Saturday, June 18, 2011

What Can Free Market Conservatives Do?

I am a free market conservative. I voted republican in every presidential election since 1968, except one. It is obvious that our government must live within its means and do so in a manner as not to interfere with a functioning free market economy. If we desire to take control of government, we must demand government carry out one of its primary functions; protecting free markets from tyranny, both public and private. We are vocal about defending it from public tyranny, but silent when it comes to tyranny in the private sector.

“Experience should teach us to be most on guard to protect liberty when the government’s purposes are beneficial. Men born to freedom are naturally alert to repel invasion of liberty by evil-minded rulers. The greater dangers to liberty lurk in insidious encroachment by men of zeal, well-meaning but without understanding.” Justice Louis Brandeis 1928

Today our focus seems to be only on the tyranny of government when it comes to free markets. We need to find the right balance.

Often, when we review our present status, we forget the past. Yes, we need to control the federal debt; however, In the last 10-years, we were fighting two wars, cutting taxes to the super wealthy and borrowing to the hilt against our homes to consume. We are in a mess and we put ourselves there. I voted for George W. Bush and I remember him standing at the 911 disaster and boldly saying we should continue consuming while we prepare to fight the enemy. I could not believe someone with conservative principles was saying this; so much for the conservative principle of living within our means. I remember my Mom saying that during World War II she painted her legs because the military needed all the silk they could get for parachutes. In contrast, during this war we were encouraged to keep going to Cold Stone for some very expensive ice cream.

Some conservatives will argue for the need and appropriateness of the Bush tax cuts. They will make the claim that these tax cuts stimulated investment that resulted in the boom years between 2000 and 2007. Hindsight tells us that the housing bubble, financed by the sub prime mortgage fiasco, fueled these unsustainable years of “prosperity”. We borrowed from our future and it was very costly. The result is housing prices collapsing nearly 35% with the highest foreclosure rates in history and the economy in a near depression.

A private sector without umpires and controlled by oligopolies got us into this mess with sub prime lending. The umpire, the government, was bought with campaign contributions from oligopolies.

The federal budget was in balance at the turn of the century and if tax cuts were appropriate, we needed to address cutting the federal deficit at the same time. Instead, we conservatives chose to close our eyes to this problem. When we decided to cut revenues, we should have also cut expenses. We chose not to face that issue.

We averted a depression, thanks to both the Bush and Obama administration; however, it was not without cost. Believing that we were near a depression puts a different perspective on where we were and why we are here now. We did not over stimulate; we clearly avoided a depression. It takes time and money to come back from hell. The difference between this depression and the last one in the thirties is this time we did not wait for a total meltdown before taking action.

Every conservative I know complains about over regulation of our markets by the government. I agree. The market surely would operate more efficiently if we eliminated or cut back many existing regulations. As a fellow conservative, you agree with me on this.

However, private market conservatives never mention having any concern for other factors destroying free markets. Many industries are losing freedom because a few very large corporations are choking off competition and not allowing the market to operate efficiently. Why do most free market conservatives fail to talk about this issue?

‘People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public or in some contrivance to raise prices.’ (Adam Smith, The Wealth of Nations, 1776).

Adam Smith, the author of the concept of capitalism, recognized that in order for industries to remain free, government must protect it from the conspiracy he mentions in the above quote. In order for markets to be truly free there must be a sufficient number of producers so that not one producer, or a small number of producers, can control the market. This is where the greatest threat to free markets lie in our modern society.

What does the American auto industry, the health care industry, wall street firms and the banking industry all have in common; other than they were all on the brink of failure?

These are industries where the production side of the industry is no longer a free market with many producers competing head-to head to earn the business of consumers, or customers, of the industry. Instead each of these industries are controlled by a relatively small number of very large corporations that have transformed these markets into oligopolies.

These oligopolies not only result in higher prices to the consumer. They result in less innovation, a wider disparity in income distribution, egregious salaries to executives and board members of these oligopolies, lower competitiveness by U.S. companies in world-wide markets and consolidation of political power. Where are the free market conservatives? I do not see them clamoring about this issue with the same fervor they complain about over regulation of the private sector.

Adam Smith when he discussed “rational self interest” and competitive markets in his book Wealth of Nations, envisioned many consumers buying goods and services from many producers with everyone looking out for their self-interest. By keeping markets “free”, producers pursue their rational self-interest and this best meets the needs of the consumers and the citizens of our country, who are also looking out for their self-interest. Under this system, what is in the producers self interest is to provide the best product possible to the consumer, while striving to be a low cost producer for their niche.

In today’s market, the major goal of oligopolies is to pursue their self-interest of keeping the oligopoly alive. This goal is not in congruence with the citizens of this country. Why are we not demanding the enforcement of anti-trust laws? This country seems to be transforming into an Oligarch from a Republic and the defenders of free markets are doing nothing about it.

The quote below is from the book Capitalism and Freedom written by Milton and Rose Friedman. Dr. Friedman is the economist quoted most often when conservatives are praising free markets and capitalism.


“…But we cannot rely on custom or conscious alone to interpret and enforce the rules; we need an umpire. These then are the basic role of government in a free society; to provide a means where we can modify rules, to mediate differences among us on the meaning of rules, and to enforce compliance with the rules on the part of those few who otherwise would not play the game.”

We free market conservatives are always complaining about government creating excessive regulations that hold back the productivity of free markets. Why is it we never come down on government for failing as the umpire for free markets? We would never dream of not having referees at a NFL football game; and yet we fail to speak out when the government fails to do its job as the referee of free markets.

Personally, I have concluded that our “conservative” politicians ignore private tyranny because they enjoy the large campaign bribes, I meant contributions, provided to them by these oligopolies. What is the excuse for the rest of us? Why do we allow it and not speak up about the injustice?

I love capitalism and free markets. Let us make sure we keep them for the sake of our children. It will take courage to do this. If we don’t; this is the forecasts.

“Just as the cataclysm of the Second World War revealed the fundamental shift ……. In world power from Great Brittan to the USA …. So to has the financial crisis of 2008 exposed another world upheaval….a new transference of economic power from the west to the east…..” Dambisa Moyo, How The West Was Lost

This is the opinion of one economist, however it is not too late. Free markets made our nation prosperous and free markets will be the engine that restores prosperity. Our problem is free markets are being destroyed. Republicans need to take a stance of protecting free markets from both government and oligopolies. Our countries future is in the balance.

The question is whether the free market conservative movement is so heavily financed by these oligopolies that we will not truly fight for free markets; but rather for free wheeling, un umpired, oligopolies.

41 comments:

Anonymous said...

It's a mystery to me why conservatives are not backing up this analysis with a loud voice.

Perhaps it's the same old story--greed.

Anonymous said...

Teddy Roosevelt, Abrham Lincoln, Milton Friedman-- RINOs. Even Reagan, if you look at the actual record, rather than the mythology.

Anonymous said...

These Days one has to wonder whether it is better to be a RINO than an Elephant.

Rebecca and Me said...

As pointed out above, in David Brooks' 7/5 column: "The members of this movement do not accept the legitimacy of scholars and intellectual authorities." Thus, they will surely ignore such sage reasoning as this article represents!

Anonymous said...

Great post. I absolutely agree with this analysis. I believe, however, that you meant to reference Adam Smith, rather than John Adams, as the father of capitalism in paragraph 12.

GrumpyOldGuy said...

I very likely do not agree with most of your politics, since you label yourself a "free market conservative". However, I very much agree with your posts (also your comment on David Brooks).
I fully agree with you sentiment that we need to be suspicious of government tyranny, but also of the tyranny of the small 0.1% oligarchy which currently dominates our free market economy and hence our political institutions.
I invite you to read
http://rantingsofgrumpyoldguy.blogspot.com/2011/03/death-of-democracy-in-america-obituary.html
and
Death of Democracy in America | http://www.amazon.com/dp/B0053T3OJ2
I also recommend the following book to you:
Inequality and Prosperity: Social Europe vs. Liberal America.

Anonymous said...

Normal people are beginning to understand that the Republican party has a startling similarity with Islam.
They both coddled and promoted the liars, lunatics, and haters until the lunatics took over and became the
leaders of their movement. Even when the Republican and Islamic Jihadists have what could be a rational point,
they almost always ruin their credibility with shameless lies, disinformation, Orwellian hypocrisy, and lunatic hatred. What the country and the GOP needs is a fiscal conservative presidential candidate who can lead the party away from the lunatic Jihadists

Anonymous said...

It is nice to see a conservative coming to this conclusion - I agree with everything you said. I used to be a Republican, and a conservative one at that, but the GOP kept moving further to the right over the last 15 years, so now I'm a moderate Democrat by default. I've been making this same argument, but methinks there's a blind adherence to some kind of "greed theology" at play here, that is papered over by the "free markets" crowd that simply chants "Tax cuts cure everything; all regulations are bad."

Please keep making this argument; fiscal sanity is what is required now, and all we're getting is fiscal insanity that is politically motivated, but will surely hurt 90% of Americans if left to its own devices.

Conor McHugh said...

For the first time in my life I've read something written by a self-described conservative and thought: 'Wow, that actually makes sense'.

Which leads me to think that either you're not actually a conservative, or at least not in the sense of the most readily-applied modern definition of the word.

Either way, please continue to be a lone sane voice.

Anonymous said...

The Republican party is not about free markets or the debt and deficit. They never have been. There is absolutely no proof they ever cared about this stuff. Since WWII Democratic Presidents have been far more fiscally responsible.

The concept of a free market is also a myth.

I think what we are seeing is a Republican party that is reacting to two things: (1) one they were massively disappointed by their many George Bush, so we have a complete reaction to go more crazy right or to take it out on the Democrats and (2) many for all kinds of reasons (racism, fear of a younger generation, etc) do not accept Obama as legitimate and will do anything they can to ensure the Obama fails, even if it involved slitting their own throat.

Anonymous said...

The sad part is that the free market of Adam Smith exists in a land where 'pure' communisim is it's next door neighbor.

Only government regulation has tempered the businesses excesses of the 18th and 19th century and attempted to create safe workplaces, reasonable work weeks, minimum wages, the elimination of child labor, etc.
This was true in the age of sole proprietorships, and rose to a fine pinnacle with the intoduction of corporations in the mix.
Today companys are run on a basisi of "Of the management, by the management, and for the management"
note country has no reference, profit (as it almost always has been) is all.

J said...

I worked for the Obama campaign in 2008 after attending a proud conservative college in Michigan and then going to medical school. Thanks to this author for their clear understanding of history and the meaning of free markets. Please spread the word amogst those in your caucus.

I likely, disagree with your politics regarding education (more money for public education), health care (go single payer), and infrastructure (high speed rail is a must to remain competitive), and financial regulation. But at least I trust we can actually debate the merits of policy within the realm of reality and not be diverted to the more academic, esoteric, and ideological discussions that seem to prevent real political discourse between our respective parties.

Consider me a fan of your blog.

Anonymous said...

I've been labeling myself a liberal since the days of Reagan, but I'm a moderate liberal and I do agree with some conservative opinions. However for quite some time I have not heard a conservative argument that makes me think. It has really been a wasteland from the Republicans. Having said that, it should be noted Democrats have not stepped up to the plate either.
The comments here are encouraging. I can't believe I'm saying this but David Brooks is correct and I agree with this blog entry. I come at the same conclusions from a different perspective; I'm more skeptical of giving the free market too much reign. But the important point here: I, as a liberal, can find common ground with a conservative that we could construct reasonable legislation that we could both be happy with, and would hopefully move the economy along for all. That's encouraging and that's what we need in DC, not what currently passes for the political process.
It's time moderates starting speaking up and push the ideologies to the side. Time to stop childish name calling and attacking straw men.

Odobs said...

Is anyone here aware of ordoliberaliism?

Anonymous said...

Ordoliberalism is a school of liberalism that emphasised the need for the state to ensure that the free market produces results close to its theoretical

Odobs said...

Has anyone read Walter Eucken or research papers describing Hayek as an ordoliberal?

Anonymous said...

Seriously, where was the hyperventilating when V.P. Dick Cheney said, ”deficits don't matter?“ I remember a conservative Treasury Secretary, Paul O'Neil, who was fired when he told President Bush that the deficit would be too high if the government cut taxes and invaded 2 countries at the same time.

rjk said...

If you think the state should step in to prevent oligopolies via antitrust legislation, doesn't that make you NOT a free-market capitalist?

Anonymous said...

"Instead each of these industries are controlled by a relatively small number of very large corporations that have transformed these markets into oligopolies.

These oligopolies not only result in higher prices to the consumer. They result in less innovation....."

Look at the Fortune 500 largest companies at http://bit.ly/lUmzIA

1 Wal-Mart Stores
2 Exxon Mobil
3 Chevron
4 ConocoPhillips
5 Fannie Mae
6 General Electric
7 Berkshire Hathaway
8 General Motors
9 Bank of America Corp.
10 Ford Motor
11 Hewlett-Packard
12 AT&T
13 J.P. Morgan Chase

Wal-Mart= high prices? 2011 is distorted by oil prices, but not because of lack of competition. GM and Ford - who would have thought it? Not oligopolies in a world full of car markers.

Couple of banks that were saved by Hank Paulson - banks are festering wounds. But who would have thought AT&T, who was very literally tore them apart 2 decades ago, has climbed back through raw competition.

Your analysis doesn't quite fit with the facts. Our economy is more than just banks.

Anonymous said...

rjk

I will leave it up to the author to say whether he is a free market capitalist. Howeever, a free market capitalist is against a concentration of power by a company or group of companies. A free market capitalist expects the government to play the referee to prevent this.

Anonymous said...

We need more like Paul O'Neill.....A politician willing to look objectively at an issue and do what is best for the country, independent of a political party's ideological positions.

Matt said...

I am compelled to question either your assertion as a free-market conservative or your understanding of the issue, if you believe, as you assert, that "a private sector without umpires got us into this mess with sub-prime lending." This is factually inaccurate. The level of regulation and control that existed, the level of market manipulation that took place, during the sub-prime boom was legendary. The idea that there was no regulation is a fantasy. Even your dates are inaccurate, the housing boom began in the mid 1990s, not in 2000.

I urge you to either work on your facts or on your self-description, because I would hate t o be lumped in with someone who plays so fast and loose with evidence.

Jerry996 said...

These oligopolies ... result in less innovation....."

Despite the post by Anonymous, the jury is still out on this one. Let's see how GM and Ford, along with the big three oil companies react to a really innovative solution for pure electric vehicles rather than the Volt, which still uses some gasoline, or the Nissan Leaf that has a bolted in battery. I want to see just what kind of opposition, direct or indirect, will come from these five companies when the solution pioneered by Better Place (BetterPlace.com) comes to these shores.

Anonymous said...

'A free market capitalist expects the government to play the referee to prevent this.'

Indeed - there is a rather big flaw in his approach, isn't there? Actually, I think he's well on the road to being a Marxist, as he, like Marx, correctly identifies the tendency of capitalism to collapse into crisis.

Anonymous said...

I'll kiss a porkypine if you're a conservative - sounded like an argument from a liberal - but a good argument none the less. Would point out that Adam Smith knew nothing about the concept of the "legal entity" that we call a corporation. It can do everything a citizen can do except cast a ballot. Of course it doesn't actually have to cast a ballot since it can have much greater influence by buying the people that make the laws and spend the money.

As far as political/economic systems, China is making a pretty good statement for something other than "free market".

Teddy said...

So what you are referring to is also known as ordoliberalism. Think "Teddy Roosevelt." It's a sound policy. Going along with your discussion of oligopolies in the US, we need to determine which are natural monopolies, in which case they should be declared as such and heavily regulated; and which ones are simply oligopolies by virtue of the fact that they have used their market strength to quash competition. The latter category must be "trustbusted." In any event, the federal government seems to favor the leaders of the industries that are the least competitive and be indifferent to more fragmented competitive industries. Rather perverse wouldn't you say.

citizendave said...

I suspect those readers who question your conservative bona fides are too young to remember "the loyal opposition" in American politics in 1968. They grew up in the increasingly polarized world that has evolved over the past 30+ years. Your view of conservative principles is exactly what is needed now to bridge the chasm between the major parties, so that we can all begin to work together again, instead of being a house divided against itself.

Last week I had a reunion with an old friend from high school, he of the class of 1965, and I of the class of '66. We talked about how we frequently discussed politics in those days, and how he was staunchly conservative, while I was just as firmly liberal. From his Facebook postings I observed that he is very liberal these days, so I asked him what changed. He said that during George W. Bush's presidency the conservative position got crazier and crazier until he couldn't stand it anymore. We found that we share much common ground, although I suspect he is still more conservative than I am.

I am certain that if the Republicans in Congress would acknowledge the reality which you have eloquently described, we could find a way to address our fiscal and economic problems that would be a true compromise, wherein both sides give ground, instead of the capitulation by one side or the other that we've seen lately, especially since President Obama took office. I hope your post at NYT today will be widely read.

Anonymous said...

There's no mystery here. The very same oligarchies mentioned in this article also control the media. There has been a concerted effort from the media to blame all of the troubles of the car companies, the drug companies, the banks, the insurance companies all on the government. In fact, the idea that the government, rather than unaccountable banks, caused the economic crash is sacred orthodoxy most media outlets.

I agree with the author that undertaking two wars while cutting taxes was ridiculous, not to mention unprecedented. During the golden age of America, the Eisenhower Age, the idea of paying taxes to fund a war was considered mainstream, conservative doctrine. Now it is presented by the media as a radical, left-wing idea. That ought to tell you how far through the looking glass this country has gone.

Bob said...

Since the "Citizens United" decision, I have become convinced that the root of all evil in American politics is the campaign finance "system." Until we legislate 100% public financing of political campaigns, all of these arguments, as concise and well thought out as they may be, are meaningless. Elected officials spend a vast majority of their working lives fund-raising, giving the ogilopolies the perfect vehicle for mainaining and reinforcing the status quo.

Anonymous said...

I cannot believe that free market advocates are actually arguing with the essential accuracy of the facts.

What free markets are we talking about. Consolidation, including that in the media, food production (Monsanto), energy etc etc. There are very few free markets left!

Anonymous said...

WOW! Great to hear the voice of someone who is actually learned and grounded in the facts rather than propaganda. This modern government (Dems and Repubs included) has no interest in the truth or doing what is best for America. All they care about is getting paid. The ignorant masses who support them are just pawns in their game. Big business controls every aspect of this economy.

Modern Republicans want to distract us from the pressing issues addressed in this blog post by invoking God and made-up social catastrophes. If they really wanted to restores the "fabric of America" and "protect our children", then they would address the oligopolies in this country who are moving our economy into a disastrous place. Relying on a few big businesses is unstable socially and economically for this nation. We should care about that WAY MORE than whether gays will marry or how many years Casey Anthony will be in jail.

Anonymous said...

I was surprised to see that we share a similar vision of how markets should work. I had always thought that when conservatives used the term "free market", they meant a market with no governmental interference whatsoever.
But from what you've described, it sounds pretty similar to what progressives call a "fair market".

I so wish there was a political party option out there for serious conservative voters. The Republican party has become a constant tabloid train-wreck, much like the token "intolerable one" on every Real Housewives of _______. "You either love her or hate her!".

Well they've built a business of being loved by those who love to hate. And it's all about how well you play the game, not how much you know about governing, so of course, the more partisan their ideology becomes, the more prone we are to catastrophe under their governance.

Anyway, cheers to you and thanks for the read.

Karl said...

"Adam Smith when he discussed “rational self interest” and competitive markets in his book Wealth of Nations, envisioned many consumers buying goods and services from many producers with everyone looking out for their self-interest."

To offer a small, but important correction here- what he said is that they found ways to make a profit by appealing to each other's self-interest. The Butcher makes his livelihood not through his desire for the most money he can make, but by appealing to the tailor's desire to have meat for dinner, and similar for the converse; that both become wealthier in the process is a benefit that is almost incidental to the process. If they instead compete for who can beat the other at gaining the most wealth they fundamentally damage their economic relationship.

I think confusion on this point is one of the key issues that is corrupting our current market; when people think "How can I best benefit myself" they end up making many decisions that might lead to better short term profit, but damage economic health in the long term. A small group of shareholders profits at the expense of everyone else. On the other hand, when business is focused on "How can I best meet meet the needs of those that I wish to do business with?" the short term gains might not be as high, but the long term economic benefit increases dramatically.

A market where everyone is constantly fighting to meet their own interests without regard to the costs of others requires even increasing active government interference to keep up with the need for a referee. On the other hand, a market closer to Smith's ideal does not require nearly as much interference, because the business motivation is much more cooperative than antagonistic.

Mark said...

The modern "libertarian" fantasy is that government is the only threat to our liberty. The idea that government actually has a key role to play in protecting us from other threats was actually radical enough in 1776 to stoke a revolution ("That to secure these rights [of life, liberty, and the pursuit of happiness], governments are instituted among men...") and clearly it needs to be championed again. You are doing a good thing here.

I'll suggest a way to phrase this. Although some would pretend otherwise, traditionally in America we haven't talked about freedom as the only civic virtue. We've also elevated fairness/equality and justice to a central position. When we talk about fairness and justice, in one sense we're talking about maximizing freedom: trying to ensure that everyone has access to the benefits of freedom and that no one is overlooked or denied. There is no true freedom without fairness and justice.

So it stands to reason that we should talk not just about free markets, but about markets that are also fair and just -- and in fact, that no market that fails to be fair and just can be truly free.

A free market is one where our choices are not constrained by someone in power, whether it's the state or an oligarch.

A fair market is one where everyone has an equal chance to participate, compete, and succeed, with full access to suppliers, customers, and accurate information.

A just market is one that takes all costs and benefits into account (even those accruing to those, such as bystanders and future generations, who can't participate in the transaction but are affected by it anyway) to arrive at the "right" result in every case.

These are ideals, of course, but we should strive for them. We as a people have a right to foster the best sort of market for our general welfare, and government is our means of doing so. We don't have to accept the market that the powers that be have designed for us or that they tell us occurs "naturally" if we would just let things alone (because they surely haven't and won't).

Anonymous said...

Finally, someone who really knows what is going on and explains it better than anyone that I have read in what sadly passes for journalism in our country. I have become a subscriber and thank you for a great article and an eye opening educational experience.

Left of right said...

Well Said

Anonymous said...

True Conservatives are backing this philosophy - Today's Republican Party is NOT!

Anonymous said...

As you might gather by now, your comment in the NYT has a lot of liberals reading and commenting here (count me as one - see, we actually are glad to read rational conservatives). And guess what, from the few posts I've read thru, I probably agree with you perhaps even more than I disagree with you.

If you've been a Republican since the 60s, you (should) know damned well that (many of) today's Republicans are a pathetic bunch of panderers who would be nobodies in the party of 30 years ago. Read Bartlett's posts in the Economix blog in the NYTimes (he was a high official in the Reagan era). The GOP has dumped you, so now it's time for you to dump it (or at least try to save it - if you can). As a long time liberal, I long for reasonable conservative voices. Believe it or not, a lot of even us committed liberals realize that a reasonable opposition (e.g. Megan McArdle of The Atlantic) is a good thing.

BruceS

p.s. Maybe it's just me, but I tried logging in with Google and failed - and I've forgotten my OpenID - I guess I'll need to dig it up.

Anonymous said...

"Every conservative I know complains about over regulation of our markets by the government. I agree. The market surely would operate more efficiently if we eliminated or cut back many existing regulations. As a fellow conservative, you agree with me on this"

As a raging liberal I believe you are complete fool. But this is the type of crap I would expect from baggies. All baggies should be tried and executed for treason.

Anonymous said...

I have to laugh when I hear "conservatives" tout the benefits of the supposed "free market." For one thing, there is no such thing as a "free market." If we were to remove all the regulations that favor the rich, the bankers and other currency manipulators would go belly-up. Government regulations FAVOR the rich, protecting them from the vicissitudes of a free market. The author seems to be proud of the fact that he has for a long time voted Republican - one has to ask him - why? Republicans holler about fiscal responsibility but it's the Republicans who keep voting for more and more government spending - remember, Clinton left office with a SURPLUS and it was the Republicans who drove us into today's horrible fiscal crisis!

Anonymous said...

Not written by a conservative. Pretending to be a conservative.