I disagree. The losers tend to have greater incentives to “tamper” by means of redistribution schemes which tend to improve their utility. The “winners” tend to pull the levers to maximize their market power, using government regulations to erect barriers to competition or to force society to internalize their costs. A perfectly competitive market does not tend to benefit the winners any more than it benefits the losers. The only question is whose proposed market distortions are actually adopted by the government and whose are rejected.
Is this supposed to be some analogy showing why a planned economy is better than a free market? If so, it fails miserably. If you want to look at the animal kingdom and the result of random processes applied to a rule system, just think about it a little harder. Think about the complexity of the interrelationships in an ecological system. Think about the feedback loops that have developed to create stability, and the incredibly complex mechanisms inside every animal that make it what it was. You think a committee could have designed that?
But let’s bring this closer to home. If you think a planned economy is more efficient than an unregulated market, why don’t you point to some planned economies that turned out to be more efficient than capitalist economies? Can you name one?
Free (or semi-free) markets create sub-optimal results–usually for the reasons related to the tragedy of the commons, or the Prisoner’s dilemma, or the Nash equilibrium, etc… all different ways of explaining how it is impossible to get people to act toward perfect cooperation when doing so is 1) against their own immediate interests and 2) because everyone has to rely on his fellow man to voluntarily go along.
To make it work, you have to have central authority to force people to cooperate. And central authority can be a bad, bad thing. Unless they are severely limited, central authorities become corrupt. They make short sighted decisions based on a lack of complete information. Those decisions create unintended consequences that are worse than the original problem. Not to mention that they thrive (indeed it is their very purpose) by restricting the freedom of the individual.
Thus, sub-optimal results are the best we can hope for. The sincere and well-meaning desire and attempts to get optimal results may seem to work in the short term, but actually make us ALL worse off in the long term.
It is one of the facts of existence we must learn to live with–just like the fact that we must destroy other life to sustain our own.
So it’s not that free markets are the miracle. It’s that everything else is worse.
Right, there’s nothing to prevent economic losers from attempting to tamper with free market forces, and some do. But in any battle for the hearts and minds of politicians, the people with the deepest pocketbooks will almost always win. And that’d be the economic winners, creating a vicious cylcle of sorts.
What is minimum wage right now? Five bucks and change an hour? Nothing I think more perfectly describes the haplessness of America’s economic have-nots more beautifully than the fact that they’ve been unable to keep the “artificial” minimum wage up with the real minimum wage – burger doodle jobs and such in my area go for 7 or 8 bucks an hour nowadays. Pathetic.
Free market economies help the poor more than they help the rich. The rich and powerful ALWAYS manage to make out well, despite the type of economy. Saddam Hussein and his Ba’athist cronies drove Mercedes limousines while the poor starved. Mao lived in a palace. The Soviet Union had whole heirarchies of officials who were given government limousines, private Dachas in resort areas, and who shopped in special stores for goods not available to the masses.
But free markets drive production in the direction of aggregate demand, and the the poor and middle classes are the biggest market. That’s why Wal-Mart is one of the largest companies on the planet. Free markets have given the poor access to luxuries they could only have dreamed off 100 years ago. Even the poor in the United States generally have warm homes or apartments with color televisions, computers to connect them to the internet, good quality clothing, and often a personal car. In the worker’s paradise of the Soviet Union, families of 12 could be living in four-room apartments (grandparents, parents, married children, and siblings). The waiting list for a crappy car could be a decade. Clothing sucked. The average working class woman spent over two hours a day, and sometimes more than four, standing in queues for basic staples like bread and milk. That’s the best example of the efficiency of a planned economy.
And for those who think government regulation is the answer to the excesses of the market, you need to consider ‘regulatory capture’. Consider the recent bankruptcy bill. This was a classic case of a regulated industry showing its regulators with donations and bending their ears with lobbyists to turn regulations on their head to benefit the industry instead of the people. Credit companies built a business model on high-risk, high interest rate loans. Then once the number of defaults increased, they appealed to government for ‘help’. Now they get the high interest rates and regulatory protection from the results of their predatory lending policies.
Another example of regulatory capture would be the unions in California, who have the state legislature in their back pocket and use their protection to drive their own interests instead of the public’s. Or the entertainment industry, which donates huge sums of money to politicians and in return gets copyright extensions, laws preventing people from buying certain hardware, grants and loans and rights of access for making movies, and all sorts of power not available to mere mortals who don’t have a politician in their back pocket.
The list goes on - everything from plumbers unions who have managed to get laws passed preventing the use of press-fit plumbing that can be built on assembly lines to industries that use government to slam the door on imported goods to protect their bottom line.
If you want to believe that markets cannot function without government regulation, you have to grapple with the fact that probably 95% of the goods and services sold in the U.S. are sold with minimal to no regulation. I’m looking at a loudspeaker right now. It’s high quality, it looks great, it was relatively cheap, and it sounds way better than the ones I had 20 years ago. And yet, no government bureaucrat is in charge of loudspeaker quality. There is no regulatory manual that has to be followed on acceptable loudspeaker design practices. So how come companies sell high-quality loudspeakers at razor-thin profit margins? Why hasn’t there been a race to the bottom?
Or how come the vast majority of workers in the United States make more than minimum wage? If minimum wages are what really protect workers from being paid pennies for their labor, why isn’t everyone making minimum wage?
How come cars today generally greatly exceed minimum government safety standards?
Or look at the internet. Yes, it had its seeds in DARPA, with some government money involved, but that is trivial compared to the huge, insanely complex and dynamic worldwide behemoth that has risen up spontaneously out of it. No government planning bureau dictated how the internet would be structured. There is no browser czar, approving technologies and doling out bandwidth. There is no master planner who decided that we needed an Amazon, an eBay, or bloggers. These things arose spontaneously to fill needs. The internet represents the ingenuity of millions of people applied to the task of making money by serving up what other people want.
The internet is, in fact, a great laboratory study in an unregulated market. It has its excesses - spam, spyware, and all kinds of other problems. It’s not perfect. It turns out that what the people want a lot of is porn and gambling, and the internet provides it. This drives the nanny-statists nuts. But with all its warts, the internet is incredibly good at providing something for everyone. The biggest, richest web sites on the internet are aimed squarely at the masses, not at the rich and powerful.
Now imagine that government regulated the internet the way it regulates the rest of the economy. Imagine if usage was taxed. Think that might slow down innovation and growth? Imagine if the anti-virus companies were powerful enough to force Congress to pass laws demanding that no software be written unless it builds in their anti-virus protection. Imagine if there was an equivalent of the FDA that approved each new technology that went on the internet, taking years to study them, and applying their bureaucratic ass-covering mindset to each new little innovation. Imagine if there was a government planning agency that decided what the ‘acceptable’ protocols were, and extensions to HTML required an act of Congress. Imagine if every entrepreneur who wanted to set up on the internet had to make sure he complied with 11,000 pages of regulations like brick-and-mortar companies often have to do. Imagine if the Americans with Disabilities Act is extended to the internet, such that every single new web site had to apply for ADA approval, showing that their fonts were big enough, they offered keyboardless ways of navigating, people with red/green colorblindness could still make sense of everything. Fill out that form in triplicate, boys, submit 500 pages of supporting documentation about your code design, and we’ll get back to you in a year or two.
Imagine where the internet would be today if all those things happened. Or any of them. But damn, maybe we wouldn’t have that spam problem.
Yeah, that’s why we hand out millions of dollars of corporate welfare every year. Tell you what, why don’t we try taking away all that money we give to Walmart and TWA and see how they function? The US government gives out more in corporate subsidies than we do in social welfare. Cite. I daresay most large corporations really wouldn’t abide by a truly free market, one that wouldn’t allow them to bribe their way to success.
continuity, I doubt you’ll find any of us pro-free marketeers arguing in favor of corporate welfare. We don’t like any kind of welfare – to corporations or to individuals. And corporate welfare certainly doesn’t cost the government more than social programs. If you’ll notice your cite, they conveniently don’t count such programs as Medicaid or Medicare, which easily dwarf any corporate welfare give-away. They also leave off such welfare programs as Social Security (insurance program, my ass – it’s simply a transfer of money from one group [workers] to another group [old people]).
You do realize, don’t you, that free market types don’t like corporate welfare, right? So, you are kind of argueing with the wrong guys here. In fact, you should be talking to your own side there…its mostly planned economists that believe its necessary to prop up failing corporations, to bail out corporations in trouble, and to subsidize industries that aren’t competitive anymore (like farm or certain manufacturing industries in the US).
So, in light of that…certainly! Take away the corporate welfare AND remove the subsidies and tarrifs! Not a problem at all. If the companies can’t compete then they will fail, and other companies that can will succeed. I’m all for it.
-XT
Sounds like you’re talking about anarchocapitalism. You should find some stuff at these links.
http://www.gmu.edu/departments/economics/bcaplan/anarfaq.htm (see #17 for practical applications)
Great links. I have to say, I especially love all of the pictures. 
Apologies if my example wasn’t the best.
The conservative I mentioned said that our union should have accepted the offer because (as he believed) the market would sort things out. That is, we had no reason to fear high premiums, because the market would find a balance. By fighting the contract (refusing to accept it, letter-writing campaigns, a two-day strike, etc…) we were just making the situation worse by not letting the market run its course. He strongly supports the idea of a free market, and supports a ‘less-interference’ perspective under the current market system.
This seemed counterintuitive to me. But, since I am not an economist, and my definition of a free market (and its modus operandii) are not based on study, I wanted to find out 1) if my idea of a free market was more or less accurate, and 2) if this person’s belief in the equilibrating forces of the market is reasonable.
At first glance, this belief seems counterintuitive to me: if I am being treated poorly under a system that has some controls, why would I believe I will be treated better once those controls are removed? His faith in the free market seemed misplaced to me. But I might be asking to wrong question, so I turn to the Dopers. 
I wonder if there is some hard-core anarchist who discovered the FAQ and exclaimed, “So that’s what Lysander Spooner looked like!!”
What exactly does he think a union is? It is not a government. Refusing to work for compensation which is unacceptable to you is part of the free market. Is he one of those conservatives who thinks free markets apply to corporations but not to individuals?
Perhaps because some of your mistreatment might be a result of those controls. Its worth examining.
FYI TWA is part of American Airlines and Walmart is the largest company in the world. In any event, the goal is not to keep large corporations from functioning out of some idiotic Liberal nippy notion that large companies are somehow more evil than small companies.
Here’s an artical about WalMart and it’s effect on it’s suppliers:
Now basically it’s another bitch-fest about Walmart crushing the little guy and outsourcing. But this statement is interesting:
“There is no question that Wal-Mart’s relentless drive to squeeze out costs has benefited consumers. The giant retailer is at least partly responsible for the low rate of U.S. inflation, and a McKinsey & Co. study concluded that about 12% of the economy’s productivity gains in the second half of the 1990s could be traced to Wal-Mart alone.”
So basically at the end of the day, after all the whining and crying about lost jobs and whatnot this one company contributed 12% of the productivity gains for an entire country for half a decade? Am I supposed to feel sorry for Vlasic because they can’t sell their freakin pickles at a huge premium?
I like the concept of a free market because it cuts through all the bullshit. If the product is something people want, they will pay for it. If a company can do it better, faster and cheaper, it drives the competition out of business so that those resources can be used somewhere else.
How do you define “optimal results”? Everyone has all or most of their needs met? Or resourced are used in the most efficient way possible?
Hmmm…I always thought the purpose of regulation was not to make the market function, but rather to keep it from running roughshod over consumers. For example, to prevent things such as putting cocaine, lithium, and tapeworms in products marketed for human consumption as was done in the past. (And I apologize if any of those are apocryphal; IIRC it’s true.)
I didn’t understand this argument in the MW thread, and I don’t understand it here. Why doesn’t it make sense to you that there are many different occupations, and that not all pay minimum wage? For example, a CEO makes more than a janitor. And that the MW only protects those at the bottom end of the salary range?
If you don’t think the MW law does anything, I assume you don’t object to it, then, right?
The OP was asking why anyone believes that the market can function without regulation. My point was that it DOES function without regulation, in the vast majority of transactions. For example, he cites watdog groups/testing labs run by the government. In fact, there are far more watchdog groups and testing labs that have arisen purely out of market forces.
It is a wholly separate argument whether the market will cause *any excesses at all, and one I didn’t address. I agree that there are market failures and that some regulation is needed. My point is that regulation is only needed on the periphery and in extreme cases, and that by and large the market works best when the government keeps out of it.
But the notion that the market ‘runs roughshod over consumers’ is crazy. The market is DRIVEN by consumers. It RESPONDS to consumers. It tries to produce what consumers want. Unfortunately, what some people want are quick fixes and snake oil, and the market is happy to provide that as well. Regulation of snake oil products seeks to protect people from themselves, not from predatory companies trying to ‘run roughshod’ over them.
In any event, in our regulated economy there is plenty of snake oil. Every pharmacy has whole sections full of dubious herbal medicines. Monster Cable makes millions off of people who don’t understand that wire is wire. The cosmetic industry sells billions of dollars worth of useless products. Homeopathic medicine is a big field.
This isn’t the fault of the market. It’s the result of human nature, and the market just provides what people are clamoring for. Just like the internet does a booming business in porn and gambling. Which brings me to the next point - the market is the best thing we have for maximizing economic efficiency and meeting the desires of consumers. But it does not address social concerns, other than what arises through the demands of the people. If people want porn, that’s what they’re going to get. If they want snake-oil, that’s what they’ll get. This drives statists crazy when it conflicts with what society should be, but it’s fine with those of us who are happy with society as it is, and who think freedom to choose for ourselves is worth some rough edges.
In any event, the market eventually addresses things like snake-oil anyway, and it’s getting much better at it with the rise of the internet. Monster Cable is running scared because people are becoming educated about their products. You can find any number of sites (including this one) dedicated to educating people about snake oil and other myths. As information transfer gets better, the economy will become even more efficient.
Again, my point was that government regulation is not the primary force driving wages. Supply and demand is. The vast majority of wages in market economies are set through negotiations between employers and employees, and the government is nowhere to be seen.
The market is self-regulating. It has evolved mechanisms that keep it stable, that make sure information is transmitted correctly, and that corrects for things like Enron. But it is not perfect. It’s annoying when people hold the market to the standard of perfection, but don’t even bother to respond when you point out the huge flaws in central planning.
As for the desirability of minimum wages - that’s another thread.
Ah, but I’m not arguing for some sort of Vonnegutian computer overlord. All I’m saying is that there is no particular reason why economic controls cannot achieve more favorable results than letting things alone entirely.
O.K., I see.
The idea that it always does, perhaps. But there are certainly times when complete freedom is undesirable. I think we agree that some regulation is needed, sometimes, don’t we?
I disagree. If I market a tapeworm as a “revolutionary diet pill - completely safe and effective”, and fail to disclose the fact that it’s a tapeworm, the consumer who buys my product has no way of knowing that it could result in serious health complications. How can you know if you don’t even know what the ingredients are? You can’t blame the consumer for that kind of predatory marketing. It’s not unreasonable to believe in “quick fixes”. Consider a pill that miraculously cures your headache in a matter of minutes, with no complications. It’s called Aspirin. Quick fixes do exist. We have to have at least some kind of regulations to prevent companies from lying to the public and claiming a product is something that it is not.
Which I think is evidence that we tend to err on the side of encouraging free trade. Useless is one thing, but don’t you agree that we should at least draw the line at things that are in fact dangerous? I agree with you that social engineering through regulation doesn’t seem like too great an idea, but leaving people completely unfettered isn’t the right way to go. If products are causing death and injury, it’s too important to just wait and hope that the “market” will sort it out eventually.
I know, but what I asked you was, why won’t you accept that MW laws affect only a certain segment of society, and don’t affect that majority (vast?) that already makes above minimum wage? Your question, “Why doesn’t everyone make minimum wage?” is non-sensical to me. Most workers don’t need the protection of minimum wage laws, because they would make more than minimum wage even without the laws. That’s because in their field, the demand is higher. It doesn’t mean the demand is high in every field.
It’s like saying, "If construction workers need hardhats to keep debris from falling on their heads, why doesn’t debris fall on everyone’s head? Because not everyone is a construction worker.
Yes, there is. It’s called information overload. Central planning creates a bottleneck in information flow that is impossible to overcome. A free-market economy acts as a massively parallel computer, with the price system being the information bus. Central planners can never be as efficient as the market because A) they can’t process all the information required, B), they are too slow to react to changing market conditions, and C) absent the incentive of profit, the information isn’t even available.
For example, let’s say there is one unit of steel available. Two people need it. In a price system, they will negotiate for it, and bid until one person drops out. In the process of deciding how much to bid, each person has to weigh the value of the steel against the value of the money and what it could buy them in other goods. Therefore, in the end the steel goes to the person who needs it most relative to his other assets.
Without markets and prices, steel gets assigned by fiat, and the rational process of assigning value to the steel gets subordinated to political calculation or political power. But even if the political system itself was perfectly even-handed, it still doesn’t extract the information about the relative value of the steel, because the people who apply for it simply have no way of knowing how the value of the steel to them compares to the value of it to others.
Here’s a good essay you might want to read, from the great Friedrich Von Hayek:
I’m not really sure I see what you’re getting at here. The tragedy of the commons mostly reflects what happens to public lands (if you’re talking about polution, then I can see your point). The Prisoner’s Dilemma shows how difficult cooperating can be when defecting suits your personal interests. But (1) there are very simple ways of defeating this (but that’s tangential to this thread) and (2) the foundation of the market is in situations where cooperation is in the best interests of both participants. I’m not familiar with the Nash equilibrium. The market doesn’t require that the participants act against their own best interests; the idea behind the free market is that optimal results are created when agents act in their own best interests in a non-coercive (as non-coercive as is possible) environment.
If, by cooperate, you mean enforce laws regarding personal rights, property, and fraud, then yes.
Again, I don’t understand what you’re getting at. This is a very pro-free market and anti-centralization argument.
Bingo.
Most of the paragraph is a classic pro-free market argument, one that I mentioned in my previous post. Though I must admit that I don’t understand why a free market cannot exist because it creates “winners and losers”.
Or, you can look at the evidence there is regarding any potential regulations and only support those that produce clear, quantifiable evidence that it makes society better.
Pardon? You argued against this in your first paragraph, when you stated that regulations mostly act in favor of the rich.
Again, this is a pro-free market argument. The goal of free market advocates is to take power away from the rich and the politicians, and to force them to play on an even field with the rest of society.
If this is true, then why do we need a minimum wage? It seems to me that it’s being taken care of by private interests, and that no action is required by the government.