Wednesday, September 24, 2008

Once Upon A Time: Free Market Fairy Tales

Once upon a time all markets were unregulated and we lived in paradise. Any dairy farmer could sell you milk without horrible government regulations. If the milk had some water added to it, well, the farmer needed to make a living, and watered milk went much further. So did flour with sand added to it to make it heavier when the price for flour was by pound. And of course the scales the sellers used to weigh their products were their scales.

Now why did I call all this a paradise? Because there were very few markets in those days, most people grew what they ate on their own land, and those who did not learned over time to tell the honest farmers from the dishonest ones and the latter couldn't make a living from adulterated produce for very long. Their names were known to everybody and people soon learned not to buy from strangers who passed through the villages on market days.

Or perhaps I called it a paradise because the people got together pretty fast and decided that unregulated markets were not a very good thing, after all, that at least the scales used for measuring should be provided by some unbiased party, that their accuracy should be measured and maintained, and that those who watered the milk they sold or added sand to the flour they sold should then be tarred and feathered themselves?

So it goes. Over time the nature of markets changed, but those early lessons about the dangers of completely unregulated markets were not totally forgotten, and when they were deaths here and there reminded us of the need for some oversight and some rules. Indeed, it was pretty obvious to most thinking people that the widening distance between the seller and the buyer and the increasing complexity of the products that were being traded required regulation and oversight more than ye-olde-worlde village market days. The latter had more information about the sellers, the buyers and the products, after all, and less scope for a truly callous criminal to harm people.

Such a nice and soothing fairy tale I'm telling here. Boring enough to put you all to sleep. Sadly, such boringness was not to be for ever. One day the forces of free market capitalism rose up again, full of injured fury over the lost opportunities that millstone of regulations around their necks had caused, and this time people HAD forgotten about the reasons for oversight and rules. Or enough people had forgotten about them, because the rules and oversight had worked to make the markets relatively safe places to trade in.

So here they ride to war, the free marketeers. It is about thirty years ago, and you can read about the reasons for markets to be free, everywhere. Chile, Argentina and so on, all are going to be saved from the evil grasp of the government. Later Ronald Reagan rises as the leader of the troops, so fatherly and handsome, ready to squash the evil government before it has had time to "help" you. And Americans listen to him and look around and don't see adulterated pet food or fish with mercury or any other great hazard to their daily lives and they decide that Reagan is right. Who needs a disgusting government, anyway?

Not the financial markets, that's for sure. They're the ones who are taking all the big risks and they deserve the rewards, too. Time for some personal responsibility, my friends! Time for an ownership economy!

What comes next? The Bubble Eras, my charming and discerning readers. First the high tech bubble, then the housing bubble and the war bubble. They were like soap bubbles, so beautiful and iridescent in the affluent and calm sunlight of the nineties. No government dared to breathe too hard on them, of course, because they would burst and the trick was to make them burst only with the next administration. But the markets were mostly free! Just for you and me! Mmm.

And here we are again: Once upon a time (now) the markets are free and unregulated again, luxuriating in all that space to make things better for one and for all. Sure, infant formulas have melamine in them in China (because melamine registers as nitrogen in measuring devices and nitrogen is used as a cheaper proxy measure of protein and infant formulas must have protein to give a good price for the makers). Sure, the financial markets are largely trading in the big shitpile. Sure, various food items recently on the markets gave people salmonella or killed pets. But all that is just an obvious and necessary by-product of the important jobs unregulated markets do. Besides, don't the markets self-correct once enough deaths take place? They do.

So what is the moral of this little fairy tale?