Trimming the Sails of Big Government

Tyranny of the Status Quo, by Milton and Rose Friedman, San Diego and New York: Harcourt Brace Jovanovich, 182 pp., $10.95.

Milton and Rose Friedman have a record of clear writing and incisive analysis in the consistent defense of liberty, and an ebullient optimism that ideas matter. Their new book, Tyranny of the Status Quo, prepared as material for a TV series scheduled later this year, continues that record. Most of this material is not new, but the basic ideas deserve repeating.

The Friedmans' general theme is that the growth of government during the last half century has contributed to many conditions about which Americans now broadly express concern. Some of the examples are dramatic: Student test scores have progressively declined although real spending per student has multiplied. Crime rates have increased rapidly although real per capita spending for law enforcement has also multiplied. These disturbing correlations are not sufficient to identify the direction of causation, but they suggest, at a minimum, that the growth of government has not been very effective in resolving these concerns.

The general explanation of this problem is that an "iron triangle" of concentrated beneficiaries, bureaucrats, and politicians exploited a major change in public opinion beginning in the 1930s to shape government policies in their own interests. Though broadly shared concerns were used to rationalize these new policies, these policies are better explained by the hypothesis that the key groups attempted to command more resources through government for their personal ends. Indeed, these groups are better served the worse the problem, since more government resources are then likely to flow in their direction, increasing their power and benefits. This is true until the general public recognizes that the policies may have contributed to the problem or, at least, were not very effective in reducing it.

The Friedmans recommend a set of four constitutional amendments to limit the economic powers of the federal government as a general solution to this situation:

• require a planned balance in the federal budget and limit the tax share of national income;

• give the president an item veto;

• replace the present income tax with a flat-rate tax; and

• require a fixed low rate of growth of the money supply.

They recognize that a broad public understanding and support are necessary both to implement and to sustain such amendments, and they may have contributed to an understanding of these issues more than anyone.

Some new readers of the Friedmans are likely to be shocked. Many conservatives may be outraged by their proposal to legalize drugs. Many liberals may be outraged by their conclusion that "the real threat (to our national security) is the welfare state." Some readers are likely to be surprised that Milton Friedman seems to have changed his earlier position that a tolerance for deficits encourages spending; the evidence bearing on this issue is not conclusive, but I am more inclined to believe his new position.

So far, so good. This new book, however, is weakened by a number of problems. First, the title is misleading. The problems they describe are due more to the "iron triangle" than to a tyranny of the status quo. There is an optimal amount of inertia in any institution. The government would not have grown as fast if there had been greater inertia in the past.

Second, some of the facts are wrong. In general, government domestic spending has not grown less rapidly under the Republicans. The Reagan administration did not increase the trigger prices on steel. The federal government does not subsidize the production of tobacco. One major professional inference, I suggest, is also wrong. The Friedmans attribute the unusually high interest rates and the unusual decline in inflation during the last several years to the unusual variability in money growth. This conjecture has not been confirmed by the empirical literature and is inconsistent with the large increase in the value of the dollar during the same period.

A third problem weakens the Friedmans' presentation: Some of the more striking statements seem overdrawn. One need not assert that "the real threat (to our national security) is the welfare state," or that "crime has risen…largely because of the government's growth," to make the valid points about the relations of these conditions.

Finally, the charge that politicians who vote for both government deficits and a balanced-budget amendment are "hypocrites" seems both unfair and counterproductive. Even the Friedmans, presumably, make use of tax shelters that they would propose be eliminated. The purpose of the constitutional amendments they propose is to make good economic policy safe for politicians.

I wish that this book had been prepared more carefully, because these minor problems may deflect attention from their important central arguments. Their primary contribution is to make the point that some specific changes to our Constitution may be necessary to "secure the blessings of Liberty to ourselves and our Posterity." Right on!

William A. Niskanen is a member of the President's Council of Economic Advisers.