-Caveat Lector- <A HREF="http://www.ctrl.org/"> </A> -Cui Bono?- from:http://www.zolatimes.com/V4.4/market_failure.htm Click Here: <A HREF="http://www.zolatimes.com/V4.4/market_failure.htm">The Myth of Market Failure, by Russell Madden</A> ----- The Myth of Market Failure by Russell Madden Those opposed to laissez-faire capitalism and the free markets through which it operates love to shout "market failure" as a rationale for government intervention into economic activities. Only by limiting citizens' freedom, they claim, can the state correct the failings of an imperfect market. By "market failure," these governmental meddlers into private interactions mean a number of different things. They may refer to: * the unequal distribution of wealth; * the belief that some "public goods" such as roads, utilities, postal service, lighthouses, libraries, schools, or operas would not be adequately provided in a free market; * the "free rider" problem where those who do not pay for a service nevertheless enjoy its benefits; * the notion that resources often go to produce such "frivolous" items as pet rocks, junk food, or trashy movies; * the fact that certain objectively superior goods will be under-produced or ignored; or, * just overall "inefficiency" in matching human needs and desires with economic goods. In Capitalism and Individualism (1990, p. 51), Tibor Machan describes market failures as "freely conducted bad deeds in the market." Because of such "bad deeds," government proponents declare we need regulations and laws as correctives. Thus it is proper to create and enforce such programs as, "Affirmative action, safety and health regulation ... prohibitions of trade in drugs, pornography, or sex ..." (p. 162), "zoning ordinances, architectural standards ... health codes, (and) minimum wage laws" (p. 89) in order to achieve certain values or virtues which some people deem are appropriate and important for us all. Those who cry "market failure" are indubitably right that some of the values they desire would not be made, or made in the quantity they desire, without the state stepping into the picture. The question then is whether these critics are, indeed, accurate in their characterization of the market as frequently not achieving its goals or aims, i.e., that it "fails." The market as used here is known by many monikers: the free market, laissez faire, capitalism, free enterprise, free trade, or the market economy. So what is a market? A few definitions might help clarify this issue. A free market is: * "A sphere of human interactions where men and women offer their goods and services in exchange for ones they would rather have, provided certain terms are met." (Tibor Machan, op. cit. p. 41.) * "(A) market economy where private property is protected, competition is free and open, and the opportunity to trade and to make voluntary contracts is protected, so long as the persons involved do not use force, fraud or threat thereof to interfere with the equal rights of others." (Bettina Greaves, Free Market Economics, p. 229, 1975.) * Where "(m)en trade their goods or services by mutual consent to mutual advantage, according to their own independent, uncoerced judgment." (Ayn Rand, Capitalism: The Unknown Ideal, p. 47, 1967.) * "Capitalism is a social system based on the recognition of individual rights, including property rights, in which all property is privately owned." (Rand, op.cit., p. 19, emphasis in original.) Given these definitions of a free market, are the charges of the interventionists and statists regarding market failure valid? Indeed, do they — conceptually — even make sense? As mentioned above, bad/negative/undesirable things, situations, and outcomes can occur or result from free market transactions. Many of the problems critics mention do, in fact, exist. But these results do not represent a failure of the free market. Indeed, when the concept is properly understood, the free market cannot fail. At best, "market failure" is a misnomer or a category error. At worst, it is a meaningless phrase; a myth. If one closely examines the definitions above, he will see that a free market is essentially and simply a process. It is a tool, a method, a way for free people to interact with one another to achieve what they desire in the economi c realm. Sometimes certain people end up with results they do not like. Or they may observe that other people are lacking in or obtaining various values which the observer believes those individuals should or should not have. Tastes Are Not Market Failures These undesired results, however, are not failures of a (truly) free market. Those less than optimal consequences may occur for a variety of reasons. If a friend purchases romance novels despite your insistence that he would be "better off" buying and reading Shakespeare, this is a failure of persuasion on your part, not a failure of the market. If billions of dollars are spent on pets or gambling while you believe that money should go to medical research, this is not a market failure. It is a difference in how people choose to utilize their resources and in what they value. If you decry the disparate salaries of entertainment figures and elementary teachers — or your own salary — this is not due to any defect in the market. Some people are more talented or more driven or better entrepreneurs than others, i.e., better at anticipating and meeting the desires of potential consumers. Those who lament the "success" of "bad" values as expressed by people's revealed preferences confuse a general process with a particular outcome. In a very real sense, the free market is a description and implementation of the principles of liberty: respecting individual moral autonomy and judgment; honoring property rights; and accepting only peaceful and voluntary interactions among people. A free market is "fair" and cannot fail as long as these conditions are met. A couple of analogies may help clarify this idea. In playing a game, you may not like the outcome (if you lose!), but you would hardly be justified in complaining that your loss resulted in a "game failure" merely because your opponent paid closer attention to the play, was more skillful, or happened (that night) to be more lucky. As long as the rules applied equally to you both, and your opponent did not cheat or threaten you, then your "failure" (loss) was just one possible consequence of choosing to play that particular game with that particular person. The process of play itself merely guided the players in how to perform their actions and interactions. Or consider arithmetic. You may use arithmetic to discover that the monthly balance in your checking account is less than the funds you have deposited. You may not like what you discover there or the penalties or fees you may incu r due to your mistake. But who would credibly claim that this negative circumstance somehow represents an "arithmetic failure"! You may have failed to record a check or spent too much without balancing the total. Or perhaps your employer failed to deposit a check as he should have. Given any of those situations, you would be unhappy. But the process of arithmetic itself is neutral and has nothing per se to do with the outcomes you face after using it. If allowed to operate freely according to the proper principles and in the appropriate context, the arithmetical process cannot "fail." If someone objects and points to unwanted pollution, for example, as a "market failure," you need only counter with the fact that pollution violates the principles of a free market (as defined above). If someone dumps waste on my property without my permission, then he is not engaging in a free market (voluntary, mutually acceptable) transaction—even if his factory waste is a by-product of creating a commercial good. Shooting the Messenger Those who dislike what they or others achieve from the free market are, in reality, grumbling about what should more precisely be termed an outcome failure. Yet "shooting the messenger" (i.e., the market process) allows them to shift responsibility from themselves and those people and causes they champion to the impersonal and impartial workings of the market process. Ultimately, of course, this allows them to target what they really despise and hope to limit or eliminate: freedom. Since they are unable to reach their objectives in open competition, these "reformers" appeal to the force of the state to twist society into the image they prefer. These transgressions against liberty, however, lead to conditions far worse than any which might arise from the exercise of our economic rights. We need to worry far more about political failure (when the government violates — rather then defends — our rights) than we do any conceivable "market failure." The examples of political failure are legion. Indeed, the State almost always achieves the precise opposite of its professed goals. The failure to accomplish its ends then prompts it to call for more laws, more regulations, more power to subjugate its citizens. The negative spiral spins dizzyingly out of control, rarely halted, occasionally slowed, but always representing a failure to adhere to the proper function of a government. An Example: Drug Use, Gun Control, and Invasion of Privacy Whenever a State initiates force against those it is supposed to serve, it violates its mandate to act as an agent of the people, not their ruler. For example, excessive recreational drug usage is a real social problem. It does not, however, fall under the umbrella of a valid government concern (which is only to provide courts, police, and armies to defend us from our foreign and domestic enemies). The State's response? To make sale, possession, and consumption of drug X illegal. Of course, people who want drug X will continue to purchase it on the black market. When the State sees the consumption of X increase, it increases penalties for those violating the prohibitions. The price of X increases and with it the potential profits possible for suppliers. Competitors for customers cannot legitimately offer cheaper prices or better service to increase market share. Disputes occur as they struggle for domination. With no courts to resolve their differences, the suppliers ultimately must resort to physical violence to win. Murders increase. Innocent people are often caught in these fights. They also see their neighborhoods deteriorate as drug users and dealers move in and decent people who can afford to do so move out. The State uses the increased violence it engendered to call for increasingly draconian gun control (i.e., people control) laws. But, of course, criminals will not obey gun laws if they are unafraid to commit murder. So the State ups the ante and attacks so-called "assault weapons," "Saturday night specials," and other "ugly" guns. Waiting periods, licenses and permits, purchase limits, "instant" checks all fail to stem the tide of violence. Calls for gun prohibition, registration, or outright confiscation mount. "No-knock" raids are made in "public" housing for guns, shredding any Fourth Amendment rights against illegal search and seizure, not to mention Second Amendment rights to keep and bear arms. Our right to self-defense is eviscerated over what started out as an attempt to control drugs. Drug dealers grow fantastically wealthy and powerful. They bribe, corrupt, or murder law officers and politicians both locally and internationally to maintain their dominance. To more easily use their wealth, they begin to "launder" their money through banks and other financial institutions. The State does not like illicit money gaining respectability. It requires individuals who have never taken recreational drugs in their life to declare when they take out or bring in certain amounts of money from the country. This fails to deter the suppliers. The State then requires banks to report deposits of a certain amount and to track the monetary habits of their customers. Probable cause? Forget it! People who pay for airline tickets in cash; who don't want to show a government-approved ID card; or who were born into the wrong ethnic group are arbitrarily stopped, searched, jailed, and can have their cash confiscated. In many cases, they do not even have to be charged — let alone convicted — to have their property taken from them. They are assumed "guilty until they can prove themselves innocent," a total inversion of basic principles of justice. Indeed, people whose property is merely rented or used by someone involved with drugs can lose that property via "asset forfeiture" despite having no inkling of what was occurring on or with their property. Their lives can be ruined because the State appeals to the medieval idea that an object can be guilty of a crime! The State brings charges against the object rather than the person who owns it, thus pretending it is not violating the owner's rights. Some people are singled out because the State covets their wealth and sees phony drug charges as a means to steal their goods and use that money and property to boost its own power and budgets. Constitutional rights? Forget it! Meanwhile, drugs — remember the drugs? — are more easily obtained than ever. Dealers push drugs on children, recruiting them into their organizations, knowing that as juveniles they will receive more lenient sentences if caught. The State creates mandatory drug sentences for drug offenses, filling our jails with nonviolent offenders and releasing murderers, rapists, and robbers to make room for this new brand of felon. More jails are built, expenses mount, and people who are merely engaged in peaceful and voluntary conduct are demonized, threatened with execution, and torn from their families. To combat the drug dealers (with terrorists thrown in for good measure), the State demands the right to monitor all our phone calls, our e-mail, and any other means of communication available to us. Simultaneously, they want to deny law-abiding citizens access to effective encryption software and technology. Privacy becomes a quaint relic of days gone by. Impotent to solve this self-induced problem, the State attacks not only drugs themselves but information about drugs. It hopes to outlaw Internet sites dealing with drugs, links to sites addressing drugs or related material, and even discussions about the drug issue. The First Amendment? Hasta la vista, baby! As drugs flow into our country, the State turns our borders into armed camps. The line between our police and our military is blurred to near obliteration. Our armed forces are recruited to guard our borders, board ships and shoot down planes in international territory, and act to enforce domestic laws and to hell with any posse comitatus principles. From the other side, our police forces are militarized, given helicopters, military weapons, and SWAT training replete with black uniforms, flak jackets, and helmets. DARE programs designed to keep children off drugs turn kids into snitches on their family and actually increase drug usage. Seriously ill people who need marijuana to tolerate chemotherapy and to keep down their medicine are denied its usage despite referendums approving such practices. Political Failure, Not Market Failure This is political failure on a massive, a criminal, an insane scale. An entire nation suffers the costs of these abominations simply because the politicians decided to intervene where they had no right to do so. One might be tempted to call these results "unintended consequences" except for the fact that the State loves to increase its power, and here is an excellent excuse to accomplish that very goal. Freedom shrinks, the State grows. And opponents of liberty have the unmitigated gall to complain about market failure?! People fail. The values they hold fail. The ideas they believe can fail. But the free market cannot. Since a free market is an essential component of liberty and cannot be separated from it, "market failure" is another (false) way of attempting to claim that freedom has failed. But if the free market is "imperfect" or a "failure," one must ask: Compared to what? What other mechanism has (or could) prove itself superior to a proces s, a system, that grants an individual the dignity of exercising his mind and his talents to obtain a better life for himself and his loved ones? If the free market is to mean anything for humans, it must be understood in terms of what it means for humans to exchange economic goods. One can use a hammer to build a beautiful and solid house or to construct one that is ugly and unstable. The latter result is not a "failure" of the hammer or the former a "success." A hammer, like the market, is merely a tool. One can certainly make judgments regarding what one does with the tool, but that is a human, individual failure (or success), not a failure of the instrument. Rather than grant the opponents of liberty their premise and the use of this destructive phrase, we who believe in capitalism should abandon the flawed terminology of "market failure" and declare forcefully and clearly that "market failure" is a myth. There is no "better way," no "third way," no good alternative to freedom and all that it entails. ------------------------------------------------------------------------ See Russ Madden's articles, short stories, novel excerpts, and items of interest to Objectivists, libertarians, and sci-fi fans at http://home.earthlink.net/~rdmadden/webdocs/. from The Laissez Faire City Times, Vol 4, No 4, January 24, 2000 ----- Aloha, He'Ping, Om, Shalom, Salaam. Em Hotep, Peace Be, All My Relations. Omnia Bona Bonis, Adieu, Adios, Aloha. Amen. Roads End <A HREF="http://www.ctrl.org/">www.ctrl.org</A> DECLARATION & DISCLAIMER ========== CTRL is a discussion & informational exchange list. Proselytizing propagandic screeds are not allowed. Substance—not soap-boxing! These are sordid matters and 'conspiracy theory'—with its many half-truths, misdirections and outright frauds—is used politically by different groups with major and minor effects spread throughout the spectrum of time and thought. That being said, CTRL gives no endorsement to the validity of posts, and always suggests to readers; be wary of what you read. CTRL gives no credence to Holocaust denial and nazi's need not apply. Let us please be civil and as always, Caveat Lector. ======================================================================== Archives Available at: http://home.ease.lsoft.com/archives/CTRL.html http:[EMAIL PROTECTED]/ ======================================================================== To subscribe to Conspiracy Theory Research List[CTRL] send email: SUBSCRIBE CTRL [to:] [EMAIL PROTECTED] To UNsubscribe to Conspiracy Theory Research List[CTRL] send email: SIGNOFF CTRL [to:] [EMAIL PROTECTED] Om
