Wednesday, June 29, 2011

Free markets and Santa Claus

Left: The Free Market Fairy disputes reports of her (his?) non-existence.

Q: What do free markets and Santa Claus share in common? A: They're both myths.

There is no such thing as a free market. The central problem ignored by the Free Market Fairy Dust Believers is the central problem of anarchy theory: The problem of power. Belief in a magical Free Market Fairy who spurts his Free Market Fairy Dust all over and thereby eliminates the problem of violence and coercion is as silly as believing that Santa Claus fits down furnace chimneys with his big bag of toys and visits every child in the world on Christmas Eve. It simply has no relationship to any objective reality which exists or has ever existed.

The simple reality is that there is no such thing as equality of power in economic transactions. Credit cards are virtually unregulated, yet I cannot negotiate the terms of the credit card agreement that I am required to sign in order to obtain a credit card. Instead, they impose their terms on me, take it or leave it. The credit card companies have a disparity of power over me -- they have billions of dollars of bank deposits, I have thousands of dollars of bank deposits, money is power, you do the math. Where there is inequality of power, the party with more power imposes his will upon the party with less power, perhaps not with force, but certainly with coercion -- you can't shop on the Internet without a credit card, and you can't buy a large swathe of goods unless you shop on the Internet. That's coercive power. That is the central problem of power that occupied anarchy theory since its beginnings.

People who ignore the problem of power in regard to economic transactions are ignoring realities of coercion, monopolies, economics, and even simple geography. An example is the monopoly that the Southern Pacific Railway had on intercontinental freight from Los Angeles to the East for many decades. They could impose any terms they wished upon shippers that wanted to ship goods back East -- and did. This was power. This was coercion. They used force to keep freight trains off their rails that weren't their own. Power, coercion, and force -- the triumvirate that the free market fairy believers claim don't exist in free markets. The AT&SF decided to break that monopoly and to head them off, the SP laid its own line to the desert that met the AT&SF at Needles, CA. When the AT&SF road crews arrived at Needles in 1883 and started building a bridge across the river, SP's rails were right there at the end of their bridge, thereby blocking the AT&SF from going any further. Not because AT&SF couldn't continue building westward. Not because there was any government grant of a monopoly to the SP -- the AT&SF could indeed have simply kept building westward, under the laws that existed then, though they'd have to stay a certain distance away from the SP's line to stay out of SP's right-of-way. Rather, there was simply no point in building further westward and paralleling the SP line, because there was only enough traffic to keep one rail line busy, not two parallel ones. Simple economic reality meant that the SP blocked the AT&SF from completing their transcontinental railway and retained their monopoly on shipping out of Los Angeles. Geography and economic reality gave SP power to prevent AT&SF from breaking their monopoly, and they used it.

So if free markets are a theoretical construct that cannot exist in actual empirical reality because of the problem of power, why do so many appear to tout and worship them? Well... there appears to be two issues there. The first is that they seem to recognize only government coercion. The Pinkertons apparently never existed in the alternate universe they live in, because they refuse to acknowledge that the time prior to widespread government involvement in the economy was characterized by as much ruthless use of brutality and force as they attribute to government. Secondly, they appear to believe that even if the reality of an UN-free market is true and removal of government force merely replaces government force with private party force, they will be the ones who will be able to exercise coercive force and rule over other people. Which might be a reasonable belief if you're one of the Koch brothers, but not if you live in a trailer park like a lot of these "Libertarian" free market fairy believers, who seem to delude themselves about their ability to come out on top if not for that mean old government that keeps them from exercising coercive power over others.

So in any event: Any time you see the words "free market" in any economic or political discussion, substitute the words "Santa Claus". Either way, you're talkin' about mythical bullshit, yo.

-- Badtux the Economics Penguin


  1. Add "God" (by whatever name you wish to call it) to "Santa Claus" and "the free market."

    The thing about Glibertarians is that they engage in what Jim Kunstler calls "magical thinking." There's a lot of that about. Glibs, god-botherers and the like WISH things would be as they imagine them, because that would make the world a simpler place. "Wouldn't it be nice?" as the Beach Boys sang. The real world is too messily complex, so let's imagine that a magical market, or diety, or super-duper energy source, will come along and save our current lifestyle.

    I see a lot of magical thinking on the psych ward. Patients live in their delusions of persecution, or grandeur, or whatever, which are very real to them. The conflict of that with reality doesn't occur to them. Glibertarians, religious maniacs, etc. are higher-functioning in their ability to conduct activities of daily life than involuntarily committed mental patients, but to me, the delusional basis of their core beliefs is just as wack.

  2. This is really a very good essay, and something that has to be said forcefully and repeatedly.

    When something is so obviously true but still goes largely unsaid it indicates how screwed up the managed debates of the pundit class are.

  3. [i]Dear Virginia,

    Yes, there is a Santa Clause.[/i]

    That editor explained how it is the spirit of kindness and giving, rather than an actual person, that makes up Santa. Same thing with a "Free market" is the spirit of the idea that matters most. Libertarians want less regulations in the marketplace; those calling for a "free marketplace" aren't asking to abolish all laws. (you constantly seem to confuse Anarchists with Libertarians.)

    However, I can understand how the phrasing can be confusing to some folks, so instead of referring to a "Free Market" I'll now say "Freer Market", or maybe "More freedom in the market." Perhaps then people can discuss the concept being presented, rather than getting all nit-picky about the words being used.

  4. Once again, you're missing my point. You confuse anarchists and anarcho-libertarians, for example. Anarchists do not believe in free markets because of the problem of power -- money is power, and the whole point of anarchism is to destroy all power structures in society because the moment one person has more power than another, you end up with coercion and violence. You appear to believe only in government coercion and violence, while refusing to believe in private coercion and violence. You utterly ignore my example of the credit card companies, where if I wish to participate in the modern economy rather than live a miserable life in the ghetto I must agree to onerous terms that I have no opportunity to negotiate, terms that require me to appear only in THEIR private courts, that they own and operate, and receive THEIR justice.

    In short, deregulation leads to FEUDALISM, where in order to obtain your daily subsistence you are required to swear allegiance to your feudal overlord and agree to HIS justice. When the tyranny of Roman rule was removed from Western Europe the result wasn't freedom -- the result was rule of the most vicious and venal, where you either swore allegiance to your feudal overlord, or you died. That is the end game of a deregulation regime -- if We The People don't rule, then the most vicious and venal rule. Leland Stanford's "Octopus" arose in part because Leland had no qualms about hiring as many armed thugs as it took to keep competing railroads out of "his" territory... the only thing that reined in the "Octopus", in the end, was government regulation. That's the only thing that *ever* contains the unrestrained power of capitalism, which otherwise would reduce us to the status of serfs on feudal lords' estates.

    - Badtux the History Penguin

  5. It really is astounding the way some folks just ignore power dynamics, especially in political and historical analysis. The glibertarians (Reason, McArdle, Cato) are almost all either useful idiots or eager shills for plutocracy and plutonomy. They don't object to abuses of power in the private sector, and unfailingly identify with management. It is indeed neo-feudalism – all in the name of "freedom," of course.

    Badtux, a good piece, and I couldn't help but be reminded of this one by Thom Hartmann on the "two Santa Claus" strategy:

    On a related note, Luke Fuszard recently wrote a good piece on supply-side economics and how well conservatives play the long game.

  6. Good post.

    May I add that we are headed in that neo-feudal direction if we aren't there already with wages falling and a very large loophole in the Health Care Reform Act. Businesses are getting tax break after tax break. And that's not to mention the removal of so many regulations done so in such a quiet manner that they get little to no press.
    But should we be surprised when our government is run by the corporations they are meant to police?


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