Myth of the Free Market II: Milton Friedman Bamboozles the US

In a previous post, I noted that Milton Friedman re-labeled laissez faire economics, which advocates permitting big business monopolies, as "Free Market Economics." He thus somehow turned a defense of big business into a claim of protecting individual liberty.

His basic ploy was to slide between two views: 1.) the idea of an ideally competitive market, which has never existed, but can serve individuals efficiently in classical theory, and 2.) the view that any efforts by government that affect the market do more harm than good.

Paul Krugman, in a fascinating in-depth evaluation of Friedman's legacy, describes, so to speak, three Friedmans. The first was an innovative thinker who predicted the possibility of stagflation, and deserved his Nobel Prize.

The second Friedman was the inventor of 'monetarism,' the idea that a steady increase in the money by the Fed was much better than Fed responding to events. Krugman thinks that the economic analysis behind monetarism was in fact flawed and even dishonest. But in any case, the idea was tried from 1979 for three years and resulted in so much unemployment that it was officially abandoned, and not tried since.

The third Friedman was the promoter of laissez faire ideas, under the 'free market' brand he invented. For Friedman, every government intervention should be replaced by a market solution. In some cases Friedman had clever ideas like buying and selling pollution rights. But in all cases the market was better than the government. Krugman points out that "Friedman's laissez-faire absolutism contributed of an intellectual climate in which faith in markets and disdain for government often trumps the evidence."

It is the 'trumping of evidence' that is the core of the intellectual dishonesty on the right. Two of the examples that Krugman gives are particularly telling. One is "Conservatives continue to insist that the free market is the answer to the health care crisis in the teeth of overwhelming evidence to the contrary." The other is the great benefits of deregulation. Krugman, writing in 2007, cites the disasters involving California and Enron that came out of deregulation of the energy market. Of course, in another year he could point to the financial collapse.

What is particularly devastating against Friedman's free-market absolutism is Joseph Stiglitz's work. Stiglitz won the Nobel Prize in Economics by showing that when imperfect information is present, which it always is, markets are not efficient as Friedman claimed. Stiglitz explains: "The theories that I (and others) helped develop explained why unfettered markets often not only do not lead to social justice, but do not even produce efficient outcomes. Interestingly, there has been no intellectual challenge to the refutation of Adam Smith's invisible hand: individuals and firms, in the pursuit of their self-interest, are not necessarily, or in general, led as if by an invisible hand, to economic efficiency."

Stiglitz writes in his brilliant book The Price of Inequality, "I remember long discussions with [Friedman] on the consequences of imperfect information or incomplete risk markets; my own work and that of numerous colleagues had shown that in these conditions, markets typically didn't work well. Friedman simply couldn't or wouldn't grasp these results. He couldn't refute them. He simply knew that they had to be wrong. He, and other free-market economists, had two other replies: even if the theoretical results were true, they were 'curiosities,' exceptions that proved the rule; and even if the problems were pervasive, one couldn't rely on government to fix them."

To sum up, the myth of superiority of the superiority of 'free market' solutions is now contradicted by both evidence and uncontroverted theory. The superiority of solutions that avoid a government role is simply a myth, an emperor with no clothes. The question now is whether the emperor will be elected on Nov. 6.

Republican misconceptions about private and public debt

Here is a 27 minute video on why Romney is dangerously misguided in his thinking about debt and deficits, from Economist Isabelle Tsakok, Harvard PhD, 30 years at the World Bank. (And, full disclosure, my wife.)

Disappointment in American Electorate

Any straight-up comparison of the two major political conventions should convince even the tepidly interested potential voter that Republicans are in serious trouble. However, after weeks of canvassing for Senate Democratic candidate Elizabeth Warren in Massachussetts and  carefully attending to the words of "Blue Dog" working class folks in Fall River Massachussetts (a single-industry textile town for many years which, unlike Detroit, could not rebound after the collapse of that particular single-industry),  I am convinced that  many people are convinced by "fluff" and not "policy" and are strongly anti-intellectual to boot.

Elizabeth Warren's opponent, Scott Brown, won the so-called Kennedy seat after the last lion passed away and a special election was held. His Democratic opponent at that time, Martha Coakley, was and has been a superb attorney general for the state of Massachussetts - but her campaign was feckless  (reflecting the complete arrogance of the Democratic party who assumed that all she had to do was breathe and then glide into office); her Achilles-moment was when she referred to Curt Schilling as a "Yankees fan" (when he was the winning pitcher in the Red Sox route to the World Series championship - against the Yankees no less). Her ignorance was unforgiveable even though it had nothing to do with policy. 

Warren's campaign has focused very heavily upon policy esp. the notion that the tax structure in this country favors the very wealthy and that the hedge fund boys have gotten away with murder.  His has focused entirely upon his canvas workingman's coat and his small GMC truck. She has addressed issues of  substantive importance while he has studiously avoided identifiying himself as a a Republican, or talking about the Republican national platform, or focusing on specific policy issues. 

He runs away from his own party..but features a winsome smile and six-pack abs while signing Grover Norquist's "no tax" pledge and voting for Republicans most of the time. It seems clear to me that two factors are involved in his success to date: a) a clear pandering to a strong strand of anti-intellectualism (you know, the traditional "effete liberal" Spiro Agnew type of criticism which plays well among many white male Irish Catholics disposed to vote against a Harvard University white female professor); and, "localism" (rather than nationalism) in his discussion of key issues. Brown will happily talk about protecting the fishing industry in New Bedford while acting as if the depletion of fishing stocks is not a real problem. 

So..what do we learn about electoral politics from this case study??  In my view, you must relate local problems to the national condition (see C.Wright Mills The Sociological Imagination). Bill Clinton did this superbly in his speech. So did Tip O'Neill who made Reagan's presidency successful. You must also figure out ways of relating  "character issues" to policy. Clinton is eminently successful in doing that; most Dems. are not.

Bill Clinton's Speech: Passionate rationality can move the public

I've been venting here for a long time about the need for higher level debate, and railing against the 'dumbing down' of the debate.

Repeatedly in this blog, I have emphasized that rebuttal is the heart of debate. Without rebuttals back and forth, you never have a debate, but just two monologues, or, worse, two sets of slogans.

It has been frustrating to me to see the reluctance of Obama to really engage in rebuttal, aside from his lengthy presentation to the Press Club. My most recent post on this theme was on the need to rebut Reaganism. Unfortunately, Bill Clinton couldn't do that, because he was to a serious extent a ratifier of Reagan's destructive ideas. But I am delighted that he punctured the balloon of lies that the Republicans had put out at their Convention.

Steve Benen's lovely piece at Maddowblog makes the same key point: Clinton showed you don't have to be afraid of laying out the facts in rebuttal. You do have to do it simply, and with emotion, but done right it is one of the powerful tools in politics.

Rationality is never conclusive, but it is way underestimated as a tool of politics.

The Real Motto on Romney's Plane

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The Myth of the Free Market

I've been traveling, and now finally the mainstream press are calling 'liar' on Romney and Ryan—who is still more obvious about it.

However, I've been curious about the idea of the 'free market', which actually doesn't make much sense to me. Without government, you don't have much of functioning markets. Even traditional food markets aren't safe. So I asked the question, when did the term 'free market' come into use? The excellent Wikipedia article 'free market' tells the story.

Originally there was the term laissez faire economics. This was actually opposed to Adam Smith, wrongly labelled a free marketeer, as he supported competitive markets and opposed monopolies. If you follow up on the article on laissez faire you will see that originally the term originated when a French government official asked a business man how they could help business, and the business man said 'laissez nous faire', which translates 'let us do,' i.e., let us do whatever we want; leave us alone.

The laissez faire people like Allen Greenspan have argued that you can only have a 'coercive monopoly,' the bad kind that keeps others from competing, if the government backs one player. In other words the wealth of a person or company has no power to distort the market. Ha, ha, ha. Greenspan acknowledged that there was some flaw in his thinking when the financial system collapsed. This is certainly one of those flaws because money enables a person or company to buy out and crush competitors in many ways, as well as corrupt politicians.

The brilliant sales job of renaming laissez faire economics 'free market' economics was Milton Friedman's, in a book called Capitalism and Freedom. What was an idea that it's best that wealthy companies and individuals should be able to dominate small business and individuals suddenly become identified with individual liberty!

Next time someone talks about 'the free market', remember that they are not talking about competition, which is how it is usually sold, but for the freedom of the rich from any check on the power to get whatever they please.

p.s. Now see my follow up to this: Myth of the Free Market II, with more on Friedman, and how Stiglitz refuted him.