Like the unicorn, the “free market” is an animal that exists only in the imagination. In the case of “free markets,” that would be the imagination of economists. Strange as that may seem—that economists have imaginations—we should note that certain concepts are purely fictive and useful only within the theoretical framework that allows economists to make a living teaching Econ 101.
Smith, Friedman, Hayek—(Friedrich, not Salma), free marketeers all—or maybe the Three Marketeers—rely on the concept to illustrate points that are more akin to the self-enclosed propositions of philosophy than empirically-based social sciences. This is just one of the reasons that economics is not a science, but a…discipline, like “political science,” which now often appears in college catalogues as just “Politics,” and rightly so.
Unfortunately for the entire body politic, certain conservatives, Republicans, Tea Partiers, and most of all, Libertarians, have hijacked the term free markets and inserted it where it doesn’t belong—in real life. Thus they reify the proposition; a little knowledge is a dangerous thing.
Markets are human behavior in the aggregate. Behavioral economics recognizes this. No one, not even the hardcore Libertarian, maintains that anarchy is the ideal free market state of human behavior—except for anarchists, I suppose. Certain laws are necessary. Moses knew this. “God” knew this. Thou shalt not…well, kill, was a useful addition to the canon, despite some of the other, more unfortunate commands.
Markets are based on the duality of greed and fear. This describes the entirety of the fount of all business—investment. Neither state, greed nor fear, contrary to certain opinions, is self-regulating. They do counterbalance, but the swinging pendulum they produce is more like a wrecking ball than a balance scale—and this is an indispensable point. That is to say, markets do not self-regulate or self-correct; they merely move from one polar state toward another: bull, bear, bull, bear. There is no—what shall we call it?—intelligent design here. No invisible hand. No wisdom. No “fairness.” Thus, no regulatory effect. It just is; it is not, despite what the blowhards say, desirable.
The fictive witlessness of the proposition that free markets self correct and result in a more desirable state of commerce is one of the dumbest conceits ever to cross the threshold of political discourse. But there you have it, an oversize elephant crapping in the parlor, or on the floor of the House.
Free markets, were they to exist, would lead toward entropy. That is, they lead toward monopoly, duopoly, or, on the other hand, a state of war. The Mexican Drug Wars is the free market at work. Why? Because greed is not self-regulating, nor is fear. Both lead towards an arms race. Economists who advocate true “free markets” (and they are few) blame all market aberrations on “market distortions.” And of course, such distortions are everywhere once you get the hang of spotting them. The Mexican Drug Wars are based on the illegality of drugs in the U.S. and so on. Though the observation is accurate it is irrelevant because unregulated markets always move towards distortion based on market abuse. That is to say, they are self-distorting. If I have the sufficient power in a market relationship, I will drive you out, I will monopolize, and I will price my deal as I please. That is Greed talking, and he is never off message.
Why? Because human behavior is not inherently self-correcting. Without external consequences, we’re just cheaters, potentially, all of us. That’s why “God” invented checks and balances.
When we pick up the paper in the morning and learn of one more lying, cheating, ripping-off-the-public scheme we see another free market impulse at work. That’s why the whole shebang is just too stupid for words outside of its use in Econ 101. It’s sad to say that we have to be stuck here at this perilous moment in time, when “constitutional conservatives” dominate the right half of the dial, talking about this. Free markets are the econ equivalent of unicorns, and when the term comes up we might as well just say it: “Do you believe in unicorns, too?” Or better, ask the speaker if he can tell you when unicorns went extinct.
Regulated markets are the only natural form through which markets can exist in nature. Because greed, that natural id-based impulse to create wealth is amoral. You take “liar loans,” the no-document loans that put the housing bubble on steroids; it’s an abuse of markets. Sure there was “distortion” present, but, once again, it was irrelevant. The deal was that since mortgage originators were not required to hold the loans they underwrote, they had no natural interest in the fundamental integrity of those loans. That was a free market moment. Fanny Mae, Congress, jail Barney Frank, blah blah blah. That isn’t even spin. Un- or underregulated markets are the story; and it always will be. You go to a market in lawless Afghanistan. You sell some warlord a horse you stole. He finds out, shoots you in the head and confiscates your wife. That’s a regulated market. At some point we just have to reset the Stupid Meter and call these things what they are.
On the right, crippling the government while the architects of the Great Economic Meltdown revert to their same-old same-old is the political flavor of the moment. It’s why our Republican primary debates have the sound and feel of The Voice more than they do actual political programming. As entertaining as it may be, it is mostly sound bytes and fury signifying nothing. I believe disgust with our little reality show morality plays is largely behind the Occupy movement; that and reversion to same-old same-old, as in, the rich get richer. The issue is not that markets are over-regulated; it’s that they are rigged. That’s why, as Robert Reich said to Occupy L.A. on November 5, economic output has doubled over 30 years or so and the One Percent captured most of that growth while real middle class got, essentially, nothing. That’s right. Nothing. Their boats rose only when they raided their home equity and then went into debt.
Free markets. Long may they live in fictive ignominy, while unicorns at least are attractive, seemingly noble, mostly harmless, and make for good illustrations. That’s right. I’m a free market denier. I’m a unicorn denier.
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Running from Communisim, we smacked head first into the wall of stupidity that keeps people out of politics, turns tools of corruption into the illusion of freedom and convinces us that we're all very important, unique and special for no reason at all.
Moderation, balance, regulation, frugality, pragmatisim and God forbid calling ,the profit motive greed, all these things have been demonized in our upside down America.
Say what you will about us Neo-Deists, at least our morality and faith is based on the Laws of Nature and the understanding that programming isn't limited to hairless apes. At least we understand that Survival and Emergence Based Morality is better than Moral Anarchy.
136 Years ago, 100 years after the kick-off, Corporations were transparent, could be dissolved by states at will if they violated the law, were heavily regulated controlled by the states and most certainly were not, ARE not and never will be PEOPLE.
If I were to go back in time and talk to Thomas Jefferson, I'm pretty sure he'd punch me right in the face if I said corporations were people.
Or at the very least he'd have one of his slaves haul me out...but that's not the point.
You speak the truth here, friend. Please do not stop fighting the good fight.
Though I agree with you that human behavior is not self correcting, it is the very existence of a shared set of values that creates the moral framework of our society. Our morality and sense of 'good' has been gutted and replaced with Pac-Man cartridges that keep us brainless, consuming and watching our score (credit, bank balance, portfolio, debt ratio, number of hits, etc.)
We also need to wake up the zombies.
Duty(A Debt incurred by the blood, sweat and tears of everyone who came before you and everyone who shall live after you, another name for taxes, and an honor provided by the freedom we presume is otherwise free and a reason not to trash this house we call Earth.)
Loyalty to The People of the United States and The Constitution, and an acknowledgement that these things are American, good and worth defending. ( Sending jobs to foriegn countries is not Loyalty to the U.S. no matter how many ADD meds, Depression pills, T.V. Pundits, Commercials and fatty unhealthy non-nutrient based foods you shove into my brain!)
Ok, I'lll stop. Didn't mean to soap box your post. It was really good, and that's all I should have said. Thanks for getting me going!
Rated.
It makes heroes of egotistical cheats like Donald Trump, it infects the media with carefully-choregraphed "reality" TV in which putative "rugged individualists triumph, and god help us, it poisons even team sports by promoting degenerates and deifying their enablers as irreplaceable.
Just as no man is an island, so no market is free from manipulation by those who imagine they should be answerable only to themselves -- or at most, the board of directors they appointed.
But your larger point is correct. A perfectly performing free market is a concept akin to the frictionless surface in physics. very useful to illustrate certain principles but not to be found outside the textbook. That's what you get in Econ 101. When you take Econ 201 and higher level courses, then you get taught all the cases where the underlying tenets of willing buyers and sellers, perfect competition, equal knowledge throughout the marketplace, natural monopolies, no collusion, no bribery, no fraud, externalities like pollution is properly priced etc. only occasionally apply.
As you say, a market based system can only function when underpinned by a strong, independent legal system that addresses the inherent flaws of a purely "free" market.
i believe democracy is absolutely desirable, but in america's case a particularly long transition would be necessary.
Atlantis self-corrected, taking the unicorn down with it.
"It is difficult to get a man to understand something, when his salary depends upon his not understanding it!"
--upton sinclair
"One withstands the invasion of armies; one does not withstand the invasion of ideas."
--victor hugo
occupy party reaches critical mass/seismic effect--now what?
Funny how that did not happen. So then was the housing bubble caused by government distorting the market? Of course.
The moral hazard from the existence of Freddie/Fannie and the implicit bailout they would receive; the FHA and government "insured" loans (now recently increased up to $730,000); the existence of government deposit insurance, with all the moral hazard that comes with it; the existence of the fraudulent practice of fractional-reserve banking; and the existence of the Federal Reserve—the banker's bank, the "lender of last resort," the sugar daddy of the banking system—all demonstrate that there is no "free-market" in banking and housing loans.
If I'm wrong, then somebody please tell me how each of these things do not distort the housing market and the economy, how they in no way influence lending and borrowing, how they do not lead to risky behavior that otherwise would not happen absent their existence.
Larry, Of course mortgage markets are not free markets because free markets don't exist. See above. Yes, Fannie and Freddie did distort mortgage markets with the implicit promise of government backing. And they did so with outrageous lobbying (with Newt as their "historian"--what a howler that claim is) of Congress, causing Congress--with strong Republican muscle for nearly a decade--to abrogate its responsibility of proper regulation. So the mortgage meltdown was aided systemically by poor regulation and mis-regulation. But it was caused by systemic, criminal, mortgage fraud. That stands alone, on it's own as prima facie evidence of the case I make above.
As for your issues with the existence of the Federal Reserve, that's just Libertarian disinformation, straight-up. That isn't to say I support everything the Fed does, but hey, how about room for a more nuanced policy discussion on that score, rather than absolutist ideology?
The entire system is saturated with moral hazard—the sense that one's behavior is shielded from any negative consequences because the costs will be borne onto others. Eliminate the things I listed and you eliminate moral hazard. The system will be much sounder.
Some libertarians, and all Austrian School economists, argue for the abolition of the Fed. If you are interested in a more nuanced policy discussion on the Fed, I encourage you to read one of the leading 20th century Austrian School economists, Murray Rothbard.
"For example, a plan for a government to bail out delinquent mortgages has the moral hazard that it will encourage mortgage holders to refrain from making their home payment. Likewise, deregulation has the moral hazard that companies will use it as incentive for short-term, unsustainable profits, rather than proper economic growth."
As for Rothbard, please, who needs anarcho-capitalism?
In genuine deregulation, moral hazard, in the sense I'm referring to, is eliminated, because people would very clearly be responsible for their actions. All parties would be much more alert to risk and much more cautious and prudent. If not, down they go. The entire economy would not be lead into crazy, drawn out, unsustainable bubbles.
I only mentioned Rothbard because he was the leading 20th century free-market economist arguing against he Fed, and because you seemed interested in a nuanced discussion on the topic.
Rothbard's _The Case Against the Fed_, or his _The Mystery of Banking_, will give you the detailed free-market arguments. Don't worry, these aren't Rothbard's treatises on the political philosophy of anarcho-libertarianism.
Let's accept that the Fed, as the Bush/GOP reversed the revenue surplus situation, lowered, did not raise interest rates. That means they were making oodles of cash available, cheaply.
Now show me where the Fed put a gun to the financier's heads and made them perform irrationally. This rational, laissez faire free market phantom you claim will work if left to its own devices and "corrections" well knew what was happening. I knew what was happening. You will claim to know what was happening.
So, you're making a claim that the "free market" will perform rationally even as you speak of a grand example of it knowingly doing the opposite. Because you have devoted yourself to a particular ideological religion, the Fed becomes the Devil when in fact there are many Devils, one of them being the right-libertarian fantasy of the free market.
This libertarian dogmatic conclusion doesn't sprout from empiricism, but from the root claim of libertarian complete self ownership -- where all external forces are coercion and most of that influence undue. To "prove" that is the definition of Right, the idea cannot be shown to fail, so the many Devils are ignored. The point isn't being realistic, the point is proving libertarianism works or, in most cases, will work if applied. If that conflicts with reality, reality must be adjusted---FanFred caused the collapse, as one famous outright lie example.
Let's not forget that 98% of Americans don't want libertarianism, it will never be completely applied, so the fact it doesn't work and is a ridiculous, cultish religion will eternally preserve that Big Excuse. You will always be able to say "if only..."
The Fed didn't make anyone blow a bubble they didn't want blown. The Fed didn't create securitization, contractual obscurity, off balance sheet entities, or many of the other "forgotten" Devils. They did refuse to apply regulatory oversight, though. The SEC did the same. Glass-Steagall repeal encouraged the carnage.
That's a lot of libertarian deregulation, free market activity there, Larry. But be not an apostate, and cast thine eyes elsewhere, lest Saint Murray Rothbard condemn thy soul to the eternal lake of flaming excuses.
If you want a more nuanced discussion of quantum mechanics, read Neils Bohr.
I say that because I know some, but not a lot about quantum mechanics. So I glom on to his work to imitate those who think such references somehow add heft to an argument or exposition they're incapable of performing.
Larry, you can't imagine how little patience the 99.999% has for the point of view you espouse. It's a dead-end religion, for sure.
Absent the Fed's manipulation of the banking system's levels of money and credit (in other words, in a world of free-market interest rates), interest rates rise in a period of frenzied borrowing. In other words, because there's a limited amount of credit, the costs of borrowing increase, putting a brake on "greed" and credit-based speculation. I don't see how this is hard to understand or why it is a "cultish" statement. It's pretty obvious that this would happen.
Quite frankly, your own assumption that the world would be better with just a few more lines of regulation, and a few more wise central planners, is a little bizarro.
The history behind the Fed is interesting. You'd be surprised who actually insisted on a Fed, who designed the Fed, and who actually benefits from it. It's comical that you have no idea what you're actually defending.
And here you proudly have family protesting Wall Street bankster "greed," while you simultaneously label people who want to dismantle the Federal Reserve system -- the system by which the banksters actually expropriate all of us -- as misguided. I bet Goldman Sachs loves confused people like you.
Yes, I know 99% do not want libertarianism. Unfortunately most people think that having automatic access to their neighbor's back pocket through the threat of violence is, somehow, human progress. But even if there were only one person in the world arguing for the rights of person and property, he would still be right, because all other political philosophies require aggression, violence and expropriation of peaceful neighbors.
By the way, Google "Greece" to find out how your world-view is working.
For the sake of brevity, and because I thought people were interested in an academic case against the Fed, I referenced Rothbard. I see nothing wrong with this, or referencing Bernard Bailyn for an academic look behind the motivations of the American Revolution. I simply don't have the time, you see, to type all day to a bunch of bored, quasi-retired, left-liberal baby boomers on Open Salon. Not that I don't enjoy it, I just don't have the time.
I know where the Fed comes from and don't agree with a private banking concern having that level of control. Democratize finance. I didn't defend the Fed, but I guess you need something to waste half a comment on. However, that isn't the issue. The idea credit creation can be controlled by eliminating regulation -- what you conveniently refer to as "central planning," which it isn't -- is just plain stupid.
Of course putting a lid on the money supply would limit credit expansion, but how that is accomplished without regulation is a mystery you have not solved, at least with something besides the fantasy of self-regulation based on, I presume, a gold standard. You offer no explanation, so I'll just go with the usual suspect fantasy.
Then the problem of a limited money supply stifling growth emerges, but after years of deregulation destroying the consumer base, that problem is now a back-burner concern. But even if we assume the absence of the Fed, there is, already, much more liability issued than there is a money supply. Because the Fed didn't cause that, explain how, without regulation, that is prevented. If you go with a gold standard, explain how you get the rest of Earth to cooperate with that idea. You should also explain why it would be Different This Time, as credit bubbles existed when there was a gold standard, by whatever term it's called. For example, explain how the gold standard prevented the Great Depression.
What's funny is the idea of trying to create a system that controls all of that naturally when proper regulation would work better, as that is easier and more flexible. However, that violates libertarian orthodoxy, so there's no allowance for reason within rules.
People don't like libertarianism because it's not the American system of liberty. That it is named like it promotes liberty is one of the bigger jokes about the "philosophy." It has become what it always has invited -- a pseudo-philosophy that attempts to justify wealth rule.
Speaking of Rothbard, I'm sure he would be disappointed a system of leftist liberty has become captured by the Old Order to become an excuse and a handmaiden for conservative control. But hey, if you're gonna whore-out, might as well do it for the most financial gain.
I know that on your planet, Wall Street profligacy would be controlled by a set of fantasy super heroes like Competition Men and Rational Self-Policeman, but the fact is Regulation Man can do it without straining his ability or reality.
As far as the whiny reference to Greece as My Ideal, I had to chuckle. If you want an example of your pseudo-philosophical belief, look at the massive destruction of the American economy. Remember, the Fed is just your excuse--deregulation did the true damage. Greenie is a monetarist, but his market beliefs are pure libertarian, at least until he recanted in the face of obvious failure--an act of contrition you somehow avoid.
Libertarianism is a crap ideology pretending to be a philosophy. Real thinkers would never be restricted by an ideology, which is why I ridicule any libertarian who thinks they're a thinker.
That considered, I would, on behalf of all Open Saloners, like to thank you for sparing us a more thorough regurgitated account of how other people--alive and dead--think. To know how you think you'd have to actually think. That's the nice thing about being an ideologue--you don't have to think, just recite.
We always have a good laugh when Larry comes here and tries to teach us lessons in finance based on a futile economic premise. When you have social-democratic countries giving us lessons in economics, we can kick Austrian economics to the curb:
The U.S. Financial Crisis: Lessons From Sweden
Five lessons countries can learn from Sweden on how to survive a financial crisis
The answer is its history of financial regulation. US struggled to have a unified financial regulation and had multiple regulators and charters with powers divided between states and centre. Canada the federal had powers to regulate the financial sector and hence we have a much better and regulated financial system.
Canada rated world's soundest bank system: survey
It looks like Canada has more than its health care system to use as an economic model…
Maybe he should stop watching Fox News. As shown in this study, its viewers are more ignorant that people who don't watch any news at all:
Some News Leaves People Knowing Less