It has become the mantra on the left that the free-market is dead. Posters have sprung up all across the country showing Milton Friedman’s face with text underneath it reading, “Proud Father of Global Misery.” And it’s not limited to the left. Even former president George Bush said, “I’ve abandoned free-market principles to save the free-market system.”
The irony is, we don’t have a free market system in America. We have corporatism. Some may argue that they are one and the same. Some may say that free market capitalism leads to corporatism. However, hardly anyone disagrees that what we currently have is corporatism.
What’s the difference you ask? In a true free market, businesses are left to their own devices. Supply and demand are determined by market forces (manufacturers and consumers) . In corporatism, supply and demand are manipulated by the government to promote the interest of select corporations. For instance, sugar producers lobby Congress to limit the importation of sugar from outside the country. So while demand remains the same, the supply is limited, causing prices to increase. This is obviously desirable to sugar producers in America, as it increases their profits while reducing their competition. And so it goes with every industry in America.
In a free market, demand is created by human behavior. In corporatism, demand is created through government intervention. An example of this is the housing industry. Demand for more houses were erroneously increased by government programs to increase availability and affordability of homes. The Federal Reserve kept interest rates artificially low, allowing banks to make riskier loans than they would have otherwise made. Private banks also had to compete with Fannie/Freddie whose government mandated objective was to provide provide mortgages to those who couldn’t afford them. Since this was an artificial increase in demand, it created a housing bubble.
Many will argue that government intervention in the free market is necessary to protect us from fraudulent businesses. However, as evident by the Bernie Madoff scandal, government intervention simply makes matters worse. The government tells its people that they are safe because of the regulations they have put into place; that their watchdogs are on top of things. No need to worry. However, con men will still find ways to con people; with government regulations or not. This merely sets a false sense of security and allows for con men to prosper in areas where people would otherwise be more cautious.
So the next time you hear that the free market is dead, remember one thing: we didn’t have a free market to begin with. Corporatism is dead. And there seems to be only two solutions. Either go back to a free market economy or embrace socialism. Which would you prefer? An economy run by the government, or one run by the people?