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Sunday, August 30, 2009

Free Markets Are Not Chaos

A lot of people say "Government is needed to preserve order! An unrestricted free market would be a disaster!" The fallacy is that most problems are due to pre-existing restriction of the market.

For example, the comedians on the Communism channel say "The free market banking system failed during the recent housing bubble!" It is ridiculous to say that the USA has a free market banking system. A central bank credit monopoly is the exact opposite of a free market. Booms and busts are caused by negative real interest rates and central bank manipulation of the interest rate market. The State-manipulated interest rate sends a false price signal that investment is attractive. This causes asset bubbles followed by a bust.

The Federal Reserve was created in 1913. The Federal Reserve was 100% responsible for the Great Depression and the recent housing bubble. Greedy speculators in the "free market" are blamed, but negative real interest rates made their speculation seem desirable. With negative real interest rates, there's an incentive to borrow as much as you can. To stop hyperinflation, the Federal Reserve insiders must eventually raise interest rates and cause a recession. A central bank credit monopoly gives insiders the power to scientifically create inflationary booms and deflationary recessions/depressions.

Even before the Federal Reserve was created in 1913, there was not a free market. A regulated banking industry forced backs to operate under corrupt fractional reserve principles. Limited liability incorporation gave an incentive for bank owners and management to behave dishonestly. They could always declare bankruptcy to cheat depositors. Instead of blaming regulated fractional reserve banking and limited liability incorporation, the free market was blamed. The net result was the creation of the Federal Reserve, which nearly completely destroyed any semblance of a free market. A central bank credit monopoly concentrates economic power in the hands of the people who get to print and spend brand new money.

As another example, California's energy "deregulation" was roundly decried as a disaster. However, it was merely different regulation and not deregulation. A fully deregulated energy market would allow anyone to lay their own wires and build a power plant. What actually happened is that lobbyists from corporations like Enron wrote the deregulation law. Then, insiders exploited defects in the law that they themselves wrote.

Contrast buying a pizza to renewing your driver's license. Ordering a pizza is pretty easy. If it took 2 hours to get a pizza, then you would go to another store next time. When you get your driver's license, you have no choice but to go to the State. State employees have no incentive for speed and efficiency.

Markets provide order, by allowing competition. States are chaos, because of the violence monopoly and related monopolies. In a market, you receive feedback based on your profits and if you're gaining or losing customers. The State has an absolute monopoly. State agents receive no market feedback based on whether they're doing a great job or a lousy job. A State bureaucrat is evaluated based on how well he conforms to the bureaucracy, and not on whether he does something actually useful.

A pro-State troll says "Government is needed to protect the environment! Without government, greedy businessmen would pollute!" Actually, the reverse occurs. Via sovereign immunity, executives at a corporation are immune from personal liability if they commit misconduct.

Suppose you discover that a nearby factory is polluting land that you own. Your only recourse is to sue them in a State court. This will cost millions of dollars and take years. Even then, there is no guarantee that you will win. You might find that you spent millions of dollars in legal fees, only to lose on a technicality. The laws and procedures for a pollution lawsuit were written by executives at large corporations. Executives at the corporation can use many delaying tactics to drag out the lawsuit.

Even if you do win a lawsuit, the damages are usually limited to the cost of a cleanup. Punitive damages are capped. "Tort reform" is the result of lobbying by executives at large corporations. If damages are limited to the cost of cleanup, then the incentive is to not take precaution against pollution.

Even if you do win a lawsuit, the executives are not personally liable. You are suing the corporation, and not the executives responsible for the pollution. Via sovereign immunity, the executives are immune from personal liability. Even worse, the corporation whose employees polluted may have later declared bankruptcy. Then, you have no recourse at all.

As the above example indicates, the State actually protects people who do bad things. A corrupt legal system means that suing someone takes a lot of money and a lot of time. The bad guys lobbied for such restrictions on purpose, as a means of protecting themselves from misconduct. In a free market justice system, trials would usually be cheap and over quickly. If you are a victim, you wouldn't have to worry about spending a fortune to pursue a claim and it taking years.

I was abused by the "mental health" industry. I considered the possibility of filing a lawsuit, but gave up. I couldn't find a lawyer willing to represent me on contingency. I didn't want to waste my own time and money filing a lawsuit, when it's very unlikely that I would win. The State protected the psychiatrists from the negative consequences of their misconduct. The fact that the psychiatrists were brainwashed to believe that they were helping me is not an acceptable excuse.

There are many industries where executives are protected from the consequences of misconduct.

  1. Telecommunications corporations have a State-backed monopoly/oligopoly. If you are unsatisfied with the local cable monopoly or telephone monopoly, your only recourse is to move. For cell phones, there is limited competition. Due to the State-backed monopoly via spectrum licenses, there isn't much competition.
  2. Pharmaceutical corporation executives are immune from misconduct for selling and marketing harmful drugs. Even when there's proof that a drug was harmful and there was a coverup, the executives are immune from personal liability. Damages are usually less than a year of profits from selling a drug later proven to be harmful.
  3. As I mentioned above, polluters are protected by the State.
  4. If a public school does a lousy job, it's irrelevant. Public schools are guaranteed funding via taxation/theft. Even if you send your children to a private school, you still are forced to pay for public schools via taxes. Due to unions, great teachers and lousy teachers get paid the same. Even though the State bureaucracy forces all teachers to be treated equally, the students usually know who are the bad teachers and who are the good ones.
  5. There are lots of stories of police misconduct. They are protected by sovereign immunity. Unless the misconduct is truly egregious, policemen usually get away with it.
  6. If you are the victim of a crime, and the police do a lousy job investigating or don't try, you are SOL. Monopolistic State police do not have a positive obligation to protect you. With free market police, they would have a positive obligation to protect their customers, either by preventing crime or collecting compensation from criminals afterwards. Even if police catch the criminal, they don't have an obligation to reimburse you for your loss. In a criminal trial, it's "State vs. criminal" and not "victim vs. criminal".
  7. Financial industry profits are backed 100% by State violence. Even when the banksters cause a deflationary depression, the rules of the monetary system mean they must get a State bailout.
  8. Lobbying the State for favors is immoral. Favors sought by lobbyists are generally considered legal, unless misconduct is particularly flagrant.
A pro-State troll says "A free market is total chaos!" One example of a working free market system is the Internet. The only State-controlled aspect is the way that IP addresses are allocated and the way that domain names are allocated. Other than that, it's a nearly completely free market. Unfortunately, the Internet is coming under increasing regulation in many countries. Too many businesses depend on the Internet now; it isn't going away. The bad guys are starting to recognize that the Internet is a threat to their scam. If you connect a computer to the Internet and follow the protocols, it works. If your computer misbehaves, there are a group of network administrators who circulate a list of miscreants and your computer will be banned. These administrators have no force of law, but their decisions are nearly universally respected.

One example of network administrators banning computers was the recent AT&T block of 4chan. That was due to a misbehaving server at that IP address, and not motivated by censorship. Even though there was a lot of hype surrounding the ban, the administrators at AT&T behaved correctly if there really was a misbehaving computer.

In a free market, people can do whatever they think is needed. The State prevents this process from occurring. In a free market, a rational person might say "Doctors are overpaid! I'm pretty intelligent so I'll go work as a doctor!" The AMA licensing cartel restricts the supply of doctors. If I decided to go to medical school and get a State doctor license, then that means that someone else doesn't get a license. If I go work as a State-licensed doctor, that accomplishes nothing to solve the shortage of doctors. The skill of "able to get into medical school" probably is only loosely correlated with "would make a good doctor". For example, many schools have a policy of admitting you if one of your parents attended that school. This means that, if one of your parents is a doctor, then it's easier for you to become a doctor.

By creating artificial barriers to industry X, the State reduces quality and increases prices in industry X. I can't experiment with working part-time as a taxi driver or experiment part-time with a food sales business. In order to drive a taxi in NYC, I must purchase a medallion license. In order to legally sell food, my kitchen must pass "food safety" regulations, which requires a huge capital investment.

"Consumer safety" regulations actually reduce consumer quality and choice. If there's a regulation that's too strict, then the costs are merely passed on to customers as higher prices. If the regulation is too lenient, then executives will say "I obeyed the safety regulation!" and point to that as evidence that they did nothing wrong. Of course, most regulations are written by executives/lobbyists/insiders. An executive at a large corporation likes regulations, because they hurt smaller competitors more than large corporations.

As another example, I can't say "Ford and GM are incredibly inefficient. I'll start my own car manufacturing business." Government regulations make a small car manufacturing business unprofitable.

Since I know "Government is a massive criminal conspiracy!", that technically makes me an anarchist. I prefer to call myself "agorist" or "someone who supports really free markets". The mainstream media usually labels anarchists as fools, so I prefer to use a different word to describe myself.

People are brainwashed to believe "If you don't like the government, your only alternatives are to destroy property, protest, or murder State agents." When the mainstream media covers someone who's an anarchist, they're usually doing such stupid activity. Destroying property is stupid for several reasons. First, it creates sympathy for the State. People say "The State is needed to crack down on those stupid anarchists!" Second, all property already belongs to the State, via property taxes. A residential apartment building belongs to the State as much as a police station. Anybody working in an on-the-books job is a State employee as much as policeman or soldier. Third, destroying property is a violation of the non-Aggression principle. Most State agents are unaware that they're participants in a massive crime. You're only morally justified defending yourself when police come to kidnap or assault you. By then, it's too late, due to the State's superior resources. You can't withstand a seige by State agents. You're surrounded while the policeman are collecting a paycheck and get to go home when their shift is over. Finally, the State's resources are just too superior. Even if you did successfully destroy property and avoid capture, the State can easily replace it. If one State enforcer dies, another is eager to take his place.

Destroying property and protesting might make a fool feel good. Ultimately, those tactics accomplish nothing. The number of people who know that government is a massive criminal conspiracy are completely outnumbered by the pro-State trolls. That makes stealth tactics more useful than a direct confrontation.

It's pointless to use violence to directly confront the State. The State specializes in violence! Even if you're 5x-10x as good as the mercenary State police, you're still totally outnumbered. If you're determined to be a threat, then the bad guys will just surround and siege you. It is profitable to crack down on the occasional freedom seeker, because the vast majority of slaves pay their taxes/tribute without resiting.

The correct solution is to boycott all the stupid laws and taxes. Agorists should build free market alternatives to the State. In a true free market, it's very easy to do the right thing. Just do what is necessary. You can look at market prices as a signal for what work is considered desirable.

In the present, State restriction of the market prevents people from communicating about what work needs to be done. When careers have State licensing requirements, that prevents people from looking at wages and deciding what job to pursue. When the State tampers with the interest rate market, that prevents people from planning for the future. Interest rates represent the price of work in the present relative to work in the future. Interest rates send a price signal about what investments are desirable.

In a real free market, people will figure out what needs to be done and do it. Government prevents this arbitrage process from occurring. Government protects the bad guys from negative consequences for misconduct. Most of the evils in the world are directly or indirectly attributable to government. Most of the positive inventions and goods are due to the free market. A pro-State troll says "Computers were invented while the State existed. Therefore, the State is wonderful!" That is false reasoning. The rate of invention probably would be greater without the State, but you can't prove it unless you perform an experiment. One of the reasons that computers, software, and the Internet progress so rapidly is that the electronics/software industry is nearly completely unregulated.

It's possible that, in an unregulated medical industry, the quality of medical care would increase by the same rate as Moore's Law! In the present, progress in medical science is negligible. Most new "cures" are really drugs that suppress the symptoms, rather than genuinely treating disease. The business model for the pharmaceutical industry causes drugs to be promoted/regulated ahead of other types of medicine.

The market in the USA is becoming less free rather than more free. Via "Problem! Reaction! Solution!", the answer is always more power to the State. This is the virtuous path towards complete economic collapse.

2 comments:

Jambo said...

But how does free market environmental protection work?

You've highlighted problems with the current system, yes corruption allows influential special interests to avoid the laws intended to regulate them.

What you don't explain is how a free market system can do better.

Similarly with driving licenses a free market implementation could no doubt provide a license faster. But with no authority backing it up what's the point? How do you prevent a 'license rating agency' from taking bribes for waving through anyone they like? OR issuing fake ID?

I agree that big government is a pox, I agree that our current markets are distorted. But market participants will try and distort markets they are in so I fail to see how they can function without a regulating body.

George Donnelly said...

This is excellent. I may use this in a series of pamphlets I'm working on.

This Blog Has Moved!

My blog has moved. Check out my new blog at realfreemarket.org.