Does the free market really work?

Great Debates
41

Let me try this angle:

blinkie, you seem to think that teachers are more important to society than baseball players. This is true. That’s the exact reason why we pay teachers a lot more than we pay athletes.

“BWAH?!”, you say, “But a teacher makes maybe $40k a year while an athlete makes $4 million in a year!”

But that’s where you’ve introduced the error. I said "teacherS get paid more than athleteS. If you totalled all the salaries of all the teachers in a given country, it would astronomically outweigh what we pay our sports stars.

Now, let’s go back to your premise: While it has been granted (and shown to be economically supported) that teachers as a whole are more valued than sports stars. But can you really argue that a single teacher is more valuable than a single pro athlete, bearing in mind all the mouths just that one guy feeds, and all the general good humor that they bring to entire cities?

I think you’ll agree that society would mourn the loss of, say, Troy Polamalu (5-0 with, 1-7 without!) much more than one nobody-teacher. That’s why the salaries aren’t even close on the individual level.

42

Supply and demand DOES determine worth. You can’t arbitrarily say that sand is worth more than gold, or a Yugo is worth more than a Lamborghini.

A ballplayer IS worth more than a teacher, if by ‘worth’ you mean ‘makes more money’. Why? Because people want to watch baseball games and are willing to pay to do so…and they want their favorite team to win, and are willing to pay to ensure their team picks only the best players. Because not everyone can be a ML Baseball player, there is a distinct shortage of qualified people to meet the requirement, which means that those people who DO meet it are going to get paid more.

Again, you are mixing things up. It’s like you are unclear as to what you are even wanting to know about. Oversight and regulation are used with businesses and industry, there is oversight and regulation related to the STOCK market. Wages are regulated as well (i.e. there are minimum wage laws in the US, and living wage type laws in Europe). All of these have (distortional) implications on wages and on the cost of goods, but they don’t really have much to do with the question you SEEMED to be asking in your OP…or your assertion that a free market doesn’t really work.

-XT

43

EVERY market needs regulation.

If someone is selling baskets, and you tell him you’ll trade him a chicken for a basket, and he gives you the basket, and you tell him that you’ve changed your mind, you’ll keep the basket but you won’t give him a chicken, what recourse does the basket-seller have?

If his only recourse is to challenge you to physical combat over the ownership of the basket, then we don’t have a free market, do we? We have a situation where the strong take what they like and the weak suffer what they must.

In order for a free market to exist there has to be some way to enforce agreements. In order for a free market to exist, there has to be some way to protect people from physical violence, theft, and fraud. In order for a free market to exist, there has to be some way to protect people from ravaging mongol hordes.

All this depends on government, or some other system of social order so strong that it might as well be a government. So free markets are impossible without regulation and oversight.

44

I think that if we found a way to dump poor teachers, and only keep the great ones - the lack of supply of great teachers would be more obvious. However, because teaching is a relatively “safe” position (in terms of getting fired), the supply line is distorted.

We don’t pay relatively lower rates for great teachers, we pay relatively lower rates for ALL teachers. There is no skill based winnowing the occurs, so there is no way to separate out the Ferraris from the Cobalts when a purchase occurs.

We KNOW that Beckham is great and unique, so the market sets his PQ intersection pretty damned high. We do not know where a teacher will fall, so we pay the lower rate for the average skill of all teachers.

Once a high school can advertise, “We just signed Algher - known for a 95% passing rate of 4 & 5 on the AP exams, along with a top record at the the state education decathalon. He will be paid X, with a Y bonus for every student with a 4 and a Z bonus for every student with a 5 on the AP exam!” - we will see teacher salaries start to creep up. Teacher equivalents to blind side tackles and quarterbacks will command more cash, with others getting less.

45

Yes it works, but the key is it MUST be a free market. That means anyone with the money can join in.

Your example isn’t valid. Why? Because I can have a billion dollars but I can’t buy a football franchise or a baseball team, unless the current owners OK it. Sports is a closed market, not a free market.

But expanding your example, yes a baseball player is worth more. Why? Simply because there are less open slots.

Think about this there are 30 major league baseball teams and I don’t know how many players each team employs but that number is considerably less than the tens of thousand of schools we have all over the United States.

Less open slots mean more competition and mean only a few will earn money at it.

Look at the music industry. MySpace now has over a million bands on it. This means a million people giving away samples of music. This drives down demand for the traditional bands and singers.

Look at American Idol ametuers competing to get a record contract against those who have contracts. These ametuers get paid MUCH MUCH less. But they most likely will have at least one decent selling album.

In a free market where anyone with money can participate this lowers demand by inducing competiton.

Many things we think of free are in someway stymied.

Walmart for example. We think, well anyone with money can start up a store and compete with Walmart. Not really

You see Walmart carefully selects where it goes. It often uses the creation of jobs to get clearence. So a Walmart typically pay little or no taxes. The building are very utilitarian and do not increase the value of the property.

So by getting tax breaks and such, Walmart has more money to play with and decreases competition. And it certainly isn’t just Walmart, other companies do this to their advantage too.

A true free market depends on anyone being able to enter the field with the same rules.

So when you discuss a free market be sure to compare only things that are truly equal and open to anyone.

46

Doesn’t this already happen in a way? I grew up in a very good school district. I am sure the teachers there made more than teachers at most other schools. much like a sports team, that school district built up its reputation by hiring well qualified teachers, and hence, the teachers in that district get paid more.

47

Your conclusion does not follow. Regulation and oversight is not synonymous with a legal regime that protects private property rights and the right to private contractual agreements - which is the system that you really need to have free markets.

Regulation and oversight imply governmental action into the private transaction. You don’t need either of these things to have a government that only wants to provide the arbitration/mediation/enforcement mechanism of a judicial system.

48

There is some of that, but not as individual contributors who can be both hired AND fired based on performance. Good teachers tend to gravitate to the good districts thanks to good students / parents / locations. That gives the good districts more quality applications to work with.

However, you still don’t see a bidding war between two districts when a great calculus teacher becomes a free agent. The pay is set by union contracts - and again, you can’t cut a teacher who has lost their edge, or send them back the minors / inner city.

49

It’s trivial to determine that supply and demand is not an accurate measure of the utility of a service to society as an aggregate.

For instance, let us assume there was only one finite resource worth worrying about, namely, housing. Let us further assume that the way that particular society’s economy was structured was that a list of professions was created, and the housing was apportioned completely at random to 1% of those professions(getting 100 houses each) and everyone else was homeless.

In this trivial instance, two things are of course wrong. One, the market was irrationally distributing resources. Two, if their economic situation were changed such that everyone had housing, not just the lucky 1%, then that would provide more utility to society, as 99 families being completely homeless is of a greater disutility than having 99 second homes.

So it is trivial to show that markets can theoretically be irrational, and that is what some are arguing w/r/t sports salaries. That is not my argument, I am just saying that it is possible.

Furthermore, I think most modern amateur economists are short-sighted in focusing only on aggregate GDP as a measure of overall societal utility. As with my uneven distribution scheme above, it is trivial to show that if the balance between rich and poor is skewed enough, redistributing the goods would lead to better utlity for society as a whole, all other things being equal.

The question of course is “when are all other things equal”? My sincere belief is that in most cases, the distortions and governmental overhead losses brought by government intervention are not worth the utility gained by wealth redistribution.*

I think teachers versus athletes is a perfect example of this. I think that if athletes (and team owners) were magically paid less and teachers magically paid more, society as a whole would benefit. But any policy designed to bring this about is likely to do more harm than good.

*Simple taxes is not one of these situations unless the marginal rate is sky high, as it does not involve such ham-handed distortions and governmental interventions as many people claim.

50

You keep using that word. I do not think it means what you think it means. </Inigo Montoya>

“Worth” and “value” can be used in different contexts. Economic worth/value is entirely determined by supply/demand. You ignore or reject that at your peril just like ignoring/rejecting the concept of gravity.

Social worth/value has a different meaning, and you seem to be conflating the two. Giving to charity only has a negative economic value, but has a very positive social value.

51

I don’t think your examples for teachers will alter their pay in a significant way in relation to professional sports players. Their salary in absolute terms might go up but it won’t be higher relative to what the baseball players make. Therefore, you’d still have the question: “Why does the free market allow baseball players to make more than teachers. Teachers are more important to society and this seems unfair.”

Let’s suppose a top notch math teacher decides to quit the public school system and decides to become a private math tutor. He advertises on a website saying “Mercenary Math Teacher for Hire.” Such a math teacher could advertise is PhD degree, the papers he’s written, and the students he’s mentored that went on to Harvard. He’d still make nowhere near what the baseball players make.

Society’s current preferences cause teachers not to make much money. We prefer watching baseball games over watching a algebra proof being demonstrated on a chalkboard.

As far as our inability to differentiate the “best” teachers which causes their pay to be low. Several publications (Parade Magazine in the Sunday paper being an example) highlight a “Teacher of the Year.” How many people (kids or adults) would know the names of any of the previous teachers that won the award over the last 10 years? Now, how many people know who the quarterback of their favorite football team is? Of the teachers that won “Teacher of the Year”, do any of them now make $500,000 because of that recognition like the baseball players? I doubt it.

52

Yes, by 99.999% of those bands suck.

You are confusing free market with a perfectly competetive market. Most markets aren’t perfectly competetive because they have barriers to entry. Take your Walmart example. You can’t compete against Walmart for their products because you won’t have the economies of scale to command the same bulk discounts Walmart gets from their suppliers. Or to put it in simple non-economic terms, Walmart can sell widgets cheaper than you can because earning one cent on ten million widgets is better than earning ten sents on a thousand widgets.

Basically your entire Western standard of living. Do you get to change jobs if someone offers you more money? Can you decide what career you want to pursue (of course you have to compete against other qualified candidates) in your industry of choice? Can you buy or sell products for the best deal you can find? Do you think employers should be able to select the person they feel is the best candidate for the job?

53

I’m having a hard time following your analogy. Where did the houses come from? Who made them? Why haven’t the 1% sold their houses to the needy? There are only two reasons for this: 1) The 1% really need the houses, or 2) the 99% don’t want the houses. Either that or the 99% want the houses but have nothing to trade it for. In that case, they’re worthless to society and thus don’t deserve any houses.

54

How about democracy?

55

Okay, I’m dense! I understand what you’re all saying ECONOMICALLY. But what you’re all saying, I admit I am wrong, is exactly what’s wrong with the system.

Absolutely, in 's, Beckham is more valuable. Only he can play soccer that well, but so what? Is the total value ?

Shouldn’t we reward work? Or rather shouldn’t we honor work above wealth creation?

56

But we do reward socially valuable efforts. Police, fire fighters, military, and teachers get tremendous respect socially.

57

Sorry if you’re disappointed with us as a species. Maybe you need to look into joining one of the many species of ants out there. :wink:

58

We don’t reward police, military, firemen. We pay them with hollow tributes and very little cash.
It is true that I am embarassed by what we value. It just seems so crass.
And to the Steeler fan your analogy was terrible. Watching them last night I could have played better from my wheelchair.

59

We give cash to those that generate cash. We give societal praise to those that keep society running.

And why are you picking on athletes? If you really want to go for expensive, worthless money pits, why not target city parks or art museums? Art is WAY more useless than athleticism but we still pour money into that.

60

Work is wealth creation. At least, any work people will pay for is.

Anyone else notice that all these jobs mentioned (police, firefighter, soldier, teacher) are about as far outside of the free market as you can get?