Flea Market Economy

Lots of people talk about free market economy. They claim that if government would just leave things alone, the law of supply and demand would act to set prices, achieve employment and create a better life for everyone. Even people who don't believe in anything supernatural may buy into the magical powers of supply and demand.

The theory, laid out by Adam Smith in The Wealth of Nations (1776), is that when there's plenty of something, the price goes down because the cheapest seller will attract the most customers. On the other hand, when something's scarce, prices go up because a seller will be able to find buyers who will pay more. When the corn crop is harvested, corn is cheap because everyone's selling corn, and you can shop around for the cheapest. But if you somehow save some of your corn, you can sell it for a higher price in February, because there won't be much corn around.

The big leap is the idea that these natural up and down changes in price will lead to a good outcome. It turns out this is true because in the Free Market mentality, a good outcome is defined to mean "natural up and down changes in price." For instance, not only will some people sell corn cheaper, but some will invent better corn in order to charge more. See? Isn't that great for society? Of course, if they can't really make better corn, they'll just touch up the photo and say it's better. Works just as well.

But there's a dark side. There are some things this simple theory ignores, such as:

1) Cheating - some companies will lie about their products or use inferior materials, even contaminated foods.  The Free Market's response:  Don't worry.  These companies will go out of business once the word gets out.

2) Public Service - Some products, like drugs that can cure illnesses, should be inexpensive and widely available, even if market forces don't lead to that. The Free Market's response: The drug maker gets to control the supply and price.

3) Disasters - If you stake your life on the corn crop, and it's wiped out by an outbreak of corn blight, you're out of luck.  Sure, corn prices will go up, but you don't have any to sell.  The Free Market's response: Tough luck.  You should have had a backup plan.

4) Redundancy - The very idea of competition means multiple people and companies trying to do the same thing. Can you imagine if all the iPhone and Droid engineers got together, what kind of incredible kick-ass phone they could make? Or if the drug companies pooled their resources to cure cancer? The Free Market response:  Not going to happen.

5) Extra forces - Supply and demand don't cover everything.  If marijuana were suddenly legalized, the supply might not change right away, but demand would probably go up.  In spite of that, prices would sure as hell go down.  Also, things like copyrights, patents, etc. only have value because of laws.  If the laws are changed, all bets are off.

6) Wealth Concentration - Finally, a free market always leads to increasing wealth concentration. It has to. As backwards as it sounds, people with more money can always get things cheaper.  You pay $1 each  for a half dozen ears of corn for dinner.  Total cost: $6.00.

A rich person might buy a thousand ears for $0.25 each, and then sell 994 of them for $0.75.  Now their corn is free, and they've even made $497.00!

Rich people can also wait out bad markets. Trying to sell a house during a recession?  No problem.  Just close it up, live in one of your other houses and wait till the market improves.

So the rich keep getting richer, just as the saying goes.  And the rest of us?  We wind up rummaging through the attic and the basement, looking for stuff to sell at the flea market.

Short Sited

No Such Thing As A Free Market

I've heard it said that if you feed birds in the winter, you have to keep feeding them until spring.  That's because the birds cancel their travel plans when they find your food, and if you cut off the supply, it'll be too late for them to book a swanky resort down south.

I've also heard it said, I think by some of the same people, that we should shop at small local stores, instead of the big box stores or ... gasp! ... on-line.  I think the idea is to support virtuous, caring neighbors instead of big impersonal, ruthless corporations.  But somehow, those virtuous neighbors are like the poor little birdies in the winter.  We're not doing them any favors by deluding them into a false sense of security.

So it comes down to the question: Do we want the good guys to win, or do we want the market forces to decide.  "Market forces" is one of those great guilt-avoidance terms.  Businesses don't succeed or fail based on individual buyers, even the bird-and-neighbor-loving kind.  They are driven by market forces.

Of course, the free market advocates will say that the good guys always win.  That's because in the free market, "good" is defined as "winning."  The "invisible hand" is a kind of Capitalist superhero who sees to that.

Let's say some meat packing company decides to sell dog food as hamburger, to cut costs.  Sure they save money, and they can sell their "hamburger" cheaper than anyone else.  But once people start to get sick, and it's traced to this meat, it will hurt business and the company will suffer.  See?  Automatic justice by the invisible hand.

Of course, if no one gets sick or traces it back to this company's meat, then you're going to be eating a lot of Alpo.  All of the competitors of this company will start doing the same thing.  They have to, in order to compete.  And there's that invisible hand again.

So that's how the economy works, which is okay as long as you're not a dog or a bird.