Free Market Follies

Free Markets Don’t Fix Everything.

Cartoonist Adam Zyglis created a really wonderful cartoon shortly after the 2008 economic crash – see below and view at original site here:

They don't need stop signs, they can self regulate

What I like about this cartoon is that it all comes back to Hayek.  Friedrich Hayek, the economist, whom free market fanatics like to quote when they claim that the government should not be doing … anything.

They argue, like Hayak, that despite its inequities, the free market does a better job of distributing goods and services than a central government can.  The problem is – that’s not all that Hayak said.

For those of us who actually read The Road to Serfdom
, we know that he also points out that there are things the free market can’t do – like provide stop signs. And those are things that the government must do – if they benefit society.

For instance regarding the rules of the road, the government can and should “provide signposts” but should refrain from “ordering people where to go.”  The signposts help people and society function well together. Yes, they limit ultimate freedom, but in a way that prevents people from harming each other. And yes, he wasn’t just talking about stop signs, but literally the rules that govern commerce. He was distinguishing between good formal rules and informal subjective rules. The first are like sign posts. The later, are to benefit an individual and give them special treatment. Rules of the road for the way commerce functions – good. Special benefits to particular groups – bad.

What this means is that people who think Hayek thought companies & the economy should self-regulate don’t understand what he was saying, or simply skipped over that chapter. Economies and companies should not self-regulate – only that the government should be careful that the regulations they enact and enforce are in the form of signposts and rules of the road applicable to everyone, and not orders about what individuals should be producing or selling.

Additionally, he is also very clear about the need for a social safety net.  He NEVER advocated that we don’t help people through the government.  In fact here is what he did say when it came to the government creating and maintaining a social safety net.

“There can be no question that adequate security against severe privation, and the reduction of the avoidable causes of misdirected effort and consequent disappointment, will have to be one of the main goals of (public economic) policy. But if these endeavors are to be successful, and are not to destroy individual freedom, security must be provided outside the market and competition be left to function unobstructed. Some security is essential if freedom is to be preserved, because most men are willing to bear the risk which freedom inevitably involves, only so long as that risk is not too great.”

In other words – according to Hayek, one of the proper roles of government is to construct and maintain a social safety net – and to not have that safety net be part of the free market competition system. The free market isn’t good at nor should it be required to adjust itself to provide against severe privation because asking the free market to provide that security will interrupt the function of the free market itself! Which means – maintaining a safety net is one of the proper functions of the government.

So – government can and should be providing for things the free market can’t provide – like stop signs and rules that govern how we interact with each other so that while we have freedom, we aren’t free to harm other people. Those rules can and should include how the economy functions so that individuals can’t defraud other individuals through the economic system or destroy the property of another person in the pursuit of profit. AND, government should be maintaining a safety net to secure the population against severe privation because – as it turns out – bread riots are bad for the economy.

What other things fall into this?

What else does the free market not provide and yet they are for the benefit of society because if we don’t provide it – severe privation occurs.

Well – public education is one of those things.  The free market can absolutely provide education. The problem is that it cannot provide it universally because inequities are part of the free market.  So the question is – is the lack of an education considered a privation – and the answer is yes.  Society benefits from having a population where pretty much everyone has a minimal level of education. Lack of education causes privation. So – universal public education is something the government should and must provide.

Mental health care?  Yeah – lack of access to mental health care causes privation because people who need care don’t get it – they lose their jobs and end up on the streets. A large portion of our homeless population falls into this category. There is NO market incentive to provide mental health care to the poor and destitute, and yet, there is a public good and protection against privation. Government should be providing mental health care.  

Physical health care?  Yes.  Again, the free market has its benefits here, BUT lack of access to health care causes severe privation. The government should be protecting the population from this..  

Social Security, food stamps, housing assistance, yes. They are all part of the safety net that protects against severe privation. This isn’t to say people should get a living wage without work. It’s that we, collectively, should be paying taxes to ensure that no individual slips below a minimal level of security in terms of food, housing, and health care. Cuts to those programs or plans to eliminate those programs are seriously misguided.