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April 27, 2007
Where are the free markets? (Part I)
Let me begin this post in a manner that you probably wouldn't expect. I am not a fan of the phrase "free market".
Out of curiosity, I did a search of my own blog to see how many times I have used the phrase. (I didn't search all variants--you'll get the picture from just this simple search.) I have used the phrase three times in my own writing and once in a quote--not counting the times it will appear in this post. Two of those were in posts about yuan revaluation and whether the Chinese currency market should be freer. Since the blog is almost three years old, that's a rate of about once a year. Like I said, I'm not crazy about the phrase.
The reason I don't like the phrase "free market" is its meaning has been twisted in the vernacular to the point of it being either a derogatory term or a throwaway phrase from people who aren't careful about what they mean.
But I love the word "market". Markets come in a wide array of forms and serve a variety of functions in the modern world. Some are more regulated; some less regulated. Sometimes those regulations are for good reason; sometimes not. You might say that some markets are freer than others, but I would prefer to employ richer, more descriptive language.
In my opinion, one of the most egregious abuses of the term "free market" is to use it to set up a straw man. Unfortunately, that is what "cactus" at Angry Bear has done in a pair of recent posts. (The first post)
Most of us believe in the same things... we believe that there should be markets, for instance. However, we disagree about the degree of government regulation of those markets. A strict libertarian might feel that there should be zero regulation, but I imagine there aren't that many of those. As a general rule, therefore, I would imagine those on the left will generally want more government regulation of markets than those on the right. The idea, for those on the left, is to reduce externalities, deal with asymmetric information, etc. For those on the right, the market itself will deal with that.
The last two sentences puzzle me. Any economist that I know recognizes externalities, asymmetric information, and a host of other problems as causes of market failure. To suggest that any economist, right-wing or otherwise, would claim that the market itself will fix a market failure is nonsensical. These are the reasons that the broad majority of economists would give as reasons for government intervention, though we may differ on what constitutes these problems or whether a given case is serious enough to risk putting an imperfect government in charge of fixing it. Those are subtle and deep questions that cactus is painting with a very broad brush.
Is it possible that he was referring to the non-economist right-wing? Maybe. But he is going after people on the right who stand up for less regulation and so forth. Most people who speak out publicly on such things have some training in basic (supply and demand) economics. Admittedly, the quality of the economic reasoning coming from those quarters is of very high variance, but that's a story for another day. Also, his use of the pronoun "us" is clearly referring to him and his readers--many of whom are economists, and most have more than a passing interest.
He concludes the first post,
Which raises the question... where are the places on the net for the true believers? The ones which recognize that the government already has sooooooo many laws and rules that adding any more is superfluous. Where are those marketplaces (of goods and ideas) online where we can see the ideal of the right and the libertarians of no rules and regulations (over and above what the government already imposes)?
A discussion in the comments (49 at this count) ensues in which the phrase "free market" is used repeatedly to describe this "anything goes" sort of environment as if that is the capitalist ideal. All of this inspires him to refine his thoughts in his second post on the subject. Getting right to the bottom line...
Put another way... it is relatively simple and inexpensive to set up whatever is the ideal conservative and/or libertarian marketplace, be it in goods, services, shares of stock, or whatever. Complete with buyer beware, no pesky government interference (either regulation or protection), and the like. And given the large number of believers, presumably there would be no lack of buyers and sellers to flock to those relatively regulation-less markets.
So where are these markets?
The straw man is now fully in view. Have you spotted it yet?
This post is already fairly lengthy, and there is no way to give a short response to this. So I invite you to join me in Part II for my response.
Posted by William Polley at April 27, 2007 10:51 PM
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