Conservatives, but particularly those of a “Libertarian” or Ayn Rand ilk, tend to expound the virtues of “free markets” or “perfect markets” or “efficient markets“. The basic theme of all of these is a sort of “freshwater economics” view that the government should be completely hands off and non-interventionist (ie: “laissez-faire“) when it comes to business and commerce:

The “market” will take care of itself (see also “Chicago School“, “Austrian School“, or “Neoliberalism“).

While I agree to some extent there are positives to the idea of letting markets manage themselves where possible. The sort of inflexible ideological “this is the only way” bent that is expressed by Tea Party libertarians and their ilk is frankly less than completely sane. It is also untenable and I will easily argue just about everyone who holds these views (seemingly) unbendingly is probably a hypocrite in some regard (as am I – we all are).

To prove so, what follows is a list of things that strict “free market” advocates should consider when expounding their ideology. I suspect they will need to find some “exceptionalism” to their theories when they consider them:

• Abortion – if people believe abortion is bad, the market should collapse and abortion providers should go out of business.
• Drug control – people won’t buy drugs if they think they’re wrong.
• Gambling – an educated market will let gambling die.
• Pornography – if we believe it’s immoral, then the market will dry up.
• Prostitution – ditto.
• Liability caps – if we believe in free markets, then corporations should be liable without limitation (for instance, no need for the $75 million dollar cap for oil spill liability).
• Medical licensing – doctors don’t need licensing. If they don’t perform, we simply won’t use them right?
• Consumer protection laws – if Ford builds exploding cars, we won’t buy them right?
• Trade licensing – an electrician who does a bad job, will simply lose business right?
• Patents – they’re a form of “government intervention” aren’t they? Anyone should have the right capitalize on an idea (same if “Intellectual Property“).
• Copyrights – ditto.
• Highways and roads – why should the government provide these? The free market should be able to fill this need right?
• Schools – no reason this can’t be privatized right?
• The military – why can’t private interests band together instead to provide protection for the nation?
• Alcohol – shouldn’t anyone be able to sell it without a license?
• Medication – if entities create bad and/or fake ones, people will learn and not buy them. In fact this could be sold as a sort of “insurance” to individuals/companies to protect their interests.

In fact just about anything can be seen as “a market” – murder, theft, extortion, assassination, etc. If there is no “market” for these things, then they will “fail” and cease to be an issue (to note, to be fair, some strict Libertarians do actually believe that a number of the bullet points above should be “free market” based, however I guarantee they’ll find exceptions for some).

Now I am sure some readers will find ways to say, “These are different” . We have an amazing ability to find technicalities when we need them, but I would strongly argue one would just be finding a different way to say, “I don’t really believe in ‘free markets’”. In a sense, one would be just “self-deluding”.

The fact is the market system does fail and often. Moreover we expect governments to intervene in all sorts of ways in the markets (also, isn’t paying Haliburton to service our troops a sort of “market intervention” even if unintentional?)(it certainly “distorts” the market). In fact the definition of a “corporation” (or rather “incorporation“) is a form of government intervention in itself – corporations are legal entities created by the grace of the government. In fact one can easily argue that corporations as we know them would not exist if it weren’t through the government intervention that grants their owners/shareholders limited liability. That is, in theory if not for government intervention, the accidental death of an employee could lead to “involuntary manslaughter” charges (or worse) against the entire set of shareholders (after all, a shareholder “owns” a part of a company), potentially threatening them with jail time.

So my point here isn’t that we should switch away from free market systems, nor that we should move to communism or socialism, but that the perfection of “free markets” is a fallacy and one that if you look hard even the most vocal proponents don’t actually support – there’s always reason for exceptions.

Instead the question is – what level of government intervention is appropriate?

And personally I think it is a lot more than the last 30 years have led us to believe.  Also, I think we have to question whether “free markets” are appropriate in every situation. Like my bullet above about “Medical licensing”, perhaps there are some “markets” that aren’t amenable to strict profit motive. Perhaps there are things that should be left to government to execute (in part because they can’t make a profit, but we need them anyway – eg: postal services or public transportation).

UPDATE:

I am sure some would argue things like “drugs”, “gambling”, and “prostitution” are vices that revolve around “addiction” and “immorality” and thus “different”. To some extent I don’t argue that, but wanton materialism or the worship of mammon are also addictions, and in my mind, often “immoral”. In the end these more Biblical vices represent the same motivations that drive unchecked capitalism (and one could argue it’s the same wiring). The execution of “laissez-faire” policies creates an environment where these immoral “vices” of greed can and do go unchecked. And no, “Greed is not good“.

Finally, if you say, “Well, ok, we need some rules,” then I defer to the joke about the “prostitute”:

Guy: Would you sleep with me if I gave you $1 million dollars?

Girl: Um, yeah.

Guy: How about $50 bucks?

Girl: No! What do you think I am – a whore?!

Guy: We already determined what you are, now we’re just haggling for price!

In short, once you admit the market needs some government intervention, then you’ve admitted the government has a role and have compromised your ideological purity. The question then is, where do we draw the lines, not if lines can be drawn or not (I have the same argument with “gun” control). At that point it usually becomes more obvious that the viewpoint is behaving like religion or opinion, rather than the “free market science” (aka “Chicago School”) many claim.

UPDATE 2:

I should note the assumed founder of “Chicago School” economics, Milton Friedman, did not in fact prescribe strict non-interventionist policies, even if that seems to be what it has evolved into. In fact his views on intervention in the great depression echoed some of the Keyesian viewpoints and he even indicated that the Fed should have acted more aggressively. Moreover contrary to popular belief he actually supported the “New Deal” (from the prior link):

“The other part of the new deal policy was relief and recovery … providing relief for the unemployed, providing jobs for the unemployed, and motivating the economy to expand … an expansive monetary policy. Those parts of the New Deal I did support. (…) Because it was a very exceptional circumstance. We’d gotten into an extraordinarily difficult situation, unprecedented in the nation’s history. You had millions of people out of work. Something had to be done; it was intolerable. And it was a case in which, unlike most cases, the short run deserved to dominate.”

In the end unfortunately Friedman sullied his legitimacy (at least in my mind) by showing support and having some involvement (albeit at the periphery) with Chile’s horrific dictator Pinochet.

UPDATE 3:

Paul Krugman (if I may be so vain) makes a timely blog entry on the subject of “Why Libertarianism Doesn’t Work“. In particular he quotes the above “Milton Friedman” in regards to product safety:

Interviewer: So tort law takes care of a lot of this ..

Friedman: Absolutely, absolutely.

He then points out the politicians are blocking raising the $75 million cap on oil spill liability, thus another example of how Libertarianism doesn’t work.

Personally I would go further than this – all the people I know who are extreme “free market” idealists are at the same time pro “tort reform” where limitations on punitive and other damages would be limited.

In short, they want to have their cake and eat it too.

If one looks from the outside one notices a theme – an end “libertarian” system that best benefits those with power while limiting those without. Thus it’s my contention that most average libertarians (ie: middle to lower class) are being “used” – the unwitting dups of landed interests. Frankly it’s a brilliant redirect by those in power – turning the little guys on themselves.

This is a post card I’ve recently received (ie: post banking meltdown) from a certain financial company a couple of times:

Now, if you follow the URL given on the post card, what do you find? Not much. In fact it looks in fact like a “No catches. No surprises.” deal.

But how can they afford to give such astoundingly good interest rates?

Because, unless you’re paying attention closely, at year 6 it switches to a variable interest rate mortgage. Moreover, even if you caught it becomes variable, that “projected interest rate” of 3.375% is dangerously misleading – yes, they can guestimate what it could be based on current trends, but they can’t possibly know if it really will be, nor even so that it’s going to stay anywhere near that rate for year 6 through 30. In fact one has to guess they’re betting that it doesn’t, otherwise this wouldn’t be a profitable venture for them.

Unfortunately this is exactly the sort of lending that got us into this mess in the first place. Teaser rates that sucker people into taking loans they ultimately can’t afford as the rates change.

Yes, it’s probably better than many of the worst offenses of the last 10 years, but it shows that not much has changed really. And that should leave us all afraid, because it’s just these sorts of poison pills that increase the risk of so called “assets” held by banks leading to the next possible meltdown.

One would think that so soon after the last disaster that banks would be wary of jumping so quickly into the same sorts of games. However this shows how little was learned and how much of the hubris still exists.