The Free Economy

The government loves to meddle with potential mergers and acquisitions in the name of preventing monopolies and cultivating competition in the markets (most monopolies/oligopolies are government enabled anyways).  Yet, when the government itself has a monopoly over certain goods and services, the bureaucrats stay silent. America’s education system is a reflection of this phenomenon. Education today is monopolized via the public school system under the watchful eye of the Department of Education (DOE). Yes, there are many parents who enroll their children into “private” schools. However, these schools are not truly private in the free market sense since these schools are heavily regulated by the government. Not to mention the fact that parents who enroll their children into “private” schools must still pay taxes to fund the public school system despite the fact that they are not using those services.

It is well publicized that America’s education system today is substandard to say the least. American students are lagging behind many of their peers in developed and some developing nations. Conventional wisdom states that the government should continue pouring trillions of dollars into education in order to improve its sad state. This may sound good on the surface. But think about it. We have already spent trillions of dollars on public education and it resulted in a monstrous bureaucracy. What good will another trillion dollars do?

The key to improving our children’s  education is to decentralize our education system. Rather than letting the federal government (or state government) have a monopoly over educational services via the DOE, we should have education “regulated” at the county or municipal level. In our current educational system, when the DOE makes poor policy decisions, everyone suffers for it. However, if education is supervised at the local or municipal level, bad policies would only affect those who reside in those specific jurisdictions. Municipalities that enact good educational policies will thrive while jurisdictions that enact poor educational policies will become a backwater. Having smaller educational jurisdictions promote competition and thus encourages innovation and improvements. Those jurisdictions that are lagging will have an incentive to improve either through copying successful jurisdictions or innovating their own programs in order to attract students back into their schools. Some will argue that a complete privatization of our education will serve us best. Judging by the current political climate, such a “drastic” action would encounter enormous opposition of bureaucrats and voters alike. The best way to eventually attain privatization of education would be to use the aforementioned method of decentralizing the educational system. Some jurisdictions may choose to completely privatize their schools. If these jurisdictions end up having the best schools, then other jurisdictions and their residents will be more receptive to the idea of getting government out of education.

In yet another example of government distortion of the markets, the Commodity Futures Trading Commission (CFTC) forced the shutdown of InTrade. As many internet users know, InTrade is a prediction website that allows bidders to make predictions on practically everything. Predictions range from predicting the winner of the US Presidential Election to predicting the weather. All bidders/predictors put real money on the line. InTrade predictions have proven to be more accurate than the so-called “pundits” and “experts” since real money is on the line. Hypothetically, InTrade could have evolved into a useful tool for businesses, fund managers, scholars, etc… had the government not stepped in the way. But the government decided that the shutdown was for the proverbial “greater good”

So what is the excuse this time for the unreasonable use of government power? CFTC chairman Gary Gensler states that ”it is against the law to solicit U.S. persons to buy and sell commodity options, even if they are called ‘prediction’ contracts, unless they are… traded on a CFTC-registered exchange… Today’s action should make it clear that we will intervene in the ‘prediction’ markets, wherever they may be based.” In other words, the government is erecting unnecessary barriers to entry such as licensing which result in less competition and innovation. What makes the government more qualified than the free market in classifying and licensing which entities will offer the best services to their customers?

The development of too many industries is stifled by this and other types of regulatory barriers to entry. Have you ever wondered why only a handful of media conglomerates dominate the industry even though the quality of mainstream media continues to take a nosedive? You guessed it. The multitude of licensing and regulatory barriers to entry make it difficult for newcomers to enter the market in order to satisfy the viewers’ demand for unbiased journalism (gee, what a novel concept). Take away these regulations, these industries will take off and police itself. Take away these regulations, these government agencies will be unable to justify their own existence.

This was one of the questions put forth by Congressman Ron Paul during his farewell speech to Congress. Over the next few weeks, we will explore in more detail the answers to some of these questions. 

Raw Milk

This is another example of government trying to meddle with the free market and people’s personal lives in order to “protect” individuals from themselves. In other words, this is just another attempt by the FDA and other agencies to justify their own existence. The FDA believes that allowing raw milk to be sold legally will increase the number of dairy-related illnesses. The jury is still out for that claim, although more and more studies show that there are no legitimate concerns in regards to consuming raw milk. Now, is the safety and cleanliness of the food you eat a legitimate concern? Of course it is. But is it necessary or even prudent to have a federal agency tell us whether or not the food we buy is safe to consume? No way! Just because the FDA has the word “Federal” stamped on their foreheads does not make them qualified to discern whether or not our foods are safe to eat.

The demand for knowing whether or not the food we buy is safe to consume would be satisfied in a free market system. Just like how Edmunds.com fills that role in the automobile industries, similar businesses can function at a similar capacity in the free market. However, when the government has a monopoly in this field via the FDA, shenanigans tend to occur. As with everything else, having the government intervene in the market opens the door up to more lobbying and corporatism. With the likes of big pharma, Monsanto, and other companies lobbying to get regulations through the door, do you really believe the FDA has our best interests at heart? Not a chance! The FDA only has the lobbyists’ best interests at heart. A free market institution would have to act in the best interests of the consumer in order to maintain their trustworthiness and long term profitability. Now, is it possible for shenanigans to occur in a free market? Of course. However, companies that fail to garner consumers’ trust will fail and be replaced by better performing competitors. Thus, the main difference is that the free market solves problems while a government-enabled monopoly perpetuates the problem. Also, as with other industries in a free market, competition will spur constant innovation and improvements and thus improving society as a whole.

Unfortunately, our current system of the FDA monopoly gives the federal government and their cronies the power they desire. By freeing up the system to the free market, dairy and other food corporations who have the FDA and other agencies in their back pockets would lose their foothold to other competitors. Legalizing raw milk and other food-related goods would also lead to consumers questioning the very existence of the FDA (and other agencies). Now, wouldn’t that just be dandy?

This was one of the questions put forth by Congressman Ron Paul during his farewell speech to Congress. Over the next few weeks, we will explore in more detail the answers to some of these questions. 

Should we treat drug addiction as a medical issue or as a criminal issue?

This question is relevant for both recreational and medicinal users of the drug. By legalizing marijuana (and other “illegal” drugs), whether it be for recreational or medicinal uses, the power of the federal government in this area is greatly reduced.

The prohibition of drugs specifically benefits four parties:

• Federal Agencies – As long as the War on Drugs continues, the federal agencies tasked with fighting the war and enforcing drug laws will receive a bigger slice of the budgetary pie. These agencies were supposedly created to protect us from ourselves and to eradicate “illegal” drugs from society. But is it really in their best interest to eradicate this drug “problem.” In a hypothetical world where drug addiction and proliferation is eradicated, then how would these agencies justify their bloated budgets or even their very existence? Keep in mind, these drug laws create a black market for the drug cartels and gangs (as we will explore later). As a result, our streets become more dangerous, thus providing “justification” for more stringent gun control laws (in other words, more government meddling and intrusion). Also, if drugs like marijuana were to be legalized, even if only for medicinal purposes, the ridiculousness of  legislating away social behavior and “morality” would come to light. As a result, the social conservative wing of the federal bureaucracy would lose their stranglehold on the meddling in people’s lives.

• Private Prison Companies – The War on Drugs has undoubtedly put millions of otherwise non-violent individuals into prisons nationwide. This is why you see private prison companies lobbying for the continuation of the War on Drugs. No War of Drugs = Less profits. The United States, supposedly the land of the free, has the highest incarceration rate in the world. Now, something is definitely wrong with that picture.

• Big Pharma – In addition to the above-mentioned question, Ron Paul also asked “Why are sick people who use medical marijuana put in prison?” If all drugs were legalized, even if only for medicinal purposes, the oligopoly in the pharmaceutical industry would be threatened. Contrary to popular belief, monopolies/duopolies/oligopolies are enabled by government intervention, not by the free market. By enacting countless barriers to entry (with drug prohibition being a big barrier), Big Pharma will continue to have a stranglehold of the industry while society continues to suffer the consequences due to the lack of innovation and improvement in medicine.

• Drug cartels/gangs – During the alcohol prohibition of the 1920s, the resulting black market gave rise to the mafia. Now with the current War on Drugs, the resulting black market gave rise to the drug cartels and gangs we always hear about on the news. The stringent drug laws creates the black market that allows these cartels and gangs to sell these goods at an incredibly high margin. These margins would not be possible in a free market. Take away the drug laws and you take away a major source of funding for the cartels/gangs. As a result, our streets will become safer.

Hurricanes benefit the economy and society as a whole?

After every disaster or war, you hear “economists” and pundits talk about how the economic “benefits” of fixing the damages is a silver lining of the resulting destruction. Let’s make this clear: there is no silver lining to Hurricane Sandy. Nor is there a silver lining for past and future hurricanes. Nor is there a silver lining for destruction caused by war. Sure, a some people may benefit from disaster. After a hurricane, construction companies may receive a temporary boost in business. After a viral/bacterial outbreak, physicians and the medical industry in general will see an increase in business. During wartime, the defense industry will see its sales rise through the roof. But do any of these events actually benefit society as a whole? Common sense says NO. Unfortunately, common sense does not exactly permeate within the ranks of “mainstream economics” and the mainstream media.

This idea of Hurricane Sandy having a silver lining is a perfect example of the Broken Window Fallacy. Henry Hazlitt provides an excellent summary of the Broken Window Fallacy in his book Economics in One Lesson:

“A young hoodlum, say, heaves a brick through the window of a
baker’s shop. The shopkeeper runs out furious, but the boy is gone. A
crowd gathers, and begins to stare with quiet satisfaction at the gaping
hole in the window and the shattered glass over the bread and pies.
After a while the crowd feels the need for philosophic reflection. And
several of its members are almost certain to remind each other or the
baker that, after all, the misfortune has its bright side. It will make
business for some glazier. As they begin to think of this they elaborate
upon it. How much does a new plate glass window cost? Fifty dollars?
That will be quite a sum. After all, if windows were never broken,
what would happen to the glass business? Then, of course, the
thing is endless. The glazier will have $50 more to spend with other
merchants, and these in turn will have $50 more to spend with still
other merchants, and so ad infinitum. The smashed window will go on
providing money and employment in ever-widening circles. The logical
conclusion from all this would be, if the crowd drew it, that the little
hoodlum who threw the brick, far from being a public menace, was
a public benefactor.”

Sounds ridiculous doesn’t it? Well that is the type of logic these silver-lining folks are using. Sure, the construction companies may benefit from the rebuilding effort. But what about the billions of dollars in damages suffered by businesses and individuals? While the construction companies may receive hefty profits, these other businesses and individuals who suffer the losses will have that much less resources to pursue their normal economic activities. Thus, the businesses they patronize will lose out as well. In a nutshell, these resources would have to be diverted away from other productive areas of the economy towards rebuilding the losses. That is not an economic boon.