Tell me what to believe (part 1): Free Market?

[Yahweh]

I dont visit this particular area of the JREF Forum too often because I'm simply ignorant of most political issues. Add to that, of the things I do know, I am disappointed that politics is one of the areas that strong critical thinking really lacks (I watch the Newshow's "talking points" every now and then, but when these talking points are challenged newscasters are more likely respond in vitriol rather than more appropriate pragmatic dialectic). I dont like to consider issues on a basis of "parties", I like to take issues one at a time, and reason through on a completely realistic and dialectic basis.

I dont particularly care to watch any news program with any kind of "conservative" or "liberal" slant; so I've pretty much figured that I dont like "conservatives" because it approaches all contemporary issues from a "cheap labor" point of view, I dont like "liberals" because I'm not sure that their economic ideals are stable, I dont like "libertarians" because questioning their policies puts them out on a limb defending child labor sweat shops and the legalization of heroin, I dont like "anarchists" because its application leads itself to negative consequences of majority rule, I dont like "greens" because they are tree hugging sissies, and I dont like "independents" because I'm sure I wouldnt like them. These sweeping generalizations and possible mischaracterizations sum up almost everything I know about political parties in America; hence, I need to learn a great deal more, and recognize a way to apply critical thinking to politics.


So, the first thing I'm interested in is the idea of "Free Market". What should my views be of the concept called "Free Market"?

[fishbob]

Nice theory.

Real life implementation gets real messy with all the regulations needed to control the scam artists and crooks.

Then the market ain't free any more.

Wait - those are my views.

Your views? Go get your own.

[Rob Lister]

Originally posted by Yahweh
So, the first thing I'm interested in is the idea of "Free Market". What should my views be of the concept called "Free Market"?

Free market solutions generally work much better than regulated or socialist solutions. Not always, but usually. There are exceptions.

In the free market, the investers are putting their money where their mouth is. If they make bad decisions, they lose. That doesn't usually happen in regulated/socialist markets because the people making the decisions are not otherwise vested in outcome, except perhaps in a political sense. In politics, you can spin a failure and make it look like a good thing. It becomes subjective. In a free market, it's only as subjective as the currency exchange rate.

[Kevin_Lowe]

My short version of the free market issue:

Firstly it's a misnomer. Nobody wants a genuinely free market. For starters even Libertarians don't want people to be free to shoot their competition and bail up customers at gunpoint.

Libertarians are pretty extreme, though. Most people feel it would lead to terrible results if people were free to sell addictive drugs to children, sneak nasty clauses into contracts that let them take people's homes, sell military weapons to nasty regimes and do lots of other things that they might want to do.

(Every major power does sell military weapons to nasty regimes though. It's good money, and it keeps the military/industrial sector chugging along).

So a "free market" is code for "no laws, tariffs or regulations giving anyone an advantage over anyone else". Even regulations with a moral basis, like ones prohibiting the sale of animal product produced under inhumane conditions, or prohibiting the sale of timber that comes from unsustainable clear-felling of old growth forests.

The lesson of history is that free trade is good for rich people and bad for poor people. Rich people can control markets and buy out or crush competition, as well as doing things like bribing politicians (free market wonks wish they wouldn't do that, but they do). The nations that got rich, like the one where you live, did so by erecting trade barriers while they were ramping up and then crushing other people's trade barriers as soon as they had the whip hand.

There is a religion based on the free market, called economics. It uses some terribly flawed mathematics and some hilariously counterfactual "approximations" to "prove" that free markets bring about The Best Of All Possible Worlds. They have a variety of excuses as to why it never actually works.

This is the short version, and it's not quite 100% accurate. You can pick up exceptions to the general rules as you go along.

[Jaggy Bunnet]

Originally posted by Kevin_Lowe
Rich people can control markets and buy out or crush competition, as well as doing things like bribing politicians

In a genuinely free market there would be no benefit to bribing politicians as they would not be in a position to influence anything. Seems to me like companies bribing politicans (i.e. market regulators) is a problem for regulated, not free, markets.

[Benguin]

Bribery and corruption are still potential pitfalls in completely free markets .... There are always people making decisions about other peoples money and how it should be used, and they are open to persuasion.

Though your point about politicians and regulators is a valid one.

[Bikewer]

I listened to a fellow who espouses the "turn everything over to private industry and it will all be better." Cheaper, more efficient, and so forth. This guy ( I can't recall his name, he's supposedly "close" to Dubya) was on Diane Rehm for the full hour.

I wonder what world these guys are living in? One has only to give an occasional glance to the newspapers to see the fraud, corruption, kickbacks, and outright theft that plague the private sector. And all that WITH heavy regulation and control.

History, as a poster above points out, has given us a sorry example for an unregulated private sector. Edward Zinn's History of the American People goes into some depth on the labor movement in this country, and the nastiness of big-money industry in this regard.

Sometimes folks forget that all of those "growth-stifling" regulations did not pop up in a vacuum. They were put into place to correct severe abuses. I'll be the first to admit that once a regulatory agency gets into the bureacracy, it tends to grow and grow in complexity. Thus thousand-page documents describing toilet safety and suchlike. (exaggeration alert for those literal-minded types!)

[tedly]

It's interesting (to me at any rate) that you phrased your question in the form of 'belief'. I really think you're on to something, although this guy got there first.

http://csunx2.bsc.edu/bmyers/marketgod.htm *

A cute cut from the article, which treats business writing as theology :

"In days of old, seers entered a trance state and then informed anxious seekers what kind of mood the gods were in, and whether this was an auspicious time to begin a journey, get married, or start a war. The prophets of Israel repaired to the desert and then returned to announce whether Yahweh was feeling benevolent or wrathful. Today The Market's fickle will is clarified by daily reports from Wall Street and other sensory organs of finance. Thus we can learn on a day-to-day basis that The Market is "apprehensive," "relieved," "nervous," or even at times "jubilant." On the basis of this revelation awed adepts make critical decisions about whether to buy or sell. Like one of the devouring gods of old, The Market -- aptly embodied in a bull or a bear -- must be fed and kept happy under all circumstances. True, at times its appetite may seem excessive -- a $35 billion bailout here, a $50 billion one there -- but the alternative to assuaging its hunger is too terrible to contemplate."



Markets are a place where people buy and sell things, and inherently cannot be unregulated. (If I sell you a pound of butter for $2 each of the three things in the sale are defined by somebody - government or mutual trust, but somebody.)

You note that by your second reply 'investment' was mentioned, which usually refers to the stock market, which isn't really investment but a form of gambling on existing investments, and gambling is not usually considered as buying and selling..



*The article was originally published in Atlantic Monthly so I hope this site isn't violating copyright. If you're worried it is available online, but you have to subscribe.

-edited to change 'third reply' to second - these believers are quick

[Benguin]

Originally posted by Bikewer
I listened to a fellow who espouses the "turn everything over to private industry and it will all be better." Cheaper, more efficient, and so forth. This guy ( I can't recall his name, he's supposedly "close" to Dubya) was on Diane Rehm for the full hour.

I wonder what world these guys are living in? One has only to give an occasional glance to the newspapers to see the fraud, corruption, kickbacks, and outright theft that plague the private sector. And all that WITH heavy regulation and control.

History, as a poster above points out, has given us a sorry example for an unregulated private sector. Edward Zinn's History of the American People goes into some depth on the labor movement in this country, and the nastiness of big-money industry in this regard.

Sometimes folks forget that all of those "growth-stifling" regulations did not pop up in a vacuum. They were put into place to correct severe abuses. I'll be the first to admit that once a regulatory agency gets into the bureacracy, it tends to grow and grow in complexity. Thus thousand-page documents describing toilet safety and suchlike. (exaggeration alert for those literal-minded types!)

I've nothing against regulations, I've everything against corrupt regulators and regulations in an environment of political corruption. Seems to me, such situations turn out worse than no regulation at all.

I always find it ironic when people moan on about how much tax they pay and at the same time seem to think they are exercising some sort of civil freedom in bribing an official to get their way. Bribery to me is voluntary taxation!

[CBL4]

A perfectly free market does not exist and no one really wants in to exist.

History tells us that a country with relatively free market, free press, low corruption and democracy (AKA a liberal democracy) gets rich and its people are happy.

There is lots of debate about how free a "relatively free" market should be. A freer market leads to more inventive and richer people and corporations but greater economic disparity (e.g. more rich and more poor.) A less free (but still relatively free) market leads more equitable distribution of less (but still large amount) money.

A freer marker rewards the bright, inventive, rich hardworking people and punishes the lazy, uneducated and poor. A less free market limits the upside and downside potential for everyone.

CBL

[Kodiak]

It is always easiest to stand on the shoulders of giants:

The World's Leading Resources on Free Market Economy (http://www.questia.com/popularSearches/free_market_economy.jsp)

[American]

As a student, you might feel you are more objective by not working. That's true in a way, but I suggest you save all judgement until you get into a job yourself and know what it's like see your own hard work support slackers with poor attitudes and no values. (Unless you're one of them, of course, then you join a union and you'll be all set.)

[Kevin_Lowe]

Originally posted by Jaggy Bunnet
In a genuinely free market there would be no benefit to bribing politicians as they would not be in a position to influence anything. Seems to me like companies bribing politicans (i.e. market regulators) is a problem for regulated, not free, markets.

This is quite right, but as I said earlier there is no such thing as a genuinely free market. Part of the game of commerce, in the big leagues, is "lobbying" (bribing) lawmakers to slant the available restrictions on the free market in your favour.

To make up an example, suppose a company called MicroPear, who are very rich, want to stifle competition in business software. One way they could try to do this would be to get laws passed saying that since insecure business software is a real economic risk to the nation, anyone selling business software must have their code audited thoroughly by an independent security agency. This would cost at least $10,000 to do.

That kind of law would address a legitimate public concern, and it would also erect a $10,000 barrier in the path of any small entrepreneur who wanted to break into the business software market. Thus competition would be reduced, but then again the public would also have more protection against shonky software.

Now this particular example hasn't actually happened, or even been attempted, to my knowledge. It's just an example. Software patents, on the other hand, are a great example of a form of regulation that in theory will protect people's ideas and in practise looks very much like it will make competing with the existing big software companies too expensive for small players to contemplate. "Accreditation" in many industries is a similar double-edged sword, protecting the consumer from shonks but also protecting accredited players from competition.

[zultr]

Originally posted by Rob Lister
In the free market, the investers are putting their money where their mouth is. If they make bad decisions, they lose.

No they don't. They ask the government for a bailout. Because they've generated more money for incumbant politicians, they get more than your average welfare mom. Maybe they threaten to close plants and put thousands out of work (see any number of automobile manufacturers). Maybe they're so big that their bad judgement actually threatens entire economic systems and they just get a nice fat check (see any number of financial institutions). Maybe they get free land from eminent domain, free infrastructure and tax breaks (see just about everybody).

There is almost no difference between one form or another. Those with the power get to make the rules and get the breaks. The only difference is how the bystanders make out. They make out, they're just different bystanders.


Regarding other comments regarding "truly" free markets, if there were such a thing, it wouldn't last long. Such a market would consume itself as the powerful eat up the weak and we end up with one monopoly for everything, which could eventually make politics irrelevant. Parker Brothers taught me that a long time ago.

[epepke]

Make up your own mind.

In my view, the free market is based on the idea that pressures from producers and consumers, modeled as a pair of coupled differential equations, will seek an equilibrium somewhere between the desires of consumers (give me an infinite supply of goodies, free) and producers (give me an infinite amount of money for nothing).

Also in my view, this works pretty well quite a lot of the time. There are cases where it doesn't work. Either the quality of goods and services is too low (you may be able to buy a car, but it flips and crushes you to death if you take a right turn at 15 MPH), or the system becomes chaotic rather than equilibrium-seeking (stock markets quite a lot of the time). My view is that it is relatively easy to tell when this is happening and apply standards (for the former case) and dampers (for the latter case). The standards raise the minimal acceptable level, and the dampers impose a low-pass filter, which tends to reduce chaotic behavior.

[SlippyToad]

Originally posted by Yahweh
So, the first thing I'm interested in is the idea of "Free Market". What should my views be of the concept called "Free Market"? I think above posters have it correct: you should get your own views. Since you've asked for mine (not by name, I'm sure), I'm going to do the most impolite thing I can and give you my opinion.

If you want to create a system where a few people can make tremendous amounts of money off of the efforts of the rest, the free market is your answer.

If you want to create a system where everyone can suffer equally, except those who disregard the rules and play outside the system, communism is your answer.

If you want to create a society that has a way of life you'd like to enjoy, Your Mileage May Vary. Despite what you may have been led to believe, there is no magic dial that, turned up or turned down, can guarantee success in economics. However, it seems apparent that given a reasonably representative form of government and a body politic that understands and excercises their rights and responsibilities, and is reasonably informed, all kinds of different systems will work, simply because in a real democracy, things that don't work don't remain popular. To borrow from Bruce Lee: "It's like a finger pointing the way to the moon. Don't look at the finger (the economic system), or you will miss all the heavenly glory (the society and the way of life)."

This has been my opinion of free-market economics. Had this been an actual opinion, you would have found a conclusion at the end of this paragraph.

[LostAngeles]

See, unfortunately I was working out the n^th derivative of a function during my Economics I class today otherwise, I could probably answer the question better.

Suffice it to say, according to my professor, whenever politictians start talking about "free market" and "the market system" it's "********", simply because those things do not exist in reality. If I'm following the class correctly (and as I tend to do other classes' homework and read the text later on, well), it's because in a true free market, the government would not factor in. If the factor of government expenditures and taxes were dropped out, then you'd have a free market system going.

Also, I'm a first semester Econ I student who isn't majoring in this so right now my understanding is probably slightly more than Yahweh's.