Tape 44 - Bond Market Turn Debt Bankruptcies
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- | Hello, this is William Clark of the Chicago Tribune. | 0:02 |
Welcoming you on behalf of Instructional Dynamics | 0:04 | |
to another visit with the eminent economist | 0:08 | |
Dr. Milton Friedman of the University of Chicago, | 0:10 | |
and we're visiting on Thursday, February 26, | 0:13 | |
and Dr. Friedman, | 0:17 | |
what's new and startling in the economy today? | 0:18 | |
- | Very little. | 0:21 |
We're now in one of those stages | 0:23 | |
in the economic situation | 0:25 | |
in which there's not likely | 0:28 | |
to be anything drastically new for some time. | 0:29 | |
In general, | 0:33 | |
the economy has a great deal of inertia. | 0:35 | |
Once it starts moving up | 0:38 | |
it tends to keep on moving up. | 0:40 | |
Once it starts moving down | 0:41 | |
it tends to keep on moving down. | 0:42 | |
This is the element of truth | 0:44 | |
in the Dow theory in the market. | 0:45 | |
The time when | 0:48 | |
there's something interesting to talk about | 0:50 | |
more or less every week or two weeks | 0:52 | |
on the economy itself, is when your in one of your | 0:54 | |
one of the turning points | 0:56 | |
either at the top or the bottom | 0:58 | |
and the question is, | 1:00 | |
are we going to continue up | 1:01 | |
or are we gonna turn down. | 1:02 | |
That was the case at the end of last year | 1:04 | |
but by now, | 1:06 | |
almost everybody will accept the view | 1:07 | |
that the economy is distinctly in the stage, | 1:10 | |
in a slow down, | 1:13 | |
the only argument is | 1:15 | |
over the word that you use to describe it | 1:16 | |
whether you call it a slow down | 1:19 | |
or rolling readjustment, | 1:21 | |
a recession, and so on. | 1:23 | |
For my sake as the subscribers know, | 1:25 | |
I have been anticipating and expecting a clear, | 1:28 | |
definite recession by any definition of that term | 1:32 | |
and it seems to me that the evidence | 1:36 | |
increasingly is accumulating and that | 1:38 | |
that is the case. | 1:41 | |
Output is slowing down | 1:42 | |
and will very likely fall this quarter. | 1:45 | |
Well that kind of a pattern | 1:47 | |
is going to continue for the next six or nine months, | 1:48 | |
there's gonna be very little | 1:51 | |
new about it week by week | 1:52 | |
except for further confirmatory evidence. | 1:55 | |
The only question at issue | 1:57 | |
on the pattern of the economy, | 2:00 | |
will be just how severe it is, | 2:03 | |
and here the problem will be | 2:05 | |
that the various indicators | 2:08 | |
may not speak with a single voice. | 2:09 | |
One of the puzzling features | 2:12 | |
of the development so far | 2:13 | |
has been the behavior of unemployment as recorded, | 2:14 | |
because by previous episodes, | 2:18 | |
the unemployment figure | 2:21 | |
should today be higher than it is, | 2:22 | |
to be consistent with what's been happening | 2:25 | |
to other magnitudes such as industrial production and so on. | 2:27 | |
One possible explanation is the change | 2:31 | |
in the method of calculating unemployment. | 2:33 | |
The kind of questions that we're asked | 2:36 | |
were changed a couple years ago | 2:37 | |
and we do not have any experience | 2:39 | |
with exactly how that works under conditions | 2:41 | |
of growing unemployment. | 2:43 | |
So it may be, | 2:44 | |
that the unemployment figures | 2:46 | |
will not behave this time as they have in the past. | 2:48 | |
That in some ways would be a very good thing. | 2:50 | |
The best thing in the world, | 2:53 | |
from the point of view of sensible policy | 2:55 | |
would be for the economy to slow down decidedly, | 2:56 | |
but for the unemployment figures not to show any (chuckles). | 2:59 | |
- | (laughs) Yes! | 3:00 |
- | The question is what should we look for? | 3:05 |
When is there going to be some news | 3:08 | |
or something of interest? | 3:10 | |
And it seems to me the main thing one should look for | 3:11 | |
in terms of the economy is first of all, | 3:14 | |
how severe the recession becomes as it develops, | 3:16 | |
and second, | 3:20 | |
which of two patterns of response you have | 3:22 | |
on the part of the monetary and fiscal | 3:24 | |
authorities of the administration in Washington. | 3:27 | |
As I've emphasized before, | 3:30 | |
as the recession deepens toward | 3:32 | |
April, May, June, | 3:36 | |
and it becomes clearer and clearer | 3:38 | |
that you are in a significant recession, | 3:40 | |
there will be increasing pressure | 3:42 | |
brought to bear upon the administration | 3:44 | |
to move in a direction to offset this recession. | 3:47 | |
This is already showing up in the tendency | 3:51 | |
for Paul McCracken, Arthur Burns, and others | 3:53 | |
to be poopooing the talk of recession. | 3:56 | |
I find myself not in very much sympathy with that. | 3:58 | |
I can understand the motive of it, | 4:01 | |
they don't want people to get frightened and so on. | 4:03 | |
But nonetheless it seems to me it's better to be | 4:05 | |
open above board about this and I would not myself | 4:08 | |
feel that that's the best tactic | 4:12 | |
but fortunately I'm not in the position to decide that. | 4:14 | |
At any rate, | 4:17 | |
as the recession deepens | 4:19 | |
and it becomes clearer that it is deepening, | 4:20 | |
there will be enormous pressure on the administration | 4:23 | |
to react to it, | 4:25 | |
especially with the Congressional elections | 4:27 | |
coming up. | 4:29 | |
If the administration does that, | 4:30 | |
if it follows the same policy that was followed | 4:33 | |
in 1967, | 4:39 | |
when earlier than that in 1961, | 4:41 | |
and earlier than that in 1958, | 4:44 | |
if it follows the policy of overreacting, | 4:46 | |
which on the basis of past experience | 4:49 | |
is what you might expect, | 4:51 | |
then we're off to the races again. | 4:52 | |
Then we will in 1971 | 4:54 | |
be off on another inflationary binge, | 4:57 | |
in that case, | 4:59 | |
you can be sure that the | 5:01 | |
slowing down of inflation | 5:03 | |
will turn out to have been temporary | 5:04 | |
as it was in 1967, | 5:06 | |
in that case the level of interest rates | 5:08 | |
over the next five or six or seven years | 5:11 | |
will be decidedly higher than it has been last year, | 5:12 | |
and we haven't seen anything yet. | 5:16 | |
On the other hand, | 5:18 | |
if the administration can keep its cool, | 5:19 | |
if it can hold to a moderate policy, | 5:22 | |
to a policy that's expansionary enough | 5:24 | |
to enable the economy to come out of the recession | 5:27 | |
but not so expansionary as to start another | 5:30 | |
bout of inflation, | 5:33 | |
then I think the prospects are much more promising | 5:34 | |
in that case the recession will drag on a little longer | 5:36 | |
but it will be followed by a healthy | 5:40 | |
economic expansion without a major price inflation. | 5:41 | |
In that case interest rates | 5:45 | |
over the next decade will be | 5:46 | |
decidedly lower than they are now. | 5:48 | |
So, | 5:50 | |
it seems to me that the thing to watch for | 5:52 | |
is which of these two scenarios | 5:55 | |
and which of these two patterns develops | 5:57 | |
over the next six or nine months. | 5:59 | |
That's not going to be apparent | 6:01 | |
from a week to week evidence, | 6:02 | |
it's going to be apparent only | 6:04 | |
as the recession develops | 6:09 | |
and as March, April, May, and June come on. | 6:10 | |
So I warn the subscribers | 6:12 | |
that there will probably be very little new | 6:14 | |
on this particular front to report every two weeks. | 6:17 | |
- | I see. | 6:21 |
Dr. Friedman, I wonder if since the last time we talked, | 6:22 | |
have there been any further signs of monetary ease? | 6:24 | |
What about the bond market? | 6:27 | |
- | Well, on the monetary side | 6:29 |
there have been no further signs of ease. | 6:31 | |
I believe, | 6:33 | |
as I emphasized before that there has been some change | 6:34 | |
in federal reserve posture. | 6:37 | |
But as yet, it has not shown up | 6:39 | |
in a decided way | 6:41 | |
in the figures on money supply. | 6:43 | |
After the temporary bulge | 6:45 | |
which occurred during January, | 6:47 | |
a very sharp bulge, | 6:48 | |
- | Yes. | 6:50 |
- | The money supply figures have now come back again | 6:50 |
and for three weeks have been in the range | 6:53 | |
that they have been in since last May. | 6:55 | |
However, | 6:58 | |
as I've indicated before this may be a little misleading | 7:00 | |
because, | 7:03 | |
precisely because of what you raise about the bond market. | 7:04 | |
At times like this | 7:07 | |
there is a natural tendency | 7:09 | |
for interest rates to be falling. | 7:12 | |
As a result of the fact | 7:14 | |
that business conditions are deteriorating, | 7:16 | |
the demand for loans is going down, | 7:18 | |
and this tends to lower interest rates. | 7:20 | |
At such times, | 7:22 | |
given the unfortunate way in which | 7:24 | |
the federal reserve system operates, | 7:26 | |
its automatic tendency is to reduce | 7:28 | |
the quantity of money, | 7:30 | |
because it operates in such a way | 7:31 | |
as to lean against interest rates | 7:33 | |
and to keep them from declining. | 7:35 | |
The automatic effect of that is | 7:37 | |
that it naturally, | 7:39 | |
when there is downward pressure on interest rates, | 7:40 | |
it tends to pull money out of the system | 7:44 | |
and to produce a decline in the quantity of money. | 7:47 | |
Well now I therefore interpret | 7:50 | |
the fact that the quantity of money | 7:52 | |
has been relatively stable these past few weeks | 7:53 | |
as the sign that there is on the one hand | 7:56 | |
the automatic tendency to pull it down | 7:59 | |
on the other the Fed has really shifted its posture | 8:01 | |
and is trying to hold it up. | 8:03 | |
But working as it does | 8:05 | |
with these obsolete techniques it has in New York, | 8:06 | |
linked to the interest rate | 8:10 | |
rather than to the quantity of money. | 8:11 | |
It has only been offsetting its perverse tendencies | 8:13 | |
(chuckles) | 8:17 | |
- | (laughs) | |
- | and sort of it has been running | 8:18 |
as hard as it can to stay still. | 8:19 | |
So I expect as this becomes clearer, | 8:21 | |
I am still of the opinion | 8:25 | |
that we have had a real change | 8:27 | |
in the aims and objectives of the monetary authorities, | 8:29 | |
and then we are going to see | 8:32 | |
over the next quarter or two quarters, | 8:34 | |
a moderate growth in the money supply. | 8:37 | |
We're going to see it move away from | 8:39 | |
a zero percent rate of growth in the money supply. | 8:41 | |
So far as the bond market | 8:44 | |
and the interest rate market is concerned, | 8:45 | |
of course in the past few weeks | 8:48 | |
there has been a very sharp rise in the bond market, | 8:49 | |
a very appreciable and significant decline in | 8:52 | |
short-term interest rates. | 8:55 | |
As I've indicated before | 8:57 | |
it's always possible that this will | 8:59 | |
turn out to be another temporary decline | 9:01 | |
but since, | 9:03 | |
the whole cyclical picture calls for a decline in rate, | 9:06 | |
there may be a temporary reaction to this | 9:11 | |
once you have so large a move | 9:14 | |
there is often a technical reaction | 9:15 | |
that carries it back a little | 9:17 | |
but I'm of the opinion | 9:18 | |
that the turn has probably come, | 9:20 | |
and that the next three or four months | 9:22 | |
will see a continuing decline | 9:23 | |
in both long interest rates and short interest rates. | 9:26 | |
- | Dr. Friedman I'd like to encourage you to talk about | 9:30 |
a completely different subject if I could. | 9:32 | |
I know that you'll remember of the President's | 9:35 | |
voluntary armed force commission, | 9:37 | |
and that the commission issued its report | 9:40 | |
I believe, | 9:43 | |
just two or three days ago, | 9:44 | |
and it seems to me that this is of great interest | 9:46 | |
not only to a person who is subject to military service, | 9:50 | |
but to businesses who employ people | 9:54 | |
who are subject to military service, | 9:58 | |
therefore this is a concern of business | 10:00 | |
and I wonder if you'd comment on that for us? | 10:02 | |
- | I'd be very glad to | 10:05 |
because I must say it is a subject | 10:06 | |
in which I have personally | 10:07 | |
been extremely interested and involved | 10:09 | |
for a very long time. | 10:11 | |
I was among those who in 1964 | 10:12 | |
in the campaign at that time, | 10:16 | |
helped encourage Senator Goldwater | 10:19 | |
in the course of his presidential campaign, | 10:22 | |
to come out with a commitment | 10:24 | |
to move to a volunteer armed force. | 10:27 | |
This commitment by Goldwater in 1964 | 10:31 | |
was reacted to by President Johnson | 10:34 | |
by immediately appointing a special committee | 10:37 | |
to investigate the feasibility of a volunteer armed force. | 10:40 | |
This established a study group | 10:44 | |
within the Pentagon, | 10:46 | |
which, subsequently came out with a report | 10:47 | |
on the costs and possibilities. | 10:51 | |
I think came out with a report - that's wrong. | 10:55 | |
This is I think one of the most disgraceful episodes | 10:57 | |
in governmental activity that I know of. | 11:00 | |
It produced a report. | 11:02 | |
The report was suppressed. | 11:04 | |
Because it came out with the wrong conclusions. | 11:06 | |
The conclusions of the original report was | 11:10 | |
that it was perfectly feasible | 11:12 | |
for a relatively moderate budgetary increase in cost | 11:13 | |
to move to a volunteer force. | 11:17 | |
The powers that be | 11:19 | |
did not want to move to a volunteer force | 11:20 | |
after the election | 11:22 | |
after Johnson won the election in 1964. | 11:24 | |
The Pentagon and the Armed Forces | 11:27 | |
did not want to do so, | 11:28 | |
and the result was | 11:30 | |
that you had an original report | 11:31 | |
which came out with estimates | 11:33 | |
somewhere in the neighborhood | 11:35 | |
of four to six billion dollars | 11:36 | |
at that time the extra budgetary costs, | 11:37 | |
pay costs of moving to a volunteer force. | 11:40 | |
That report was suppressed. | 11:44 | |
It still has not been published in full. | 11:45 | |
Some of it was presented | 11:48 | |
before Congressional hearings, | 11:49 | |
and then you had an account | 11:51 | |
corresponding to the escalation | 11:53 | |
on the war in Vietnam, | 11:54 | |
you had an escalation of these cost estimates. | 11:56 | |
And gradually every time McNamara talked | 11:58 | |
to one of the Congressional committees | 12:01 | |
he gave a different number, | 12:02 | |
and gradually the range which had originally | 12:03 | |
been four to six billion | 12:05 | |
ended up as four to seventeen billion dollars. | 12:06 | |
Seventeen billion dollars was an absolutely | 12:09 | |
fictitious figure | 12:11 | |
for which there was no basis whatsoever. | 12:12 | |
Well this is the background | 12:15 | |
of how this got started | 12:16 | |
and it's relevant to our report | 12:18 | |
because our commission had a research staff | 12:21 | |
working for a year | 12:23 | |
on the various aspects of the problem. | 12:25 | |
The major participants in which | 12:27 | |
were the people who wrote that 1964 (laughs) | 12:29 | |
- | (chuckles) | 12:30 |
- | who did that 1964 report, | 12:31 |
because we went out and got the best experts | 12:34 | |
we could get on it | 12:36 | |
and the best experts were those | 12:37 | |
who had been involved in that report. | 12:39 | |
The pressure for volunteer forces continued. | 12:45 | |
President Nixon and his campaign, | 12:48 | |
like Mr. Goldwater before him, | 12:52 | |
also came out and committed himself | 12:55 | |
to moving to a volunteer force | 12:57 | |
as soon as pressures in Vietnam came off | 12:58 | |
and one of the early acts which he took | 13:01 | |
was to appoint the commission | 13:04 | |
of which | 13:09 | |
I served as one member | 13:10 | |
it was headed by Tom Gates, | 13:11 | |
who was Secretary of Defense | 13:13 | |
under Eisenhower | 13:17 | |
and at present is a chairman of the board | 13:19 | |
for Morgan Guaranty Trust Company, | 13:21 | |
which is headed by Tom Gates. | 13:23 | |
It had on it two generals - | 13:25 | |
General Lauris Norstad | 13:27 | |
and General Al Gruenther. | 13:29 | |
In addition to Gates, | 13:32 | |
there were two other, | 13:34 | |
at least two other businessmen Fred Dent, | 13:35 | |
who was a textile manufacturer, | 13:37 | |
and Crawford Greenewalt, | 13:40 | |
who was a former head of Dupont. | 13:43 | |
Several (mumbles) people from labor unions. | 13:45 | |
Very wide ranging group of people. | 13:49 | |
Fifteen people in all. | 13:51 | |
I cite this because to begin with | 13:53 | |
there was nothing like unanimous agreement. | 13:55 | |
On the contrary, | 13:58 | |
especially Tom Gates, | 13:59 | |
with his background in the military | 14:01 | |
was very skeptical about the possibility | 14:03 | |
of a volunteer armed force. | 14:05 | |
The two generals were naturally very skeptical | 14:07 | |
because of the position of the armed force. | 14:09 | |
And the striking and impressive thing | 14:11 | |
is that the report we presented | 14:15 | |
to the President last Saturday, | 14:17 | |
is unanimous and it is a strong report. | 14:19 | |
It is a unanimous report and a strong report | 14:22 | |
in which I might cite the key sentence. | 14:25 | |
The key sentence to this is, "That we unanimously | 14:28 | |
believe that the nation's interests will be | 14:31 | |
better served by an all volunteer force, | 14:33 | |
supported by an effective standby draft, | 14:35 | |
than by a mixed force of volunteers and conscripts. | 14:39 | |
That steps should be taken promptly | 14:42 | |
to move in this direction | 14:43 | |
and that the first indispensable step | 14:45 | |
is to remove the present inequity | 14:47 | |
in the pay of men serving in their first term | 14:49 | |
in the armed forces." | 14:51 | |
- | You read that from the report? | 14:52 |
- | I read that from the report. | 14:54 |
The report will now sharply be widely available. | 14:55 | |
The point I think that is most interest | 14:58 | |
to the subscribers here. | 14:59 | |
I think there are two points that I would like | 15:01 | |
to stress for 'em. | 15:03 | |
The first is the difference between | 15:05 | |
budgetary cost and real cost to the nation | 15:08 | |
and the second is | 15:11 | |
the effect on the | 15:12 | |
on the labor market and on the availability of men. | 15:15 | |
One of the problems | 15:19 | |
in the case of the volunteer force, | 15:20 | |
one of the things that impressed me most, | 15:22 | |
as I went over this | 15:25 | |
and as my comments earlier made clear, | 15:26 | |
I have been a proponent of the volunteer force | 15:28 | |
for many years. | 15:30 | |
But although I have been a proponent of it, | 15:32 | |
although I had thought I was pretty expert on | 15:34 | |
all of the facts about it | 15:37 | |
and have done a great deal of work on it, | 15:39 | |
I learned a great deal out of the work | 15:42 | |
of our research group, | 15:43 | |
and in particular what impressed me, | 15:45 | |
was the demonstration | 15:47 | |
of how inefficient slave labor is. | 15:49 | |
We all know that slave labor is very inefficient. | 15:51 | |
And I was enormously impressed | 15:55 | |
by how inefficient it is | 15:57 | |
in the case of the armed forces. | 15:58 | |
Now I hope subscribers will pardon me | 16:00 | |
for using the term slave labor, | 16:03 | |
that is as an accurate descriptive term | 16:04 | |
what conscripted people in the armed forces are. | 16:07 | |
They are men who are compelled | 16:09 | |
by involuntary servitude | 16:11 | |
to go in to the armed force. | 16:13 | |
Now, what happens. | 16:15 | |
We bring young men in under conscription | 16:16 | |
for two year term of service. | 16:20 | |
First six months is largely spent in training 'em. | 16:23 | |
Maybe we get a year of service out of 'em | 16:27 | |
and then the last six months | 16:29 | |
is spent on all of the bureaucratic processes | 16:30 | |
of separating 'em from the service. | 16:33 | |
So you are lucky if out of two years | 16:35 | |
for which you're getting service, | 16:37 | |
you get one year | 16:39 | |
of effective military operation. | 16:41 | |
In addition, | 16:43 | |
other people have to be devoted | 16:45 | |
to training 'em for the first six months. | 16:47 | |
Very few of those who are conscripted reenlist. | 16:49 | |
Volunteers of a much larger number reenlist. | 16:53 | |
The combined result of this is | 16:56 | |
that to get a given effective armed force, | 16:58 | |
you're given an effective number of people | 17:01 | |
who are capable of having guns in their hands | 17:03 | |
or being in planes | 17:06 | |
and being on the final battlefield, | 17:07 | |
requires a much larger number of men | 17:10 | |
in the armed services as a whole | 17:13 | |
and a much more rapid flow through | 17:15 | |
than if | 17:19 | |
you have a volunteer force | 17:20 | |
in which people enter who are interested | 17:21 | |
in going into the career, | 17:23 | |
who are more likely to reenlist | 17:25 | |
to stay in for longer terms, | 17:27 | |
you have less training and turnover. | 17:28 | |
And this aspect of the thing means | 17:30 | |
that from the point of view of the nation, | 17:32 | |
the actual cost of a volunteer service, | 17:36 | |
in terms of manpower, | 17:39 | |
in terms of its effect on productivity, | 17:40 | |
in terms of its effect on the labor force, | 17:42 | |
is very much less | 17:44 | |
than the cost of a conscripted army. | 17:46 | |
The only reason why in terms of budget expenses | 17:50 | |
a conscripted army looks cheaper, | 17:53 | |
is because you so grossly underpay | 17:56 | |
the men who are conscripted. | 17:58 | |
In effect, what happens | 18:00 | |
is that a man who is conscripted is taxed. | 18:01 | |
The tax ENCON. | 18:04 | |
Here is a man who could earn $5,000 in civilian life | 18:06 | |
and you force him | 18:09 | |
under threat of going to jail | 18:10 | |
to work for about $2,500. | 18:12 | |
Well he is paying a tax of the difference | 18:16 | |
between those two | 18:18 | |
to the government only it doesn't enter | 18:19 | |
into the government books as a receipt. | 18:22 | |
It doesn't enter into the government books | 18:23 | |
as an expenditure | 18:25 | |
and that's the only reason why it appears artificially | 18:26 | |
that the volunteer army is more expensive | 18:30 | |
than a conscripted army | 18:34 | |
and in every real sense of the term | 18:36 | |
it's much cheaper as you can see from this. | 18:38 | |
Let me illustrate in figures. | 18:40 | |
We considered a range | 18:42 | |
of possible sizes in the armed forces. | 18:44 | |
Let me take the mid range | 18:46 | |
of a force which with volunteers and conscripts | 18:47 | |
with our present method of conscription | 18:50 | |
would be about a two and a half million manned force. | 18:53 | |
In order to maintain that size military force, | 18:56 | |
you would need | 18:59 | |
to have each year about 440,000 men per year. | 19:02 | |
That's the turnover to keep it maintained. | 19:06 | |
If you have a volunteer force, | 19:09 | |
you need only three quarters as many men per year | 19:12 | |
or about 330,000 men per year. | 19:14 | |
Now let me put that in a different way. | 19:17 | |
Under present circumstances with a bigger armed force | 19:19 | |
we have about 500,000 people each year who volunteer. | 19:22 | |
But of course that's a fake | 19:26 | |
because a large number of people volunteer | 19:28 | |
only under the threat of the draft | 19:30 | |
and would not do so. | 19:32 | |
We've made the best estimates we could | 19:33 | |
and we estimate | 19:34 | |
that at least 250,000 people a year | 19:36 | |
volunteer - | 19:39 | |
are true volunteers, | 19:42 | |
that they would volunteer | 19:44 | |
even if there were no draft. | 19:45 | |
Now that means | 19:48 | |
that to maintain a two and a half million manned force | 19:49 | |
on a conscripted basis, | 19:52 | |
in addition to the 250,000 who volunteered, | 19:54 | |
you'd have to conscript and force in to service | 19:56 | |
190,000 people each year. | 19:58 | |
On the other hand, | 20:02 | |
in order to have a volunteer force | 20:03 | |
you only have to attract | 20:05 | |
about 80,000 additional people each year to volunteer. | 20:07 | |
So we're in the position now | 20:12 | |
of forcing into the armed forces | 20:13 | |
two to two and a half times | 20:16 | |
the number of additional people | 20:18 | |
you would have to induce to volunteer. | 20:19 | |
That's why | 20:21 | |
the difficulty of getting to a volunteer armed force | 20:22 | |
are much less than people believe. | 20:25 | |
In fact | 20:27 | |
the main conclusion I came to | 20:28 | |
was here I, | 20:30 | |
a staunch proponent of a volunteer force, | 20:31 | |
had been grossly overestimating how much | 20:33 | |
of a problem it was to get to it. | 20:35 | |
- | (chuckles) | 20:36 |
- | And the reason it appears to be so much of a problem | 20:37 |
is because it looks as if you get to get all | 20:40 | |
those men going through this crazy process | 20:41 | |
whom you now go through | 20:44 | |
because of its great inefficiency. | 20:46 | |
Well now if you go beyond this | 20:48 | |
and say well now | 20:50 | |
what about the effect on the labor force in general, | 20:51 | |
under our present method of conscription, | 20:53 | |
first of all | 20:56 | |
you have all of these additional people | 20:56 | |
who have two years taken out of their lives | 20:58 | |
and go through the armed force process, | 21:00 | |
but second, | 21:02 | |
you have the great disruption on the part of everybody else. | 21:03 | |
Because of the fear of the draft | 21:06 | |
you have kids going to college | 21:08 | |
who have no business being in college, | 21:09 | |
who would not otherwise go to college, | 21:11 | |
and who are not available for working in business. | 21:12 | |
Because of the threat of the draft, | 21:16 | |
you have people going in to occupations | 21:19 | |
they would not go in to | 21:21 | |
in order to get deferment. | 21:22 | |
You have employers who are hesitant to hire people | 21:24 | |
because they may any day be drafted off | 21:27 | |
and therefore they use 'em in less efficient ways. | 21:29 | |
So in addition to the men | 21:31 | |
who actually ever serve in the armed forces | 21:32 | |
you have a disruption in the labor market in general | 21:35 | |
for the rest of the economy | 21:38 | |
that you cannot use more efficiently. | 21:40 | |
So a move to a volunteer force | 21:42 | |
would mean that a much smaller number of men | 21:44 | |
would have to go through the armed force, | 21:47 | |
but in addition, | 21:49 | |
it would improve the efficiency | 21:53 | |
of the operation of the rest of the labor market | 21:55 | |
and the economy as a whole | 21:59 | |
by eliminating this irrelevant disturbance. | 22:01 | |
I may say, I speak with feeling about this | 22:04 | |
partly as a member of the university | 22:06 | |
and academic community. | 22:09 | |
I believe, without question, | 22:10 | |
that a major source of the problems on the campuses | 22:12 | |
has been the draft. | 22:15 | |
Now of course that can't be the only source. | 22:17 | |
Because you have had campus disruptions | 22:20 | |
all over the world. | 22:21 | |
You've had it in Japan, | 22:22 | |
you've had it in France, | 22:23 | |
you've had it in Germany and Britain, | 22:24 | |
and in none of those cases | 22:26 | |
has a draft been a serious problem. | 22:28 | |
But in the United States | 22:30 | |
I think the draft has made the situation much worse, | 22:33 | |
And one of the most important things | 22:37 | |
that impresses me | 22:39 | |
is that I have observed | 22:40 | |
some of these campus disruptions. | 22:41 | |
I have been enormously impressed | 22:43 | |
with the entrepreneurial ability | 22:45 | |
of some of the young men | 22:47 | |
who are leading those disruptions. | 22:48 | |
And I think that those are just precisely | 22:50 | |
one of the reasons they're | 22:53 | |
wasting their entrepreneurial talent | 22:55 | |
in that socially disruptive way, | 22:57 | |
instead of going in to business | 22:58 | |
and making some money, and putting it to good use, | 23:00 | |
is because the draft has driven 'em into colleges | 23:02 | |
where they don't want to be. | 23:05 | |
They would much rather be in the business world | 23:06 | |
and now they've got all this entrepreneurial talent | 23:08 | |
and they gotta use it in some direction | 23:10 | |
and so they tend to use it in disruption. | 23:12 | |
Well I think that there's not doubt | 23:14 | |
that our situation in the academy | 23:16 | |
and the colleges and universities would be far better | 23:18 | |
with a volunteer force. | 23:21 | |
- | Dr. Friedman that's very interesting. | 23:22 |
I think the questions is though | 23:24 | |
regardless of the merit of these arguments, | 23:25 | |
what about the political feasibility? | 23:28 | |
- | Well it's very hard to say anything | 23:30 |
very certain about that | 23:33 | |
but I am quite optimistic | 23:35 | |
that the situation is first | 23:38 | |
that the real alternative you face | 23:41 | |
are either to renew the draft, | 23:44 | |
because under present law it expires | 23:46 | |
on June 30, 1971, | 23:49 | |
or to move in the direction of a volunteer force. | 23:53 | |
Now, our studies show | 23:58 | |
that the problem of moving in a direction | 24:00 | |
of a volunteer force | 24:02 | |
are much less serious than had been supposed before | 24:03 | |
as I was indicating I myself was impressed by that. | 24:07 | |
If you take even our numerical estimates | 24:09 | |
again, | 24:14 | |
taking the two and a half million manned force, | 24:14 | |
which I may say, | 24:17 | |
appears to be the force that the Pentagon's plannings | 24:19 | |
are more or less based on, | 24:22 | |
although they will never say so publicly, | 24:24 | |
but if you look at the budget they've submitted | 24:25 | |
to Congress and so on | 24:27 | |
that seems to be the direction in which they're headed. | 24:29 | |
If you look at that force | 24:31 | |
we estimated that the actual | 24:33 | |
total budgetary expense | 24:36 | |
of moving to that, | 24:39 | |
would be in the neighborhood | 24:40 | |
of a little over $3 billion, about $3.3 billion. | 24:42 | |
But part of that would be in the form of higher pay | 24:46 | |
because the main thing you need to do | 24:48 | |
is to raise the disgracefully low pay, | 24:49 | |
for people in the first two years of service. | 24:52 | |
It's a very interesting thing | 24:55 | |
if you compare the pay profiles | 24:56 | |
of men in the armed forces with men in civilian life, | 24:58 | |
it turns out | 25:01 | |
that once you get beyond two years of service, | 25:03 | |
the current pay in the armed forces | 25:06 | |
looks to be in the same order of magnitude | 25:09 | |
as the pay in civilian life. | 25:11 | |
And this is what you would expect. | 25:12 | |
All men beyond two years of services are volunteers. | 25:14 | |
In order to induce them to stay in the armed forces | 25:17 | |
you have to pay 'em competitive wages. | 25:19 | |
On the other hand, | 25:23 | |
men in the first two years | 25:24 | |
include many who are forced to be there | 25:25 | |
who are conscripted, | 25:27 | |
and the average pay of men in the first two years | 25:28 | |
of service is only 60%, | 25:30 | |
at most, | 25:33 | |
as high as the average pay of people of the same age | 25:34 | |
and the same education in civilian life. | 25:36 | |
Well we argue that regardless | 25:39 | |
of what you did about the draft, | 25:41 | |
this was an intolerable inequity | 25:42 | |
and you should raise the pay of these men | 25:44 | |
to civilian comparability. | 25:46 | |
And we estimate that that would be roughly enough | 25:48 | |
to get you to a volunteer force of | 25:50 | |
two and a half million men. | 25:51 | |
The total cost as I say is $3.24 billion. | 25:53 | |
Part of that would be recouped by the government | 25:56 | |
in extra taxes because these are higher incomes | 26:00 | |
and the net cost comes down to about $2.7 billion dollars. | 26:03 | |
Well that is not a very large budgetary cost, | 26:07 | |
that's one line you can take. | 26:10 | |
The other line you would have to take | 26:12 | |
is that the President would have to start right now | 26:14 | |
to build up pressure for a renewal of the draft. | 26:18 | |
That will not be popular, | 26:21 | |
especially when we have said | 26:23 | |
that there is such an alternative. | 26:25 | |
Moreover, | 26:26 | |
look at it from the President's point of view, | 26:27 | |
the President committed himself before election | 26:29 | |
to moving in this direction | 26:34 | |
as soon as the pressure from Vietnam is off. | 26:35 | |
In his reaction to our report, | 26:39 | |
the President appointed our commission | 26:43 | |
with the aim of trying to find a way to move to it. | 26:44 | |
I am sure his own reaction is very favorable | 26:49 | |
toward the report, | 26:53 | |
and therefore, | 26:55 | |
I think it will be a good deal of pressure | 26:56 | |
on his part to move in this direction. | 26:58 | |
Well given the pressure from his party, | 27:00 | |
given the dissatisfaction in the country as a whole, | 27:01 | |
given the fact that our forces are declining | 27:05 | |
in number which makes it easiest to move | 27:08 | |
to a volunteer force at that time | 27:10 | |
I'm personally and reasonably optimistic | 27:12 | |
that we will get a volunteer armed force. | 27:14 | |
- | Thank you very much Dr. Friedman. | 27:17 |
May I remind the subscribers | 27:19 | |
to send in your suggestions for questions | 27:20 | |
to be discussed on future tapes | 27:23 | |
to Instructional Dynamics, | 27:25 | |
166 East Superior Street, | 27:27 | |
Chicago, 60611. | 27:30 | |
This is William Clark of the Chicago Tribune. | 27:32 | |
We'll be visiting with Dr. Friedman | 27:34 | |
again in a couple of weeks. | 27:36 |
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