If your idea of the free market would be that it makes the world perfect, greed cease to exist, and all people paid what you think they should be, then… no it doesn’t work at all.
You could argue that a car doesn’t work because it doesn’t fix peoples teeth. The free market isn’t supposed to promote democracy, justice, fairness or eliminate poverty or feed the poor or anything. In order to answer if something works you have to specify what it is supposed to do.
You could say that either regulations did not exist to discourage bad practices or that existing regulations were not being sufficiently enforced, but I don’t think it is exactly fair to say that unbridled greed brought the markets down. The markets are still chugging along incidentally, powered by people trying to make a buck. (People like you, assuming you have a 401k or a pension or even a savings account).
But that is another thread.
Rob
Depends. What does the bad baseball player do for a living?
Oh, you mean a “bad” player in MLB, who is only “bad” by MLB standards? Such a player is still far, far better at baseball than nearly everyone else. So, a more honest question would be, “Is an excellent baseball player worth more than a somewhat better than average teacher?”
Why is this an example of why markets don’t work? Are you asserting that you (and you alone?) know the true value of any given occupation, and everyone else is just wrong?
I can’t figure out how you can reason that a teacher is worth more than a pro athlete. By what twisted logic did you arrive at such a conclusion? One team alone (okay, two teams :)) provide entertainment for millions and millions of people every game day. That feeds the families of the coaches, therapists, announcers, hot dog vendors, stadium janitors, construction workers that build the stadiums, the manufacturers of the clothing and gear that the team uses…the list goes on and on.
One player makes a livelihood for thousands of people and improves the lives of millions of spectators. A teacher educated maybe a few hundred kids, one year each, for one subject.
You do realize that someone is actually writing the paychecks, right? The owners of a sports franchise aren’t dolling out cash because they, well, they just reeeeally like the guy. They do it because the player brings in the cash.
Then you don’t understand the free market. You use the free market every day of your life.
Own a house? Buy groceries?
Those are *regulated *markets.
I mistakenly used “basketball” instead of “baseball.” I’m getting dyslexic in my old age. Nevertheless, a similar example with baseball players can be made.
Well, you could lobotomize every citizen so they no longer exercise free will preferences resulting in outcomes you don’t like. Keep in mind that a side effect of this is that the teachers that you want to be paid more will no longer be needed since everyone’s frontal lobe is no longer functioning.
blinkie, to answer your questions:
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Yes, the free market really works.
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Yes, the performance of a good teacher really is worth less than the performance of a professional baseball player. Yes, the performance of a soldier is worth less than the performance of a talk show host. No value judgment need be inferred; economically the performance of a baseball player and talk show host is worth more, as the demand for these occupations is higher, and the supply is much, much lower.
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Regulation is an important part of any free market system. A free market requires protections against fraud and theft. And what has it done lately? It’s immeasurably improved the life of billions of people.
Getting back to this question, markets solve the issue of how to allocate scarce resources towards uses where they are most demanded. They work passably well in this regard.
There is nothing about a market system that necessarily requires these demands to be beneficial. This seems to be what you are objecting to. Fair enough, but as Telemark asked, what do you propose as an alternative?
I should rephrase this.* The free market didn’t do that, as it doesn’t do anything. It’s only a system to organize production and purchasing. To be more accurate, working through a free market system, billions of people have improved the lives of everyone around them.
*And edit. Should have said “lives”.
Physics, medicine, and chemistry don’t work?
Yes, it works.
When it comes to wages it works fine, as others have pointed out. I think your confusion stems from the fact that you don’t want wages set by a market, but set by what YOU think is ‘fair’. Correct? IOW, even though it’s fairly easy to be a teacher, and there are millions and millions of teachers, you want teachers to be ‘worth’ more because you think they should be. And even though it’s not difficult to become a soldier, and there are millions of soldiers, you feel that they should be ‘worth’ more than talk show hosts because you think they should be.
The trouble is, you aren’t god king, and so can’t set wages based on what you perceive as being fair. Instead, The Market, a.k.a. We, The People, determines wages based on a ton of factors ranging from how difficult the training is to become one, to how scare they are, to how much in demand their position is. In the case of ML Baseball players, they are a scarce commodity, since the skill and training involved in becoming one is prohibitively rare, and they are in demand because, for reasons unknown to me, millions of people enjoy watching ML Baseball, and are willing to PAY to watch. Teachers, conversely, are pretty common, since it doesn’t take a large amount of innate skill or training to become one, so, that cuts down on their marketability. Same goes with talk show hosts vs soldiers (or teachers vs soldiers, or IT engineers vs custodians, or doctors vs check out clerks, etc etc).
Your examples actually demonstrate why the free market works pretty well at determining wages based on societies needs and desires. I think your problem is that you feel that things should be based on what’s ‘fair’ (determined by you alone), and not based on all those other factors.
It simply determines the price of things based on the same things I mentioned about wages…scarcity of an item, demand, etc. If something is relatively abundant, relatively cheap to manufacture and distribute and the demand for it isn’t high then that is going to set a certain price level. If an item is very rare, difficult to manufacture or distribute, and is highly in demand, that is going to set a different price level.
A Ferrari is an item that is relatively rare, costly to manufacture, and highly sought after…which is why it’s so expensive. A Chevy Cobalt is fairly common, is not as expensive to manufacture, and the demand for it is less…so, it’s going to be significantly less expensive.
To use your analogy from the OP, why is the Ferrari so expensive when a Chevy Cobalt is a good and worthy car? Wouldn’t it be more fair to set the price of the Cobalt to higher than the Ferrari? It’s exactly the same thing.
I think you are mixing up what a (free) market is with all sorts of other things, like the stock market, wall street, capitalistic fat cats lighting their cigars on the backs of the peasantry, etc etc. The Free Market is just you and I (and all the other millions of people out there) deciding what we want to buy and how much we are willing to pay for it. Simple as that.
-XT
Milton Friedman on greed: http://www.youtube.com/watch?v=RWsx1X8PV_A
You don’t understand the word ‘create’ here. Creating wealth really means value that wasn’t there before. It cannot be at anyone’s expense. If you voluntarily trade something of value for something else which you value more, no one is forced, no one is harmed – wealth is created.
I am not pretending to be knowledgeable about economics and I really do understand supply and demand. However I reject the idea that supply and demand is the only thing that determines worth.
Saying a ballplayer is more valuable than a teacher is ludicrous and points to the failure of our society. Sure ballplayers, sell concessions, build stadiums etc., but a good teacher might inspire hundreds of new scientists.
Markets need regulation.
Maybe I asked it wrong. Can anyone give me an industry that is totally free and doesn’t require some oversight or regulation.
Ok, what does determine worth? Or, a better question: how correlated are “many people think X has more value than Y” and “X has more value than Y”?
Then you reject your own free will. If you have a small child, and you need a babysitter for 2 hours, you pay maybe $10/hour for a total of $20. If your house plumbing spring a leak and you need a plumber for 2 hours, you might may $75/hour for a total of $150.
Is the welfare of your child worth less than the condition of your water pipes? Why didn’t you pay the baby sitter $200 to reflect that her care is more important that leaky faucets? How do you reconcile this inconsistency?
Or how about going through the yellow pages for plumbers and negotiate the fee with each one before he makes a house call. Tell them, “look I have a broken faucet but I don’t think your 2 hours of time is worth more than my babysitter’s 2 hours of time — therefore I will only pay you less than $20 for the visit because that’s what’s fair.” See how many plumbers will show up at your door.
Babysitters are unregulated. You want the government to force a surcharge on babysitters so you MUST pay your baby sitter $150 for two hours?
The pay of plumbers is also unregulated. We can cap their pay to be less than that of babysitters. Do you see any problems with that?
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If you want to understand why some people get paid so much more than others you need to bear in mind that, like pretty much everything else, it all comes down to supply and demand. In the job market, it’s all about the supply of people who can do the job in question and the demand for the service being provided.
Take David Beckham as an example. Anyone with even a cursory familiarity with David Beckham knows that he’s a very lucky guy. In fact, considering the abundance of blessings fate has given him, it’s hard not to feel envious. He’s got the fame, the beautiful wife, the looks, the legions of adoring fans, the worldwide recognition, and, of course, the millions and millions of dollars. Like I say, a lucky guy.
Or so you’d think, until you see him interviewed. The guy’s perfectly affable but obviously about as sharp as a bag of wet mice. He comes across as one of the dumbest people to ever walk the earth. It’s clear the guy’s paid for his success in IQ points
But, he can curl a free kick better than anybody else in the world. Out of six billion people, when it comes to curling free kicks, David Beckham is on the very top of the pyramid. Incidentally, the free kick in that video put England through to the World Cup that year. Note the time in the top left corner - it was about five seconds from the end of the game.
Now, who benefits from this? Well, first of all, David Beckham’s sponsors benefit. The more people love Beckham, the more people will buy the products he’s lent his name to. David Beckham was the most popular guy in the entire country for about a month after that. That translates into a lot more sunglasses, razor blades, and boxer shorts flying out the door than would have done otherwise. While this is good for the CEO’s, it’s also good for the people on the production line who may well have benefited from the extra profit in some way. At the very least, Beckham gave them that little bit of extra job security that comes with knowing one’s services are in demand. The company may also have hired some extra workers.
Beckham’s league club, Manchester United, would also have benefited. Famous players sell more merchandise and there would have doubtless been a significant spike in David Beckham’s T-shirt sales after that game. This means massive profits for the club, and, as with the sponsors, a big windfall for whichever company makes those T-shirts.
The nation as a whole also benefited from the uptick in general good humour which inevitably follows an England victory. This may seem trivial, but it actually translates into a slight but definitely measurable drop in violent crime and football hooliganism. Since, at the time, I worked in a sports bar, the goal benefited me also.
Out of all the world’s six billion people, only David Beckham could have done all that. Only David Beckham. That’s why he can command more money in a week than a nurse would earn in ten years.
Nursing is a wholly admirable profession and an absolutely crucial one at that. Nurses save lives and bear the suffering of strangers every single day. On the face of it, it seems obscene that a nurse would earn so much less than a professional footballer. This is where the supply and demand comes in. Nursing is an extremely demanding job, but it’s one that quite a lot of people could do. The demand for nurses is immense, but there is also a fairly decent supply of people willing to dedicate themselves to the profession. Similarly, the demand for someone who can curl a football past a wall of defenders and a world class goalie is also immense (because, as I explained above, a surprisingly large number of people benefit) but the corresponding pool of talent is tiny. Consequently, the people in that pool can charge whatever they want, and that’s why sports stars get paid more than people who save lives all day.
Lest people think I’m somehow picking on nurses, I should add the same is also true for people at the top of the medical profession. World renowned cardiologists are few and far between but still, there’s only one David Beckham.
This also explains why actors and talk show hosts get paid so much. An entire multi-million dollar entertainment industry has been built on the character of Gregory House, but if Hugh Laurie decides he’s had enough it’ll collapse overnight. Consequently, they’ll pay him whatever he asks for to stay on the show. Ironically, Laurie has often expressed some regret over the fact that his father who was a real doctor, got paid a tenth of what he gets to play a fake one. That’s just the nature of supply and demand.
This holds true all the way down the ladder. Minimum wage jobs are minimum wage because anybody can do them. Being a barman in a busy club is bloody hard work, but I get paid a pittance because there’s no shortage of equally able people queuing up to do that work. The demand for my services is dwarfed by the supply of people who could take my place.
In summary (and I really didn’t mean to go on so long 
), big money sports stars and actors command the exorbitant wages they do because they tend to be irreplaceable. Moreover, while this may not seem fair, it’s good to bear in mind that they actually directly benefit a great many more people than they’re given credit for.
People determine worth. Market participates in aggregate determine worth in a market. For you personally, a teacher has more worth than a ballplayer; that’s fine. To someone else, say a General Manager of a sports team, a ballplayer has more worth than a teacher. Said General Manager may appreciate the value of a teacher in educating the populace, but he may have no personal use for a teacher. Why is this General Manager’s sense of worth any more or less valid that yours? People value different things in different ways under different circumstances. Why is it inherently ludicrous that some people don’t value things in the same manner as you?
As a silly example, the market for toilet paper is largely unregulated. Various producers produce a number of varieties of toilet paper and package it for sale. I can go to a store of my choice, dollars in hand, and exchange those dollars for whatever toilet paper product I want. If I dislike all my options, I’m free to choose not to buy toilet paper at all.
Markets do not have inherent social objectives. They arise simply when different people assign different values to different things. When this condition is met, people will try to come together to engage in trade, trading away things they personally value less for things they personally value more. Market regulation is needed when society as a whole decides that the outcomes of a particular unregulated market are undesirable relative to society’s needs and wants. But this says more about the needs and wants of society than it does about the functionality of a market; markets themselves have no inherent purpose other than to facilitate economically efficient trade.