Take it to the Limits: Milton Friedman on Libertarianism

Milton Friedman, Hoover Institution, February 10, 1999

BREATHING LESSONS

ROBINSON I want to push you one more time on the environment- air. Here in California it turns out there are 30 million people who like to breath. And we have, particularly in the L.A. basin, smog beginning in the 1970's that the environmental movement begins to...

FRIEDMAN Oh no, the smog went back 200 years. There are stories of the Indians describing that as a smoggy area.

ROBINSON So part of what's going on is it's natural.

FRIEDMAN But no doubt, the thing about that is there is an argument for government requiring those who impose costs on third parties to pay for them. And the point is with respect to smog, the efficient way to do it is to use the market.

ROBINSON How do you create property rights in the air, say?

FRIEDMAN When you do it now, by selling the right to emit a certain amount of pollutants into the air. You now have a market in effluent rights.

ROBINSON For large manufacturing concerns...

FRIEDMAN For manufacturing concerns, which is where most of it comes from. And you do the same by charging essentially making it requirement that automobiles have to have [ROBINSON The catalytic convertors] Catalytic convertors and that's effectively making individuals be responsible for costs they impose others.

Remember what I said is- the key feature of a libertarian view is that you should be free to do what you want provided you don't prevent other people from doing the same thing. And so the only case for government is when it is not feasible for market arrangements to make individuals pay, to compensate others for any harm they impose on them. If you and I enter into an agreement to buy or sell something, well that's our business. You may lose, I may lose, or more likely we're both going to win. We're not going to enter into it unless both of us think it's better for us.

But there are cases like the power plant that emits smoke that dirties my shirt in which the company is imposing a cost on me for which I'm not being compensated. Those are the only cases, but you have to qualify that by noting that when government enters in, it also is emitting smoke, it's also imposing cost on third parties because it's always a very imperfect arrangement and moreover it always has to collect taxes and the process of collecting taxes is, as I always say, there's a smokestack on the back of every government program.

ROBINSON A smoke stack on the back of every government program - by that you mean, a distortion in the marketplace...

FRIEDMAN Right, imposing a cost on third parties for which the third parties are not compensated.

ROBINSON And so the key characteristic in which you find a circumstance where it's legitimate for the government to intervene would typically be where property rights are vague or diffuse, is that correct?

FRIEDMAN And where it's almost impossible to make them precise. That is a problem in the case of the power plant is that there is no way in which you can say you have to get the agreement of each of the persons whose shirt your going to dirty and pay him for the privilege of dirtying their shirt before you can do it.

ROBINSON So on the environment, the greens actually do have a point, that is one area where there is a strong case...

FRIEDMAN But in most cases in practice, when you look at it, and there are some people up at PERC as you know who have Terry Anderson, who I'm sure has been on your program, who have demonstrated that there are many many cases in which market arrangements are far more effective than command and control arrangements.