Friday, July 7, 2023
The Myth of the Free Market
by Dean Baker
https://www.counterpunch.org (July 03 2023)
https://www.counterpunch.org/wp-content/uploads/2023/07/48029418798_abecbffd96_c.jpg
Photograph Source: Eden, Janine and Jim - CC BY 2.0
The media are really going {1} {2} overboard in telling us the days of
the free market are over with Biden's new economic policies. President
Biden has quite explicitly implemented policies intended to reshape
the direction of the economy, pushing clean energy and more domestic
production of advanced semiconductors and other products. He also has
reinvigorated anti-trust policy, which was largely shelved by his
predecessors.
But the idea that the policies of the last four decades were somehow a
matter of just leaving things to the market is a grotesque lie that no
person remotely familiar with economic policy should be repeating.
The Finance Industry Cesspool
I will reverse the usual course of my diatribe here and start with the
financial sector. Suppose back in 2008~2009, we let the market work
its magic when Citigroup, Bank of America, and other financial giants
were effectively bankrupted by their own greed and stupidity. We would
have a radically downsized financial sector, with many fewer people
earning seven and eight-figure salaries at banks. (No, we would not
have had a Second Great Depression. Keynes taught us how to prevent a
depression: spend money.)
We would also have a much smaller financial sector if we taxed sales
of stocks, bonds, and derivatives like we taxed sales of clothes,
cars, and furniture. It is the power of the financial industry, not
the free market, that tells us that these financial transactions
should be exempted from the sales taxes that apply to just about
everything else we buy.
There is also nothing "free market" about the special tax treatment
that some of the richest people in the country get when they have
"carried interest" income as partners in hedge funds or private equity
funds. Nor is it the free market when these funds prey on public
pension funds, promising high returns that they rarely deliver.
"Free Trade" is a Story for Children and Elite Pundits
The "free trade" deals of the last forty years had little to do with
free trade. We did want to remove trade barriers on manufactured
goods, in order to subject our manufacturing workers to direct
competition with low-paid workers in the developing world. This had
the predicted effect of costing us millions of manufacturing jobs, and
substantially reducing the pay of the jobs that remained.
But we could have made the focus of free trade removing barriers that
protected doctors, dentists, and other highly paid professionals from
competition with their lower paid counterparts in the developing
world. This would have had the effect of reducing jobs and pay for
US-born professionals.
For some reason, this was never a part of our "free trade" agreements.
We could speculate this was because the people deciding on trade
policy were far more likely to have friends and family members who are
highly paid professionals than friends and family members who were
autoworkers or textile workers, but that would be rude. In any case,
this part of "free trade" deals was about having a freer trade in a
particular sector of the economy, where the predicted and actual
effect was to drive down the pay of non-college-educated workers.
Patent and Copyright Monopolies
The other really big part of our free trade deals was to make patent
and copyright monopolies, and related protections, longer and
stronger. It is incredibly Orwellian that these government-granted
monopolies are somehow discussed as being the free market.
And, their impact is not some small sideshow. We will spend over $550
billion this year on prescription drugs. If drugs were sold in a free
market, without patents or related protections, the cost would almost
certainly be less than $100 billion. The difference of $450 billion is
more than four times the annual food stamp budget. It's more than half
of what we spend on the military each year. It comes to more than
$3,000 a family.
If we projected out over ten years and accounted for growth in
spending, it would be close to $6 trillion. That is six times
President Biden's widely touted infrastructure program.
And, it has a huge impact on inequality. The people who benefit from
these monopolies are many of the country's richest people. Bill Gates
is the poster child. He would likely still be working for a living if
the government didn't threaten to arrest people who copy Microsoft
software without his permission.
Just since the pandemic, we created five Moderna billionaires {3} by
paying the company to develop vaccines and then letting them keep
control over the vaccines. Don't try to tell us that is the free
market.
By my calculation {4}, we transfer over $1 trillion a year to the
beneficiaries of patent and copyright monopolies, compared to a
situation where items like drugs, medical equipment, computer
software, and other items are sold at their free market price. This is
around 40 percent of all after-tax corporate profits.
Why the Free Market Lie?
I could on at great length laying out other areas where the government
has structured the market in ways that redistribute income upward.
(See Rigged {5}, it's free.) It should be obvious to anyone at all
familiar with economic policy over the last four decades that it was
not about the free market, it was about structuring the economy in
ways that made the rich richer.
It is understandable that the proponents of these policies would like
to claim it was just the free market. After all, it sounds much better
to tell the public, the vast majority who are losers from these
policies, that "the market creates both winners and losers", as
opposed to saying, "We're implementing policies to transfer money from
you to us".
But why do people who oppose these policies go along with the hoax?
There apparently is a big market for this sort of pretending in major
media outlets, but it would be nice if we could get more reality-based
policy discussions.
This first appeared at https://cepr.net.
Links:
{1} https://www.washingtonpost.com/opinions/2023/06/28/bidenomics-joe-biden-economic-strategy/?itid=hp_opinions_p002_f001
{2} https://www.huffpost.com/entry/joe-biden-bidenomics_n_649c8effe4b038eea76d01b3?utm_source=cordial&utm_medium=email&utm_campaign=hp-us-reg-morning-email_2023-06-29&utm_term=us-morning-email
{3} https://www.forbes.com/sites/giacomotognini/2021/06/15/surging-moderna-stock-mints-the-vaccine-makers-fifth-billionaire/?sh=7253437e2ee0
{4} https://cepr.net/images/stories/reports/ip-2018-10.pdf
{5} https://deanbaker.net/books/rigged.htm
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