Friday, April 28, 2006

Free Market Fantasies

    It seems that any discussion of politics ends up involving some sort of debate about economic systems. Since most atheists tend to identify themselves as liberal or libertarian, I thought that it'd be interesting to address these perspectives. I disagree with the liberal point of view because I believe that governments, much less powerful ones, can be very dangerous to people's freedoms. I also do not personally like the idea that someone who refuses to work will enjoy the fruits of labor of those who do. However, in this post I want to talk about the libertarian point of view. This is because while the liberal point of view is something that I don't personally like, the libertarian point of view is generally based upon the idea of a "free market", and this idea is one which I think is a complete fantasy.

     So first off, I'd like to say to those that think a free market is the best way to run an economy that I don't necessarily disagree with you. You may be right. I haven't put too much thought into it, and the reason for this that I don't think free markets can exist in actuality, and so talking about how nice it would be is a waste of time. Additionally, slight deviations from a truly free market result in a situation which I think is hard to argue for since essentially all of the redeeming characteristics of a free market are lost.

    The good thing about a free market economy is that products that are the best value succeed. If someone is charging too high of a price, someone else can come in and sell lower and still make a profit. The competition drives prices down and productivity up. However, this is not how markets work. When someone succeeds in business, they don't go back to square one. They're more wealthy now. This gives them an advantage which they can exploit to make their products, even if vastly inferior, succeed. If I'm wealthy I can simply drive my competitors out of business by operating at a loss, since I can sustain that while newcomers can't. Moreover, I have the money to advertise while others do not, and people might buy my inferior quality products for a higher price. This and other factors lead to the result that it's not the best quality products that succeed, but generally those who have previous wealth who succeed. Their previous success gives them current success, which gives them future success, and so on. Because the "game of capitalism" doesn't start anew, it overwhelmingly favors those whose are already wealthy. While some may or may not have a problem with this, the point is that this advantage destroys the level playing field and makes the market less competitive and thus not free.


    Another criticism of a free market is the existence of externalities, which create costs to the consumer that are not reflected in the purchase price. Pollution is a good example of this. A company which has the lowest costs can sell for lower, thereby giving their product an advantage in the marketplace. They can lower costs by mishandling the pollutants that product production creates. The market rewards this sort of behavior with a competitive edge, yet the actual price of their products is much higher than those of a competitor who doesn't pollute. Now it's true that you could hold people responsible for learning about the companies they buy products from. While this would be very difficult to do, I'm not entirely against this argument, although I think it's doubtful that people would be able to adequately judge what the businesses were up to.

    So to me, a free market is to economists what a massless string is to physicists. It's a nice idealization to help teach people basic concepts, but please don't build anything with it.

12 comments:

Simon said...

The interesting thing is that socialism (which tends to include atheism) reveals the problems with Christianity.

Socialism is really putting into practice what right-wing Christians preach - Jesus said share the wealth.

Unfortunately, this ideal is open to abuse. Unscrupulous humans will exploit others' charity.

So we have atheist socialists trying to put Christian values int practice (and often failing) while Christians stick to the Darwinian/capitalist survival of the fittest.

Humanity is a comedy, is it not?

SH said...

In addition to what you've said I want to add that one of the ideas behind the concept of free-market is that people will be making educated choices when it comes to spending their money. However, it is evident that many prices are driven not by "real" value of the products/services but by their "perceived" value. Thus, if you manage to convince public that your product is the best, regardless of whether it actually is or not, people will buy it. Overwhelming majority of information about products comes from advertising. Advertising is explicitly designed to prevent people from making "educated choices" in favor of "emotional" ones. We have a situation when it is not the "best" product wins but the best advertised product wins. Free-market then leads to the world where not what is the best for us that prevails but what we can be "tricked" into thinking is the best for us, regardless how harmful it really is for us personally and for the society at large. This seems to result in a victory of unreason. "Uncontrolled" free-market is then an unreasonable choice even if it could be put in practice.

An interesting take of libertarianism can be found here: http://www.zompist.com/libertos.html

Delta said...

Socialism is really putting into practice what right-wing Christians preach - Jesus said share the wealth

Right wing christians are very far from having socialistic characteristics. They are much more for capitalism and supporting authoritarian political institutions. You might be able to make an argument for the original christian viewpoint, but right-wing christians are pretty far from what is considered "classical" christianity.

In addition to what you've said I want to add that one of the ideas behind the concept of free-market is that people will be making educated choices when it comes to spending their money. However, it is evident that many prices are driven not by "real" value of the products/services but by their "perceived" value. Thus, if you manage to convince public that your product is the best, regardless of whether it actually is or not, people will buy it. Overwhelming majority of information about products comes from advertising. Advertising is explicitly designed to prevent people from making "educated choices" in favor of "emotional" ones. We have a situation when it is not the "best" product wins but the best advertised product wins. Free-market then leads to the world where not what is the best for us that prevails but what we can be "tricked" into thinking is the best for us, regardless how harmful it really is for us personally and for the society at large. This seems to result in a victory of unreason. "Uncontrolled" free-market is then an unreasonable choice even if it could be put in practice

This is very true sh. In a free market you're supposed to have an educated consumer. I attempted to address this issue by mentioning how advertising can make an inferior product sell for more and how the consumer would be uneducated about extra costs to him (via externalities), but I probably should have made it more explicit as you just did. However, I don't think it follows that an "uncontrolled" free market wouldn't work if you could put it into practice. In my opinion if your consumer isn't educated and makes choices on something other than reason, that destroys the existence of the "free market".

SH said...

I don't think it follows that an "uncontrolled" free market wouldn't work if you could put it into practice.

I don't know if it would work but it seems to be unreasonable to expect that it would work for the society as a whole. But I guess it depends on what you mean by "market works." It might work for a while and for some people. Will it work for majority of the people? I don't know. For example, Mark Rosenfelder in the article I linked to above writes: "At the turn of the 20th century, business could do what it wanted-- and it did. The result was robber barons, monopolistic gouging, management thugs attacking union organizers, filth in our food, a punishing business cycle, slavery and racial oppression, starvation among the elderly, gunboat diplomacy in support of business interests."

In my opinion if your consumer isn't educated and makes choices on something other than reason, that destroys the existence of the "free market".

Yes I agree. And the concept of something being "free" in general is silly. :-)

TheJollyNihilist said...

I think you make some good points, Delta. Even though I would consider myself a laissez faire person, I don't think the "free market" is really as simple as conservative economists make it out to be. There definitely are built-in advantages (such as prior wealth) and detrimental effects that extend beyond the local discount store (environmental destruction).

The question is to what extent the government should interfere. I look at the market sort of like Natural Selection with respect to life. Certain species are better adapted, and they will survive, while others will die out. Competition goes on among the survivors. So, it's not antithetical to competition for the "little guys" to bite the dust. Probably 99% of the species that have ever lived are now extinct. In a free market scenario, 99% of companies might not survive.

It still represents the spirit of competition, but the question is whether that competition, in the end, benefits the consumer. Will that surviving 1% better serve the consumer than the full 100% would have?

Sportin' Life said...

But I guess it depends on what you mean by "market works."

That's the important question, isn't it?

I hear an awful lot of free-marketers arguing tautalogically, i.e. whatever the free-market delivers is what's best, period.

It seems to me competition is an important ingredient of a healthy economy and a healthy society, but it's not an end in itself.

breakerslion said...

Coca-Cola. Need I say more? Ok, here's a direct quote from a president of Frito Lay, back in the 70's: "We put an oily starch in a bag and sell it."

Free Market idealism also fails to recognize that negotiations between employers and labor are NOT what is referred to as "at arms length". There are too many factors that put the employee at a negotiating disadvantage. One cannot rely on the kindness of benevolent old J. D. Rockefeller. Been there, done that, got the busted heads to show for it.

Anonymous said...

I posted something like this a while back:

People erroneously assume that the drive for wealth leads to better things for all. This is not true for several reasons: 1) a company can invest capital in advertising, encouraging people to buy more items or services, without actually improving their quality; 2) a company can purchase raw materials from shady countries/companies, resulting in suffering for those on the mining/distributing end; 3) a company can create a monopoly in a specific region or industry, choking out the competition and demanding outrageous prices (think Enron); 4) a company can REDUCE the quality of a good or service to save money, which means decreased value for the consumer. Some companies do this intentionally to encourage customers to return (think lightbulbs and other replaceable parts). While not all businesses do these things, it goes to show that reality can and often does contradict heart-warming concepts.

If you look in the history books, you may notice that large corporations came about with the help of the government. Coal, steel, and railroad companies grew with the help of government subsidies. Big government and big business cannot exist without each other.

Many centuries ago, when humans roamed around chasing herding animals and foraging for roots and berries, one man (yes, it was a male) came upon a tree, a hill, a field, or some such land area or food-source and said "this is mine". He then limited access to "his" property, and used his power over "his" property as leverage to control and dominate others. He would have needed people to protect his property, perhaps offering them some fruit or food available on "his" land. And thus the first exploiting business and the first exploiting government were formed.

This tradition still exists, and it is only by this underlying arrangement that capitalism/free market actually works. So if you were born to abject poverty - too bad. Your choices are limited, because there are few things you can claim as your own. Not only that, but if you were to claim something, you would need goons to make sure it remained yours.

Economic structures should not be top-down. Corporations show us this, the Soviet Union showed us this, and authoritarian public school systems show us this. When there is a pecking order, inefficiency, dissent, and a non-meritous wealth-distribution system develops. The guy at the top will always need goons, and goons will always abuse their power. The guy at the bottom will always suffer.

-Mookie

Tanooki Joe said...

sh made the point I wanted to make already. I'm extremely skeptical of an economic theory that hinges on consumers being both extremely well-informed and completely rational.

Jason H. Bowden said...

Delta--

In a society with open markets, the consumers decide which products will be produced. Prices in particular are extremely important since they transmit information about scarcity and consumer wants, and provide incentives for rational behavior. I'm free to act irrationally and let myself be ripped off on auto and real estate purchases and so forth. But I'll literally be paying the price for it.

Advertising is simply a mechanism for businesses to find the consumers who have the highest desire for their products. If a product sucks, like Ali G's ice cream glove, often times it won't even get off the ground. Financial guys won't help fund a crappy enterprise because they'll be no projected demand for it. Sometimes a product fails miserably despite an ad campaign, like Crystal Pepsi.

What you've said about externalities isn't controversial. Liberal democracy requires the Rule of Law; classical liberals from Milton Friedman to F.A. Hayek have made this clear. Government intervention into the affairs of private individuals is guilty until proven beneficial, but in many circumstances one can make a case for its involvement.

Mookie --

There is no comparison between a socialist economy and the free enterprise of corporations. An elected workers council can throw you in a gulag for insubordination, but a corporation in a liberal society cannot. At worst, you get fired and you get another job elsewhere.

tanooki--

Not all human behavior is rational. However, under socialist proposals there is no feedback mechanism that discourages irrational behavior. Under capitalism, there is.

Anonymous said...

"An elected workers council can throw you in a gulag for insubordination, but a corporation in a liberal society cannot."

Firstly, I would kindly ask that you read my post fully before responding:

"Economic structures should not be top-down. Corporations show us this, the Soviet Union showed us this, and authoritarian public school systems show us this. When there is a pecking order, inefficiency, dissent, and a non-meritous wealth-distribution system develops. The guy at the top will always need goons, and goons will always abuse their power. The guy at the bottom will always suffer."

I should remind you that those countries claiming to be socialist/communist rarely line up with the stated goals and methods of the theory. Try reading some of the literature, instead of relying on watered-down propaganda. It would do you some good when interacting with people of these persuasions.

The prison of wage labour is subtle but crushing. Low pay, little to no benefits - a sad waste of human potential. Think walmart.

Also, consider with apprehension private prison companies: http://government.cce.cornell.edu/doc/html/PrisonsPrivatization.htm#_Introduction
What will they do to increase profit?

THC is illegal in America. There is no good reason to have this chemical illegal. Unless you're a prison company... or a repressive state that seeks to keep the "lowly" races (hispanics, specifically mexicans; and black people, specifically southern descesdants of slaves) in careful control and check.

Let me also remind you that Operation Iraqi Liberation is indeed all about it's acronym. Which company (or kinds of companies) stands to gain the most from seizing an oil-rich country? Record profits last year for the oil companies. Notice several businesspeople are in the WH right now. They have ties to oil and defense companies, and would also stand to gain wealth and power from this aggression.

Capitalism undermines the foundation of our society. ALL men are created equal. Not just Americans. If you want to spread democracy, you must treat people the way you treat your fellow countrymen. If you want to keep democracy, you must subdue capitalism, keep it from crushing humanity in the mills of profit.

If you pretend corporations are always a good thing, that the drive for wealth is the ultimate end, then you ignore the consequences, miss the connections linking evil business and bad government. Don't be so blind. Action and choice begin with the individual. A government by, of, and for the people cannot rely on a freemarket capitalist economy and expect to remain so for long.

"Advertising is simply a mechanism for businesses to find the consumers who have the highest desire for their products."

I suggest you look up meme theory, and connect it with advertising. Suddenly it is not so simple.

bernarda said...

A good reference work for the effects of contemporary American capitalism is Barbara Ehrenreich's "Nickel and Dimed".

http://www.amazon.com/gp/product/0805063897/102-3988664-2643352?v=glance&n=283155

Her analysis of her experience as a low-wage worker:

"The 'working poor', as they are approvingly termed, are in fact the major philanthropists of our society...To be a member of the working poor is to be an anonymous donor, a nameless benefactor, to everyone else."

"In fact, it was often hard to see what the function of management was, other than to exact obeisance."

"The larger society seems to be caught up in a similar cycle: cutting public services for the poor, which are sometimes referred to as the 'social wage', while investing ever more heavily in prisons and cops."

She also comments that the Economic Policy Institute estimates that a family with two children needs "a living wage" of $14/hour. However, 60% of Americans earn less than $14/hour.

Almost 30% of the workforce earned $8/hour or less in 1998.

The Center for Public Policy estimated that the chances against a welfare recipient getting a "living wage" job was about 97 to 1.

The book says a lot about the so-called "free market", especially the labor market, and she wasn't even talking about agricultural workers.