible scope of corporate action as being ‘without government interference’ is simply inaccurate.

        Similarly, characterizing corporate action as existing exogenous from individual preferences is simply laughable. People give corporations what the corporations want because individuals are persuaded that is what they want. We can talk about positive feedback and ultimate locuses of control, but saying that corporate selling patterns exist separate of any pattern of individual desire is silly.

        Now, Milton Friedman’s little sidestep to say it is okay to prosecute for fraud is of little help. Fraud is a separate issue. This case explains why:

        I am well aware of McPhearson v. Buick. I fail to see what it has to do with fraud. Care to elaborate?

        The fact is that Milton Friedman probably would oppose any law that allows the individual to recover damages for injuries caused by a defective product.

        Cite? Or argument? Anything?

        In his world, the individual chose to assume the risk and therefore the individual must deal with the consequences.

        Do you see it differently?

        Once again, assumption of risk is a term of art, and only applicable in certain situations.

        The way I see it, we all assume the risk of engaging in any activity. The relevant question is whether the assumption was knowing and intelligent.

        I have no idea why you are trying to undermine the point made in this post by making arguments using terms like Unlearningecon’s social valuation.

        Undermining is not my goal. Rational inquiry is.

        I seek to adopt my opponent’s language because that way I do not have to explain my own to them. By attempting to understand my opponents on their own terms, I find I am sometimes able to construct their arguments in ways that I better understand. Thus, I can incorporate their valid arguments into my own understanding of reality.

        The major reason I pay attention to UnlearningEcon is that he/she is good at pointing out the underlying assumptions of the heuristic analysis I currently subscribe to. Having this basis constantly questioned is a good thing. However, UnlearningEcon is not nearly as good at conveying or describing an alternative method of analysis. That is why I comment, and question. Critical analysis is one thing, rational construction is another. UnlearningEcon needs to move from the former to the latter.

        What Milton Friedman and too many other economists cannot accept is that some things are incommensurable, or rather that life in the real world presents issues that require subjective valuations.

        That statement in and of itself is objective. That is, it is a claim of superimposed valuation to which all others must submit. How do you defend your premise?

        The question for a society is who has the right to decide when an issue requires a subjective valuation. Unlearningecon appears to adopt a view that the right to decide rests with the individual rather than the corporation.

        This made me smile. The entire thrust of UnlearningEcon’s arguments has been that there is a certain amount of risk beyond which no person may morally subject another. That is, there is an objective valuation of human life, to which all others are subject. You have UnlearningEcon’s arguments exactly backwards.

        What is your view?

        That the value of human life is truly subjective, and no amount of moralizing changes that. The process of transaction between two or more parties to discover this valuation in inherently amoral, and only gains valuation ex-post.

        What is yours?

      • #32 by Unlearningecon on December 2, 2012 - 2:06 pm

        Of course, you are welcome to call into question any source you want independent of Unlearning Econ’s cited authorities. Just know that doing so will undermine his/her original claim, which is my ultimate argument.

        You are misunderstanding the purpose of me linking to wikipedia. I thought it would be obvious that is simply to provide those who don’t know with some background information on the case.

        As I’ve eluded to in my past arguments, the premise of UnlearningEcon’s objections to Friedman’s positions is an objective valuation of human life which exists independent any one person’s evaluation of their own life. Hence his/hers criterion of “too much risk” (whatever this may be) per human life. As opposed to a regime where each person may measure the costs/rewards of any particular life-risking scheme by their own lights.

        In this case, Ford made it so people were unaware of this risk. ‘You can prosecute for fraud’ post-hoc doesn’t cut it – putting aside the practicalities of an individual prosecuting an enormous company with mounds of resources and lawyers, the costs of prosecution were included in Ford’s initial assessment. In other words, people’s own right to assess their risks was effectively bought by Ford.

        That the value of human life is truly subjective, and no amount of moralizing changes that. The process of transaction between two or more parties to discover this valuation in inherently amoral, and only gains valuation ex-post.

        No, it equates prices and values. This is not the same as amoral.

      • #33 by Caleb on December 11, 2012 - 6:45 am

        You are misunderstanding the purpose of me linking to wikipedia. I thought it would be obvious that is simply to provide those who don’t know with some background information on the case.

        No, I understand that this was your purpose. However, one of the factual sources in the Wikipedia article seems to contain facts which tend to disprove claims of extraordinary death rates for the Pinto vis a via the market at the time. My point to moriacathleen was simply that she would have to undermine the entire source (and therefore the entire account) from Wikipedia if she doubted that one source, absent any additional evidence.

        In this case, Ford made it so people were unaware of this risk

        Which is where fraud prosecution comes in.

        putting aside the practicalities of an individual prosecuting an enormous company with mounds of resources and lawyers

        This is where class action suits come in.

        the costs of prosecution were included in Ford’s initial assessment.

        To be flippant for a moment: And?

        I already addressed this. You haven’t respond to my arguments. (To recap: 1- lawbreaking is almost guaranteed at a certain level of economic activity, and 2- the remedy for an unacceptably high level of illegal activity is for the government to increase the penalty for breaking that law. That is, to raise the cost.

        No, it equates prices and values. This is not the same as amoral.

        Price is not the same as valuation, granted. But it is a method of valuation. Is it an imperfect, biased, non-neutral method of valuation? Of course. But I submit to you that all interpersonal, transactional methods of valuation are. The fact that a method of valuation imperfectly transmits and/or enforces human values does not inherently make that method moral. The method simply IS, the morality comes after humans apply their judgment to it.

        Once again, I will ask: What is your alternative? I give you my word that I ask out of genuine curiosity, not out of any motive to construct some sort of convoluted “gotcha” moment. I really, truly want to know. I read this and many similar “heterodox” blogs with regularity, and I simply can’t get anyone to give me a straight answer. This fact alone is probably my biggest objection to the entire school of thought. It seems clear to me that you, Keen, and others have something in mind, but I’ve never seen it clearly, logically, and coherently stated. It would ease my mind greatly if I knew what it was you had in yours.

      • #34 by Unlearningecon on December 14, 2012 - 2:11 pm

        To be flippant for a moment: And?

        This meant the choice was taken away from people; it was ‘bought.’ All increasing the cost does is move the problem; if you increase the punishment to such a high rate that any company will certainly be deterred, I suppose that could work, but the principle is one of safety and information. My ‘alternative’ (which is actually what happens now) is just to have minimum safety standards, judged by various criteria including how obvious the risk is, and how high it is. This makes the problem one of values and not prices, which, while they may be a measure of value, I – and many others – do not feel are an appropriate one is this area.

        In fact I personally think prices are generally only good for things that don’t really matter, like a television. Others think something different, but the difference is moral rather than logical.

  7. #35 by Anarcho on November 30, 2012 - 9:12 am

    Milton Friedman is quite a revered figure – among economists, conservatives, libertarians and some leftists

    Libertarian, originally, referred to anti-state socialists (i.e., anarchists). The American right deliberately stole it from, the left in the late 1950s… so, please, don’t let the propertarians use the good term “libertarian” for their authoritarian ideology.

    In terms of Friedman, he has dubious honour of seeing his own claims being proven wrong by their application. As I discuss in the article I wrote to mark his death:

    http://anarchism.pageabode.com/anarcho/milton-friedman

    Whether it was social mobility, equality, control of the money supply, trade unions, inflation, he was simply wrong.

    I should note that economists at the time predicted his failure, most notably Nicholas Kaldor. Thomas Balogh pointed out that Friedman’s assumptions have “been shown to be fallacious and the empirical evidence questionable if not totally misinterpreted.” Moreover, “none of the assumptions which Friedman made to reach his extraordinary conclusions bears any relation to reality. They were chosen precisely because they led to the desired conclusion, that inflation is a purely monetary phenomenon, originating solely in excess monetary demand.” (The Irrelevance of Conventional Economics, p. 165 and p. 167] For Kaldor, Friedman’s claims that empirical evidence supported his ideology were false. “Friedman’s assertions lack[ed] any factual foundation whatsoever.” He stressed, “They ha[d] no basis in fact, and he seems to me have invented them on the spur of the moment.” [The Scourge of Monetarism., p. 26]

    There was no relationship between the money supply and inflation. Inflation may have dropped in the 1990s but this lay “in their success in transforming the labour market from a twentieth-century sellers’ market to a nineteenth-century buyers’ market, with wholesome effects on factory discipline, wage claims, and proneness to strike.” (Kaldor, p. xxiii)

    Balogh also notes, to prove that “socialistic policies” had crippled Britain’s economic growth since 1945 Friedman began “by misrepresenting the size of the public sector . . . he chooses a ratio which, though irrelevant, gives spurious support to his thesis.” Equally, Friedman compares post-war Britain to post-war Japan and West Germany, conveniently failing to note that both hardly had minimal states (for example, West Germany had approximately the same level of state spending as the UK and Japan had the social planning of its Ministry of Industry and Trade). As Balogh notes, the “consequences of socialism are then illustrated by reference to the weak economic performance of Britain in comparison with Japan and Germany since 1945. This is an odd comparison to choose when judging the impact of ‘socialism’ on Britain. Surely what we need is to compare the British performance during a period of sustained boom under ‘Friedmanism’, e.g. in the period 1900-13, with the record under ‘socialism,’ say 1945-75.” However, to do that would mean noting that the average annual rate of growth per head of GNP between 1900 and 1913 was a mere 0.2%, compared to 2.2% between 1948 and 1975. Even taking other starting dates (such as the slump year 1893) produces a smaller rate of growth that the post-war period. [p. 181]

    This is discussed on and off in section C of An Anarchist FAQ:

    http://anarchism.pageabode.com/afaq/secCcon.html

    Still, as he made the rich richer he seems to get a free pass.

    • #36 by Unlearningecon on November 30, 2012 - 11:43 am

      Yeah, I remember seeing that obituary a while ago and finding it incredibly refreshing – everyone else seemed too scared to go after Friedman. I really must read Kaldor.

      Milton Friedman’s misfortune is that his economic policies have been tried.

      – John Kenneth Galbraith

      I should start using propertarian. Problem is that if I don’t use ‘libertarian’ then many of them won’t know it’s directed at them.

  8. #37 by Lars P Syll on November 30, 2012 - 7:44 pm

    Great post, and I actually think you do show Friedman to be unconvincing again and again!

  9. #39 by gfmurphy101 on December 1, 2012 - 2:56 pm

    Reblogged this on gfmurphy101.

  10. #40 by Ramanan on December 1, 2012 - 8:38 pm

    Superb post!

  11. #41 by Ramanan on December 1, 2012 - 9:01 pm

    What a messed up view Friedman had on the $13 plastic.

    The important thing is that people do not know these things when they buy.

    But in Friedman’s world, everyone has perfect knowledge because it is in their interest to do it, since everyone is optimizing his/her utility! People would have rejected the car if that were so!

    • #42 by Unlearningecon on December 2, 2012 - 2:09 pm

      Thanks.

      Yeah, there are two main problems here:

      (1) Libertarian’s implicit police state, where any law they approve of is enforced without fail, and all the concerns about public choice and regulatory capture, as well as the fact that everywhere (including the legal system) is subject to resource constraints, suddenly melt away. In this case Friedman thought it was sufficient to prosecute for fraud post-hoc, ignoring that the costs of this for Ford can just be included in with the rest of their costs, their access to superior lawyers etc.

      (2) The equation of prices and values and subsequent assertion that the problem is one of price and therefore amoral.

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