The “free market” is as free as a bee

May 2, 2011 | By | 6 Replies More

Bees look free. They seem to dance capriciously from flower to flower. No one seems to be telling each bee what to do. Anyone who has carefully studied bees, however, knows that they are not “free.” The health and welfare of bees and their hives are highly sensitive to a great many factors. Here are a few:

A) Excesses and deficits in rainfall and temperature;
B) The survival and location of plants from which bees gather nectar;
C) The prevalence of parasites and viruses;
D) The existence of rival hives and predators;
E) Human encroachment, including pesticides and destruction of habitat;

Whether bees thrive is subject to these and many other factors. If any of these factors is changed, the bees will be affected. “Free as a bee,” is an expression I have heard from time to time, but it turns out that bees are not actually very “free.” Hard-working bees and hives are often killed for factors beyond their control.

Image by Erich Vieth

The “free market” is not free either, a point of which I was reminded while reading Mark Tiedemann’s recent article, “The Free-Market Problem.” Mark bluntly asserted that there is no such thing as a “free market.” I agree, and I will explore that point further in this article. I will borrow heavily from others in support of my arguments. The market is not “free” for many reasons that have been clearly articulated in two recent books:

A) 23 Things They Don’t Tell You about Capitalism, by Ha-Joon Chang (2010). Chang is a member of the Faculty of Economics at the University of Cambridge.

B) The 15 Biggest Lies about the Economy (2010), by Joshua Holland. Mr. Holland is a senior writer and editor at Alternet, where he has often covered the economy.

Chapter One of Chang’s book is titled “There Is No Such Thing as a Free Market.” At the beginning of this chapter, Change sets forth the claim so often asserted by modern-day conservatives: Markets need to be “free” and the government should not interfere with the “free market.”

We are told by conservative politicians and pundits that “interfering” with the “free market” stifles innovation and investment. They talk about the “free market” as though it were a wise and benevolent transcendent Being. Thus, they say, we should not have a social safety net, such as single payer healthcare insurance, and we should not attempt to regulate Wall Street, because the “free market” will take care of these issues for us. The “free market” will take care of the need for health care and Wall Street corruption, and everything else we need. Chong responds:

The free market doesn’t exist. Every market has some rules and boundaries that restrict freedom of choice. A market looks free only because we so unconditionally accept its underlying restrictions that we fail to see them. How “free” a market is cannot be objectively defined. It is a political definition. The usual claim by free-market economists that they are trying to defend the market from politically motivated interference by the government is false. Government is always involved in those pre-marketers are as politically motivated as anyone. Overcoming the myth that there is such a thing as an objectively defined “free market” is the first step toward understanding capitalism.

(Page 1)

Chang points out that our society is filled with regulations we take for granted, such as environmental regulations restricting the pollution produced by cars or factories. Many people consider these sorts of regulations to be a “natural” part of a “free market,” while other people see these regulations as artificial restrictions imposed by the government. Hence, Chang argues,

Image by Erich Vieth

There is really no objective way to define how free that market is. In other words, the free-market is an illusion. If some markets look free, it is only because we so totally accept the regulations that are propping them up that they become invisible.

(Page 3)

He points out that there or many other restrictions on the “free market.”
For instance, there are restrictions on the types of things that can be traded (electoral votes, government jobs, and street drugs).

There are restrictions on who can participate in the market. For instance, children cannot enter the labor market, and licenses are required for various professions, such as doctors and lawyers.

The conditions of trade are specified by numerous rules and regulations, many of them developed through common law rules that are enforced by courts.

There exist various kinds of price regulations, such as rent controls and minimum wages.

Wages are largely controlled by immigration policy, rather than by a “free”
market. Chang points out that if a labor market were truly “free,” as many as 80 to 90% of native workers would be replaced with cheaper (and often more productive) immigrants.

After the 2008 financial meltdown, interest rates became a lot lower in many countries due to specific political decisions to “boost demand by cutting interest rates.”

Many of our prices are influenced by tariff regulations. Further, the prices of many of the things that we buy from exporting countries such as China are dramatically influenced by political decisions in those countries affecting wages and worker conditions.

After the financial meltdown, our government poured hundreds of billions of dollars into various ad hoc funds to prop up American banks. Had this money gone to public schools, conservatives would have screamed that it was socialism, but the money was pouring into banks and, therefore, the U.S. Government and most news media outlets worked hard to spin this huge premeditated injection of money (and loan guarantees) as a “free market” maneuver. President George W. Bush argued that rather than being socialistic, the plan was simply a continuation of the American system of free enterprise, which “rests on the conviction that the federal government should interfere in the market place only when necessary.” Again, this gift to big banks wasn’t socialism because it was money being handed to banks:

[I]n his view, nationalizing a huge chunk of the financial sector was just one of those necessary things. Mr. Bush’s statement is, of course, and ultimate example of political doublespeak-one of the biggest state interventions in human history is dressed up as another workaday market process. . . . As the statement so clearly reveals, what is a necessary state intervention consistent with free-market capitalism is really a matter of opinion. There is no scientifically defined boundary for a free market.

Many other important matters lie “outside of the market today,” based upon political decisions rather than the workings of supply and demand. John Lewis some of these: Government jobs, electoral votes, legal decisions, university places were uncertified medicines. Many products are regulated or certified through the government, such as organic food, regulations related to product safety, pollution restrictions and product labeling.

Chang then argues that all of the above matters dictate that economics is not a science, such as physics or chemistry “but a political exercise.”

What should we think, then, will we hear that we should not interfere with the “free market?”

When free-market economists say that a certain regulation should not be introduced because it would restrict the “freedom” of a certain market, they are merely expressing a political opinion that they reject the rights that are to be defended by the proposed law. Their ideological cloak is to pretend that their politics is not really political, rather it is an objective economic truth, while other people’s politics is political. However, they are as politically motivated as her opponents. Breaking away from the illusion of market objectivity is the first step toward understanding capitalism.

I’m also reading a book by Joshua Holland titled The 15 Biggest Lies about the Economy (2010). Chapter 3 of that book is titled “There Is No Free
Market: Don’t Believe That Modern Markets Exist without Government.”

Holland starts labeling the “free market” as “perhaps the central and most enduring myth of conservative economics.” He argues that conservatives have thoroughly rigged the deck regarding the economy:

They’ve made sure that certain people come out ahead, that income flows upward, and that other people are put at a disadvantage-and these things are built into the rules of the system. And then what they want to do-in talking about “free markets” if they want to kick back and say “no, no, no, those are the rules, and we can’t talk about them.

Holland points out that conservatives often get away with claim that the American economy is based on a “free market” because there is a “kernel of truth” to their arguments: The opposite of the free-market, “the centrally planned economy” has indeed proved disastrous.

It’s pretty clear that economies in which entertainers have the ability to start new businesses, take risks on new ventures, and hopefully come up with a better mousetrap fair significantly better than those that lack the relative freedom of liberal capitalism.

(Page 50)

Although Holland agrees that greed is necessary to a vigorous market, “unchecked greed–unconstrained by regulations that protect the public interest-is a disastrous force.” He cites Robert Pollin: “It is time to recognize that unregulated financial markets always have, and always will, cause financial crises. There are no historical exceptions to this observation at all.”

Holland argues that it’s the rules of the game, rules created and enforced by the government, that determine how the market works, much more than any sort of “hidden hand.” Government rules “ultimately determine who wins and who loses.”

Although the market is very good at allocating various goods and services (it makes possible to always find a hotdog vendor on the streets of New York), the “free market” does not handle other products and services well. He raises the examples of firefighting and public roads, which have proven to be disasters when approached as matters of pure private enterprise, mostly because of negative externalities.

One important reason that a truly “free” market is not possible is that it is impossible to have perfect knowledge in modern consumer culture. Another reason the market is not “free” is that large corporations are spending enormous money ($3.3 billion in 2008) to make sure that the US economy is not a free-market model.

The government intervenes in the market all the time–we pay some farmers to grow crops, others not to; we promote specific industries’ products in international markets; the government sets up the rules under which corporations negotiate with their workers; government signed trade agreements that determine which workers will face competition from overseas firms, and which will not; they routinely dole out tax breaks and low-interest loans and waive environmental and other standards to promote regional growth; and on and on and on.

Holland also points out the fact that immigration policy directly impacts wages in the United States. Networks of laws protects professionals such as doctors, lawyers and economists from foreign competition. Further, trade deals are negotiated “with tons of input from corporate lobbyists and trade attorneys, but very little advice from people who represent US consumers and workers or the environment.”

(Page 55).

Holland spends a great deal of time discussing the economic meltdown and the machinations of Wall Street, working all too closely with the federal government to pour tax money into banks in an alleged attempt to prop up the banks.

The bailouts were the most visible evidence that the biggest players have a firm grip on the “free market” in the United States. They represent the height of crony capitalism – of socializing risk while privatizing profits, a perverse reverse socialism that protected the most comfortable among us. And the ultimate punch line is that this was a program designed by people who the Washington Post’s Peter Whoriskey called the most ardent disciples of free-market principles.

(Page 58).

Based on the common sense observations from these two books by Chang and Holland, the market is not at all “free.” It would be much more accurate to characterize the market as carefully regulated by many factors, including the federal government and banks, as well as by the numerous social factors set out above.

Image by Erich Vieth

Is there a “free market?” Sure there is, in the sense that bees are free. Freedom is in the eye of the beholder, and to the extent that well-monied entities control our mass media, it is proclaimed without question that the market is “free.” Why would we want to change a market so utterly and perfectly “free” that the tax burden has been “naturally” falling increasingly on the shoulders of middle class Americans.

From now on, when someone claims that we shouldn’t enact any government policy to provide health care or job training to the poor because we need a “free market,” remind that person that the government is already heavily regulating the market, and that the discussion should be about the types of policies that should be enacted, and not a discussion about whether a particular policy “interferes” with the “free market.” It’s not a matter of whether the economy is “free,” but how we decide to run the economy.

I’ll end this post by presenting a link to a list of quotes illustrating that it has long been recognized that American banks have had great control over the way the American economy runs. And I’ll end with a rhetorical question: Does any high-placed bank executive (think of Goldman Sachs) really think that the “free market” runs the U.S. economy? It’s time to stop allowing the “free marketers” get away with this deceitful rhetoric.

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Category: Economy, hypocrisy, ignorance, Politics, Social justice

About the Author ()

Erich Vieth is an attorney focusing on consumer law litigation and appellate practice. He is also a working musician and a writer, having founded Dangerous Intersection in 2006. Erich lives in the Shaw Neighborhood of St. Louis, Missouri, where he lives half-time with his two extraordinary daughters.

Comments (6)

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  1. Erika Price says:

    I am shocked at how well this metaphor extends. The market system is mindless, has different specialized subsets that perform rote tasks over and over again, works as an organized, top-down system, requires constant input from other sectors, and only functions as a collective. Jeez.

    The mindless efficiency of a market system is both its biggest boon and downfall. I just read a piece in the 2010 edition of the Best American Science and Nature Writing series about macro organisms like bee hives, and was shocked at the cold-hearted efficiency of the creatures. There are bees whose only duty is to clear out the corpses of other bees, and deliver them to the hives' compost heap. The undertaker bees identify their fallen compadres by detecting an acid that arises during decay.

    It is a beautiful system, but flawed. If a living bee has the misfortune of getting some of this acid on her body, the undertaker bee will carry her out to the trash heap, again and again, despite the bee's clear liveliness and physical protestations.

    The market system is also good at certain specialized tasks (like determining efficiency prices). But it, too, is rigid and unflinching in its machinations, equally insensitive to the accidents and kickings of living beings. A queen can't call off the unintentional cruelty of a fellow bee, but we can exert top-down controls of our dumber market forces.

    • Erich Vieth says:

      Erika: Reading the two books from which I quoted was quite a journey for me. I always knew that the "free market" was good at putting consumer goods on shelves, but I had never before fully considered the many buttons, switches and levers that allow human beings to operate the market. Once you add up all of those controllers, it is clear that the market is no more "free" than the space shuttle. The trick for considering it to be "free" is to pretend that all of those controllers are antecedent conditions rather than ongoing choices.

      BTW, I really enjoy your prose. It appears that social psychology grad school hasn't damaged your ability to turn a phrase.

  2. Eliot Frick says:

    There is an important distinction between conditions that shape market possibilities and fiat regulation. I wonder if the fact that you had already concluded that "there are no free markets" before undertaking this essay has something to do with your not taking up this distinction. The black market is the most profound demonstration of the fact that individual human agency trumps regulation in the creation of markets. Making markets "free" is about trying to place the locus of control of the market as close to the hands of individual agents and as far as possible from supercilious bureaucrats as possible. You want croney capitalism? Enact draconian regulatory regimes. "When buying and selling are regulated, the first thing to be bought and sold is the regulator."

    There is an attendant personal philosophy that says that mutual beneficence is best served through the praxis of liberty; joyful, self-chosen sacrifice. All centralization of the power to create mutual beneficence creates no such thing – it leads inexorably to totalitarianism; the overweening academic statist patting themselves on the back for their clever altruism while on the road to that totalitarianism notwithstanding. The 20th century is an object lesson in exactly that.

    • Erich Vieth says:

      Eliot: I want to make sure I understand your comment. I would agree that there are more and less "visible" forms of regulation, for instance where a government agency enacts a regulation on the books. There are less visible forms of regulation as well, for example, banking policy that affects employment rates. I believe that both of these restrict that market in various ways, and they should both be recognized as such.

      My target was the contention that we can have an absolutely "free market." My argument is that the millions of individual "free" choices by millions and billions of people are always made in the context of a complex web of government, corporate and social regulation. I'm challenging the idea of freeness. I'm challenging everyone who asserts that a "free" market exists to acknowledge the ubiquitous co-existence of the many factors I mention in my post that put a big asterisk and many footnotes and several red flags on the notion of "free."

      Are we disagreeing? If so, how?

  3. Eliot,

    Your point is well taken. I think this is a problem of semantics trumping fact. There is no such thing as a free market inasmuch as someone or some group of someones always ends up exerting more control—and eventually "owns" it—than others. Your point about regulators being the first thing purchased is a case in point—who buys the regulators?

    My preferred term is Open Access Markets, which is quite another thing, and by definition requires gate keepers to keep the gates open. Putting those invested in the markets in charge of this is literally putting the fox in charge of the hen house.

  4. Niklaus Pfirsig says:

    Eliot,

    In economics, a market is a venue where trading takes place. This could be the stock market, a flea market, the farmer's market, the job market or even a local supermarket.

    A free market is an oversimplified model used in economic classes to demonstrate the hypothetical "law of supply and demand". To qualify as a true free market several parameters are assumed:

    1. All venders have identical products for sale. This can be shares of IBM stock, white tube socks, tomatoes, labor, or even generic cigarettes. The product doesn't matter.

    2. All vendors have only one product. There is no diversification.

    3. All buyers have equal access to all vendors. This implies a small localized marketplace without an alternative market available.

    4. Buyers are not vendors and vendors are not buyers. This is a VERY important restriction on the model, as it explicitly excludes the vendors from buying out the inventory of their competitors.

    5. There is no dominate entity in the marketplace.This means no regulating authority, but it also means that all vendors have equal market share, as any vendor with a significant market share can leverage that lead as an advantage and become a de facto regulsting authoirity.

    In the free market model, the only variables are the supply (the availability of the single product being offered) and the demand (the strength of the desire on the part of the buyers to own the product).

    Economy theory holds, that in this hypothetical situation, when the supply is higher than the demand (a condition known as a market glut), vendors must compete with each other by lowering prices to attract more buyers from their competitors. In addition, their competitors must lower prices to keep prevent their buyers from buying from someone else. Alternatively when the supply is low and the demand is high, the buyers compete for ownership of the product by offering more money. The idea is that the ratio of supply to demand correlates to the relative price of the product.

    Free market conditions do not exist in reality. Sellers offer diverse inventories for sale, buyers are sellers and sellers are also buyers. Local markets are not self sufficient and isolated.

    Currently, the term "free market economics" is a euphemism for supply side economics, from which is derived the "trickle-down theory", where the economy is made favorable for the formation of monopolies. The rationale behind trickle down is that anything that inhibits the wealthy from getting wealthier is undesirable.

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