The free-market system, as we've all seen lately, has its drawbacks.
This is how an opinion piece recently started on Explore Howard. The piece actually has more to do with the profit motive rather than market regulation. The gist of the article was that we all know how the “free market” or profit motive is often a failure, but every now and then something good can come from it. An example of this was that 67 movie theaters are now having monthly showings of movies in a “sensory friendly environment”, meaning that patrons with physical conditions (autism, etc.) can view films in the theater without disturbing patrons who lack such disabilities. The piece concluded by reminding us that “no government had to step in to make this happen.” This good was created by the profit motive.
I honestly feel sorry for whoever wrote this op/ed. The simplistic world view expressed just does not reconcile to my experience of the world at all.
Although I am not making the case that the “free-market system” is Nirvana, it cannot be said that it is the primary culprit behind our current economic troubles. Underlying our “free-market system” is the most anti-free market force imaginable- a central bank. The central bank kept interest rates artificially low for a very long time. Interest rates balance consumption now with consumption in the future. By keeping interest rates low, investors were signaled to invest in long term assets that are interest rate sensitive (gee, like houses, the construction of which was also encouraged by other government interventions) as well as making saving less desirable given the low interest returns on savings, so people consumed more rather than saved. Like trying to fill a two gallon pail with one gallon of water, this does not work. There were simply not enough resources to go around. Eventually the chickens came home to roost and here we are bailing out (bailouts are not free market activities, btw) banks, GM, etc. So I’d hardly say that the “free-market system” has shown us drawbacks. The root cause of our troubles was not governed by free markets.
Furthermore, the profit motive has solved more problems than any other force in the world. The reason we have the technology to produce movies at all- let alone the ability to download them over the internet and watch them at home- is the result of the profit motive. The reason we have medical technology to care for those with autism is because the profit motive. The reason poor people today enjoy technologies that could not be had at any price a few decades ago is a result of the profit motive, not government intervention. That is why I find it hard to accept that anyone would be surprised that the “free market” did something good for people with disabilities.
Governments are good as solving the free rider/public good problem, a problem which makes things like private roads difficult to build on a large scale. But the government solves this problem at a significant cost- our freedom.
Most good in the world is perceived to come from government, while everyone believes that the free market sets out to screw the less fortunate. More likely, that view is the exact opposite of what actually happens in the real world.
4 comments:
Looks like the uncontrollable bailout flood has some convinced that market forces put us in the unenviable position of having to prop up failing businesses. I wonder how pervasive the belief.
The national press feeds such notions and it's virtually insurmountable to get to the truth without a degree and the right experience in each required area of expertise.
Republicans blame the Democrats for opening up mortgages to those who couldn't afford them, but actually so many companies became gargantuan on Republican repeal of sensible anti-trust law and market constraints that undermine capitalism with business regime building. While Clinton repealed Glass-Stegal, Bush built the coffin an nailed it shut with his free-for-all antics that combined toxically with Clinton's. The Republicans have nothing to be proud of despite tea parties.
Put everything together with spiking gasoline and it was just a matter of time. Many people saw it coming but the national press didn't promote the stories (maybe because they were hoping people who couldn't afford mortgages would somehow make it work).
We have extremely few elected leaders who support capitalism and democracy the way they were supposed to function. If we did, there would have been -0- bailouts and we'd be experiencing a mildly painful correction.
As it is, not only are the taxpayers getting soaked, but we're removing their future ability to be independent and reducing their future purchasing power. We are in this for the long long haul - may be a new way of life based on the fundamental nature of what has occurred.
Some people say that it's silly to talk about such things on a local level - Democracy and freedoms, Capitalism. With this attitude, the national, state, and local situations will only get worse.
Anon - how do you lay more of the blame on Bush? Didn't he and McCain try a few years ago to pass legislation to correct some of those very issues? And who blocked it from happening - the democrats!
I will agree that there is blame to go around on both parties.
Many people say this economic crisis was a sort of referendum on capitalism (greed was the root cause). However, in reality, it is a referendum on social engineering and government intereference into a capitalist economy. If the government (mainly democrats) pushing the Community Reinvestment Act, which forced banks to approve loans for unqualified low income people, then banks wouldn't have done it.
It's true that banks did some shady stuff to hide the risk involved with the loans, but again, if they hadn't been forced to do it in the first place, then they wouldn't have needed to bundle these toxic assets into investment funds and so on.
If capitalism had been allowed to run without government interference (ie: if people who couldn't afford a mortgage weren't "handed" a mortgage) then none of this would have happened.
PZ,
You're right about the Democrats, but you're missing the equal Republican responsibility.
Bush deregulated markets which set the Clinton dereg of Glass Stegal into overdrive, and also allowed businesses to swallow one another which had been an anti trust issue (see media, you must've noticed news is becoming homogenized which is a clue that they're all owned by one giant parent), becoming super-sized nearly monopolistic, Too Big To Fail organizations.
Then, when things went bad Bush recommended that Congress divvy up 700 billion to bailout banks, paid by taxpayers.
There are so few fiscal conservatives that I believe we're genuniely stepping toward Socialistic oversight. From a global perspective, we no longer have a unified voice against communism because it's under control. Without that voice, cohesion against socialist tendencies is disintegrating.
The Democrats are the party of tax and spend, but now the Republicans are the party of borrow and spend.
Anon- I am not as concerned as you are about giant corporations/anti-trust issues. There are very few businesses that are natural monopolies. Those are mostly businesses like power companies, concrete plants, etc. that are very capital intensive and tend to become monopolies over their geographical area. They exist b/c one company can provide goods cheaper than two companies, so long as the one company does raise prices TOO high to attract competition. The majority of other monopolies are the result of patents and other government enforced legal restrictions which give them monopoly status.
One thing to keep in mind is that although natural monopolies can lower their prices and take short term losses to keep competitors from entering an industry, it is very expensive for them to do that. If a monopoly 100X the size of a start-up company tries to run the new competitor out of business by cutting prices, they are losing 100X the money that their smaller competitor is losing.
Nothing is too big to fail. Even the sun is going to blow up someday.
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