Uncommon Sense

September 3, 2020

The Free Market Debate (sic)

Filed under: Economics,Politics — Steve Ruis @ 1:06 pm
Tags: , , ,

I am sure you have heard of this debate before, so I won’t be explaining just what it is. But I do have a question: what in your opinion is the biggest roadblock to having free markets? I am going to step out on a ledge and claim that you immediately thought of government intervention. It is the intervention of governments into free markets that messes them up and prevents them from doing what they do so well.

Am I right?

If I am, I think you now have proof of the manipulation of a public debate.

Think back to any financial crash you want. All the way back to 1929. Maybe the Savings and Loan Debacle. Or the Great Recession of 2008. Or the several times the Stock Market went haywire and we had a mini-crisis lasting just a few days. Were any of those caused by government oversight or government intervention? Any? Hmm, that’s interesting. If government intervention doesn’t cause financial panics or crashes, then what does? Let’s see, in 1929 it was runaway speculation by people playing the market to make easy money. In 2008, a major cause was the selling of bogus “financial instruments,” bundling lousy mortgages together and calling them Triple-A investments. Also, lenders were scheduling iffy housing loans based upon those faulty financial instruments.  There was an element of governmental controls during the S&L crisis as those regulations put many S&Ls into a box.

But, by and large, most of the financial crises have occurred because of market manipulation by market participants, not by government intervention.

For example, it was not long ago that corporations were not allowed to buy their own stock. It was thought that that would lead to stock price manipulation. But in the Clinton administration the business sector offered “campaign donations” to one and all if they would accept the reforms they thought were needed. One of those was to allow corporations to buy their own stock. At the same time regulations were passed to encourage corporations to pay their executives in stock options, rather than cash, to “give them a stake in the company.” You will have noticed that the majority of American corporations took their Trump administration tax cuts and used then to . . . create jobs, modernize their infrastructure, develop new products . . . uh, no, just kidding; they bought stock with the money, often their own stock. By executives deciding to buy their own stock, they drove up the price of their own stock, which made their shareholders happy, and made their salary payment in stock more remunerative for themselves. Do the right thing for their employees and society at large? Not on the agenda.

The “free market debate” isn’t a debate, it is a false dichotomy. The people promoting that this as an actual debate want there to be just two sides: one where the government messes things up, which it rarely does and one in which free markets, without any manipulation work like miracles. Somehow they always seem to leave out the markets as they really are: markets manipulated up the yin-yang by participants in the markets themselves.

Oh, and the days in which government dreamt up regulations on its own are long past. All new regulations are proposed by the industries being regulated themselves and is it any wonder those regulations seem to favor certain things?

7 Comments »

  1. BINGO!

    Like

    Comment by Nan — September 3, 2020 @ 1:13 pm | Reply

    • Thanks, Nan! You made my day!

      On Thu, Sep 3, 2020 at 1:13 PM Class Warfare Blog wrote:

      >

      Liked by 1 person

      Comment by Steve Ruis — September 3, 2020 @ 1:15 pm | Reply

  2. You’re right, of course. Basically what happens in an unregulated market is that basic human greed takes over, the prospect of fast profits, big bonuses, often using methods that are, in the long term, harmful to the company itself, but as long as it generates profits now, that’s all they care about. And once companies wield enough political influence (i.e. bribery in one form or another) and begin making the rules themselves, well, that’s pretty much it. Someone is about to flush the toilet and it’s going to go down the drain, as it did with the savings and loan debacle that you pointed out.

    The whole concept of a totally free market is a pipe dream, really. I don’t believe that such a thing can exist, because any completely unregulated market will eventually bring itself down.

    Liked by 3 people

    Comment by grouchyfarmer — September 3, 2020 @ 10:31 pm | Reply

    • The problem, as it often is, is based upon there being no qualifications needed to play in that particular sandbox. Even back in the day when ordinary people were barred from “playing the market” (telling term, no?) people were always looking to make a quick buck and would follow “tips” from people supposedly in the know. A study showed that the more you knew about the market, the less well you did as a stock trader. That should have told us everything we needed to know. Another study showed that the financial sector is a net drag on the economy. Again, that should have told us everything we needed to know.

      Liked by 2 people

      Comment by Steve Ruis — September 4, 2020 @ 10:40 am | Reply

      • As for the stock and commodities markets, you’re right. I’ve followed the commodities markets for ages, and what happens over there generally has little relationship to reality, with wild swings of panic buying and selling based more on rumor and gossip than anything else.

        The financial sector is largely parasitical. Large parts of it specifically prey upon the general public with usurious interest rates, often charged to the people who can least afford it. The “quickie loan” and car title loan sectors are blatantly unethical, immoral and only borderline legal, as just one example. They make hundreds of millions of dollars by sucking money from those who can least afford it. They are literally parasites, sucking up resources that otherwise would have been eventually funneled into the real economy in the form of purchases of goods and services.

        Liked by 1 person

        Comment by grouchyfarmer — September 4, 2020 @ 10:22 pm | Reply

        • Those little guys are a problem, but a small one. I just read an article that did a study over the last ten years and hedge fund managers siphoned off two thirds of the gains made in their clients accounts. And for being this predatory we reward them with the “carried interest deduction” that allows them to pay a lower federal income tax rate on those “earnings” than even middle class people pay. Some of these hedge fund managers have incomes of over one billion dollars in a tax year. We give them a tax break because of their potential risks. WTF? Some poor schleb pays full pop on his wages and can lose his job and all of his benefits for no reason whatsoever. He doesn’t have risks like hedge fund managers do. Nope, his are worse.

          On Fri, Sep 4, 2020 at 10:22 PM Class Warfare Blog wrote:

          >

          Liked by 1 person

          Comment by Steve Ruis — September 5, 2020 @ 11:25 am | Reply

          • Again you’re exactly on the mark. They are predators and parasites who actually create nothing of value but rake in huge profits by skimming (scamming) off percentages of other people’s money, and get significant tax breaks to do it. Interestingly enough, back when the tax rates on extreme wealth were up in the 60% – 90% before Reagan came along, one could argue that economically the country was far better off.

            Like

            Comment by grouchyfarmer — September 5, 2020 @ 10:48 pm | Reply


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