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Why the "Invisible Hand" takes away our "Free Lunch"

By Nathan Huynh
web posted November 1 , 2010

"The opposite of "There's no such thing as a free lunch" is clearly "The best things in life are free."And in the real economic world, there is a free lunch, an extraordinary free lunch, and that free lunch is free markets and private property."  – Milton Freidman

Those words provide the backbone of Milton Freidman's speech at the opening of the CATO Headquarters. In this speech, he argues that there is a "free lunch" for the American people, but instead of providing this "lunch" to its citizens, the government instead takes the lunch and chooses to control in. Just like any typical Friedman speech, the focus is always on free markets and less government interference.

To provide examples for his thesis, Milton Friedman describes certain government programs that do little or no good. For instance, he points out how the number of employees has increased at the Department of Agriculture although the number of farmers has greatly decreased. He also brings up in his speech the problems of New York housing today, although when Friedman was a high school graduate, he could find New York apartments anywhere. Finally he closes with a severe criticism of Congress and large government.

These are all points that lead to Friedman's conclusion that it is the government that causes the problems. He essentially uses the philosophy of Adam Smith in the Wealth of Nations to reach this conclusion. Smith describes self-interest as an "invisible hand" that guides people in their actions in an economy. His idea was that people seeking their own self-interest would end up benefitting the interest of everyone. That person will always try to maximize gain and minimize loss. However what made this philosophy so special is that it rewards excellence but punishes failure. If the company fails then it is their fault, however if the company succeeds it is because of their hard work.

This is exactly what Friedman wants and is struggling for in America, but it is exactly what the government is not doing. Near the end of that speech he brings up an interesting point. "…if a private venture fails, it's closed down. If a government venture fails, it is expanded." This is perhaps why Friedman is the greatest critic of big government. He believes that the government takes away the motivation and self-interest to do well in an economy. It doesn't matter whether the business goes well or not, it still gets funding from the government.

However Milton Friedman clarifies that the government's intention is not bad. He agrees that helping industries and people are important, however he argues against the government taking responsibility for them. For instance, Friedman brings up the problems of unemployment benefits. There is nothing wrong with the idea of unemployment benefits, but the problem is that it takes away the self-interest of the people. This is an unintended consequence. In the ordinary citizen's mind, why should he look for a job if the government is out there giving him money? Why shouldn't he take as much money as possible before he has to around searching for work? The government itself is not bad, but large government taking the burdens of the people is a danger to the nation.

Now that we have ascertained that large government is bad, then perhaps a look at why it happens is warranted. If everyone hates big government, then why does our government keep expanding? The irony is that the reason seems to be the "invisible hand."

 It is a fact of life that everyone looks out for their own self-interests, and politicians are no exception. These men and women are essentially looking to gain the trust of the most amount of voters and to curry the favor of large private institutions. So one way they do this is to promise people things regardless of whether it is practical or not. For instance, one way to gain the votes of the unemployed workers of America is to promise to extend unemployment benefits for everyone. This way the unemployed will vote for you, because if you win, those people will be able to get money. This is the "invisible hand" of self-interest. The unemployed are looking out for their own interests by electing their politicians, and the politicians are seeking their own self-interest by getting a large number of voters.

Large government will not simply disappear with new radical parties declaring that they will cut back on big government. All politicians need political votes whether they are from the Republican Party, Democratic Party, or the Tea Party. This means that they will always have to promise people benefits in order to get votes, but they cannot take away those benefits in fear of losing those votes.

So in conclusion, Milton Friedman was deadly accurate when he described the dangerous problem of big government. It is something that is always expanding regardless of whether or not it is successful or not. This expansion takes away the benefits that the Americans could be receiving and is distributing that money to areas that may not deserve it as much. It is taking away their self-interest and perhaps more importantly their "free lunch" Unfortunately though, there is not a clear way to eliminate this threat. Everyone follows their own self-interest and because of this government will continue to expand. So is there hope in the future for our nation? Perhaps, but that man or woman will have to be willing to sacrifice their own-self interest for the good of the nation. ESR

Nathan Huynh is a home-schooled high school student and this is his first contribution to Enter Stage Right. © 2010 Nathan Huynh.

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