Thursday, April 01, 2010

Free Market Isn't Free

The real free market is when a producer and a consumer can get together and negotiate a price without any interfering middleman or outside influence. Laws should protect the producer's ability to have equal access to both raw materials, as well as the consumer.

Milton Freedman and Robert Bork and other Economists from the Chicago School redefined for us what the term "free market" means. When you want to change things, you have to change the law. And laws can be very hard to change. But all laws are based on principles. Therefore, the best way to go about changing laws, is to change the principles or at least redefine the principles. Then it is easy to approach law makers with the argument, that the laws were based on your altered principle, and since they don't do a good job of protecting that principle, new laws should be instituted which better reflect your definition of the principles.

In actual fact, a focus on principles is superior to a focus on laws. Laws can easily be misinterpreted. But when a person keeps the underlying principle behind the law in mind, then the laws based on that principle can easily be interpreted. Just imagine if instead of focusing on the wording of laws, that lawyers and judges just based their court hearing based on the underlying principle of the golden rule "Do unto others that which you would have them do unto you". I think law would be easier if everyone answered the question, "if you were in their shoes, how would you want to have been treated."

Along these lines, Freedman and Bork convinced us that the purpose of the Free Market was to limit government intervention as much as possible and allow the operation of supply and demand control costs. Government needed to step in and prevent abuses and limit big business through anti-monopoly laws, but not at the expense of efficiency. A greater focus on economic efficiency was promised to spread freedom around the world, accelerate 3rd-world industrialization, while providing for the needs of our expanding population.

However, what has happened through our current economic system is the loss of US production to overseas competition, the recreation of distribution-controlled monopolies through companies like Walmart (New East India Trading Company), the consolidation of industries into huge mega corporations that are too big to fail, and conglomerates that mercilessly buy up small businesses and brands to gain leverage against Walmart. The consequence of monopoly is the consolidation of economic and political power into the hands of a few men. Monopolies kill jobs, starve innovation, and have made the United States less self-sufficient and made us more vulnerable to interruptions in transportation.

Free market today just means that the federal government shouldn't get involved. Except for the last 233 years, the federal government has needed to protect producers and consumers from the ruthless , selfish, and dishonest business practices of greedy financiers and monopolists like Gould, Morgan, Vanderbilt, and Rockefeller. What has happened today is that the concept of free market has been changed and given a life of its own. The free market is almost spoken of like it is self aware and conscious. However, the truth is that the market cannot be separated from human intelligence. The market is just a reflection of decisions. And as it regards the market, either the government decides, the monopolist decides, or the producers and consumers decide. Today, when the Regan Conservative speak of "letting the market work" what they mean is let the super-elite, corporate and financial aristocracy decide.

Instead, what the federal government needs to do is exercise our current anti-trust laws to break up businesses that are too big to fail. We need to use current bankruptcy laws to allow too big to fail businesses to divide up vertically and horizontally keeping the good and casting away the bad. We need laws that protect the producers in the country such as Motorola, Rubbermade, US Steel, etc instead of letting our great industries to be dismantled.

You may say that it is good to send those jobs over to China because China needs to industialize and they need those jobs and we need the lower prices. I say that the only reason products are cheaper from China is that their workers are denied the same protections and benefits that US workers are guaranteed by law. US products cost more because the US producer must cover healthcare costs, unemployment and retirement. But we should want as Americans to pay what a product cost to be made to settle for less from China. We should want to spend 10$ locally for a local job, and 10$ for local healthcare, and local retirement instead of sending 5$ to China and into the pocket of some faceless super-elite financier.

Due to the Golden Rule it is wrong for us to expect the Chinese or Brazil or India to travel the same road we did and make the same mistakes we did. If we were in there shoes, we would want someone else to help us avoid those mistakes instead of remake them. That would be in keeping with the golden rule. And if industry was built up on the same standards as modern business then products produced in the US would cost then products produced in China taking into consideration the cost of transportation. And then the only reason we would pay more for Chinese is if their product was better and not just cheaper. Therefore, we see how keeping production equal will drive innovation and quality. Using the tariff on select industries like farming, farm equipment, steel, textiles and electronics will protect America from transportation disruptioins and the vulnerability of the just-in-time economy.

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