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Wednesday, July 18, 2007

Free Market vs Control

Many people who are not socialists or communists still can't resist the temptation to direct or control other people. Nor do they appreciate the nature of spontaneous order. Beyond playing with the "rules of the game" to make things work better it is difficult to improve upon freedom. George Mason economist Walter E. Williams expounds:

First, let's establish a working definition of free markets; it's really simple. Free markets are simply millions upon millions of individual decision-makers, engaged in peaceable, voluntary exchange pursuing what they see in their best interests. People who denounce the free market and voluntary exchange, and are for control and coercion, believe they have more intelligence and superior wisdom to the masses. What's more, they believe they've been ordained to forcibly impose that wisdom on the rest of us. Of course, they have what they consider good reasons for doing so, but every tyrant that has ever existed has had what he believed were good reasons for restricting the liberty of others.

Tyrants are against the free market because it implies voluntary exchange. Tyrants do not trust that people acting voluntarily will do what the tyrant thinks they ought to do. Therefore, they want to replace the market with economic planning, or as Professor Blinder calls it -- industrial policy.

Economic planning is nothing more than the forcible superseding of other people's plans by the powerful elite. For example, I might plan to purchase a car, a shirt or apples from a foreign producer because I see it in my best interest. The powerful elite might supersede my plan, through import tariffs and quotas, because they think I should make the purchases from a domestic producer.

My daughter might plan to work for the hardware guy down the street for $4 an hour. She agrees; he agrees; her mother says it's OK, and I say it's OK. The powerful elite say, "We're going to supersede that plan because it's not being transacted at the price we think it ought be -- the minimum wage."

Cohen also interviewed Professor David Card, saying that he's done "groundbreaking research on the effect of the minimum wage." Literally hundreds of studies show that increases in the minimum wage cause unemployment for the least-skilled worker, a group dominated by teenagers, particularly black teenagers. But Professor Card's study asserts that increases in minimum wage actually increase employment. Besides the fact that reviews of his study show flawed statistical techniques, that assertion doesn't even pass the smell test. If it did, then whenever there's high unemployment, anywhere in the world, governments could eliminate it by mandating higher minimum wages.

Robert Reich, President Clinton's labor secretary, said that economists who question free market theories really "want to speak to the reality of our time." That's incredible. Reality doesn't depend on whether it's 1907 or 2007. Reich probably thinks the reality of the laws of demand depends on what year it is. I wonder whether he thinks the reality of the laws of gravity does as well.

The ideas expressed by economists interviewed by Cohen, while out of the mainstream of a large majority of economists, are solidly in the mainstream of mankind's traditional vision. Throughout history, the right to pursue one's goals in a peaceable, voluntary manner, without direction, control and coercion, has won a hostile reception. There's little older in history than the idea that some should give orders and others obey.

Even when ruthless tyranny is not the motivation, a gentler form can be just as problematic. Better to feel wonderful about those good intentions even if the results aren't so good.

HT: Mark Perry


Bret said...

From the article: "There's little older in history than the idea that some should give orders and others obey."

As a result, I fear that free markets may be a temporary anomoly before reverting back to the more natural state of things of ordering and obeying (i.e. a command economy). But I'm sure enjoying it while it lasts!

Duck said...

If you enjoy it too conspicuously, you'll just attract the attention of people who think your enjoyment is at the expense of someone else. Never underestimate the powers of envy and resentment.

Bret said...

I don't see I lot of envy and resentment in the United States. People (especially politicians) tell me that there are lots of people with envy and resentment, but I'm not convinced it's really true.

Duck said...

Resentment and envy are the twin supporting beams for the Democrat party platform.

Bret said...

It's more subtle than that, I think. I think the platforms are that people should worry that OTHERS might have envy and resentment, therefore vote democrat. I'm not convinced that a lot of democrats are personally resentful and envious of those richer than them, rather they project that the "poor" and "oppresed" are resentful and envious of others.

erp said...

Envy and resentment are more likely in a closed socialist state because there is virtually no way that plebes can move from cog to commissar. In our open society we can go from rags to riches and back again doing our own thing, so there's no need for envy or resentment.

BTW - Thanks for posting the excerpt from the Williams article. It's a convenient and simple definition of free markets that even lefties might be able to understand, so I posted on my blog where I like to keep things I think important.

BTW 2 - I see this was posted by Howard, but Howard who and who are the other great guys posting on this blog?

Anonymous said...

added to my rss reader