Thursday, July 24, 2008

Markets and Whatnot

Will Wilkinson posts on the folly of blaming the free market for government mismanagement and the overall poor state of the media and the publics understanding of basic economic issues.

The American economy is in fact a byzantine amalgam of market and state institutions enmeshed in a thicket of regulation. Gosselin [who wrote the LA Times piece Wilkinson is critical of] maintains that “most people” in the U.S. think there is something out there called “the free market” that operates without “government meddling.” I’m not really sure that most people think that, but it seems Gosselin does, because he goes on to structure his “news analysis” as if the story is that dissatisfaction with a kind of laissez faire we do not have may be generating demand for basically the kind of dirigisme we’ve already got. But since economic systems we haven’t got can’t cause our economic problems, the result is confusion.

The comment thread contains some interesting back and forth, well worth a glance, but I think Wilkinson is spot on in pointing out that most people don't seem to realize that we already have a highly regulated economy. Some of the blame for that, lies, I think, with the popular free market thinkers and pundits (and although I'm not very popular, even this blog shares some of the blame). Discussion about economic matters tend to occur in very much the same bi-polar manner as our political discussions- either your for free markets or your againast them, but as Wilkinson points out, the truth is a bit more subtle. There are very few libertarians who actually favor abolishing literally every government regulation in the economic arena. The point is usually that when it comes to regulation, less is better. But even in certain sectors- financial regulation and monetray policy come to mind- there seems to be a great deal of disagreement even amongst libertarians.

So then what the hell do us common folk actually know about the economy- or what should we know? Well, first off, markets are far better at distributing goods and services than are command and control economies. We know this from our most basic history and economic lessons- it's literally why the Soviet Union failed, as it struggled to provide food to it's population and was not able to provide any communist alternatives to blue jeans and rock and roll. Except for the most ardent leftists, most of us understand that markets work.

The devil as they say, is in the details. More intellectually honest and thoughtful liberals argue for more regulation to soften the blows of the market. And the rest of us attempt to make the argument for less regulation, not because we don't appreciate that markets can have ups and downs, but because we realize that regulations are always inefficient, often ineffective, and typically end up favoring the large corporate interests liberals seem to loathe while distorting the basic economic forces that make markets efficient in the first place.

One commenter of Wilkinson questions whether the libertarian response of pointing the finger at government is any different than the typical leftist response of blaming the market. There's a good answer to that question and Wilkinson's use of food prices is illustrative.

Food is expensive these days, which hits poorer Americans especially hard. Part of the price hike is due to normal market forces; supply has yet to catch up with the increased demand from the rising middle class in China and India and elsewhere. But a large part of it comes from our own government’s frankly idiotic policy of subsidizing corn ethanol, which pushes up the price of all sorts of foods, from wheat to milk to meat.

Food's a great example because it's difficult to quantify how much the rise in food prices stems from government policy and how much the rise stems from traditional market forces. But here's the thing- government policy is relatively easy to manage, particularly in this regard. We can point to government subsidies for biofuels as a reason food prices are rising and in a democratic society we have the ability to eliminate those subsidies. When the market deals us an undesirable outcome like higher food prices, there are no such simple solutions. Prices literally are the markets way of dealing with changing conditions- in a macro sense, higher prices serve the purpose of eliminating shortages when demand outpaces supply.

Government involvement in the market always creates inefficiency, if for no other reason that your adding extra considerations into the mix. Government can't magically lower the prices of goods and services any more than the market can, nor can the government intervene in one sector of the economy without having an effect in another. In the end, when a government policy is bad, it's easy to point a finger- but when the market doesn't meet expectations, pointing the finger at the market means little if you have no specific solutions in mind.

Regulation is a complex beast and the left loves to make calls for regulation without ever delving into the specifics of what regulation actually means. The bursting of the housing bubble has sparked calls for more regulation, which completely miss the point that the housing bubble was due in part to regulation in the first place. Given that we have a mixed economy and we're basically stuck with it, all libertarians ask is that government action is explained and justified. Or in other words, the burden of proof should be on those claiming that regulation X really is a good idea.


Anonymous rose said...

Man, I had this exact conversation the other day with a liberal. The liberals actually believe that conservatives don't care about the poor. They don't recognize that promotion of free-markets and de-regulation of economies over the last 50 years throughout the world has brought more people out of poverty than any single other policy.

They don't recognize that most countries in Europe who craft idealistic policies more closely aligned with US libs have unemployment rates TWICE ours. Their economies suck. Ours under Bush has been great until this year.

I use the ethanol example all the time. Its perfect. My dad is an electrical engineer and a science guy in general and when they crafted this legislation subsidizing ethanol a few years ago he told me it was going to be an absolute failure. The knowledge was already out there. Free markets had already done their due diligence on ethanol and the bottom line was it wasn't efficient. If it was businesses would be producing it on their own. End of story. Didn't stop Obama from being a leading proponent of the shit, but that doesn't get brought up when we're talking about his energy policy judgment.

The person I was talking to the other day works in politics. Smart person, amazing lack of basic knowledge. How can you have an opinion on capital gains tax if you've never heard of the Laffer curve? Obama's called for 28% capital gains tax which has proven over time to not only stunt growth but actually be higher than ideal for maximizing tax revenue as well...

wait a second, tax revenue doesn't just keep going up with tax rate?? oh there's something called a tax base that has something to do w/ it too??? eh forget that, "rich corporations will pay for the money made over the last 8 years and we will redistribute it to YOU, the working class american"...does it matter that you're not only not maximizing tax revenue, but also stunting growth an stunting the compounding of an ever growing tax base in a growing economy?

Facts don't matter to the left. Obama is running on a don't trust corporations, trust the government platform.

Forget academic debate about all these highly intellectual topics. Look at what history shows us.

If you're familiar with basic history your opinion of regulation will be simply....wrong until you prove me otherwise.

If you trust a 1st term senator running on a populist platform of regulating the US back on track, wrestling us from the evil're flat out dumb.

11:02 AM  
Anonymous rose said...

Two most important issues facing our country are national security and energy policy.

McCain isn't perfect on energy. But at least he sort of switched on drilling and he's a strong supporter of nuclear energy; a clean energy technology that is actually cost efficient and works!!

Say what you will about the invasion of Iraq, but McCain has done etensive diligence through 8 trips to Iraq and was supporting troop increases as early as 2004 when the war was still popular. He advocated the surge which was UNBELIEVABLY unpopular and in doing so may have prevented failure in Iraq and saved countless American lives in the process. Lonely lib, you know as well as I that a loss in iraq would've meant us going back there at some point.

Obama opposes drilling, supported ethanol and believes government subsidies towards wind/solar etc are the answer. Also wants windfall tax on oil companies.

Obama opposed iraq war. That is fine. What is not fine is opposing the surge and crafting your Iraq policy w/ out once meeting w/ top military commanders. His policy and rhetoric on Iraq were guided by popularity.

And he was wrong. The surge has worked, has saved lives etc. Being wrong is one thing. Being wrong because you didn't carry out any diligence is another.

Lib, I know you don't like mccain and i actually agree with you more often than not. However the thing I think you overlook is how incredibly awful Obama will be on the two most important issues. And you think that he'll be centrist in the whitehouse? Maybe. Maybe not, because his first term will be simply the campaign to get re-elected.

Again, mccain is not perfect. Obama is an absolute disaster. Let me know when a corporation appoints someone w/ 3 years experience CEO. We're on the verge of making someone w/ 3 years experience the single most powerful man in the world.

11:15 AM  
Blogger lonely libertarian said...

Rose, have you ever read any of Thomas Sowell's work? You can find his columns online if you google him, but in particular, I'd recommend his books, "The Vision of the Anointed" and "The Quest For Cosmic Justice." He goes to great lengths to point out that much of what the left believes is about feelings and intentions and not about results.

I was going to write a longer response about Obama and McCain, but I don't have the time and what I was writing wasn't making much sense. For now I'll just say this. The notion of "the most powerful man in the world" is why I'm troubled by the notion of a McCain presidency. I'm troubled by his concept of presidential power and I'm troubled by his can-do paternalism.

Sure, I'm equally troubled by Obama, but the past few months has seemed to show me Obama is exactly the politician his constituents think he's not- A political beast of the Clinton variety who's far too astute and concerned with his political image to go off all ideologically half-cocked.

Obama's certainly going to win Connecticut and I'm going to be voting for Bob Barr. I've been a reluctant Bush guy over the past 8 years, but mainly because the opposition was so incredably awful. But I'm finding it hard to throw down with either side thus far- the vice presidential nominees could make a big difference for me.

But if you really want to know, my dislike of McCain goes back over 8 years, to when he was first running againast Bush in the Republican primaries. Obama's new to me. Plus, I've listened to Rush Limbaugh on and off for over a decade now, and what Limbaugh, perhaps the voice of conservatism today, has had to say about McCain has always been far from flattering.

4:02 PM  

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