The Market Prevents Itself
I often read articles supporting the free market these days with a grin on my face. For instance The Audacity of Doing Nothing by Philip Greenspun, whose blog I enjoy, in which he opines that the government should more or less let our current financial woes work themselves out.
I don’t know enough about economics to really have a strong opinion one way or the other there, but what really made me smile was this paragraph:
What did these guys want the government to do? Nothing, basically. “Back in the 19th Century, there were a lot of steep crashes, guys got wiped out, and the economy came back quickly.” What’s different now? The government is a lot bigger and more powerful. Rich companies and people can put some of their wealth into lobbying and demand that the government prevent them from getting wiped out (or at least slow the process).
The circular pattern there is astounding. The government is choosing bold action over free capitalism because they’re being lobbied to do so by big corporations and extremely wealthy individuals, who are themselves the inevitable byproduct of capitalism. If Greenspun is right, the market is preventing itself.
Our nation has been locked for decades in a never-ending argument of big government vs. free capitalism. Is it possible that the latter must always lead to the former? Wouldn’t a free market always spawn corporations and robber barons who would then use lobbying bucks to influence government to create regulations in their favor? Anti-lobbying regulations are nothing but market regulations, since they effectively control where a corporation can or cannot invest. Perhaps a free market is a self-defeating concept, destined, in the event one should ever form, to wink out of existence in a few nanoseconds like a tiny black hole in a particle accelerator.
February 12, 2009 at 12:39 pm
Have you considered the possibility that a free market is possible if you also have a government that can't be corrupted by the “robber barons” that it produces?
February 12, 2009 at 2:07 pm
Well it's not a free market if they can't spend their money however they want. You can do things like cap the amount you can donate to politicians, etc., but there's still plenty of other ways for them to exert political influence. Take ethanol subsidies. Those exist because the agribusinesses employ lots of people in Midwestern states that don't have many other paying jobs. The citizens expect their congressmen to fight for those jobs by promoting ethanol, even though it's actually more expensive than gasoline and worse for the environment. Agribusinesses in those areas could simply shift their dollars away from politicians and into ads about how many people they employ (which they already have to some extent) and let the citizens do the lobbying for them.
There's just no way to prevent the wealthy from using exerting their influence on government.
February 13, 2009 at 6:48 am
Even if you could stop people with a certain amount of money from lobbying the government, wouldn't you have to worry about focused groups of people (union members, Oprah watchers, faux hipsters) tailoring policy to their preference?
February 15, 2009 at 7:10 pm
There is a very important difference between a “free market” and “state capitalism” or “crony capitalism”. In a free market, a corporations cannot use the coercive power of the state to gain advantage. A corporation may only grow wealthy by making stuff people want, and convincing people to make the free choice to buy the company's product.
Of course, most political actors who claim they are promoting the free market are usually concocting some scheme to enrich a particular business at public expense. But this does not discredit the idea of a free market, it simply discredits those political actors.
I'd also note that the core problem of companies buying influence and corrupting the government is not a problem of “the market” but of our particular political system. In short, Madison was wrong. The Constitutional design was not strong enough to withstand the pressure of factions. In our system, every single organized faction in existence, whether it be a corporation or a teachers union, a bar association or an evangelical church, spends a great deal of time and money trying to manipulate Congress to further its ends.
If corporations were the only faction corrupting the government, then perhaps it would make sense to blame them. But since every faction does it, the proper conclusion is to blame the design of the political system.
February 16, 2009 at 1:39 pm
> Wouldn’t a free market always spawn corporations and robber barons who would then use lobbying bucks to influence government to create regulations in their favor?
Hmmm…. what if there was a law that made your vote inversely proportional to your networth/income… the richer you were, the less influence you could exert? Prolly a stupid idea, but I wanted to throw it out there.
February 16, 2009 at 1:41 pm
The problem isn't rich people voting, there aren't enough for them to matter directly. It's them using their money to influence lots of other people voting.
February 16, 2009 at 11:00 pm
So the system creates people at the top who want to stay there, which is why they lobby the government so to their (and perhaps their companies') advantages which inevitably creates larger government…?
Wow so it sounds like the natural tendency in a capitalistic society is to create an oligarchical monster. So…isn't it the same for pure communism? Eventually it collapses toward that because individuals want control and power. Hmm. Interesting.