Over the past few months I have been almost addicted to this website. It is about time I join these forums. Being the hyper-rational guy I am, I am attracted to the answers this site provides. As a result I have been shifting towards an Austrian outlook on the economy.
Without checking, I bet I'm one of the younger guys here (still in high school.) I guess I have come to these forums to learn. And it is never to young to learn. I predict I will be asking more questions than providing answers on these forums. Hope you don't mind.
To start off, I'll ask a few(I hope it isn't redundant for you. I bet you've answered these questions a million times.) I was debating online about the legitimacy of free market economics. I stood firmly behind them, the other guy not so much. I'll quote him:
"Unregulated markets have three primary failures. First and foremost is issues with common property. Aquifers, Civic water supplies, soil/air quality, strategic resources on public land, etc. None of these things have any real "ownership" in the United States at present, and thus are very attractive in terms of exploitation by business ("exploitation" used in economic sense, not necessarily negative). Very few businesses pay the appropriate rate for exploitation of common pool resources, and I can tell you exactly how many private citizens (the owners of common pool resources) benefit from those transactions... Second being that the natural drive of business is to increase profits, and decrease competition. Without appropriate regulation, the natural state of these activities is Monopoly or small Oligopoly; both of which are sub-optimal outcomes for markets because they suppress the ability of other businesses to enter the market, and they suppress the consumer's ability to make rational choices (aside from yes/no on their product). Consumers need information and options in order for a market to function, and monopoly/oligopolies severely hinder that. Finally. The "Free-Market" does not respond to people. It does not respond to consumers. It never has. The Free Market responds to Capital and Capital alone. Those with more Capital have more command over the marketplace than those with less Capital. Those with no Capital have absolutely no command over the "Free-Market". Now, given these three pretty massive failings, I am not saying that market mechanisms are inherently bad, or that they do not have their place. They are POWERFUL tools in the right circumstances, but the same as you would not use a wrench to drive nails, Market Forces are not a panacea." As for the first "failure," I have to say I'm no expert on praxeology and methodological individualism. So I'm curious about how Libertarians view the concept of public property. As for the second two, I think I may already have a clue as to what you'll say. Like I said, I hope this isn't busy work. I can already smell that this isn't the most stimulating stuff for you guys.
"Unregulated markets have three primary failures. First and foremost is issues with common property. Aquifers, Civic water supplies, soil/air quality, strategic resources on public land, etc. None of these things have any real "ownership" in the United States at present, and thus are very attractive in terms of exploitation by business ("exploitation" used in economic sense, not necessarily negative). Very few businesses pay the appropriate rate for exploitation of common pool resources, and I can tell you exactly how many private citizens (the owners of common pool resources) benefit from those transactions... Second being that the natural drive of business is to increase profits, and decrease competition. Without appropriate regulation, the natural state of these activities is Monopoly or small Oligopoly; both of which are sub-optimal outcomes for markets because they suppress the ability of other businesses to enter the market, and they suppress the consumer's ability to make rational choices (aside from yes/no on their product). Consumers need information and options in order for a market to function, and monopoly/oligopolies severely hinder that. Finally. The "Free-Market" does not respond to people. It does not respond to consumers. It never has. The Free Market responds to Capital and Capital alone. Those with more Capital have more command over the marketplace than those with less Capital. Those with no Capital have absolutely no command over the "Free-Market". Now, given these three pretty massive failings, I am not saying that market mechanisms are inherently bad, or that they do not have their place. They are POWERFUL tools in the right circumstances, but the same as you would not use a wrench to drive nails, Market Forces are not a panacea."
As for the first "failure," I have to say I'm no expert on praxeology and methodological individualism. So I'm curious about how Libertarians view the concept of public property. As for the second two, I think I may already have a clue as to what you'll say.
Like I said, I hope this isn't busy work. I can already smell that this isn't the most stimulating stuff for you guys.
Regarding public property, there is the argument that much of what is today public could be successfully privatized. But there may still be instances in which it is prohibitively expensive or not feasible to privatize a resource or 'internalize' all externalities; here, the work of what Pete Boettke has labeled the Bloomington School is valuable. Elinor Ostrom won the Nobel Prize last year for her research into how communities govern the commons. But obviously, in the United States right now, there is a lot of public property, and unsurprisingly, there is a lot of rent-seeking going on.
Regarding his second point, I find it funny that he keeps using the word unregulated while arguing that businesses seek to "decrease competition." Competition is not imposed or encouraged by regulation; competition is regulation. It is a regulating mechanism of the market that prevents exploitative monopolies and oligopolies from arising. His talk of a sub-optimal outcome is nonsense.
His last point is plain wrong. Consumers direct production. Flip through any of Mises' books and you'll probably find a great quotation explaining this. It also kind of contradicts the second point, because if consumers have little or no say, then what danger do monopolies pose? Capitalists can do whatever they like without holding a monopoly over a good or service.
And welcome. Glad you're getting in on this while you're young.
Paragraph one regarding public resources: Patently false. There are very few resources (if any) where a complete natural monopoly is even possible and fewer still that involve resources that have no alternative materials if someone drives the price up outside the range people can afford. Aquifiers and civic water? Water falls out of the sky, desalinaization becomes more attractive as price goes up, and wells can be dug. Not to mention driving up the price runs people out of the region, meaning less customers, meaning less money for the investment in the infrastructure. Soil quality? The soil is only good for producing something to sell.
Paragraph two regarding monopoly: To my knowlege no industry has ever been able to do this and I challenge anyone to show a specific example. Your friend is equivocating regarding how businesses legitimatley reduce competition. They do it via presenting a superior product more cheaply. Look at standard oil and walmart. They are the arch-examples of the "evil" monopolists. They gained their market share by revolutionizing their markets and driving prices down. The argument against monopoly is that they restrict resources and drive prices UP. It doesn't happen without guns (meaning regulation).
Paragraph three: False on the level that I suspect you friend is intentionally misleading you. The free market, ANY market, responds to consumers. It isn't a market without consumers. Consumers are fundamental to the definition of a market. Capital is only capital if it is help by people. There is no capital mine where capital fairies extract and control it's distribution. When you get a paycheck you have a little capital to move the market. When you pick a penny up off the sidewalk you have gained a miniscule addition to your personal capital to move the market. No one "commands" in a free market. There is only influence. The closest thing to a command is when aggregate influence and preferences make an action totally unfeasible. The man with more capital doesn't possess more capital "votes" than the man with less capial in every situation. If he burns up his capital getting what he wants eventually the man with less capital will have the advantage in influence, particularly if a lot of poor men want something the rich man doesn't. In a free market it is difficult to attain that huge level of personal influence (lots of free resources to spend getting your way) and easy to lose it. Hegemony is simply not feasible.
Market forces are not a panacea. That is true. They are a natural force. Your circulatory system is not a panacae. It is how your body sustains itself by its own nature. Market forces are inherent to the way people operate in concert. The choice is to screw with them or not. You block a free market and market forces route around it to form a black market. You clamp down so hard that you have a prison state and lots of people die and market forces push capital to healthier regions. Allowing market forces to work isn't a panacea any more than anything that you have to STOP screwing with is a panacea.