Economic Lessons from Milton Friedman

Commentary, Economy, Matthew Lau

Were he still alive today, Milton Friedman would celebrate his 107th birthday on July 31. An intellectual giant, his ideas played a significant role in making the world a freer and more prosperous place – from driving the elimination of military conscription in the United States to influencing the economic transformations that made Chile and Estonia into the relatively prosperous nations they are now.

Friedman’s ideas are no less powerful today, and Canada’s federal and provincial governments would be wise to heed his words on a wide range of issues, from taxes and government spending to education and healthcare policy.

On fiscal policy, Friedman frequently observed that “nobody spends somebody else’s money as carefully as he spends his own.” It is a statement that just about everybody accepts as true, yet politicians and much of the general public contradictorily believe that high levels of government spending improve economic growth.

The Trudeau Liberals deliberately turned a budget surplus into apparently endless deficits, claiming that their “investments” in the economy would increase growth. This isn’t an exclusively Liberal malady, however, as Conservative governments are also culpable. For example, Ontario’s corporate welfare gravy train continues unabated despite earlier promises to end these wasteful handouts.

Total government spending in Canada today is 47 percent of GDP. That’s half of the national income spent by people other than the ones who actually earned it, and on people other than the ones doing the spending – a recipe for wasting resources.

If Smith spends his own money on himself, he will be careful as to both the cost and quality of what he buys. But if Smith spends Brown’s money on Jones, as is the case when government spends taxpayers’ money, Smith will be unconcerned about the cost (since he is spending Brown’s money) and unconcerned about the quality of what he buys (since he is buying it for Jones, not himself).

Another of Friedman’s frequent observations was that competition is better for consumers than monopoly – and that overwhelmingly, government is the source of problematic monopoly control.

Just like the statement that “nobody spends somebody else’s money as carefully as he spends his own,” Friedman’s observation on competition and monopolies is nearly universally accepted as reality, yet is somehow not reflected in government policy.

Two areas of problematic government monopoly are education and healthcare. While some provinces allow for some school choice by partially funding independent schools, in Ontario the government has an effective monopoly on schooling. Unless families pay twice for schooling – once with taxes and then again for tuition – their children have no choice but to attend a government-run school.

With a single-payer monopoly system, healthcare is a similar case. As in education, Canadians have no choice in healthcare unless they are willing to pay twice – once in taxes and then again for private care elsewhere. About 276,000 Canadians do just that each year in large part due to the waiting lists produced by the inefficient monopoly system.

The result of government monopoly in both education and healthcare is that the most important of services rise in cost faster and improve in quality slower than in competitive markets.

Today in Canada, just as in economies around the world for the past several generations, too much government control means society is less free and less prosperous than it could be. Friedman’s ideas for reform – pushing back against government overspending and government monopolies – are as relevant and necessary as ever.