You Can’t Disprove the Merits of a Free Market with Examples from a Regulated Market

I can’t help myself. Every time I see an article headline smugly bragging to have debunked libertarianism, I have to click! I have to see, is this an argument I haven’t heard before, or is it the tired old, “look how evil capitalism is, here are my references from crony capitalism”.

So far, that is all I have found. Writers list everything wrong with “free markets”, and then give examples from a government regulated market about how bad business is when left to their own devices. It is exhausting. I can’t tell who is honestly too stupid to see the difference, and who is willfully deceiving people.

A free market is when all economic transactions in a given area happen without coercion. Only mutually beneficial transactions and trade take place.

The American market is one plagued by coercion, from taxes, regulations, and laws. It also sees its fair share of intervention in the form of bailouts, subsidies, and grants.

The former is met with scoffs. They say, “Well when has there ever been a free market? They don’t exist”. Uhh yeah, that’s why we are trying to create one. Markets have existed however that were close to free, and these consistently perform better in moving all of the society forward.

This is not conjecture, it is economics. Somehow anti-libertarians become science haters when it comes to economics. Supply and demand is considered not proven; economic incentives and disincentives to them sound like talking points, but  reality shows they are closer to mathematical principles.

Here’s how a free market helps people. It allows some people to amass great wealth through providing the masses with something in demand. Part of this wealth will be used to demand another product or service in turn. This demand provides others with economic opportunity to supply the demand. This supplier then amasses wealth, and can likewise use the excess to demand another product or service, etc. until the entire society is riding around on hover-boards.

Here’s how a controlled market ends us up exactly where anti-libertarians think the free market lands us. The middle class is taxed the most, because the rich can pay off the right people to get tax loopholes, and the poor are exempt below a certain income, or net a positive cash flow (they pay taxes, but receive more in housing, welfare etc.).

These tax dollars are then redistributed by the government to corporations in the form of bailouts, subsidies, and grants. Despite market disapproval, certain companies persist because they are funded by our stolen tax dollars. Sometimes the government even gives favorable court rulings to a company which had bought them off, such as with Monsanto. Sometimes the government regulates a favored company’s competitor to non-existence, such as using the FCC to crush cable and media alternatives.

Yet anti-libertarians will say, “look, we have only a small handful of people controlling media! Free markets don’t work”. And that is when I bash my head against the wall because it cannot get any clearer that government intervention into the market caused all these things.

Pollution, sketchy bank dealings, fraud, ponzi schemes, cover-ups: they are all either facilitated by the government, or kept from the public view by government. That means the market cannot properly respond in order to regulate these businesses. People mistake this inability for self regulation in a government controlled market as the inability for a free market to regulate itself.

No not magically. That’s what they all say, we think the market will magically regulate itself. They forget the market is us, consumers, individuals who will choose where to shop and what to buy. If people think the FDA, USDA, FCC, EPA and so on and so forth will regulate business properly in their place, they get what we have now, crony capitalism.

And yes, crony capitalism does indeed lead to inequality. Use all the examples from the regulated American market you want, they all prove this. Most of the “free market doesn’t work” myth relies on people mistaking the American economy for a free market. But it should be quite blatantly obvious that it is not a free market, and has not been for over a century at least.

Could This Article Be Different?

So when I saw the article, How Piketty’s Bombshell Book Blows Up Libertarian Fantasies, part of me hoped that it in fact did. When you are after truth, it is not so scary to find out you are wrong.

It starts with some Milton Friedman quotes about how focusing on freedom will lead to liberty and equality, while focusing on equality will lead to neither. But alas, the bombshell?

Well, that turns out to be spectacularly, jaw-droppingly, head-scratchingly wrong. The U.S. is now a stunningly unequal society, with wealth piling up at the top so fast that an entire movement, Occupy Wall Street, sprung up to decry it with the catchphrase “We are the 99%.”

How do I reach these kiiiiiids! What a bombshell! You mean a regulated market has not performed the way libertarians say an unregulated market would perform!?! I say sir, quite the academic conclusion!

And you know, zoologists once thought that horses ate hay, but it turns out pandas eat bamboo. How can people keep claiming that horses eat hay when every single panda we observe eats bamboo!!!

Well they’re both mammals, and the claim that the mammal horses eat hay has long been a rallying call for zootarians. We have blown up these zootarian fantasies by proving that the mammal panda only eats bamboo.

See what I did there? I pretended the operative word was mammal, when the entire distinction was in the type of mammal. Anti-libertarians pretend the operative word is market, but “free” is the important part, versus “regulated”. You cannot disprove the merits of a free market by exclusively using examples from a regulated market.

Libertarians do not use America as an example of a free market. So pointing out wealth inequality in America says nothing about a free market. This market is not even close to free! Why don’t they just use GM or Solyndra as examples of the free market?

“See people didn’t want GM cars, but GM still exists, evil free market!” Oh wait, the government bailed out the big bad corporation with money stolen from the middle class. The taxpayers provided the now bankrupt Solyndra’s billionaire founder a taxpayer backed loan that will never be recovered. So the “rich get richer” precisely because the market is not free.

Over time billionaire George Kaiser’s wealth would fade in a free market unless he, say, built solar panels that worked and helped people. He actually built terrible solar panels that would not sell. This still made him richer, because the government redistributed tax dollars to him. In the free market, no one would have bought his shoddy product, and his investment would be lost.

People got mad that GM CEO pay was still high after the taxpayer bailout. The free market did not pay the CEO millions of dollars; in fact the free market dictated that the CEO should get exactly zero dollars. But the government stepped in and said our regulated market will redistribute wealth to the incompetent CEO of GM, who provides no one with an in demand product.

Oil subsidies, sugar subsidies, gas taxes, sugar taxes, media regulation, pharmaceutical regulation, the revolving door of lobbyists, bailouts, loans, redistribution, government contracts, high taxes, low taxes, tax incentives, tax loopholes, Justice Department of former Wall Street defenders, judges on Board’s of Directors, zoning laws, IRS targeting, media intimidation: these are just some of the not free things about the American market.

Rinse and Repeat

I would dissect the rest of the article, but it literally just repeats the same fallacy with different examples from America.

This phenomenon really got going after 1980, when wealth started flowing in vast quantities from the bottom 90 percent of the population to the top 10 percent… John Galt, the hero of Atlas Shrugged (1957), captured the imaginations of young students like Paul Ryan, who worshipped Galt as a superman who could rise to the top through his vision, merit and heroic efforts.

No, Reagan did not make the market free. Anti-libertarians love to point this out when they talk about how much the “right’s savior” spent and increased the debt… but Reagan magically transforms back into a free market de-regulator when it fits their narrative.

Not since before the Federal Reserve was created in 1913 could anyone even pretend anything resembling a free market existed in America. Perhaps some had amassed great wealth before then, but they could not keep that wealth in a free market, due to competition. They had to appeal to the government (like George Kaiser and the CEO of GM) to rig the system in the rich’s favor, to eliminate competitors–something that will only happen in a free market by outcompeting them (better prices, better quality, innovation, etc.).

Oh and maybe the author never read Atlas Shrugged. John Galt had not risen to the top of society. He was working as a janitor, despite having the intellect capable of building and maintaining a device that harnessed practically free energy. Yes, Ayn Rand wrote fiction. But her entire point was that the government in Atlas Shrugged prevented a free market, such that even skilled people like Galt could not (or did not see the point to) rise to a reward level appropriate for their skill, based on the benefits to society their skills could confer.

Which brings us back to Friedman’s view that people naturally get what they deserve, that reward is based on talent.

No, no. This is our panda versus horse problem. Friedman did not say that in any market people naturally get what they deserve, just like zoologists do not say that any mammal can survive on hay alone. Friedman says that in a free market people naturally are rewarded based on their talent.

If the market is free, then people will be rewarded based on skill. If the mammal is a horse, then it will survive on hay.

If the market is regulated, then people will not necessarily be rewarded based on skill. If the mammal is a panda, then it cannot necessarily survive on hay.

If you want to disagree fine, but don’t make your argument against a free market using negative examples from a regulated market. A zoologist wouldn’t argue that horses can’t survive on hay based on examples of pandas not surviving on hay, even though they are both mammals.

There’s no magic involved in a free market, just non coercive mutually beneficial transactions. When that is all that is acceptable, you will not end up with how things have ended up in America, and other regulated markets.

Now I started this off by saying that if you actually care about truth, it really isn’t that bad to be wrong from time to time. Yet every attempt to exit society and form a free market–without even forcing others to participate–is met with more force, regulation, taxation, and intervention.

Why not let us give it a try? After all, if all the dire predictions come true, anti-libertarians would finally have an example of a FREE market with which to make their points, instead of relying on fallacies.

16 thoughts on “You Can’t Disprove the Merits of a Free Market with Examples from a Regulated Market

  1. Everything is rigged, the stock market, you name it, it’s all rigged so the rich get richer and the poor get poorer.I would like to encourage everyone who’s on Twitter to visit mrs. Libertas site,this is a place where libertarians meet ,there are some very smart and like-minded individuals on this site.

    • Exactly, and the regulators are the ones rigging it. Instead of holding people in check, they offer the mirage of regulation, but support the worst, and eliminate the best of business.

  2. I always try to make this point when Obamacare is brought up. It drives me insane when a person says to look at the system before when the insurance companies had no regulations. They couldn’t be more wrong! Why don’t they know that’s just what they are being told by the politicians who want more control. The insurance co’s have been and will continue to be the biggest beneficiaries from all the regulation. Health insurance hasn’t been a free market in decades!

    • Right, people just repeat back what they have heard. “They de-regulated the housing market, they deregulated wall street, they deregulated pharmaceuticals”. So blatantly false. Government backed sub prime loans, easy money from Fed set interest rates, and the FDA charging to approve drugs. I actually saw someone try to use the housing collapse as an example of free market gone awry… it is absolutely absurd.

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