Introduction
Mr. Milton Friedman is a renowned economist who examines the causes
of inflation and how it might be cured. Firstly, he started explaining
how retaining of rent control by the New York authorities after the world
war failed. It all started with good intentions to help the poor citizens
in the Bronx which is one of the boroughs of New York City. But by the
50s the same people were being taxed. He stated that not only Bronx but
also people living beyond East river were being taxed to subsidize Public
housing. It was a good idea but poor people were paying for this
subsidized apartments for wealthy. Its strange that the government is
spending our own money to help us.
1. Medical Aid
In the film, Milton summarizes how welfare scheme like Medical aid
supposedly designed to benefit all the needy doesnt work in some cases.
He speaks to Mr. Richard Brown who works at a local hospital. Mr. Brown
Daughter has been diagnosed with throat infection. He is not eligible
for the medical aid just because he earns a little more than qualified.
But in reality, with the salary he makes he cannot really afford a life,
forget about savings. His family actually live on payday to payday salary.
Whom to blame for this injustice?
Irony is, if Mr. Brown gives up his job he would be eligible for
the medical aid and he can treat his daughter. But at what cost? He has
to lose his dignity and has to abide by the rules and regulations of the
government. Thats how the welfare schemes destroy ones independence.
He is proud of his work but he will not be eligible .But he is determined
to resist the pressure exerted by the schemes. In case if he applies for
welfare scheme, he has to submit saving bonds. He finds it unworthy for
small amount.
Mr. Brown states that he and his friends are better off financially
without working. Even though lot of people are willing to work and are
capable of working, they are just trapped in the setup. And the mother
and children are better off if the husband is not around .So breakups
have become normal in poor families. Thats how the system has been
designed. Eventually, many children who are on welfare schemes end up
in this trap when they grownup.
Mr. Brown wants to stay away from these things because he believes
people on welfare lose their independence and dignity. People become
slaves under dictatorship. Welfare supervisors dictates what to do, what
not to do, whether people can put telephone in house. He dont want to
be treated like children and dont want to be trapped in this system.
He looks for a job which is better than welfare scheme but afraid he may
lose job after six or eight months and end up again on welfare. It has
become a loop and sorry state of affairs.
Mr. Milton also gave insights into how public housing project
failed in England. He spoke to resident named Mr.Ramsay. Mr.Ramsay argues
that state has failed in providing job incentives to people so that they
can take care of their own family instead of somebody else is taking
care of them. He had to collect what is called in Britain as Social
security. That makes him irresponsible and he had to buy clothes or other
things on government support. The government takes care of him and his
family even though he is capable enough .Where does the system fail?
Mr. Milton thinks Mr.Ramsay is right and his family acting very
intelligently and sensibly. It may not do any good to his family if he
works. Its the fault of the system thats why Mrs.Ramsay was reluctant
to blame those who are on welfare schemes.
Mr. Milton also explains what would happen if welfare schemes are
cut off overnight though he dont believe it happens. People would find
a job at some wage, at some level whether desirable or not. They may
depend on charity but he has a little doubt that people would find a job
for living. So he proposes not to appease people beyond limit.
Mr. Milton insists that the results of welfare scheme programs are
disappointing. The basic reason is hard to achieve good objective by bad
means. He spoke about this in the context when government tried to break
away from welfare trend. To get insights into the results he spoke to
Mr. Lawrence Davenport who works for the government.
But Mr. Milton argues that people are unemployed and are being
trained with taxpayers money. And there is no certainty that it would
lead to real job to meet the American dream. The schemes like
Comprehensive Education Training Act (CETA) have high dropout rate and
many trainees end up again on welfare. The men and women who administer
programs like these are highly motivated and dedicated but their
achievements are not good.
One of prime reason for failure of this schemes is some people are
spending other peoples money on third party objectives. He implies
people (government) are not careful enough to spend others money
(taxpayers) on welfare scheme beneficiary. And also it instills Godlike
felling on the part of administration .For those who benefits from
welfare have a feeling of childlike dependence. There is large part of
misuse which causes society to divide.
In the 50s the government planned to pull down large slum areas
and rebuild using government funds under urban renewal program. It
started with a desire to integrate blighted areas with others. Taxpayers
money was used to tear down the area that caused damage to local shops
and business with low income. But once the area was cleared, private
money poured to build shopping complexes, apartments and townhouses.
They cleared the blighted area here but it shifted to elsewhere.
It shows that the government funds has been largely diverted and
does not reach directly to the people. In this case it ended up in the
hands of Woodlawn organization. They used these funds to build the houses
however they want. The intention of the government was good but
government money is always corrupt. They built houses for middle class
with high level of security systems .All at the expense of taxpayers
money. Who is responsible?
Mr. Milton speaks to Mr. Robert Foster who takes care of
construction. Mr. Robert tells Mr. Milton that he was building this site
form the past few months .He would bring people who are unemployed and
give them an apartment at taxpayers money .These people would take of
the area around and give job as a worker to build the remaining areas .So
that they can drop welfare. Its very in efficient way of use of money.
But its the government which decides what to do.
He concludes that its not the ideal system which we might have
liked to get into. It is the system where we dont have fear of losing
jobs because anytime we get onto welfare. It is a system which divides
the social fabric of togetherness. It is system where there is no account
of those who pay and those who are paid rightfully. He hopes it would
be a system which give all of us equal right to improve the lives and
enable us to work ourselves. He believes people have become largely
dependent on government. Much of the spending has been wasted as we
surrendered power to the government. The government policy of doing good
with others has simply not worked.
5.1 Inflation
Mr. Milton started explaining how use of money for raw materials
caused inflation in Sierra Nevada in California. In the beginning very
less amount of people were living in that area. But people started
pouring in once the discovery of gold in the region. It was filled with
prostitutes and gamblers over time. People used to pay with gold for
almost everything. There was no real value for gold as there was abundant
of gold available to everybody. They built their houses with gold and
became rich very quickly. But once gold exhausted, the same cities become
ghost cities .whats the reason? People are unaware that prices of goods
and services overtime has been increased relatively to gold. People
cannot eat gold .isnt it?
With many sacrifices, the gold was transported to other places only
to bury again in the bank lockers underground .Thats means scaling of
raw materials like gold with money has failed in the beginning. Not only
gold, rock salt in African countries, Crocodile money in
malaria .Everything has been used as money.
Why it works?
This is the most common method used. Pegging the value of currency
to low inflation country. Sometimes pegging the exchange rate at a fixed
value of that of other country make the inflation rate to gravitate to
other country. Allowing the currency to depreciate at a steady rate with
other country makes inflation rate higher than other country.
More than a dozen countries outside the European Union have their
currencies pegged to the euro and enjoy financial stability in terms of
predictable exchange rate fluctuations while the euro provides shelter
against unexpected drops of their national currencies. Bosnia has pegged
its currency to a fixed rate with German mark. In 1987 France inflation
rate was higher than Germany inflation rate. But by tying its currency
closely with German mark, it has been successfully reduced inflation.
By 1992, both Germany and France has almost same inflation rate.
Fiscal policies
Monetary targeting
Inflation targeting
The strategies discussed above may or may not work for all the
countries around .But it make sense to have a brief idea of mechanisms
that has been used by some countries which believe in those strategies.
Many of the German monetary target regime policies are key elements in
other countries.