The Myth of the Free Market
Many Republicans toss around the term Free Market as the solution to almost everything. However, what they’ve forgotten is that we don’t actually have free markets. IMHO, the closes we have to a free market is eBay.
A free market requires a number of things: no barrier to entry for suppliers; suppliers who do not lie to the customers; customer who have access to accurate information about all suppliers; and customers who make rational decisions.
IMHO, none of these exist in general society:
Barrier to entry
For example, air transportation has huge financial and governmental barriers to entry; auto industry is the same; steel manufacturing; gasoline exploration and refinement; hospitals; becoming a lawyer or doctor have barriers. Everything has barriers, so there can never be a truly free market.
Suppliers deceive customers
IMHO, the whole point of advertising is to deceive customers: this pill will make your sex life great; this car will make you hip; this toothpaste will make your teeth cleaner and get you a date; this shampoo is will get you a date; this vacation will make you happy. The argument is that suppliers are just providing information - if that’s true, have you ever seen an advertisement that told you the disadvantages of a product in the same manner as the advantages - rather than in tiny text or sped up voices in 5 seconds after a 55 second commercial?
Customers have accurate information
There are about 30 brands of toothpaste, each with at least three different varieties: there is no way a consumer could get complete and accurate information on all of them; there is no way to find out how many passengers died in-flight on a given airline (or cruise ship); there are hundreds of different makes and models of cars; there are no “lists of ingredients” in restaurants.
Customers are rational
48% percent believe aliens have visited earth.
37% percent think that it should be illegal for two men to have sex.
In this poll from the 2004 election, half (50%) rightly name Bush as the candidate who favors giving parents tax-funded vouchers to help pay private or religious school tuition, thirteen percent attribute the plan to Kerry, who actually opposes it, over a third (37%) admit they don’t know. From an AP story after Katrina, nearly one-third of young Americans polled couldn’t locate Louisiana on a map and nearly half were unable to identify Mississippi.
My Conclusion
So, IMHO, since none of the basic premises of a Free Market exist, confidently claiming that the Free Market can do anything is a subjective statement, completely unsupportable by any economic theory that includes supply and demand as any part of its premise.
Bill G said,
February 22, 2008 @ 3:04 pm
Wow! You are throwing out the entire concept of the free market because not every market is free? I guess I have to throw out my Huey Newton album on The Power of Love because not every love is pure!
I think you discount free market forces at your peril. Let’s talk about the barriers to entry that you cite. The barrier to entry to be a health-care provider includes 1) Substantial cost and trouble of medical school 2) Substantial risk of malpractice suits by John Edwards and his ilk. Economic theory tells us that if there are barriers to entry to a market for suppliers of a good, at a given price, there will be LESS of that good supplied. The more barriers, the more the supply curve shifts to the left, which means with the same demand curve, prices go UP and less of that good is supplied. In the case of health care, it would translate into fewer people being able to afford more expensive health care. (Sound familiar?)
The typical government solution to health care has been to require price caps, at least on the approximately 50% of the health care in the US that is purchased by one level or another of government. What does economic theory tell us about price caps? Price caps don’t shift the supply curve, they just depress the amount that is supplied, introducing a mismatch between the amount supplied and the amount demanded. Normally this price and quantity for a good is determined by the point where the supply curve and demand curve intersect. But with a price cap, the amount supplied at the price is less than the amount demanded, which will cause a shortage. In concert tickets, shortages are resolved by either some kind of first-come-first-served arrangement at Ticketmaster or by a black market with no price cap.In health care this is seen as doctors who refuse to treat Medicare patients or who will only take on a certain number. If the government were to require doctors to take Medicare patients, I would consider this another disincentive to become a doctor and another barrier to entry. My personal experience with 7 doctors in the UK which required them to see everyone and limited the doctor’s compensation was that the overall level of competency of those doctors was MUCH MUCH lower than the average US doctor, just as economic theory would suggest.
My opinion is that ignoring market forces while planning for something involving commerce such as health care would be like ignoring the ability of a region to handle rainwater when planning for floods. “It’s not fair to the poor people that water doesn’t drain quicker” won’t cut it. Market forces are real and inevitable; even the worker’s paradise of the PRC has eventually realized that. Yes, there are very few instances in the world of pure free markets just like there is no such thing in physics as a frictionless plane. That doesn’t throw out all of market economics just as we don’t throw out all of physics.
marzke said,
February 25, 2008 @ 2:05 pm
You’re right - I don’t know what came over me. The barriers are certainly not part of the base assumptions - they are exactly as you say. In addition, I’m probably wrong about some of my other assumptions (about assumptions) and they are really just modifiers to the curve (maybe making them bumpy or infinite, rather than those smooth supply and demand curves we always see.)
I am not recommending throwing out all economics, just improving all conclusions reached using current economic theory by factoring in deception, advertising, stupidity, and irrationality.
Also, I agree 100% that price caps are not the solution to health care: there are a variety of small initiatives (making consumers more rational by not allowing them to be manipulated by drug advertisements is one) that might keep prices down. And I agree 100% that the problem is one of allocation of scarce resources: however, our current method of allocation (rich people and poor people have health care, but middle class workers do not) goes against my morals. We must be able to find some solution (most assuredly market based, but enforced by the government to prevent corporations from lying, cheating, and misleading the public) where all Americans can have access to a minimum level of health care at a reasonable cost. I’m still waiting for any Republican/Libertarian to provide the free market solution on how to provide a lifetime of medical care to an abandoned crack baby without using any taxes.