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business !!
capitalism !!
deregulation !!
economics !!
free market !!
poor !!
profits !!
regulation !!
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After having written several blog posts about the superiority of laissez-faire capitalism, I have seen quite a few comments that ranged from thoughtful responses to shrill insults. I have decided to focus on the comments that were aimed at my arguments than at my person. The following are the most common comments that I have received and my answers to them.
1. The free market, when left alone, does not solve every single problem.
I suppose that it is possible that I have been living under a rock but I have never heard of anyone, at least no one intelligent, on my side of the argument who has ever subscribed to such a caricature of an idea. The free market is merely the function of the free exchanges of goods and services entered into by individuals. How can the free exchange of goods and services “solve” anything other than the immediate needs of the sellers and the buyers to sell or buy the goods? Furthermore, I don’t understand where people get the idea that I think that the market “always knows exactly what to do and when to do it.” If I truly believed that, then I would need to come up with an answer as to how I would account for businesses that go bankrupt.
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2. Capitalism is immoral because the market economy is controlled by humans who are susceptible to greed, corruption, and exploitation.
People who think like this don’t ever seem to consider that government officials and bureaucrats, whom they want to regulate those greedy, corrupt, and exploitative corporations, might be susceptible to the same kind of greed, corruption, and exploitation. When I raise such an objection, they are quick to counter that such people can later be voted out of office, which, though charming, does not really hold much water considering incumbency rates that reach up to 90%. Furthermore, they do not ever seem to think that it is much easier to “vote out” businesses that they do not like simply by refusing to buy their products. As crazy as this may sound, unlike the government, businesses, not even the Almighty Samsung Electronics or the Great Exxon Mobil can force people to buy their products.
3. If free market principles were allowed to rule, what that means is everything would be based on maximizing profits.
And even if they did, this is bad because...?
I simply do not understand why there are so many people in the world who seem to think that profit is synonymous with evil. What is profit? Merriam-Webster defines profit as “the excess of returns over expenditure in a transaction or series of transactions; especially: the excess of the selling price of goods over their cost.”
With all due respect to Merriam-Webster, however, profit is more than that. It is also society’s way of ratifying a business’ past production decisions. To explain, when a business makes a profit (assuming that it makes a profit honestly without having to be bailed out by taxpayers), it is an indication that it is able to make products that consumers want to buy aka something that people think is beneficial enough for them to fork over their hard-earned money.
If a business does not provide goods or services that people feel is worth paying for, the business won’t be in business for very long.
Furthermore, if these people do think that profits are evil, then barring the profit motive, how exactly should resources be allocated? We can either allow consumer preferences to guide production, or let the personal preferences of a monopolist (i.e., government) dictate what should be produced and how. But of course, the question is never posed this way.
4. Maximizing profits would mean that the quality of goods sold would suffer because greedy businesses would do everything to cut corners to make an extra buck.
As I mentioned earlier, no business can force people to buy their goods and services and businesses don’t always attempt to maximize profits. Furthermore, if a business owner were stupid enough to cut corners at every turn to maximize profits, consumers will eventually catch on and will seek alternatives. Goodbye, profits.
Incidentally, does that mean that when businesses are not motivated by profit, i.e. the desire to sell products that consumers want, the quality of goods sold would then improve? Would businesses then start to produce high quality products solely for the benefit of the Proletariat or the Fatherland? I suppose they would. If they were threatened with death but that arrangement will most likely not last for very long.
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5. Profit maximization means that only the rich will be able to afford to buy things like healthcare insurance or a good education, while the poor will have to stay poor.
Do I have to mention again that businesses don’t always attempt to maximize profits?
About halfway through the movie Elysium, I had to force myself to stop rolling my eyes lest they stay that way forever. At the end of the movie (SPOILER ALERT), Matt Damon and his band of merry revolutionaries raid the excess medical beds found on Elysium and then give universal health care to all the suffering masses.
Of course, non-economists who watched this movie did not seem to wonder why these excess beds were being stocked on Elysium when they clearly weren’t being used. It stands to reason that people are more likely to make a profit by making goods widely available to anyone who can afford to pay for them. Initially, prices would be high, just as the first cars or the first mobile phones were ridiculously expensive. However, over time, as more people consume products, the more it becomes mass produced. This means that in the long-run, per/unit cost falls.
But why try to make sense when people can instead make a dumb movie with a straw-man argument about universal healthcare with cyborg-like humans and robots shooting lasers and missiles at each other?
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6. The free market has to be regulated.
The people who make such an argument seem to have either never heard of or simply wish to ignore the vast amounts of literature on regulatory capture. Somehow, all regulation seems to be solely for the public good!
7. Deregulation was what got the world into its current-day economic mess.
Firstly, deregulation is a myth. For one thing, when financial institutions like Goldman Sachs are allowed to make riskier bets while the government still insures their deposits, that’s not deregulation.
Furthermore, people who make these arguments are prone to believe that the world has undergone a revival of laissez-faire economics since the Reagan-Thatcher years. I would like to know what they’re smoking because that seems to be really powerful stuff.
All of that aside, however, can any of those people actually empirically prove that we are indeed living in an era of deregulation? Have the number of regulations increased or decreased? Do governments spend more or less money on regulations? Are there more or less regulators or bureaucrats? What about the number of legislation on the books? What about the number of administrative agencies today versus thirty years ago?
8. Capitalists are all about competition until the government steps in to provide competition.
This fails to take into consideration that in the free market, despite the size of certain businesses, a large business does not, in fact, have the ability to dictate every single transaction the way it wants. If that were indeed possible, Wal-Mart shouldn’t have to pay for anything. However, that is simply not the case. That is because, though some are indeed bigger than others, it does not change the fact that all businesses are “players.”
However, once the government engages in the business side of any given industry, not only would it be the biggest “player” in the business, it would also be the “umpire.” This fact alone should make any sensible person averse to government engaging in business.
Secondly, businesses and the government are motivated by very different things. A business is typically motivated by profit maximization or market share maximization, etc. The government’s actions, on the other hand, is motivated by politics.
The government has no rational basis to determine what to produce, or in what quantities. It gets its money not by providing a good that people voluntarily choose to purchase, but by seizing the funds from its subject population. Since it therefore lacks a profit-and-loss feedback mechanism, every single production decision it makes is absolutely arbitrary, and necessarily wastes resources. Case in point, Medicare, Medicaid, Social Security, the Post Office, etc. etc. etc.
Furthermore, private businesses compete for consumers’ dollars and bear financial risks and absorb financial losses (again, this is assuming that businesses are not bailed out by the government). The government, however, is subsidized by the taxpayers, and the taxpayers would assume the risks and the liabilities for whatever mistakes or losses that the government incurs.
And these were my favorite ones. Perhaps some day I will come up with another list.
If your argument is not here and you’d like to see it addressed, feel free to write it in the comment section.
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