Friedman, capitalism, freedom and a negative income tax

Another Milton Friedman book. This time Capitalism and Freedom.  I was a little surprised and quite relieved when I got to Chapter 12, the second last, and found Friedman advocating a negative income tax.

I was surprised  because one hardly ever hears about this part of his economics in spite of so many people claiming  to be followers.

I was relieved because as I read I liked most of what he said.  However, I believe we have a collective responsibility to ensure that everyone has the opportunity to share the same standard of living as everyone else.  I also believe full employment is not a realistic goal.  Therefor we need some sort of income plan.

If you think about it Friedman without the negative income tax proposal provides a rationalization for the who what to say “to hell with everyone else.”  I must say I figure this applies to only a few of the people who like his approach.

There are two groups of people to whose attention his negative income tax should be brought..

The first are all those who want a smaller and less intrusive government.  We can have that without destroying the lives of many other people so long as we combine it with a negative income tax or some other universal income scheme.

The second group is those who reject a market economy on humanitarian grounds. These are the people to whom “economics”. “profits”, and “business” are dirty words.  I suspect a few of the people who want the government to intervene in the economy are people who like to tell others how to live their lives.

If these people were to study the competitive economic system they would find it promotes a high degree of equality and minimizes profits, goals of which they should approve.

When these two groups have adapted their thinking to a negative income tax or a guaranteed income scheme they should have no trouble coming to a consensus that we should be moving towards a market economy based on the principles of perfect competition.

The problem then would how to deal with those who don’t care about others and those who think they have a right to tell others how to live their lives.

In conclusion I would like to state I believe there is a need to change the way we create money and that an income scheme should be part of  a new monetary plan.  For more on that see the essay “LETS go to market: Dealing with the economic crisis.


If you liked this post your are invited to comment, press the like button and/or click  one of the share buttons. If you disagree you are invited to say why in a comment.  While I like the idea of sharing this platform, my personality is such that I don’t reply to many comments.

One Response

  1. I was taught about Friedman’s negative income tax years ago when I was at university.

    It had the useful characteristic of eliminating the ‘poverty trap’, the big disincentive under the current system for the unemployed to jump the ‘gap’ and get a job.

    Against this the Friedman tax is too ‘easy’, and provides an incentive (depending on the marginal rate) to slide in and out of employment.

    There are also practical difficulties, as the vast mass of unemployed do not and never have payed income tax. They are not on the tax office radar.

    The ideal tax is a ‘tax on economic rents’ – qv see Douglas in previous blog.

    Interesting subject economics of taxes.

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