Friday, April 17, 2009

A Myth of Free Markets

Dan McLaughlin posts (17 April) a book review of “Free Lunch” By David Cay Johnston in Citizen Economists HERE:

“Quotations from Adam Smith are generously sprinkled throughout the book, and made to sound as though the champion of free markets would have supported Johnston’s proposals for big government and heavy regulation of business.

According to Johnston’s analysis, the problems that modern America faces are due to alleged “deregulation”. The author summarizes his confusion early on when he says “In the past quarter century or so our government has enacted new rules that have created not only free markets, but rigged ones.” If the markets are “rigged”, they are not free in any sense. The regulators rig the market and make it un-free. It shouldn’t be that hard to make the connection. The regulation that he longs for has always been written by the regulated, to the detriment of competitors, taxpayers and the buying public.”

Dan McLaughlin makes a good point about ‘deregulation’. There is mantra circulating that ‘deregulation’ being bad and ‘regulation being good, wrapped in an assertion that the capitalist economies have been too laissez-faire and that the government has to intervene in the so-called ‘free markets’ supposed to exist all around us, summed as the government must introduce tighter regulation.

The problem with this debate is that the premise is incorrect. Markets are hardly free when the existing regulation (supported by laws, such as in the European Union, covering everything from hours of work, overtime, consultation over social issues, Health and Safety, discipline, redundancies, human rights, race, feminism, labelling, testing, supervision, insurance, minimum wages, pensions, copyrights, patents, planning procedures, banking and finance, and so on and on).

It’s not that these regulations are all bad – though some are barmy – it’s that their existence contradicts assertions about ‘free markets’, and I have only mentioned a few of them. Capitalist markets are dominated by Big Government, hence we do not have anything remotely like laissez-faire (which, contrary to assertion, never featured in Adam Smith’s political economy). It’s more accurately described as State Capitalism, with governments intervening with ever more legislation to impact on businesses, egged on or resisted by armies of professional lobbyists.

Not everybody who quotes from Adam Smith respects his legacy, nor do they all understand it. Dan McLaughlin appears to do so more than the author of the book he reviewed.



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