derryl

Competitive Markets Don't Just Happen; It's Time to Regulate In the Public Interest

This is a very interesting and well informed conversation with good points on both sides of the regulation question. I don't think a true free market has ever existed anywhere. The large hairy caveman with the big stick can extort a pretty lopsided bargain out of you, so we can't look to primitive times for a pure market.

In 1776 when Adam Smith published his Inquiry into the nature and causes of the wealth of nations England's economy was largely barter, work was mainly done in and around the home, and pretty much every living person 2 years old and up was an economically active participant. Everybody worked, and everybody needed to work to survive. There were no "equity" issues like unemployment insurance: you don't work, you don't get paid, period. We can't do that today.

Unlike today's breakfast cereals with inputs from god knows where, in Smith's England the entire production and marketing cycle of most goods was local so that everyone had all the information they needed to determine "fair market" exchange values. Goods were mainly simple necessities of life that pretty much anybody was capable of producing. In modern times none of us can personally produce something as "simple" as a lead pencil, as the famous story shows us.

Even if one subscribes to incomprehensibilities like Marx's labor theory of value, it is impossible in the practical technical sense to objectively determine the 'true' value of anything because of the enormous complexities involved, so competitive markets, imperfect though they be, are our best means of establishing prices even though information asymmetries are probably the rule rather than the exception. A few years ago someone from the Chicago School demonstrated the common sense truism that sellers almost always have more information about the item being bargained on than do prospective buyers, which is why caveat emptor applies, though merely "being wary" is no match for possessing information.

We all know that government-provided security such as the pax Romana is essential to economic progress (remember what happens when exchange values are determined by he who holds the stick), so government at the very least has a necessary role as guarantor of basic security (though libertarians argue that private security can be had contractually).

Ayn Rand argues cogently that early 20th century antitrust laws were motivated by envy rather than the public good, so even capitalist monopoly/oligopoly has its defenders.

Also unlike Smith's time, today the "peasants" have political and other "rights". The oligarchs of old at least had been educated and had some understanding of the mechanics of the issues they were addressing. They had at least a basic understanding of the political economy they were ruling over. Most voters today do not have even a rudimentary understanding of how their national economy works. They vote for whoever promises to feed them better at the public trough. But the public trough is filled up by their neighbor. If they understood, would they vote for the politician who promised to rob the neighbor's house and deliver the goods in person?

Maybe they would. The politics of envy is alive and well. It was less than a century ago that economics became separated from political economy, but it's a false separation. Another Chicago School economist recently exposed the illusion of the economically "rational actor". People behave for all kinds of psychological motives, many of which we would consider perverse, which makes their behavior "appear" irrational but which, once you discover what is motivating them, is actually perfectly rational but perversely motivated. Economics assumes all values can be priced, but many emotional values are difficult if not impossible to objectively evaluate. And personal values are notoriously divergent. One rational actor can't wait to get rid of the very thing the next rational actor can't wait to possess at high price: think of the person who married your ex. The political aspects of political economy are at least as important as the more purely economic aspects. Economic activity, unless you're a hermit, involves working with the polis. So you can't take the political out of the economic and think you're going to have an economic free market unencumbered by political factors.

Moralists historically identified 7 common human psychological/characte... failings that, from our perspective, can be said to perversely affect their rational choices. These are the 7 deadly sins of greed, sloth, gluttony, envy, vanity, anger and lust. These are "common" motivating influences in human psychology: that's why they were identified in the first place and attempts made to teach people to recognize and suppress them. A political economy must accomodate the people who have these features as well as those virtuous people who act from nobler motives.

So I think there isn't and never was a "free" market, though we'll get a lot closer to realizing its beneficial ideals by striving for it than we will by accepting regulation without a fight.