Free Market Flaw: Failures in the Past Are Relevant
Alas, one of the cruelest aspects of free market economic theory seems to be the impossibility for it to exist only in part. Without it existing in total, we must negate the results of anything that is included in free market theory that exists today as the same result if the market were truly free. Though it is not true, it seems to be the excuse espoused by those who support the free market theory. It is also tremendously convenient since so much of what has existed because of belief in the theory had terrible results.
For example, one of the cornerstones of the free market theory is that the market will correct itself without outside regulations. Those regulations cause unnecessary costs that must be passed on to the consumer, they contend.
President Reagan was a strong believer in the free market, and its ability to correct itself without government oversight. His administration deregulated several parts of the market. The consequence of some of that deregulation included the Savings and Loan fiasco in 1989. Most people may look at that and think that deregulation in reality had some severe consequences, and that maybe the no regulation aspect of free market theory is flawed.
However, those who support free market theory are quick to point out that the presumption it would not work if we did it in a free market just because it didn’t work when we did it in a market that was deregulated establishes a presumption that it was a free market, which it wasn’t. There will be no concession that from where we were, freeing up businesses from regulations, though still not a free market, was at least a freer market.
What they are arguing essentially is this: Reagan’s attempt to save the Savings and Loan industry by utilizing American business ingenuity rather than government regulators resulted in many instances of American businessmen taking control of a Savings and Loan, stripping the institution of its assets with value for personal gain, and turning the deposit liabilities back to the FSLIC for payment. Some people went to jail for that, and the resolution of it became a huge blemish on the George H.W. Bush administration. None of this, however, can be attributed to lack of regulations, it is contended, because other businesses had not also been deregulated.
Though I concede the entire free market theory was not in use throughout the economy, this proved that there are always people who need to be told they cannot steal from other people, because if they are allowed to steal with only the threat of a market correction, they will steal from other people for their own personal gain because that market correction affects only those who lost what they earned. It is highly profitable when it works. Some people will be dishonorable if there is enough money in it for them to be dishonorable. It is called greed.
It is not as if the deregulation of Savings and Loans that allowed people to go in with little to no oversight and grab for themselves that which was ripened and ready to pick, and then abandoning the messes they left, was because other businesses were still regulated. It happened because it was allowed to happen, and it was allowed to happen because the regulations that said it was not allowed to happen were repealed. You cannot get cause and effect any more directly related in a series of events than that.
However, after taking the time to point out the vast difference between having no regulation by design and having no regulation by repeal, those who support free market theory cannot answer the most obvious question: what would happen differently in a free market system than happened in the freer market that failed?
It is back to the vague generalities about this perfect system in which everyone is treated fairly and has equal opportunities. The similarities to what exists cannot be measured because any ill effect that the theory is not prepared to deal with when applied may actually be caused by unrelated dissimilarities.
It apparently is easy to believe if you just repeat it and quit thinking about it beyond that.
However, if you do that, you are only kidding yourself, though it is likely being done to remain popular within a group of like-thinking people. It doesn’t matter that coal mines were still regulated when considering the deregulation that led to the Savings and Loan crisis.
The free market theory relies upon humans rising above their natures, which has never worked in the past. Even if only one in a thousand people are willing to use some sort of legal theft to accrue undeserved wealth, it cannot be allowed to happen just to experiment with an economic philosophy that has had such hugely devastating results when partially employed.
There are people who will decimate their land for profit if allowed to do so. There are people who will strip their neighbors’ lands if there is nothing prohibiting them from doing so. There are people who will take other people’s properties for profit without a shred of concern for the well being of the people whose properties were taken.
Environmental regulations were put into place because a few companies were ruining the environment. Employment regulations were put into place because a few companies were willing to starve their employees for an extra dollar of profit. Safety regulations were put into place because a few companies felt it was cheaper for a family to bury a loved one than it was for them to make the workplace safe.
There have always been good employers, too. It always has been just a few people who are willing to take advantage of other people’s suffering to line their own pockets, and those people need to be told they cannot do it.
Nothing magical will happen if all industries were suddenly deregulated that would cause those few people who will take advantage of other people to become altruistic. If all industries were deregulated, what happened in the Savings and Loan debacle simply would happen in all industries.
This does not mean that all regulations that exist are warranted, or even serve the interests of the public. However, finding one ludicrous regulation is not proof positive that all regulations are ludicrous. Of course, a thought like that might be a bit Keynesian for an Ayn Rand follower to appreciate, but it is true. It remains the truth even if someone tries to distort reality to make it seem untrue. Truth works like that. Ayn Rand did not seem to understand that, nor do her fans.
Even though there has never been a time in which the market was totally free, some aspects of the theory have been incorporated into the market at different times. The results have, on occasion, been disastrous for those in the margin and beyond. Those failures are prima facie evidence that, left unchecked, some people will ruin it sufficiently that the entire theory that presumes these people will deal honorably in the market is flawed.
The market will not deal with these few people sufficiently. It takes the threat of jail and the loss of money to weigh into the decision for some people to opt to behave honorably. Even that, though, does not stop everyone; it just puts greed behind a defined line, but one for which there is retribution if crossed.
This necessity has been proven time and time again, and to pretend it would not happen in this perfect economic system is to pretend that a theory that ends in utopia will have humans operating on a level that belies human nature. It has never worked like that before, and those instances when it has not worked are relevant to why it will not work in the future.
Some other things I've written about: