Like Energy and Matter, You Can’t Destroy Market Forces
Over the weekend, noted climatologist alleged comedian Michael Ian Black ranted that only one political party believes in “science”. Black has adopted pop culture’s reified notion of science. Rather than understanding that science is a method of inquiry and testing, Black and others treat the almighty Science as if it is settled knowledge that should not be blasphemed. Imagine the power of being among Science’s priesthood of undeniable truths and public policy prescriptions.
I am detecting similar chatter in pop economics. As automation and artificial intelligence disrupts traditional jobs, pop economists warn us that capitalism itself is being disrupted and will have to be replaced. They tell us that “capitalists” and their coming army of robots will undermine the capitalist system, destroy jobs, create inequities to such a degree that capitalism will collapse.
I believe pop scientists and pop economists are employing a similar rhetorical ploy. Like science, economics should be a field of inquiry, whose principle purpose is understanding before delving into policy prescriptions. To that end, think of the study of market forces like the study of physics and physical forces. Free market pricing is a product of voluntary exchange between people in the marketplace. It spontaneously adjusts to changes in supply and demand without the central government setting prices, the same way that water finds its level without comedians tweeting about science.
If anyone thinks they have discovered a novel economic system that is fundamentally different than laisse faire free market enterprise on one hand or socialism on the other hand (or a hybrid of the two), I am all ears. Like King Solomon said back in the day, there is nothing new under the sun.
I think it is helpful to understand economics as a study of human behavior when confronted with different economic conditions and market forces. How will consumers and producers act at the polar opposites of political economies: (1) a free market economy and (2) a centrally planned, command economy. On the free market side, market participants voluntarily engage in exchange of goods and services. No government tells them what goods to make or the prices for those products. On the other end of the political economic spectrum, a governmental entity would directly or indirectly determine what goods and services will be produced and made available to consumers, and the prices for those goods and services.
Under this rubric, economics is neither socially/politically conservative nor progressive. The question is whether the exchange is (a) free and voluntary or (b) controlled (and possibly coerced). In a free market, a social progressive may engage in social impact investing or social entrepreneurship that factors in that person’s social/political preferences. The free market allows a person to subjectively determine the value of goods and services and prefer social impact over monetary returns on a capital investment. By contrast, central control over the means of production is not inherently liberal or progressive, its just restrictive. After all, economically, fascism involves private ownership of capital assets, but central control over how those assets are deployed.
In a free market, if you don’t like a product or a service, you can choose not to buy it. If you don’t like Pepsi, buy Coke instead. Or Laphroig, Black Rifle Coffee Company coffee or Dasani water. The choices are nearly limitless. Abundant supply and competition keeps prices in check.
The beauty of a free market is that you can pony up and by the latest iPhone if you choose to do so. But, in a command economy, the government might decide it is an unfair privilege that you have an iPhone while your marginalized comrades still have flip phones. But, when the government bans the production of the new item, the black market price for the rare item skyrockets. The supply decreased but consumer demand hasn’t. Like energy and matter, market forces can’t be destroyed by outlawing them or wishing them away.
The folks hoping for a novel alternative to capitalism try to downplay historic comparisons to communism and socialism. Ok, what about something hip and appealing like Bernie Sanders’ “Democratic Socialism? Economically, is there any economic difference between a dictator and a democratically elected socialist regime controlling the economy and redistributing wealth? Not inherently. In the absences of a constitution like ours, majority rule can lead to the tyranny of the majority. Our Constitution puts breaks on democratic overreach by recognizing individual rights. For instance, the “Takings Clause” of the Fifth Amendment protects property owners from the government confiscating their property without fair compensation. Without protections like this and other Constitutional restrictions, a bare majority could play Robin Hood. The new Jacobins could steal from the “privileged” and give to whomever they deem to be the most marginalized members of society based on the latest teaching of intersectionality theory (or racialist theory for that matter).
Comparisons of the free market to socialism usually turns to income inequality. It is important that wealth should not be measured strictly in monetary terms. The free market has produced not only great wealth for the super rich, but widely available creature comforts for the middle class, working class and even people that we consider poor in this country. In poor American communities, people still have homes, electricity, water, clothes, food, phones and more. What we call poverty in the United States would be viewed with envy in other parts of the world. Even if there is a giant gap between the uber-wealthy and the poor, the poor, working classes and middle classes have the opportunity to improve their financial status generation by generation. Social mobility through one’s own efforts and resilience is possible in a free market and free society. But, financial advancement in a command economy relies on the beneficence and wisdom of those who command the political economy. Little in human history supports such reliance.
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