The Free Market Myth is the Underlying Cause of Our Current Economic Crisis

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The Free Market Myth is the Underlying Cause of Our Current Economic Crisis

by California_Dreamin

Market Fundamentalism Has Been Discredited

It Is Abundantly Clear That The Free Market Myth Is The Underlying Cause Of Our Current Economic Crisis

"The Market" doesn't exist. Supermarkets, open-air markets, farmers' markets and the stock market all exist in objective reality; but an overarching Market that lacks physical substance yet is omnipresent, omniscient, and omnipotent is nothing more than a myth. Unfortunately, many of the decision makers who shaped the economic landscape which precipitated the near-collapse of the world economic system believe in that myth with the fervency of religious faith.

The following is an excerpt from a posting by Huffington Post contributor Charles A. Clarkson:

The fact is, our markets aren't free, nor should they be. The only really free markets we've seen in my adult lifetime were the Miami area after Hurricane Andrew and New Orleans after Katrina. For a day or so, "entrepreneurs" could sell ice, plywood or any other critical item for as much as they could get. Then civilization enforcement stepped in via law enforcement and shut them down.

Civilization and a truly free market can't coexist. Even those bastions of free market capitalism, the NYSE and NASDAQ can't function without myriad rules, regulations and laws, and the go-go Alan Greenspan era of market freedom was predicated upon them (in fact, the demise of some those rules, such as the SEC uptick rule repealed in 2007, contributed mightily to the current crisis).

If we want to rebuild the middle class, regain the wealth that's been lost, and reclaim the American dream, we must put the discredited ideology of market fundamentalism behind us and embrace a more pragmatic approach to managing the economy.

Contents at a Glance

1. Deregulation Is No Panacea
2. Alan Greenspan On Deregulation
3. Free Trade has Cost Us an Arm and a Leg
4. The Meltdown has Dissipated America's Po...
5. The Free Market and Free Trade are Mythi...
6. I Think It's Best to Let The Market Deci...
7. Market Fudamentalism is an Antiquated an...
8. Ronald Reagan's Real Legacy
9. The Two Trillion Dollar Meltdown
10. Let's Play the Blame Game
11. Some Interesting Books About How the Mel...
12. Other Lenses to Check Out
13. Some Interesting Books About The Free Tr...
14. Please leave a comment, you don't have t...
15. Market Fundamentalism on Google Blog Sea...
16. The Economic Populist
17. Cassandra Does Tokyo
18. Freakonomics
19. The Financial Times
20. Market Fundamentalism on Twitter

Less

Deregulation Is No Panacea

Having a financial system without a well designed regulatory framework is like having a road network without traffic regulations. No sane person would advocate removing all the stop signs and traffic signals from our streets as a means of reducing the risk of collisions. It is just as unbalanced to remove government oversight and statutory limitations from the finacial sector in the belief that doing so will reduce the risk of an economic crash.

For one thing, regulations which insure that the cash incentives of bank and non-bank providers of loans and finacial products don't clash with the interests of their clients are sorely needed. People will do a lot of things they wouldn't normally do, for money. I, for example, have literally dug ditches for the less-than-princely sum of $5.00 an hour (it was a long time ago). Imagine what people wouldn't do for millions, or even billions of dollars. Take a peek at the following link to see how much money a hedge fund manager can make by betting against the market. To be fair, and also demonstrate how volatile the world of hedge funds is, here is an example of how much money hedge fund managers can lose.

Of course hedge fund managers are not to blame for the current recession and credit crunch--other under-regulated sectors of the financial industry caused more damage.

The reason I bring up hedge fund managers is that they personify a class of people who can become fabulously wealthy without making anything that adds value to society, or in other words, without creating real wealth. In 2007, the financial sector claimed 41% of all U.S. corporate profits. There is something seriously wrong with a system that holds out the prospect of such rich rewards for people who create nothing. Bill Gates is a multibillionaire, and I don't begrudge him a dime because he has made the world a richer place: I'm using software that his company developed to type these very words.

Our economy has become too skewed in favor of financial institutions and instruments. An economy that is not based on the creation of something of real value to people in their daily lives is bound to collapse eventually. It is no surprise that everything came down like a house of cards.

Alan Greenspan On Deregulation

As the longest-serving head of the Federal Reserve Bank, Alan Greenspan is one free market fundamentalist whose reputation has in all likelihood been irreversibly damaged by the financial meltdown of 2008. Many are now questioning whether he was in fact The Oracle, or the Master of Disaster.

This video clip of Greenspan testifying before Congress is astounding. Greenspan just can't bring himself to admit either his culpability for the mess he did so much to help create, nor the fundamental errors in his intellectual framework. But he does admit to being "distressed" by the fact that there may have been a small, temporary flaw somewhere in his thinking.

When asked, "Do you feel that your Ideology pushed you to make decisions that you wish you had not made?"
Greenspan answers, "I found a flaw in the model that I perceived is the critical functioning structure that defines how the world works, so to speak." (Quote is 1:15 into the video.)

Greenspan Admits Flaw in Ideology
by John Peterson | video info

0 ratings | 475 views

curated content from YouTube

Free Trade has Cost Us an Arm and a Leg

The second myth that has done incalculable damage to the American economy is the belief that "free trade" is at all times and under any conditions beneficial to the free trader, and that those who would succumb to the temptations of "protectionism" are only hurting themselves.

Living in Japan, a neo-mecantilist economy, over the last 20 years, I have been witness to the complete debunking of that myth by real-world events. From my vantage point, I have seen a steadily widening gulf between the haves and have-nots in America and a gradual crumbling of the nation's infrastructure.

Every time I go home for a visit things look a little shabbier. At the same time, I've seen Japan's infrastructure go from spotty to absolutely immaculate. For example, Japanese has the most extensive, efficient and comprehensive rail system in the world, and I haven't seen a pot hole in any road in all the time I've been here. And why is that, what has caused America to visibly decline while Japan has steadily increased in evident material well-being? The short answer is: money.

Just take a look around you, wherever you are. How many Japanese products do you see? A lot I bet. And that's only on the surface. I'm using a Dell computer to write this. But Dell is not a high tech company--it's an assembler of high-tech components, which are mostly made in Japan. Where do you imagine the money spent on all those products ends up? Well, most of it ends up in Japan.

There is a basic contradiction in the classic arguments against mercantilism and protectionism. Both are described as self-defeating, but it is said that mercantilism is self-defeating because the successfully mercantilist nation will only end up beggaring it's trading partners, therein losing its market. On the other hand, it is claimed that protectionism is self-defeating because free trade is always beneficial to all trading partners, regardless of their relative strengths and weaknesses.

One problem with these arguments is that they are classic. Free trade dogma is based on the theory of "comparative advantage", attributed to a book written by David Ricardo in 1817. To put that in context, the modern bicycle wasn't invented until 1861.
Another problem is that they are overly simplistic. Trading partners, for example, don't necessarily all subscribe to the same theories.
So what happens when a staunch free trader meets a commited mercantilist? It seems to me that, fairly quickly, the free-trader would end up being "beggared" and the mercantilist would end up with a lost market for his goods. So, who would you rather be?
The Koreans and Chinese would rather be like Japan than the United States, and so they have been pursuing the same mercantilist policies.

The American government, media and people need to wake up to this reality. Thankfully, There are a few people, from a surprising range of the political spectrum, who are aware of this problem. To see their arguments, click on the preceding links.

Listen to Dr. Ha-Joon Chang Debunking this myth. He will change the way you think about "free trade"

Why the World Isn't Flat
by NewAmericaFoundation | video info

264 ratings | 56,465 views

According to the conventional wisdom popularized by Thomas Friedman, countries can grow rich only by means of unfettered capitalism and pure free trade. In his controversial book, Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism, Ha-Joon Chang takes aim at this orthodoxy. Combining irreverent wit with scholarly rigor, Chang shows that nations like the U.S. that achieved their present wealth by means of economic nationalism now preach an entirely different set of policies to the developing world, via the World Bank, International Monetary Fund and World Trade Organization. Chang calls on us not only to re-eval‎uate the policies we promote to countries seeking to grow rich, but also to become reacquainted with our own forgotten economic history. Ha-Joon Chang has been described by one economist as "the most exciting thinker our profession has turned out in the past fifteen years." He teaches at Cambridge University, where he received his Master's degree and doctorate. A consultant for the Wold Bank, the Asian Development Bank, the UN and other international organizations, he was awarded the Leontief Prize for Advancing the Frontiers of Economic Thought in 2005. His book Kicking Away the Ladder: Development Strategy in Historical Perspective (2002), which received the Myrdal Prize, was acclaimed by the eminent MIT economist Charles Kindleberger as "a provocative critique of mainstream economists' sermons directed to developing countries."

curated content from YouTube

The Meltdown has Dissipated America's Powers of Moral Suasion

The losses the United States has incurred from the financial meltdown have not been merely monetary. We have also lost an enormous amount of prestige and influence. The following is excerpted from the March 29 New York Times article, Obama Will Face a Defiant World on Foreign Visit:

... "There is a direct challenge under way to the paradigms that America has been trying to sell to the rest of the world," said Eswar S. Prasad, a former China division chief at the International Monetary Fund. The American banking collapse, which precipitated the global meltdown, has led to a fundamental rethinking of the American way as a model for the rest of the world.

... Robert D. Hormats, vice chairman of Goldman Sachs International, said the president "must demonstrate to the world that he understands that it's not just about saving ourselves."

And Mr. Obama must try to do all of that in the middle of a global recession for which most of the world blames the United States. "The U.S. brand name has clearly suffered from this crisis, and the rest of the world is no longer willing to sit quietly and be lectured by the United States on how they should conduct economic policy," Mr. Rogoff said.

In the past, American officials traveled to India, Brazil, China and South Africa and lectured government officials on the need for open markets, free trade and deregulation. But now some of those very policies - particularly deregulation - are viewed as the culprits for the recent economic collapse.

"Emerging markets now think they can do what they want without hectoring from the United States," said Mr. Prasad, the former monetary fund official.

The following is excerpted from the March 29 article Anglo-American Capitalism on Trial:

"... As chancellor of the exchequer, Mr. Brown (the British Prime Minister) celebrated the "light touch" regulation of the City of London under which American banks and investment houses flocked to build up their London operations. He appeared, to his critics on Labor's left, to have accepted a Faustian deal under which the unbridled excesses of the City were tolerated because they generated windfall tax revenues that allowed Labor to splurge on public sector spending.

But in Strasbourg, France, the prime minister seemed to fall back on his roots as the son of a Scottish preacher, and as a student politician of the radical left, focusing on the demons that detractors believe are inherent in the capitalist system. Europe, he told the legislators, had learned the truth that "riches are of value only when they enrich not just some communities, but all." He added: "As we have discovered to our cost, the problem of unbridled free markets in an unsupervised marketplace is that they can reduce all relationships to transactions, all motivations to self-interest, all sense of value to consumer choice and all sense of worth to a price tag."

If the implication was that Gordon Gekko-style greed was an American contagion, Mr. Brown is far from alone in Europe. Among some of those who worked through the boom years in the City of London, the moment when matters began to get out of hand under the international financial architecture that began to take shape at Bretton Woods can be dated to the collapse of the Soviet Union. One result, these people now say, was an American triumphalism that translated, in the financial world, to the kind of free-for-all Mr. Brown spoke about in Strasbourg.

The Free Market and Free Trade are Mythical Beasts

I would appreciate your adding any links that bear me out on that.

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Japan Then, America Now: A Misleading Comparison

Article by Eamonn Fingleton3 points

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Economic Recession History

Is the world facing an economic depression in 2009 more...1 point

Is the world facing an economic depression in 2009? Discover the history of economic recession from the 1929 crash, the great depression to the dot-com bubble. Find out how to protect yourself in a global market recession.1 point

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Charles A. Clarkson: AIG Anger and the Free Market Myth

AIG Anger and the Free Market Myth - The Huffingto more...0 points

AIG Anger and the Free Market Myth - The Huffington Post0 points

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Alan Greenspan: The Oracle Or The Master Of Disaster?

Alan Greenspan: The Oracle Or The Master Of Disast more...0 points

Alan Greenspan: The Oracle Or The Master Of Disaster? - The Huffington Post0 points

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25 People at the Heart of the Meltdown

In the second part of a week-long series looking b more...0 points

In the second part of a week-long series looking behind the slump, Julia Finch picks out the individuals who have led us into the current crisis0 points

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The Reckoning: Taking Hard New Look at a Greenspan Legacy

Article by Peter S. Goodman0 points

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Intellectual Deception Reveals Weakness of Free Trade Ideology

Critique of Libertarian free trade orthodoxy0 points

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Japan, Refutation of Neoliberalism

Article by John Locke0 points

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Swans Commentary: Free Trade Ideology And The Constitution, by Michael Doliner

The flaws of Milton Friedman's free trade ideology more...0 points

The flaws of Milton Friedman's free trade ideology and the consequences of its inability to address natural limits.0 points

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Democracy Now! | Economist Ha-Joon Chang on "The Myth of Free Trade and the Secret History of Capitalism"

The US government has poured hundreds of billions more...0 points

The US government has poured hundreds of billions of dollars into the US economy in the wake of the financial crisis. But what steps are being taken to address the crisis on a global scale? The worldwide financial crisis is forcing some to rethink the neoliberal policies widely blamed for the financ...0 points

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http://in.reuters.com/article/columnistNews/idINTRE56U4Y620090731?pageNumber=1&virtualBrandChannel=11584

Christopher Swann makes a good case for continuing more...0 points

Christopher Swann makes a good case for continuing government stimulus: Barring any unexpected stumbles, and revisions aside, today will be the last day this year that Americans are told their economy is shrinking...0 points

 

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I Think It's Best to Let The Market Decide

If you worship at the shrine of the Free Market, post supporting evidence here.

Post links that point out why you think I'm wrong.

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How Free Markets Make Our World A Better, Friendlier, and Safer Place

Free markets are equivalent to neighbors trading v more...1 point

Free markets are equivalent to neighbors trading vegetables for fruit at a garden gate."The great virtue of a free market system is that it does not care what color people are; it does not care what their religion is; it only cares whether they can produce something you want to buy. It is the most effective system we have discovered to enable people who hate one another to deal with one another and help one another." - Milton Friedman1 point

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Living a Win-Win-Win Life

Most of human history was a win-lose proposition b more...1 point

Most of human history was a win-lose proposition based on scarcity and need. If one person gained another person or group lost. Since open markets and free trade became available about 250 years ago; security, wealth, health, and stability have expanded as a consequence. win-win1 point

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Historical Capitalism vs. The Free Market

Historical Capitalism vs. The Free Market: Richard more...0 points

Historical Capitalism vs. The Free Market: Richard M. Ebeling, January 19930 points

 

Market Fudamentalism is an Antiquated and Misguided Theory

Please add a blurb and let us know what you think.

 

 

Awesometastic! Your opinion has been received.

Your right! Market fundamentalism has been completely discredited.

Craig says:

Josh: You are so wrong. It's seems delusional.

"In general, rules imposed by an identifiable group on their own selves will tend to be the most efficient and effective"

Not only did you not read the article you didn't even watch the video of Greenspan.

We won't be able to have a serious conversation in this country if one sides is going to ignore reality and facts. While making up their own facts and completely ignoring history.

If you guys were right 2008 would have never happened.

Facts and reality show it did. Which makes your arguments seem delusional.

Craig says:

Josh you do realize those holes in the law were placed their by lobbyists of the free market which is a myth that you worship.

Reading some of your answers on the other side are mind boggling. It's like they never read the article.

MarkUpshaw says:

Show me where government regulation is not needed to protect the not powerful from the overly powerful. I hear the same people complaining about Walmart destroying their small mom and pop shops also complaining that the government should do something about it - these are you free market people doing the complaining. With no gov't involvement, we will have a handful of companies dictating what we buy and at what price, because there will be no competition.

paperfacets says:

You are saying free trade which involves trading commodities or tangible services is "free trade". Everything that moves just money needs regulation and oversight. That is what is wrong with most medical services in the U.S. It has become the exchanging of money only between the various money holders like medical insurance, PDO's and HMO's and the caregiver's. That system needs regulation.

Margo_Arrowsmith says:

Capitalism is a great and wonderful thing. However, unfettered capitalism is its own worst enemy, the recent problems show that. '

As for the 'free market'? A book named Cows, Pigs Wars and Witches by Marvin Harris gives us a unique view about them.

RolandTumble says:

Voodoo economics...FAIL!

California_Dreamin says:

In answer to BFuniv.com,

I agree that, in a perfect world, free trade is beneficial to all parties concerned. The problem is, as I think you'll agree, we aren't living in a perfect world. Also, I think you've misunderstood what I'm saying on this lens. I'm not actually putting forth my opinion on free trade here. What I'm saying is that given the fact that the countries we buy most of our finished goods from--Japan, South Korea and China--are committed neo-mercantilists, sticking dogmatically to free trade policies is suicidal.

I live in Japan, and I promise, you could extol the benefits of free trade to the bureaucrats that run Japan Inc. until you were blue in the face and never convince them to change their policies. The Japanese see themselves as being at a natural disadvantage vis-a-vis the U.S. because "Japan is a small country with no natural resources" and so a "level playing field" would actually be an uphill slog for them, therefore they have no choice put to seek an advantage at every turn, or so the rationalization goes. And their policies have been very successful. The last 30 years have seen an enormous shift in wealth, and therefore power, from America to the Far East.

If you haven't yet, I recommend giving a listen to Dr. Ha-Joon Chang's talk, "Why The World Isn't Flat" on the above video. He has a lot of interesting things to say. He's also very funny. Here's a quote:

"When you meet a free trade economist next time, ask him what kind of car he drives. If he drives a Toyota, or for that matter any other Japanese car, he doesn't know what he's talking about, OK?"

bgamall says:

This is the root cause of the market problem. The banks were permitted to establish off balance sheet banking at Basel 2 in 1998. This off balance sheet banking was a SCAM to rob the middle classes. And now the treasuries are being robbed by the same international bankers who allowed the problem in the first place. But Big Government that does not break up the banks is useless big government that serves the banks, and the international bankers.

No way monkey brain! Big government just gums up the works of the free market.

AttorneyForFreedom says:

http://www.squidoo.com/free-trade-should-be-free-of-regulation

HappySeasons says:

Anytime the government is involved... it is not a good thing.

ANGEL says:

In my opinion nothing is wrong with hedge fund managers making money,the concept that they are making money doing nothing is a misconception based on the wrong idea that derivative markets(where they get most of their money )is a speculative and useless game,but whoever knows the origin of those markets understands that were born on necessity from the risk holders(farmers,producers,etc).The main function of speculators(like hedge fund managers) is to bring liquidity,allow for hedging, and bring to life entrepreneurial activity that otherwise wouldn't be able to get finance.So do you really think that something so strong as speculation was born and exist just because someone claim that believe on the free markets???.With no speculative activity in our markets the economy would probably collapse sooner rather than later.The only outcome would be a socialism with no right of property,We have to be clear :are we in favor or against communism an right of property???

BFuniv.com says:

The first half of the sentence you quote is right. "The fact is, our markets aren't free, nor should they be."

Your thinking about free markets is stuck in the stone age, although that win-lose paradigm persisted and applied right up to the industrial age. If one person won - another person or group had to lose. For those that long for the comfort of mud huts, famines, and feudal government systems; win-lose still holds appeal.

Win-win is better and is available: it's called freedom.

In freedom a trade does not take place unless both parties, based on their individual value systems, believe they benefit from the exchange. This creates wealth for both parties, and by extension for everyone.

Every control on freedom adds injustice. Laws and regulations always favor the scheming and well connected, creating poverty for the many to benefit an elite few. Perhaps each inequity is small, but a constant drip of regulation and taxes ensures expanded looting of society.

We see the banksters and their too big government allies looting our taxes today. We will be ravished by the hidden taxes of inflation caused by excess money creation for generations.

Let's make it simple.

If Shoes have a 100% tariff to protect the shoe industry everyone will pay twice as much for their shoes.

Only the shoe industry prospers - and those that receive their political donations. After years of protection, not having to innovate and become more efficient, the local shoe industry will be allowed to fail.

Everyone but those in power has paid for "fair trade" favors given to the few. Some soon - other's later.

Free trade in contrast benefits all, you get what you want for what you want to pay, or you find another supplier. Innovation and efficiency are rewarded. Prices go down, quality goes up. Lifestyles will improve for generations. Simple!

"Free markets are like neighbors trading fruits for vegitables at a garden gate." - Allan Wallace

Josh says:

You do realize the the economic meltdown was due entirely to exploitable holes in law, right? An interesting thing is that whenever game designers hear about how Sallie Mae and Freddie Mac -and most other institutions in similar logical positions around the world- were tasked with effectively "co-signing" loans for individuals who neither had the means nor had to supply the documentation to substantiate the loan for which they were applying, they shake their heads in disbelief. The root problem was not "Corporate America" and "Those Bankers"- they were just the proximal cause. The root cause was corruption and/or ineptitude on the part of those both crafting the laws that governed the financial markets and those who signed it into law. Incidentally, the impetus came from those calling for "affordable housing for all", which, ironically enough, backfired in nearly all ways possible roughly 12 years later (that being right now).

In general, rules imposed by an identifiable group on their own selves will tend to be the most efficient and effective. Those rules made by one group for another group will tend to "miss" various rather important details, resulting in inefficiency. In regards to the rules that governed the financial markets, they were largely specified by politicians and instituted for political reasons rather than solid necessity. Some have argued that they were made up too early in the development of the financial markets which they were aimed at. Whatever the case, the economic meltdown is a symptom of a poor set of rules and motivators. You cannot ignore the fact the specific rules governing Freddie Mac and Fannie Mae were put in place to pander, not to truly improve the economy. They did nothing but put the entire government, that is, society on the hook for any losses.

 

 

 

 

Ronald Reagan's Real Legacy

The Two Trillion Dollar Meltdown

by Charles R. Morris

Here is my favorite quote from this book: "As a general rule, only the very smartest people can make truly catastrophic mistakes." Charles R. Morris predicted very accurately how and why the Meltdown would happen. In the foreword of The Two Trillion Dollar Meltdown, he makes these comments:

"It is impossible to exaggerate the sheer idiocy of the financial machinery of the 2000s...An evil genie could not have designed a structure more prone to disaster...The reason that all developed nations regulate their financial sectors is precisely because very highly leveraged players can make huge profits by risking other people's money. When the risks turn out badly, however, the costs tend to fall back to the public, as amply demonstrated by the events of the last several months. Uniquely, the United States adopted a pronounced hands-off attitude toward the financial sector throughout the 2000s, ensuring that taxpayers would eventually reap the whirlwind."

The Two Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash

by Charles R. Morris

$2.65 Buy Now

Let's Play the Blame Game

Click on a name for background information

Who do you think is most responsible for the mess we're in?

Alan Greenspan

George W. Bush

Bill Clinton

Phil Gramm

Christopher Dodd

Ben Bernanke

Timothy Geithner

Larry Summers

Henry Paulson

Ronald Reagan

Vote or see the results

 

Some Interesting Books About How the Meltdown Happened

GREENSPAN'S BUBBLES: THE AGE OF IGNORANCE AT THE FEDERAL RESERVE

by William Fleckenstein, Frederick Sheehan

$4.15 Buy Now

Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism

by Kevin Phillips

$0.01 Buy Now

The Origin of Financial Crises: Central Banks, Credit Bubbles, and the Efficient Market Fallacy (Vintage)

by George Cooper

$4.69 Buy Now

The Man Who Sold the World: Ronald Reagan and the Betrayal of Main Street America

by William Kleinknecht

Follow this link to see what Naked Capitalism has to say on the topic of Ronald Reagan's responsibility for the financial meltdown.

$11.00 Buy Now

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Some Interesting Books About The Free Trade Myth

Myths of Free Trade: Why American Trade Policy Has Failed

by Sherrod Brown

$11.22 Buy Now

Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism

by Ha-Joon Chang

$9.92 Buy Now

The East Asian Development Experience: The Miracle, the Crisis and the Future

by Ha-Joon Chang

$24.71 Buy Now

Take This Job and Ship It: How Corporate Greed and Brain-Dead Politics Are Selling Out America

by Byron L. Dorgan

$2.58 Buy Now

 http://www.squidoo.com/the_free_market_myth

Comment

“Free-Market” Outcomes Are Not Fair—and Not Free

BY MARTY WOLFSON | November/December 2012

This article is from Dollars & Sense: Real World Economics, available at http://www.dollarsandsense.org/archives/2012/1112wolfson.html

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“Since 1980, the U.S. government has reduced its intervention in the U.S. economy, which has become much more of a free market. Conservatives applaud this development because they think that free-market outcomes reward talent and hard work; progressives object to the income inequality of free-market outcomes and want to use government tax and transfer policy to reduce inequality.”

Most people, whether conservative or progressive, would probably agree with this statement. This framing of the issue, however, plays into a right-wing story in which conservatives are the defenders of (free) market outcomes, including the success of the rich who have made it “on their own”; meanwhile, the “dependent poor” look to the government for handouts. This has been a basic element of the right-wing playbook for a long time. Then-presidential candidate Mitt Romney was drawing on this narrative when he complained about the 47% of the U.S. population “who are dependent upon government ... who believe that government has a responsibility to care for them.”

This view has two main themes: 1) Because the U.S. free-market economy rewards talent and hard work, the middle class should emulate the wealthy for their success, not vilify them; and 2) those who have been failures in the market want the government to take care of them by redistributing income from those who have been successful. We can see these themes play out on all sorts of political issues. They form, for example, the basis for the attacks on the Affordable Health Care Act (or “Obamacare”). Middle-class Americans, in the conservative view, are being taxed—forced to pay—to provide health insurance for those “unsuccessful” elements of the population who have not earned it themselves.

The conservative argument assumes that the outcomes we observe are the result of a free-market economy. However, the right-wing objective has not been to create a free market; it has been to rig government policy and the market so as to redistribute income towards large corporations and the wealthy.

For example, conservatives themselves want to use government policy to effect a different distribution of income from what we have now—a distribution that is more favorable to corporations and the very rich. A central policy objective for conservatives, ever since the Reagan Administration, has been to cut taxes on the wealthy. And by cutting government revenue, they have been able to make the argument that government programs for the poor and the middle class need to be cut in order to balance the budget.

Also, conservatives have eliminated restrictions on corporations and protections for workers, consumers, and the environment. They have attacked barriers to international capital mobility, deregulated industries, and reduced government regulations to ensure a safe workplace and a healthy environment.

Because conservative policies have often taken the form of reducing government programs and regulations, the ideology of a free market has been useful in rationalizing them. Other conservative interventions, however, have been less able to fit into the free-market mold, and therefore are especially revealing of conservatives’ genuine aims. When the financial crisis of 2008 threatened the survival of the large banks, they were quick to ask for the government to intervene with a large bailout. The “right-to-work” law recently passed in Indiana, designed to deprive unions of financial resources, is an explicit rejection of a market outcome—the private agreement between management and union to require all workers to pay their “fair share” of the costs of union representation. “Free-trade” agreements, ostensibly designed to eliminate restrictions on the movement of goods and capital, have nonetheless continued to restrict the free movement of people. Even the repeal of financial regulations in the 1980s and 1990s, ostensibly a free-market endeavor, created the anti-competitive giant financial firms that demanded to be bailed out in 2008.

The realization that the economy is rigged to benefit the rich and large corporations takes away the force of the right-wing argument that progressives want to use government to “vilify” the “successful” and reward the “slothful and incompetent.” When the game has been rigged, it is wrong to say that the market simply rewards talent and hard work, and the outcomes that result can hardly be called fair. When the market outcomes that we observe are unfair, we need to both change the rules for how the economy works and use the government to restore fairness.

MARTY WOLFSON is a professor of economics at the University of Notre Dame.

SOURCES: Dean Baker, The End of Loser Liberalism: Making Markets Progressive (2011); Transcript of Mitt Romney video, Mother Jones, September 17, 2012.

http://dollarsandsense.org/archives/2012/1112wolfson.html