Are unregulated markets and free market economics the same? Are these ideas really synonymous? In writing a comment to another article, it became clear that it was itself actually a short article. The ideas that follow are simple, easy to understand, and anything but extreme. They are more practical than ideological:
1. Income and wealth inequality are a natural consequence of differences in aptitude, environment, and motivation.
2. When an actual, practical, free market economy is working best, in the aggregate it roughly approximates the ideal of rewarding everyone with compensation that corresponds to the true economic merit of their contributions to the well being of society.
3. Extremes that deviate substantially toward either less or greater inequality from such approximately idealized economic function are economically unhealthy for society as a whole.
4. These extremes are the result of either:
a. socialist ideologies that politically mandate an unnatural reduction of income and wealth inequality and so remove the fundamental incentives that drive the economic engine
b. manipulation by the corrupting political influence of a financial elite to tip the legislative scales in favor of garnering unearned income from those less influential, partially removing from both themselves and those they exploit the economic incentives that drive the economic engine.
5. Lack of policing human behavior in any context results in lawlessness, unbridled criminal behaviors and social chaos, since by default those with the most power are free to exploit those who lack it.
6. Unregulated, free market economics is therefore an oxymoron and cannot exist, since given human flaws, unregulated markets are intrinsically never free.
So in point 4 we can see from parts a and b under it that both extremes remove incentives that drive the economic engine. However, crony capitalism easily bests socialist extremes despite the macroeconomic and individual damage gross inequality inflicts. The reason is simple. The removal of productive incentives is much less complete in crony capitalism than it is in socialist extremes, especially in the case of communism.
This generates false arguments on both the left and the right. The left argues that socialism takes better care of the lower extreme and that the rich really do not need all that wealth. The right, although they omit the term crony despite its clear appropriateness, argues that because crony capitalism is both more successful and much less politically regulated than socialist extremes, especially pure communism, regulation is per se a socialist idea and is therefore intrinsically a bad one.
This goes so far as to criminalize even minimal social safety nets provided by government. They portray it as socialism that robs the rich to help the poor. This clever manipulation of political opinion is just the magician's ploy of misdirection that arouses anger in the middle class toward the poor for allegedly robbing them through taxes with unbridled fraud. The pre-existing fears and prejudices of the middle class, sometimes including competition, especially at the lower end of the financial spectrum, makes this an easy game for the financial elite to win.
Crony capitalists advance this argument both to enable and justify the resulting partial removal of economic incentives with their sense of entitlement. In their minds, they are entitled to legally garner unearned wealth from the rest of us via their stronger legislative influence. In a quasi-democracy, they have to enlist help from voters to achieve this. They do so by either becoming experts in psychological manipulation of the prejudices and fears of the ignorant or by hiring such experts.
The news media are now full of talking heads advancing both arguments with no understanding of the economic reality of a middle ground that is capitalism without the crony part, with constitutional protections of intelligent regulation that outlaw the currently blatant conflicts of interest built into the U.S. politico-economic system. Lack of education in genuine critical thought, susceptibility to irrational emotional appeal, and easily provoked, pre-existing fears and prejudices combine to make far too many of us susceptible to looking for a cure at the extremes. We, as a people, are ignoring the health and sanity of the fairness that is naturally intrinsic to intelligent regulation of otherwise free markets. We need regulation that allows markets to exist free of conflicts of interest while also freely allowing the power of economic choice to optimize our overall economic and social well being.
Copyright May 2014 © Robert P. Wendell
Redistribution freely permitted contingent upon the unmodified inclusion of this copyright notice.