The Free Market in Political Economy

Unfortunately this is one of those dreary, serious posts that has very little humor.  In fact, I see very little to cheer about in our economy in spite of what I read in the managed press.   Very little humor and almost no sarcasm.   We will return to our more traditional and shallow programming shortly.

A good friend of mine, who is far smarter than I am and infinitely more successful, has, with all sincerity, pointed out that the distress in the employment market in this country, or rather the unemployment market, is just the free market at work and the free market is the best system that we, the larger “we”, have for organizing our economic system. There may be some distress while people are repurposing themselves to other industries, but that is the way things go in our modern globalized society. 

I would describe this discussion as being similar to one between undergraduate freshmen late at night over beer discussing political economy. No one really cares what we think about the free market, but we care. So in the spirit of a good debating society, this post is here to support the following thesis:

Resolved: The free market has a track record of failure and disaster throughout history. Time and again, society has been forced to intervene and regulate the market in order to survive. Rather than create the best solution for society, it has produced arguably the very worst that could be imagined.

My argument goes as follows:

In America, the free market is holy. It is dogma that the free market produces the most efficient markets, the most fair results, the greatest prosperity for all. Many, many people in America believe that the free market, the so called laizzez faire, will both regulate itself and create a society that is acceptably fair for all without the need for government regulation of any sort.

But the reality is completely different. There is ample evidence that the free market left to itself not only routinely comes up with suboptimal solutions, but that it is notorious for it. And that furthermore, the assumption that the free market will result in a solution that society will find acceptable in any given area without some sort of regulation or control is patently and obviously wrong and has been proven wrong time and again.

One definition of insanity is to repeat the same behavior but expect a different result. Here are five cases where an international free market either resulted in a disaster for our economy and the economy of the world, or at the very least, would result in a situation that we would not desire.

1. Human slavery is a market solution.

Throughout history, human slavery and specifically the slave trade in human beings, has been a profitable global activity.   Human slave labor was a solution provided by the free market to provide a source of labor less expensive than hiring workers. Although the specific price performance of a human slave was different depending on the society involved, and the value of a human slave changed through the centuries, the trade in human slaves was always profitable and it has existed in every ancient and modern society that I am aware of, to a lesser or greater degree, until up to about 200 years ago. Which is not to say that there were not individuals who protested the trade and treatment of slaves and there were societies that organized to protect their citizens from becoming slaves, but the trade itself continued. (See note 3) Pretty much everyone's hands were dirty in the slave trade, although the extent of use of slavery and participation in the slave trade was uneven. Some ethnic groups, kingdoms, and/or nation states did seem to specialize in this morally objectionable practice more than others, in other words, the benefits of Globalization were revealed far in advance of its modern instantiation. To this day, human slavery is a major business in the underground economy and, if left to the market, would still exist in this country.

Abolishing slavery was not a market solution, not at all. In fact, the struggle to abolish human slavery has resulted in grave dislocations of various economies and in at least one major case, a war that killed about 10% of the adult male population and impoverished about half of that country, which is of course, this country.   Many believe that this particular war could have been avoided if both sides had been willing to figure out how to solve the economic dislocation the freeing of the slaves, who certainly deserved to be freed, could be addressed. Failing to address this issue, caused entirely by the amoral behavior of the free market whose major beneficiaries absolved themselves of all responsibility for the situation they had created, resulted in death and destruction on a vast scale.

Furthermore, the free market, left to itself,  has never abolished human slavery anywhere to the best of my knowledge and has not to this day. Society has had to come in at great expensive of lives and treasure to destroy this abomination and we are not done yet.

2. The exploitation of children is a market solution.

Great Britain was the first to industrialize their factories and the free market immediately abused labor, vastly expanding the use of women and children in inhuman conditions for impossible hours and slave wages which resulted from day one in misery, damaged lives, mutilation and death in the pursuit of profits. The free market never solved this problem. It was solved by society passing laws that punished corporations for their morally reprehensible behavior which took advantage of vast poverty in society to increase the profits of the factory owners. Not only was minimum standards of morality forced on them at the time, but they have been complaining about it ever since.

3. The complete collapse of a major segment of the energy industry about a century ago and the near extermination of mammalian sea life was a result of the free market..

Over 100 years ago, before our economy based itself on petroleum and we developed the technologies necessary for its extraction and use, the primary sources of energy in Western civilization were wood, coal and various oils for lighting. Nearly all lighting in this country was produced from whale and seal oil as it produced a better flame and less smoke than the alternatives which had been used throughout history. The globalized energy industry, particularly Great Britain and the United States, would send ships to islands in the southern hemisphere where they would find 100,000 seals on a single island and slaughter them, melt down their bodies for the fat in factory ships, and stop when it was no longer worth the money to kill them. From 100,000 seals on an island, they might leave a few hundred. It was just too expensive to chase them down and kill the last ones or they would have. The energy industry's vast wisdom in managing this scarce resource, whales and seals, was to kill them until they became essentially extinct and then stop. When they had killed so many that it was no longer profitable to kill the rest, and the whales and seals were all but extinct, that industry simply collapsed.  If natural gas and electric power (generated from coal) had not replaced it, we would have been burning olive oil in lamps the way the Romans had.

4. Whenever the financial markets have been allowed a free market, they have self destructed and taken the economy with it.

The self regulation of finance by the market has a very clear history. Left to itself, the finance markets will always engage in obviously risky behavior in pursuit of profits that will result in an unstable situation that at some point collapses at vast cost to society and the world. The market would then slowly rebuild, the economy rebuild, and they would do it again. Repeat. Left to itself, the financial markets are guaranteed to self-destruct out of greed and a complete lack of responsibility to the society that it serves.

It is as if engineers built bridges that collapse at tremendous loss of life because it was less expensive and more profitable to do so and they knew that this would kill people but they did not care. The latest example of this was the economic collapse of 2008 which was caused by gross malfeasance on the part of the finance industry in conjunction with congress and the regulatory agencies that abandoned their responsibilities to society.

Furthermore, we can say that whatever financial market we have today only exists because of government intervention, in other words, because of government interference with the free market. Left to the free market, there would be no finance market or industry. They had self destructed. It was gone, baby. All gone. The world economy was destroyed in 2008, repeat: destroyed, and the world entered the worst depression since the great Depression of 1929.  It was only because of government intervention in spite of the finance markets that the depression was not worse and they were careful to do so in ways that avoided the bad word "depression" as well as financially reward their guilty friends in the finance industries that had caused the problems.

5. Left to the free market, there would be no education for the poor.

It is true that by having mass public education, the rich get better workers, better soldiers, and more entertaining whores, but they have never wanted to pay for it. Public education has never been, now or ever, a solution that the market came up with.

So when I hear someone say, lets have the free market find the solution, I think to myself, are these people out of their fucking minds?

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1. By the way, for what it is worth, one of my degrees is in Economics from a famously free-market school, UCLA, and I worked with a billion economists at the RAND Corporation when I was very young. Maybe this background is part of the explanation for why the issue of the use or abuse of the free market in lieu of policy seems so important to me.

2.  The practice of slaving was not restricted to black Africans, by the way.  That was a development in the slave trade in the 15th century.  Before that, there were slaves of any color or race, so far as I know.  The specific racial theory to justify slavery of sub-Saharan Africans seems to come into existence to help justify the practice.  Before then, however, human slavery involved pretty much anyone who could be victimized. Slavers would often raid by sea, attack a town, enslave the citizens and escape by sea.  Its a long, diverse, and complicated story. 

3. You may read about laissez faire at the link below.  The Wikipedia version is somewhat different from how it was explained to me years ago.

http://en.wikipedia.org/wiki/Laissez-faire