Sunday, March 7, 2010

In Response

A reader commented on a reply post of mine:
"truly free markets" are no more possible than that omnipotent geek perched on a mountain top.

Truly free markets are the ideal as far as I am concerned, but I also understand that they are few and far between.  I think what I am trying to get at is that market forces are always at work, in spite of the many barriers to their smooth operation.(taxes, regulations, codes, laws, tariffs, etc.)

I presently work as a cook at a busy restaurant.  Every single day, the owner or kitchen manager is making countless decisions on how to most efficiently run the business.  If a flat of strawberries is up to $56, then they have to decide to go without them for a couple days and hope the price drops back to the $30s, or take the hit because they think the "value added" to the customers is worth the higher cost.  And that is just one example of the hundreds of ingredients, products, spices, meats that they have to make decisions on every day.  

On top of that, it takes constant innovation to the menu and changes to the special's board to keep customers coming back day after day, week after week.  It is an astonishing amount of work and every decision made is dictated by profit and loss.  So, although this market is not "truly free",  it is still very susceptible to market forces.  I have found this to be the case with most business's in the private sector. 


  1. The only legitimate argument of why truly free markets are not possible (in a democracy that is)lies within the hard-wired confirmation biases of voters who have little understanding of them.

    When they see a social problem their instinctual first thought is never "I wonder what government interventionist policy is providing the perverse incentives for this problem to proliferate?" That line of reasoning doesn't come naturally to us.

    On the flip side, (in a democracy) the politicians are slaves to their short-term self-preservationist incentives. Chiefly, getting re-elected. So her incentive is to appear to her constituents to be busy "doing something about it."

    Ideally, such a politician would not feel compelled to "DO" anything to try and fix the problem but rather "UNdo" the previous market intervention that encouraged the problem in the first place. That NEVER happens. It would be political suicide in the hands of the economically misguided populace.

    Yes truly free markets are by far the best way to create a stable, safe, prosperous, and peaceful society that protects the environment. But history shows that truly free markets don't last long under democracies because they create a huge vacuum for every crazed interventionist to use the power of the state to eliminate their market competitions.

    Slowly, over time, democracies build up layer upon layer of interventionist bureaucracy creating greater and greater market irregularities (unemployment, crime, war, shortages, surpluses, homelessness, fraud, etc.)

    What started out as free-market capitalism eventually morphs into the cronie-capitalism (aka corporatism aka "mixed economies") that we have today. Yet tragically tomorrow when Larry Lawnmower turns on the nightly news and hears about the latest Wall-Street abomination he naively will shake his head and think "They really need to regulate that more. This is the free market out of control. While somewhere else a libertarian will also be watching the same story and shaking his head and correctly saying to himself "They really need to abolish the Federal Reserve, the SEC, and the Sarbanes Oxley Act. This is corporatism out of control.

  2. Hey Gardner! You capitalist swine! No seriously, I dig the whole economies mimicking 'natural processes' bit? Spontaneous order is for free and all, sounds interesting in principle. Can't imagine how you'd begin to implement something like this at a national, never mind a global level, at this stage of the game anyway. What do you think about local currencies? Time/dollar networks, etc?

    Unfortunately, I think everything I know about economics I learned from listening to old episodes of the reality report obsessively while living in a damp concrete garage during the endless NW rains of a winter back or so. Mossfarming. But I feel like this one gave a pretty good look at the debt-based nature of our whole banking system and economy.

    Which makes me think about the whole global capitalist economy as some giant pyramid scheme, and whenever I hear an (probably not free market?) economist lusting after a sphere of human activity that has so far eluded their prying fingers (whether squatter economies, developing country 'informal' sector economies, government or publicly-owned utilities/services, (which honestly, I think you gotta look at on a case by case basis; there're some times when the good old democratic process, syphilitic and crippled as it is, comes a whole lot closer to some sort of consensus-driven agreement than whatever it may be the free market would look like at a national scale, one dollar-one vote, one dollar one lightly-armed henchman, whatever ) so, right, it seems they're gluttoniously scrabbling to force a few more poor(er) saps into the operation to keep it floating a while longer. hazy 2 cents at the moment. Thanks!

  3. Hi, Thanks for the personalized post! I love it!

    First of all, in regards to the example from your post - how a restaurant owner must constantly work to make the most efficient choices in response to market signals – I don’t see how this is an example of “truly free markets” in any way. It is an illustration of how the market mechanism works. And I agree with everything you said about it. Markets are really nifty devices! I couldn’t agree more and wouldn’t want to live in a world without them. In many cases, a fairly unregulated market is the most efficient way to get things done. However, even if you removed sales taxes etc from this scenario some kind of government role would still be needed in order to maintain the “level playing field” on which your hypothetical truly free companies would be competing. If there was no basic regulation, who would set the contract laws with which these exchanges would operate? Who would ensure that the strawberries weren’t soaked in pesticides? (If you tell me that, after enough people had died, purchasers would catch on and stop buying strawberries from that supplier, I will break your legs. And don’t forget, that the migrant farm workers growing your strawberries do not have much purchasing power, so they won’t have any impact over the rate at which they are poisoned.) Anyway, my point is that some kind of regulation will always be there, unless you want it to devolve into some kind of free market authoritarian dystopia like Jules (above) does.

    Which brings me to my second point. I have a good example of free markets for you from a book I’ve been reading this week about 19th century El Nino droughts (“Late Victorian Holocausts” by Mike Davis). This example involves the economic policies embraced by England in the 19th century, which were largely inspired by the original liberals (Smith, Ricardo etc) and involved much freer markets than anything that has since been achieved by our modern day neoliberals. The beginning of this book is all about how, in the 1870s there were all these droughts caused by extreme weather conditions, including in large parts of India. So the price of food went up a lot. The colonial government of India, being highly wedded to free trade policies, literally allowed millions upon millions of Indians to starve to death under its watch. Obviously, it was very bad in the areas where the drought had actually hit – people resorting to cannibalizing their dead neighbors and selling their children as food in a desperate attempt to survive – but even the parts of India that did produce decent crops were hit by famine as all of the food flowed out of the country to other countries where prices were higher or to the storehouses of hoarding speculators. The imperial government resolutely refused to intervene and the toll in human life was colossal.

    Jules is absolutely right that this would NEVER have happened if the Indian people had already achieved democratic self rule at that time. The government would have quickly intervened to save its people from starving to death with economic interventions. In fact, noble prize winning economist Amartya Sen is well known for claiming that famines never happen in democracies. Truly free markets are only possible under authoritarian regimes because in a democracy people will always push back against the harm which will inevitably ensue when social and environmental concerns are left in the (invisible) hands of those whose only imperative is the profit motive. This, by the way, is what Polanyi explains so well in “The Great Transformation,” which you refuse to read. Human life is too important to be left to market efficiency. Markets are wonderful things and should be left untampered with in many instances, but your libertarian, free-market, dream world is incompatible with a democratic society and would result in justice only for those able to purchase it on the open market.

  4. nate,

    you leftist mossfarming salamander! thanks for checking this out.

    I LOVE the idea of local currencies! I think this is the sort of thing Ron Paul is encouraging with his Competition in Currency Act, where he wants to abolish the Federal Reserve's monopoly on money production and distribution.

    As far as the time/dollar thing, I would love to see it be a legal form of currency, but I just don't see it being that effective. I mean, I know for a fact that one hour of your work is worth more than one hour of mine. I guess there would need to be a case by case sort of examination of skills and whatnot, but I don't see it as being all that sustainable. Maybe I just don't understand it. Let me know if that's the case.

    Keep loose.