Thursday, 3 December 2015

7 myths of free markets

Economist David Henderson (no, not that David Henderson) debunks 7 popular myths about free markets that Wrongly Wrongson et al promote every day.

  • That economics is called the dismal science because classical economists thought, two-hundred years ago, that agricultural output could grow only arithmetically and that population would expand exponentially, and, therefore, we would have mass starvation– in fact, the moniker was slapped on because the free-market economists of the day opposed slavery.
  • That free markets, in some sense, promote racism—yet while the market offers powerful incentives to ignore the colour of a man’s skin, in fact, governments were the ones that promoted racism. Street car companies, for example, which one-hundred years ago in the American South, were required by law to segregate by race.
  • That the rich get richer under free markets and the poor get poorer under free markets—a half-truth in that while the rich get richer, so too do the poor and the in-between: “What I would point out is that, if you look at what Rockefeller, the richest man in the world one-hundred years ago, he had stuff that all but our very poorest people have.”
  • That the dynamic of free market capitalism is to lead to monopolies, and monopolies have various economic pathologies—yet free markets actually break down monopolies. “When there is a monopoly, the monopoly is making money. Those high profits attract new entrants into the industry the way honey attracts ants. So monopolies under free markets tend to be temporary.”
  • That capitalism or free markets are bad for the environment--in fact, what’s bad for the environment is socialism, because no one has an incentive to care for the environment under socialism.
  • That free markets lead to war—in fact, trade promotes peace because part of free markets is free trade across borders. And if two countries have a lot of trade, they have an incentive not to make war.
  • That capitalism and free markets are all about money, about getting money, hoarding money, being like Scrooge, and so, those nations are stingy compared to more benevolent modes of organisations—yet the wealthier we become, all other things equal, the more generous we are. And “when governments come in and try to be generous with other people’s money — which, by the way, is really a contradiction — they crowd out private individuals’ actions in that area,”
  • That employers have the upper hand and bargaining power, so free markets allow employers to dominate and not treat their employees properly—that too is a myth, and the reason is worker mobility . . .

Read Stephen Hicks’s interview with Henderson for the  fuller arguments—and don’t miss his conclusio, where he answers the question:

Why do you think these myths are so widespread, if indeed they are myths? You did present a lot of historical data, a certain amount of economic analysis that seems relatively straightforward. What’s the power that these myths have still?

READ: David Henderson on Seven Myths of Free Markets — transcript

And if you counted eight myths instead of 7? That’s because the free market always gives you extra.

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