You know the story triumphantly heard in the West. Markets work best when governments let them operate freely - unconstrained by rules, regulations and taxes about which noted economist Milton Friedman once said in an interview he was "in favor of cutting....under any circumstances and for any excuse, for any reason, whenever it's possible (because) the big problem is not taxes (but government) spending.
Friedman is no longer with us, but by his reasoning, the solution to curbing it is "to hold down the amount of income (government) has (and presto) the way to do it is to cut taxes." He seemed to forget about borrowing and the Federal Reserve's ability to print limitless amounts of ready cash the way it's been doing for years and during the current credit squeeze. Friedman further added in the same interchange "If the White House were under (GW) Bush, and House and Senate....under the Democrats, I do not believe there would be much spending."
Clearly, either the Nobel laureate wasn't paying attention or age was taking its toll late in his life. Since 2001, Democrats embraced tax cutting and overspending policies as enthusiastically as Republicans with both parties directing the benefits hugely to the right pockets. They're on Wall Street and in corporate boardrooms where recipients know "free markets" work great with a little creative resource directing from Washington.
Financial Market Efficiency
In investment finance, Eugene Fama is generally regarded as the father of efficient market theory, also known as the "efficient market hypothesis (EMH)." He wrote his 1964 doctoral dissertation on it titled "The Behavior of Stock Market Prices" in which he concluded stock (and by implication other financial market) price movements are unpredictable and follow a "random walk" reflecting all available information known at the time. Thus, no one, in theory, has an advantage over another as everyone has equal access to everything publicly known (aside from "insiders" with a huge advantage). That includes rumored and actual financial, economic, political, social and all other information, all of which is reflected in asset prices at any given time.
Those buying this theory believe Milton Friedman knew best. He became the modern-day godfather of "free market" capitalism and leading exponent that markets work efficiently and best when unfettered by government intervention that generally gets things wrong. In 1958, Friedman explained it in his famous "I, Pencil" essay. In it, he illustrated the notion of Adam Smith's invisible hand and conservative economist Friedrich Hayek's teachings on the importance of "dispersed knowledge" and how the price system communicates information to "make (people) do desirable things without anyone having to tell them what to do."
Friedman's "pencil" story explained "a complex combination of miracles: a tree, zinc, copper, graphite, and so on." Added to these ingredients from nature is "an even more extraordinary miracle: the configuration of creative human energies - millions of tiny know-hows configuring naturally and spontaneously (responding to) human necessity and desire and in the absence of any human master-minding." None of them working independently was trying to make a pencil. No one directed them from a central office. They didn't know each other, lived in many countries, spoke different languages, practiced different religions, and may have even hated each other. Yet, their unrelated contributions produced a pencil.
By Friedman's reasoning, this could never happen through central planning. It sounds good in theory, but how does it jibe with reality. The Soviets split the atom, were first in space ahead of the US with Sputnik 1, and developed many advanced technologies even though they were outclassed and outspent by the West overall with greater resources to do it.
In practical reality, governments, like individuals operating freely in the marketplace, can succeed or fail. It comes down to people skills and how well they do their jobs. Top down or bottom up has little final effect on the end result, but does direct what's undertaken and what isn't. Top down in Canada, Western Europe and Venezuela delivers excellent state-funded health care to everyone. Bottom up in America offers it to anyone who can pay, but if not, you're out of luck if your employer won't provide it. Forty-seven million and counting had their luck run out, and Friedman's pencil making miracle won't treat them when they'll ill.
Put another way, if "free market" capitalism works best and America is its lead exponent, why then:
-- is poverty high and rising in the world's richest country;
-- incomes stagnating;
-- higher education becoming unaffordable for the majority;
-- public education crumbling;
-- jobs at all levels disappearing to low-wage countries;
I am a 72 year old, retired, progressive small businessman concerned about all the major national and world issues, committed to speak out and write about them.
Libertarians like Friedman have to believe people are angels for their market hokum to work. We know that is not true and, more important, the lack of any "factor" balance (labor v. capital) in societal and economy corrupts both market theory and reality.
See more on factor balance at TheCenterForBalance.org
Kent Welton,
OligarchyUSA.com
PublicCentralBank.com
& more
by
Kent Welton (53 articles, 0 quicklinks, 0 diaries, 38 comments)
on Friday, August 24, 2007 at 1:25:22 PM
Its great to see people contradict Friedman's free market ideology. This free market crap is just propaganda spit out by corporate interests to use as an excuse when the implement business practices that are unethical and heartless. Outsourcing and the elimination of labor and environment standards has been passed off as well Adam Smith says if you don't let business run wild the economy will just collapse.
Whats really sad is these outsourcing free trade preaching corporations often recieve huge sums in government subsidies. Basically they want free trade and government to stay out of the way, unless they need some of uncle sams tax money.
A good example of how American corporations are ran today is perfectly demonstrated by the current Bush administration. The Bush administration is completely controlled by corporate interests and believes in Friedman's theories. What you will find is gross incompetence, favoritism, dishonesty, complete lack of ethics, short sightedness, unrelenting greed, no conscious. and placing profit over national interests.
If libertarians got their wish in a few short years our economy would be devasted as large corporations would leverage their power and take control of market segments, destroy competition and price gouge. Kind of like the oil companies only much worse.
by
Gary Denson (2 articles, 0 quicklinks, 1 diaries, 215 comments)
on Friday, August 24, 2007 at 4:35:39 PM
2 comments
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