Myth of the Free Market Economy

A few weeks ago I attended a women’s conference on social justice and political activism.  It was quite an experience since most of the women there were either leaders of organisations or lawyers.  It was almost a bit daunting to be in the same room as them during question time.

In attending this conference I realised the great contribution women can make in public and political life.  A DVD illuminated some of these aspects which  include :-  compassion,  common sense,  less ego,  consideration for the poor,  needy and underpriveleged and in a more comic vain –  beauty brains and talent.

An example of this was displayed when I was listening to one of the female speakers.  She explained how the absence of organisations to negotiate fair and higher wage levels in the USA,  can be considered as one of the causes of the subprime crisis in that country.  This is due to the fact that as inflation increases ( while wages stay the same or decrease),  sooner or later wage earners,  no longer have enough money to repay their mortgages or buy the goods and services that they need.

Aside : There is also the issue of the Iraq war and the tremendous cost of this and it’s aftermath which has completely drained ( and is continuing to drain) the US economy.  This was a clear impulsive act of revenge & ego, which totally ignored the possibility of diplomatic relations according to international law. 

This is the inherent fault in an economy which relies too much on the “free market economy” and it’s so called “invisible hand” to automatically distribute resources to consumers in society.

By definition,  a free market economy is where business is governed by the forces of supply and demand and is not restrained by government interference regulation or subsidy.  In practice however,  capitalist countries still have a certain degree of government regulation and restrictions on the ownership and exchange of goods and services.

The degree of the free market economy verses government intervention is seem more in the differences between political parties.  Usually the more right wing a party is,  the more they will lean towards advocating a free market economy with very little government intervention.  On the other hand the more left wing a party is,  the more they will gravitate towards greater government intervention to achieve a more equitable distribution of wealth to all sectors of society.

The problem with a free market economy is that it is only a theoretical model which falsely assumes we live in a perfect world where all things are equal. For instance it assumes all consumers have the same amount of income to spend on goods and services,  which obviously is not true.  The free market model goes on to assume that the “invisible hand” of market forces will automatically distribute resources to people who need them.  In the real world this does not happen since market forces are subject to many different variables which are not considered in the free market oversimplified economic model.

The reasons for this are well summarised by Belinda Streeter from the website “Opus”  from the Newcastle University Students Association.  Here is an excerpt from an interview with her :-

So why is this idea of a free market economy such a farce?  
(Source: http://www.opus.org.au/node/179)

“This artificial market has many assumptions.  One is that as a mechanism it can survive on its own without any intervention from the state.  This is not true.  Markets only exist because societies and states create them and they are run and regulated by the state.  This idea of separating economics, politics, and society would lead to the destruction of society as we could know it,  a big claim I know but think about it.  Can you imagine if there were industries that were not regulated?  Aeroplanes would fall out of the sky due to lack of maintenance,  the cost of education would go through the roof,  or even more mining accidents would occur such as that in Beaconsfield.  Also there would be no welfare whatsoever,  no free education,  no free or discounted health care,  more polarisation between rich and poor,  increased costs of living and so forth,  this list could go on and on.”

A significant outcome of an overemphasis towards a total free market economy is that inevitably the rich get richer and the poor get poorer.  This is evident especially in the USA – a popular advocate of the free market “invisible hand” philosophy.  Even though in the past it has been considered a wealthy nation the disparity between the rich and poor is becoming wider and wider.  This is so because man is inately selfish and will always tend towards achieving his own financial gain even at the expense of others.  The “laisez fair” free market economy is about the survival of the fittest or strongest members in the market.  Those who are weaker or disadvantaged usually become oppressed economically and socially by the stronger aggressive players.  For instance, individuals who may face disadvantage or discrimination through a lack of education,  dysfunctional family,  race,  gender,  physical attributes or disability etc,  would be left by the wayside and asked to fend for themselves in a pure free market economy.

Is the sort of society we want to live in?  If not,  then we must fight for the causes of social justice and support those political leaders who advocate policies to assist the poor and needy in our society.

We must also remember that our society needs the services of the more humble lower paid wage earners,  otherwise whole industries would not be able to function eg.  fruit pickers,  factory workers,  cleaners are all essential workers in the labor force.  Hence it is necessary to cater for their economic needs just as much as high earning professional people.

Today the USA has been one of the greatest proponets of the free market economy.  US government policies have often favoured big business and made low wages for all workers an acceptable fact of life.  This is futher entrenched by the lack of trade union representation in most business sectors.  It is ironic that this fact has back fired because in the present financial crisis,  it is partly because of this endemic low wages that people are not able to pay their mortgages and credit card debt.

In conclusion perhaps we need to refrain from becoming too carried away with the myth of a self correcting free market economy and instead balance this by allowing intelligent and constructive governement intervention to ensure that we create a more equitable society that is just and fair and considers the plight of the weak and underprivileged in our world. 

Individualistic greed would also need to be overcome since this more often leads to the oppression of the poor and weak in society for personal gain.  This can take the form of exhorbitant prices that people cannot afford to pay or paying wages that cannot sustain a minimum living standard for the average person.

In Psalm 33:12 it says “Blessed is the nation whose God is the Lord.  The people whom He has chosen for His own inheritance.  God’s laws include to refrain from greed,  (see Luke 12:15,  Romans 1:29,  Ephesians 5:3,  Colossians 3:5,  Proverbs 15:27) ;  refrain from oppressing the poor and needy (Exodus 22: 21-27),  and instead to act justly and love mercy and walk humbly with our God (Micah 6:8).

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2 Responses to “Myth of the Free Market Economy”

  1. Ron Moore Says:

    This is an important topic and I think it’s great that Adelle is trying to make some sense out of it. But there are a few things that need clarification. First, if we are going to decide how much “free market” we want then we need to understand what a free market is and how it works. A free market isn’t some abstract theory, it’s just you and me and millions of other people making their own decisions about what’s good for them and agreeing with other people to make an exchange that benefits both. Free markets have existed and in some cases still do and in most cases work very well.

    Of course if there is force, like a robbery at gun point, or fraud like lying about your income on a mortgage application, then that’s where you need the government – regulation – to protect the rights of people who can’t easily protect themselves. So when we talk about free markets we aren’t saying “anything goes”. We are saying “anything goes in the absence of force or fraud”. That’s not abstract theory. Advocates of the free market are all for preventing and punishing force and fraud.

    Free markets are actually much less theoretical and far more practical than centrally planned –regulated- markets and far more successful for everyone. For example, Russians are not stupid people. If anyone could have made a centrally planned economy work they could have. But 70 years of experience there casts a lot of doubt on whether centrally planned economies can possibly ever work.

    Suggesting that without government regulations airplanes would be falling out of the sky doesn’t make any sense. Airplanes fall out of the sky quite frequently even though air travel is one of the most heavily regulated industries and most major airports are 100% government owned and controlled. In a truly free market passengers wouldn’t travel on an airline that had a poor safety record any more than they do now. The first air travel passengers were “early adopters” – risk takers who made that personal decision and proved for everyone else that man could fly. In a free market there would be organizations – like JD Powers or consumer reports – that would publish safety and inspection information. It would be better than government information because there would be competition among providers.

    There are two main arguments against government regulation. First the moral issue. Rights are inherent in man. Religious people believe they come from God. Those who aren’t religious believe they come naturally. Either way no person or group of people have the right to deprive any one else of their rights – again as long as those rights don’t inflict force or fraud on someone else. It doesn’t matter if you are the local organized crime gang attempting to extort protection out of the shopkeeper on the corner, or the gang elected to congress to extort on average 40% of everything you earn. There is no moral authority to interfere in honest business between adults as long as that business doesn’t inflict force or fraud on anyone else. And the law of our land – the Constitution – says so.

    The second issue is effectiveness. No group of bureaucrats , no matter how smart they are, can possibly have as much information, nor can they make decisions as carefully considered, as millions of consumers and business people thinking about their own needs and how to satisfy them. Of course some people will make terrible decisions. But that will be their responsibility. Friends, family and other advisors should try to help them make better decisions but individuals have to take responsibility for their own decisions. If government regulators make terrible decisions, like those leading up to the mortgage crisis, then everyone is hurt and through no fault of their own. In highly regulated markets like the mortgage market bad decisions are rewarded and good decisions are punished. On top of that centralizing power in the hands of government leads to corruption because corrupt people will invest their time and money in gaining control of power whereas honest people will mostly mind their own business.

    You can learn a lot more about this at http://www.mises.org. It’s an institute of economists who are very free market and have great explanations and evidence. I am not affiliated with them. I just like it a lot.

    I am sure a lot of Adelle’s readers disagree with me and I’d love to further a good natured intelligent discussion of this topic with people who have another opinion. I always say it’s no fun arguing with people that agree with you. Please let me know what you think.

  2. aarwen Says:

    Dear Ron

    Thanks for taking the time to write your thoughts. It is good you have your own insights and views about this matter. I would need some time to read your letter more thoroughly for more detailed healthy discussion. However you may also read my recent blog entitled “Millionaire Mindset” for some further thoughts of mine. I apologise if this blog may be offensive in any way.

    Regards
    Adelle

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