Myths of the Free Market
BLIND FAITH
The gap between rich and poor is now the widest in US history. This is
disturbing, for if history is any guide we have unwittingly placed ourselves in
grave danger.
Over the last millennium Europe has witnessed long cycles of widening and
narrowing economic disparity. In each cycle, once the gap between the rich and
the rest widened beyond a certain point, it presaged decline and disaster for all
of society, the rich as well as the poor. Could we be seeing the first tremors of a
new cycle, the outliers of the next menacing storm? In recent decades, many US
citizens have come under increasing financial pressure. Since the 1970s, our
number of working poor has increased sharply. Nearly all of our much-vaunted
newly-created wealth has gone to the richest.
Law enforcement has been unable to cope with burgeoning drug use at all
levels of society. Television and radio casually air sexually explicit programs that
would have been rejected in disgust by previous generations. Sexually
transmitted diseases have become pandemic. (The number of people in the U.S.
infected with genital herpes now stands at 45 million and is increasing at the
rate of 1 million per year.) These developments have fed a widespread perception
of irresponsibility and increasing licentiousness.
Children today spend more time than ever in front of television sets or
video games. They spend less with books, peers or parents. Where are they
learning their values? What are the values they are learning?
The alienation of large groups of people has led to private militias and to an
increase in violence that has become pervasive. With 60,000 incidents of
workplace violence per year, “going postal” is part of our vocabulary. “Road rage”
is another new expression and a measure of increasing violence by “normal”
people. Since 1980 our prison population has increased five-fold.
These developments have exacerbated a polarization between a new
evangelical Christian revival and those who are distrustful of religious
dogmatism but have no solutions to the very real problems the evangelicals are
addressing. Could these trends be harbingers of something more ominous, a
more violent fracturing of society?
For a country that has prided itself on its resourcefulness, the inability to
address such problems suggests something deeper at work. There is something,
powerful but insidious, that blinds us to the causes of these problems and
undermines our ability to respond. That something is a set of beliefs, comparable
to religious beliefs in earlier ages, about the nature of economies and societies.
These beliefs imply the impropriety of government intervention either in social
contexts (libertarianism) or in economic affairs (laissez faire).
The faithful unquestioningly embrace the credo that the doctrine of nonintervention
has generated our most venerated institutions: our democracy, the
best possible political system; and our free market economy, the best possible
economic system. But despite our devotion to the dogmas that libertarianism
and free market economics are the foundation of all that we cherish most deeply,
they have failed us and are responsible for our present malaise.
The pieties of libertarianism and free markets sound pretty, but they
cannot withstand even a cursory inspection. Libertarianism does not support
democracy; taken to an extreme, it entails the law of the jungle. If government
never interferes, we could all get away with murder. Alternatively, if the
libertarian position is not to be taken to an extreme, where should it stop? What
is the difference between no government and minimal government? Attempts to
justify libertarianism, even a less than extreme position, have failed.
Laissez faire, or free market economics, characterized by minimal or no
government intervention, has a history that is long but undistinguished. Just as
the negative effects of a high fever do not certify the health benefits of the
opposite extreme, hypothermia, the dismal failure of communism, seeking
complete government control of the economy, does not certify the economic
benefits of the opposite extreme, total economic non-intervention.
It may seem odd, given the parabolic arc of our financial markets and the
swelling chorus of paeans to free market economics, but despite the important
role of the market, purer free market economies have consistently
underperformed well-focused mixed economies. In the latter part of the
nineteenth century the mixed economies of Meiji Japan and Bismarck’s Germany
clearly outperformed the free market economies of Britain and France. Our own
economy grew faster when we abandoned the laissez faire of the 1920s and early
1930s for the proto-socialist policies of Franklin D. Roosevelt. It has become
increasingly sluggish as we have moved back to a purer free market. Data of the
past few decades show that our GNP and productivity growth have lagged those
of our trading partners, who have mixed economies characterized by moderate
government intervention.
The persistently mediocre track record of laissez faire casts doubt on the
claim that an economy free from government interference invariably maximizes
the wealth of society. In fact, there are sound reasons the pure free market must
underperform well-focused mixed economies.
But despite laissez faire’s mediocre track record and despite powerful
arguments that it cannot possibly provide what it promises, the notion of the
unqualified benefit of the free market has become deeply embedded in our
mythology. Apologists have exulted in claims that glorify free market mythology
at the expense of reality, and also at the expense of society. Free market
principles, even though they have failed in economics, have been eagerly applied
to sectors ranging from politics to education, where they have contributed to
societal dysfunction.
One politically popular myth, that free market economics and government
non-intervention provide the basis for true democracy, flies in the face of history.
The first democrats, the classical Athenians, had a word for the ideal free
marketer, the homo economicus, working for his own economic gain but
unconcerned with the community. It was not particularly complimentary, the
ancestor of our word “idiot.” Pericles expressed the sentiment underlying this:
“We regard the citizen who takes no part in these [public] duties not as
unambitious but as useless…”
