Following the American Psychological Association’s Guidelines
Milton Friedman expresses his ideas about government interference to free market economy and he claims that it has a negative effect on economy. At the time this video recorded, there was an inflation problem. The Government and the producers at this time indicated the very high personal expenditures as the main reason for the inflation and they expressed that the consumption at this time had to be decreased as an economic policy recommendation. Friedman rejects this idea and contrary to this idea he claims that the government’s economic policy and the suppliers’ price policy are the main reasons behind the inflation problem. The government had an expenditure level exceeding the government income. To cover the budget deficit, borrowing money from the financial system had been a necessity which caused an increase in the demand for the credits in the economy. In another word, the cost of using finance (interest rates) increased and this increase had a reflection on the level of the general prices for all goods and services in the country, because capital is an important input which has a large effect on production costs.
Friedman raises another issue about the government interference: When a government tries to control economy or free markets, there exists a cost of controlling; this government needs a costly organization to do this task. Addition to this, there is another very big risk; this organization should be able to understand what public thinks about government interference, any failure in understanding might cause an unpleasant situation for people. Because of this, the design of this organization is very essential point. Friedman’s view on this is negative. He finds the government interference negative and one of his reasons for this is the costly organization and the design of this organization.
Another reason behind the inflation was the suppliers’ price policy according to Friedman. The sellers, most of the time, want to sell their products at higher prices and they have always some excuses for this (Entrepreneurship profit, stimulating entrepreneurship, stimulating economy etc.), and according to Friedman that was the thing happened at this time. Friedman in the video gives a nice example on this; producers generally expresses that old products are not good and safe, thus people need to buy new ones, however, these new ones are always more expensive. The suppliers truly desire higher prices for their products, and that is one of the most important reasons causing inflation.
