There Is No Free Market

Also, there is no spoon.  But seriously, I’ve long been in favor of free markets.  Even in college, a time when people are apparently supposed to reject traditional ideas in favor of shiny new ideas like the philosophy of John Rawls as laid out in his book A Theory of Justice (and discussed endlessly because my professor of political philosophy really liked him), I was rather unimpressed with the shiny new ideas.  They just sounded a lot like watered-down old ideas, trying desperately to deal with the complexity of reality using the same simple tools and decorating them somewhat more attractively in an effort to differentiate them from their predecessors.  Same shit, different decades.  In some cases, different millenia.  That said, I didn’t accept the old ideas uncritically either, and often rejected them as oversimplifications ill-equipped to handle an extraordinarily complex reality.  Which may be why it happened that when I took my first political compass test, the only famous person I was somewhat close to on the political compass was Milton Friedman.

When I read this post, I thought I was going to hear new ideas.  I didn’t hear new ideas, but Nick Hanauer does make some fair points.

 

I very much agree with Nick that the wealthy are not THE job creators, and that jobs are a result of healthy, growing markets moreso than magnanimity on the part of the wealthy.  It’s also true that wealthy venture capitalists like Nick are important to getting many businesses started, and that creating an environment in which such venture capitalists are disinclined to invest is a bad idea.  We need both the investors and the consumers in the market for the whole thing to work.  Currently, we have a market in which there are plenty of investors flush with extra money, but they are not investing much of it because there is declining demand by consumers due to a shrinking middle class and a great deal of uncertainty about our country’s finances because of mind-bogglingly immense levels of government spending on wars and law enforcement activities.  On top of that, we have some unfortunate generational trends, such as a culture of selfishness, a devaluation of hard work, and an increasingly unfavorable dependency ratio.  All of which are contributing to the high levels of social welfare spending.  Add to all this a healthy sprinkling of government corruption and favoritism toward corporations, and we have a really fine mess.

These factors are all contributing to the problem, and we can’t address the problem most effectively unless we work on all the big factors.  Nick suggests bringing back higher tax rates for the wealthy, which as I’ve mentioned before might work if some of those other factors weren’t in play.  What I suggest is that we stop thinking about this issue in terms of the wealthy being taxed too much (Republicans) or the wealthy not being taxed enough (Democrats).  That is not the linchpin issue that will fix the problem.  It is one of several issues that we need to address, and we had better start approaching the problem as one that has complex interacting factorial causes rather than one that has a single, simple cause.

And the reason we have to approach the issue in such a way is that markets are exceedingly complex things with organic behaviors influenced by a variety of factors.  Markets are not free in the sense that you will do whatever you want with your money.  The market actually constrains what kinds of things you can do with your money because it is a framework in which you operate. 

For example, venture capitalists aren’t going to line up to help start a business producing a product for which there is no demand.  Demand acts as a constraint upon the actions of venture capitalists and business.  Another constraint is social pressure, which we can see working fairly well on many corporations as they increasingly engage in cooperation with charitable organizations, and it sometimes works when a corporation gets hit with bad publicity due to unethical actions (e.g. Enron).  An additional constraint on the behavior of business is big lawsuits, because those can be a business-killer.  A very important constraint on businesses is of course competition, which also functions as a motivator.

Of course, consumers have constraints within the market as well.  You have only so much money, which is an obvious constraint.  There may not be a product that exists which meets your needs, or demand for a product that meets your needs may be so low that investors don’t see creating the process to make the product as cost-effective.  Or demand could be so high that it drives the price beyond what you can afford.  Or you pass a few bad checks and you can no longer buy things with checks.

In addition, the availability of resources to consume is a constraint upon the entire market, charities help fill needs that businesses won’t, and governments can do all kinds of things to impact how the market functions.

My basic point here is that one of the great things about free markets (meaning not heavily regulated by government bodies) is that they provide constraints upon the actors within the market.  Sometimes, very necessary constraints are decreased or eliminated so much that they don’t work anymore.  For example, what happens if the middle class is being squeezed out and doesn’t have the money to bring lawsuits against large businesses successfully?  What happens when government regulations make it difficult for small businesses to enter the market and compete with the large businesses?  What happens when you decrease taxes on the wealthy so that they have more money, but there are few places to invest without accepting extremely high levels of risk because demand has decreased? 

Without understanding how market constraints function, it’s really hard to make good policy decisions about how to affect the market.  When you start eliminating the constraints, it will break down.  And let’s face it, the market is very complex due to the number of factors at play and how they interact, and it’s easy to cause unintended consequences.  So while I’m in favor of free markets, I’m in favor of free markets in which the proper cultural, ethical, legal, and practical constraints are in place to keep it sustainable.  I don’t want the “free market” of the Republicans in which callous greed rules the day and we have “pro-business policies” like bailouts or sweetheart deals.  If it’s a well-run business, it doesn’t need our politicians’ help.  And if it’s not a well-run business, it doesn’t deserve our help.

In the end, free markets only work well when they have lots of constraints, and we had better understand what they are and how they relate to each other if we’re ever going to have a federal government that can act in the market without screwing up royally.  I don’t see that understanding happening anytime soon, so I’m content to minimize government intervention in the market for now.

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12 Responses to There Is No Free Market

  1. Kellsbella says:

    Would you not agree that both parties are to blame for “sweetheart” deals?

  2. Nous_Apeiron says:

    @Kellsbella – I very much agree that both parties are guilty of it. Solyndra comes to mind.  I just think it’s more hypocritical for the Republicans given their rhetoric about the deregulation and freeing up the market from government overreach.  At the very least, Democrats meddle in that way as part of a stated agenda to use government to create jobs.  They’re not pretending to be free-market capitalists, as you can see here.

  3. Kellsbella says:

    @Nous_Apeiron – That’s the problem; both parties meddle with taxpayer money to pursue their own agenda.

  4. Nous_Apeiron says:

    @Kellsbella – It’s certainly one of the problems on the long list of them, yes.

  5. MrTrololo says:

    constraints? like regulation? If you regulate a market, it is not a free market.

  6. Bels_Kaylar says:

    oh, my, there’s Nick again 😉 thank you for expanding on this whole idea. you know, my usual comment, at this point, is that i am not smart enough for this room, but maybe that speaks to a whole, underlying issue. we all need educating, if we are going to take back our country, or vote wisely for someone(s) that would make educated decisions for us. i won’t even get into the values that are at play subliminally. (i’m a fan of 2 linguists, Chomsky 😮  & George Lakoff. big surprise 😉 

  7. Nous_Apeiron says:

    @Kellsbella – I like the proposal and its modesty, but I do hope I’m not the political science major you’re referring to, because I am not currently and never have been a poli sci major.  I’m just smart and I read a lot.@MrTrololo – How very astute.@Bels_Kaylar – I’m glad you liked it.  I think you’re spot on about the underlying issue, which is that most of us, our politicians included, simply don’t know enough to make good decisions about these things.As for the values at play subliminally, don’t worry.  I was an English major (focusing on linguistics and education) for my first degree) and I took too many Philosophy courses while getting that degree.  So the subliminal is pretty transparent for me.

  8. grim_truth says:

    A free market constrains and regulates itself, as you stated.  Most folks just don’t get that.  In a free market, only a few will take high risks.  Those that do understand those risks and are willing to accept the results, should they not be good.  Will there still be some corruption and lying?  Yup. But it comes around eventually.  And those businesses will eventually fail.  Folks keep blaiming capitalism and the “free market” for the current mess we’re in.  What they don’t realize or refuse to understand is, that we havn’t had a true free market in ages.  In free markets, even bad customer service can put a company out of business.  Comcast knows this and is why they spent millions trying to keep verizon out of the market in my area. 

  9. MrTrololo says:

    I agree with grim above. You said: “So while I’m in favor of free markets, I’m in favor of free markets in which the proper cultural, ethical, legal, and practical constraints are in place to keep it sustainable.” And reading your article, you seem to mention and support some natural constraints, but also mention things that are typically attempted to be solved through government interference, so I’m not sure what you’re talking about. Your statement could mean a number of things. Are you going to put forward your ideas on exactly how you would support the proper constraints? I’m not going to be sure how I feel about it until I know exactly what your answer is. sustainable.” 

  10. Nous_Apeiron says:

    @grim_truth – Yup.  We really haven’t had a free market system in ages.  Our federal government has been meddling in the market without understanding it well enough for a very long time.  Which is why I’d prefer to have less government involvement in the economy.  Let businesses fail from their poor decisions rather than bailing them out or trying to protect them.@MrTrololo – The last line of the post answers your question about my views in a general way, but if you’d like more specifics about my suggested approach, I’ll add that the normal constraints of a market will function properly so long as we have a culture that promotes virtuous behavior and punishes mistreating customers, workers, and resources while using property rights to provide avenues for legal recourse.  In essence, I’d prefer that the people take the responsibility back for keeping business in check, a responsibility that our federal government has tried to take on and ended up failing miserably at.Is that what you were looking for?

  11. MrTrololo says:

    @Nous_Apeiron – Now that’s what I call an ah-ha moment! yes. Thanks 🙂

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