Monday, April 23, 2012

The Value of the Free Market

Recently, during my jaunt through my usual internet activity, I encountered two quotes. "In a democracy, like in any open market, having everyone pursue their own self-interest is supposed to generate the best outcome for society." and "The free market is the only force in human history to uplift the poor, establish the middle class and create lasting prosperity."

Now, correct me if I'm wrong, but "free" and "open" markets are essentially the same. These statements aren't exactly contradictory, in fact they both blatantly mention the free/open market in extremely positive terms, but in my mind, they say two completely different things about the market.

The first quote, which is from a piece in the Washington Post, implies that in an open market, self-interest is the key to success. Apparently, this self interest on the market is supposed to create the best society. Now, I don't know about you, but in general, I'm wary of straight up self interest. It's a little like straight up vodka. It sure gets the job done, but don't expect to feel well in the morning. If it is true that the idea of open market is based on self interest, then no wonder it is only "supposed" to generate the beat outcome; no one can say it has done so. A market based on self interest is, I assume, also related to the idea of competition as the highest of all goals. I'm no economist, so I can't for sure say that competition does or does not create the best economic climate, but I can say with certainty that self interest in the market will lead to further vice in the market. If you are interested in only how an action will affect you (in the economic, market sense), then considerations such as whether it will destroy the earth, harm other humans or damn your immortal soul are not really on your mind. Self interest may aid in the accumulation of wealth and prosperity, but that is not the definition of "the best outcome for society." We have to remember that all our actions have consequences far beyond what we immediately see.

Imagine that you make toys. Toys have a pretty short shelf-life in general because the whole human race is somewhat attention-deficient, so you think to yourself, "Why make quality toys that last? They're just going to be done playing with them soon. They might as well throw them away." So you make cheap toys with cheap labor and produce a terrible product but everyone buys it because they need toys and yours are the most plentiful. Weeks later, they are back to buy more toys because the toys you sold them are no longer fun/usable/what have you. You make tons of money because of this constant flow of cash and the fact that you don't have to pay your laborers much money. Then, the landfills fill up with broken useless toys that you sold to people.

How is any of that good for society? I would say it wasn't. Now, I'm not saying the free market or some adaptation of it is exactly like that (though this situation seems to occur a lot in our current society), but I am saying that that is an example of self-interest, and it does not produce the best outcome for society. If you make quality toys (or any other product) then they will last longer and the people will be more willing to pay more because of this. You will have to hire skilled laborers to make these higher quality products and so you will have to pay them more. Does this sound like it will make you rich? Maybe not, but I suspect that an industry based on quality will do better than one based on fast, cheap, mass production. In any case, you have created a society where skilled labor is valued, the consumer is provided with a good product and there is less waste of materials, energy and labor. I would argue that this was a better society.

Now, this isn't to demean self-interest entirely. After all, I am willing to believe, as I said, that this practice would actually produce a more thriving industry. Thus, it would be self-interested to be other interested. In fact, the dichotomy between the two is one of the more harmful ideas that pervades our society. The idea of self-interest is not a bad one and thus the free market idea isn't an unjust one, but self interest in conjunction with other interest, in fact one might say common interest, will be less prone to injustice and may perhaps do more for society than the self serving idea of the free market as many see it today.

As to the second quote, it is from a rhetorically potent video which is only missing an image of Obama at the end to indicate what they think of the current administration (although I believe Biden figures prominently a couple times.) The man in the video says a lot of interesting things some more believable than others, but the quote I put at the top is what really struck me. I actually very much disagree with it.

For one thing, the free market is not the only force in human history to uplift the poor. Not by a long shot. Let me give you one example of another force which does this. The Catholic Church. I won't, for now, dispute that the free market does indeed uplift the poor, because I'm not knowledgeable enough about that aspect of it (and I'm not sure anyone else is either...see my third point.) However, to hold the free market up as the only great force that can save the poor from their poverty is just plain laughable. Another point that I'd like to at least mention is that not having a lot of money is not a bad thing. It might be considered poor by our rich nation, but to have a roof over your head and a steady supply of food and enjoyable leisure time is possible with what could be considered a very low income. The kind of poverty from which the poor need to be uplifted is something different. It is the wretched existence of those who are starving to death or who are without homes. How the market can save these people is hard to imagine. It takes people who are willing to take these people in and help them start a life which will involve the marketplace, not the market itself.

Secondly, the video states that the free market is the only force in human history to "establish the middle class." I'm not sure I quite understand the term "middle class" but it seems to me that is means people who aren't poor and who aren't rich. Or something. Unless it refers to a very specifically American phenomenon of Suburban Living. In any case, there have always been the Wealthy, the Poor, and then everyone else, so it's impossible to claim that it's the free market that established this. And in any case, the current "middle class" we have in America is smug, cause they've gotten a job and worked for a living and can be comfortable in their suburb, and envious, cause they don't have that third car or the bigger house in the suburb and a lake home in the country. American middle class is different from "working class," which is still looked down on by most of America. The manual laborers are probably poor because they couldn't afford or didn't try for a good education which could get them a salaried position at the corner law office. Higher education is the norm for the middle class because we have to always get that better paying job. We're always wishing we weren't middle class. Middle class, in other words, is a very unpleasant and vicious place, full of smug, dissatisfied, back-stabbing, white collar Americans who think they're really educated because they watch MSNBC or Fox News.

Ma'am, please.

And so when the man in the video says that the free market established the middle class, not only is it not quite true, but in the American sense, it's not even that good.

And now for my third point, which  referenced before. The man in the video claims that the free market creates lasting prosperity. This is probably the falsest of all the claims. The free market is certainly not the only force in the world working toward prosperity in all the senses of the word "prosperity." Certainly financial prosperity is the one that most closely concerns the free market, so that might be what he meant. I will act as if he did. Our world, our nation and even the majority of people in our nation are not prosperous, even financially. Yes, we have access to capital, we have access to goods, we can produce and sell and import and export and all these things, but the financial system we have set up isn't particularly good, and it certainly doesn't seem like it will last very long. Some may argue that that is because we don't actually have pure free market economies, and that may very well be the case, but if we don't have free market economies now, how can we know that they will create lasting prosperity? We have already discussed how the free market is based on self-interest, and so perhaps it would create prosperity in some of us, but history shows that even the most self interested of investors and capitalists fall prey to economic depressions and recessions. Since we don't know what Free Market Capitalism pure and simple looks like, we can't possible know for sure that it creates any sort of prosperity whatsoever and it certainly is impossible to say whether it is lasting.

These descriptions of the free or open market are not impressive. In fact, one of them is downright deceptive. I support neither vision of the free market, the one based on self interest nor the one which claims to be the economy of salvation. What's the answer? I'm not sure we know, but one where each member of society is considered a contributor and where the interests of others are seen as your own.

Is it possible? Maybe not, but perhaps we should still try to include these ideas in our plans and theories.


Ink said...

It may not do the greatest job of "uplifting the poor" but at least it gives us hope... you have the slim hope that you can be a rags-to-riches story. Or at least a poverty-to-EatingEveryDay story.

N.W. Thomas said...

As I said, I'm not disputing that it can. It's just disingenuous to hold it up as some revolutionary system that will solve the problem of poverty. It is people and their interactions that help bring people out of poverty, not the system itself.

Also, as I said, the free market mostly helps those who already are in the position to work and have a living arrangement. It does nothing for homeless people who are too sick, weak, or old to work. It does nothing for displaced children. There's nothing the "free market" can do for them because it doesn't go beyond the exchange of material goods.