Wednesday, September 30, 2015

The Free Market Solution

It is a common criticism of libertarians, economic conservatives and their ilk that they naively believe the market will solve all problems, while quite clearly situations have existed in the past where problems persisted despite a free market, making it clear the market is not the panacea they claim1. To be fair, there are some who do hold such a simplistic faith in the free market, and, unfortunately, at times, the rest of us often write or speak in such a way as to give the impression that we have similar beliefs. So, perhaps, to some degree it is a valid criticism -- though those offering it normally hold equally, or even more, naive beliefs based on faith in the curative power of omnipotent government -- but only to some degree.

For the most part, those who argue for minimal government, for a non-intrusive state and for leaving as many decisions as possible in the hands of the concerned individuals, rather than elected or appointed officials, do not believe the "free market" will magically produce the perfect solution. We simply believe no system will. There is no perfection to be found in this life. And that applies to government and economics as well. As we can see today,  solutions implemented supposedly to cure the imperfections of the free market have almost inevitably failed to cure those problems, or where they did, they did so by introducing different problems2. Similarly, laws intended to curb the abuses of liberty, or enforce more orderly and seemly behavior have, without fail, simply driven such behavior -- very slightly -- underground, usually creating additional problems in the process3. Thus, we do not argue that the free market will solve all problems, but rather that there is nothing that will.

If that is so, then why do we argue for minimal government? Why oppose government intervention into the economy and other matters where the rights of individuals are not concerned and so on? What is the harm of trying other solutions4, if we admit the "free market" is not perfect?

We argue against government involvement for three reasons.

First, though the free market may not be perfect, and may not solve all problems, all evidence, both empirical and theoretical, does say it produces the best possible outcome5. In terms of individual satisfaction, there is no comparison.  Whatever problems may persist, the market also does tend toward removing those things that most individuals find displeasing. It may not always eliminate them, nor will it do so in a way pleasing to everyone, but for the most part, the market does produce solutions which maximize overall satisfaction6.

Second, the alternate solutions, those involving more intervention, have a tendency, as we noted earlier, to produce outcomes which are harmful both from the perspective of those promoting the change, and in terms of overall public satisfaction. Many times, the outcome is, in fact, the exact opposite of the goal desired. For example, while trying to raise the wages of the lowest paid, the government mandates minimum wages, causing many low paid workers to lose their jobs, thus reducing their wages, rather than raising them. Or the introduction of rent control to assure affordable housing, which normally produces, instead, a shortage of rental units of all types. Even in cases where the outcome is not of such a paradoxical nature, it still tends to generate negative consequences which offset, in part or in whole, the anticipated benefits.

Finally, the least intrusive solution ensures greater individual liberty. Every intrusion, in some way, reduces individual freedoms, and increases the risk of greater losses in the future. In some cases, this is obvious, such as drug forfeiture laws, which introduced the novel premise that individuals needed to prove innocence to recover their property, a change clearly fraught with potential for abuse and greater losses of freedom if it becomes more widespread. But even in the case of laws which introduce very minor losses of individual freedoms, where the intrusion is trivial, the fact that it is agreed the government has the right to limit our freedoms to "help us", to do something other than protect our rights against the assaults of others, provides a justification for ever greater intrusions, and, as I have argued repeatedly, the most consistent side wins in any argument, meaning any violation of rights, any justification of government intrusion, might as well be an acceptance of all such intrusions7.

For these three reasons, we accept that, while not perfect8, the government which does nothing more than protect individual rights -- what some insist on simplifying as the "free market" solution -- in the best possible choice. It is not a panacea, but it cannot be. First, because no system of government is without flaws, all of them will have imperfections. Second, and more important, because government is not the means for solving all problems, even societal ones, and so it is wrong to seek a system of government which will resolve every issue we face. Free market, socialist, communist, liberal, conservative or other, no government is suited to resolving every problem faced by society, and thus, no system ever will. Where we differ from those promoting other systems is that we admit this, and recognize that some problems are better solved without the involvement of government.

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1. We will ignore for the purposes of this essay whether or not the ills blamed on the free market are truly such, or rather the outcome of earlier government intervention into the economy, such as economic dislocations in many countries resulting from earlier government monopolies, private ownership of central state banks, dislocations brought about by economic regulations and so on.

2. My constant example being the Federal Reserve, intended to cure the "boom-bust cycle" -- supposedly inherent in the free market (though I believe otherwise) -- which instead brought about a massive worldwide depression less than a decade and a half after it was founded, and has since overseen a continual, and accelerating, series of such boom-bust cycles. Oddly, in this case, the public has failed to notice this fact, and accepts very passionately the arguments that gold based money, and private banks, are anachronisms that would ruin a modern economy, despite a total lack of evidence for such arguments, and fairly strong evidence to the contrary. See "Monetary Issues Made Simple Part I", "Monetary Issues Made Simple Part II", "Inflation and Uncertainty", "Bad Economics Part 7", "Bad Economics Part 8", "What Is Money? ", "What Is A Dollar?", "The Gold Question, Not "Why?" But "When?"", "Bad Economics Part 19","Fiscal Discipline", "Putting the Bull in Bull Market" and "Why Gold?".

3. I know most do not agree with me about legalizing prostitution, but, having visited countries where prostitution is legal, and others where it is tacitly tolerated while remaining nominally illegal, there does not appear to be much difference in the number of prostitutes in cities where it is legal versus those where it is not. What does seem to be missing are the used contraceptives in public parking lots and stairwells, the large numbers of streetwalkers, and, to the degree it is possible to legally enforce agreements to exchange sex for money, the abuses brought about by the requirement to use a pimp to get payment from reluctant customers (and provide protection against others). In short, as with drugs, many of the problems we associate with prostitution, are more the result of making it illegal, rather than prostitution itself.  See "Another Look At Exploitation", "The Sexual Revolution and Prostitution", "The Problem of Established Perspectives", "De Gustibus Non Disputandum Est", "Guns and Drugs", "Common Sense, Guns and Regulations", "Consumer Protection", "How the Government Corrupts Relationships", "Consumer Protection, Cartels and the Failure of Regulation", "Consolidation and Diffusion", "For Your Own Good", "Business Licensing and Regulation", "Inspections, Regulations and Bans", "Why "Hope for the Best, Plan for the Worst" is Bad Policy", "GMO Revisited - As Well as Hormones, Soy, Phytoestrogens, and a Host of Other Food Scares", "Gun Control, The FDA and Regulating the Law Abiding", ""Better Safe Than Sorry" Usually Leaves Us Even More Sorry, And Much Less Safe", "A Misleading "Right to Know"", "Oven Mitts and Safety Regulation", "In Loco Parentis" and "Harming Society".

4. I will not bother arguing against the many problems with such "pragmatic" experimentation here, but I have written many other times about the problems with adopting an approach which discounts consistent theoretical approaches in favor of random experimentation. See "Common Sense, Guns and Regulations" , "The Lunacy of 'Common Sense'", "'Seems About Right', Another Lesson in Common Sense and Its Futility", "A Look at Common Sense", "Res Ipsa Loquitur", "The Shortcomings of Pragmatism", "Pragmatism Revisited", "Pragmatism Revisited, Again", "On Extremists, Moderates and Polarization", "The Plural of Anecdote is Not Data", "Rules of Grammar and Pragmatism", "The Problem of the Small Picture", "Keyhole Thinking", "Impractical Pragmatists", "In Defense of Zero Tolerance, or, An Examination of Law, Common Sense and Consistency", "No Dividing Line", "The Consequences of Bad Laws", "Questions of Law and Questions of Fact", "The Rarity of 'Common Sense'", "Common Sense,Philosopher Kings, Arbitrary Law and Dictatorship" and "The Problem with Common Sense Solutions".

5. See "The Basics".

6. See "The Case for Small Government" and "Competition".

7. See "Inescapable Logic", "Recipe For Disaster" and "Hard Cases Make Bad Law".

8. See "Third Best Economy", "The Gadarene Swine Fallacy", "Denying Reality", "The Threat of Perfection", "Utopianism and Disaster", "Government Quackery", "The Problems With "Safe and Effective"", "Two Examples of "Inefficiency" in Capitalism", "Misunderstanding the Market", "The Secret of Success, or, Why Government Fails", "Imperfect Competition, Abstraction and Anti-Trust", "Technology and 'Natural Monopolies'", "Unfair Advantage and Foreign Trade", "The Importance of Error", "Adaptability and Government" and "Redundancy as a Protective Measure".

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