A Short History of Our Current "Free" Markets

The 1980s wasn't just the decade of enormous shoulder pads. It was also the decade of Reagan, the new dawn in conservative America and the great flowering of the mythical religion of free markets.

The concept of "free markets" is mythical because it is unreal but mostly because is a paradoxical one: Conservatives call near-monopolies free markets. This should make every economist laugh until their heads explode. That this does not happen tells you we are talking religion.

The concept of "free markets" is also hilarious. It is based on the explicit demand that nobody meddles with markets so that the markets can have just a few people doing all the meddling.

It is not based on economic theory. That, my friends, does define something that sounds similar: the concept of competitive markets under the heading of perfect competition. The requirements for perfect competition to exist in reality are strict, and most economists agree that few real markets satisfy those requirements. If markets do satisfy them, we have A Very Good Thing!

Here's the sleight of hand. The good things economists can say about perfectly competitive markets have been corrupted into the religion of free markets. Somehow ANY market that is not regulated has become a saintly market! And the only reason, ultimately, has to do with that faint name resemblance to competitive markets. Conservatives equate the terms free and competitive. This is a big logical fallacy.

It took root in the 1980s, during that glaringly bright plastic-tinged conservative morning in America. But the acolytes at the altar of free markets were not all conservatives. Indeed, Bill Clinton paid homage to both markets and globalization. Free markets turned out to be the best selling concept of that decade.

And the next one. The 1990s was when the real work undermining anti-trust regulation and the end of monitoring the markets was carried out. The best known examples come from financial and housing markets but "free markets" were cropping up everywhere.

There was a time when I had to keep a list of the possible names of my bank, even though I had not changed banks. The banks were selling and buying me, and this happened so fast that I couldn't remember the current name of my owner. But the trend was to ever larger banks and fewer and fewer of them.

In the malls department store after department store disappeared. They did not go bankrupt. They were bought by larger department stores, until at one point one large shopping mall had all its anchor department stores owned by the same store. Competing against each other for a moment in history.

Meanwhile, in the housing markets suddenly friends who I knew had no money got mortgages for large houses. These were balloon mortgages, with the only hope of ever paying them off in some continual and very strong rise in housing prices. Elsewhere, the financial markets were inventing new and frightening instruments of self-destruction. Government regulation was actively fought.

I'm asking myself now why I didn't pay more attention to my internal monitors. They were beep-beeping almost every day, telling me that the sermons of globalization were used to hide increasing market concentration, that nobody was regulating the desire of markets to turn into monopolies, that even the media who should have explained all this to us was itself being monopolized (think of Rupert Murdoch).

Economists know that ultimately it is small which is beautiful, that with just a handful of large markets comes price-fixing and less choice for consumers, that regulation has a purpose in keeping markets well-behaved. When did economists get bought by the system so that the protesting voices could no longer be heard?

Everyone understands that once a few large conglomerates own the globe (and the globalism) democracy will die, by definition. Everyone understands that a system of elections where one family (the Koch family, say) could fund the whole election campaign is destructive for democracy. Yet this is what we have ultimately allowed. Even the Supreme Court of the United States has decided that the Koch brothers or Rupert Murdoch must be allowed to have extreme monetary influence on the outcome of elections. The new form of equality gives every dollar the same voice.

Once we had company towns where those who lived in them had to work for one firms and buy their food from the same firm. Soon we may have company countries if we don't stop this process.

The process is driven by many factors but it is certainly hiding behind that altar of "free markets." Because of this conservative framing, we get all the worst that bad markets can offer us: The concentration of power and money in few hands, the lack of choice (check the commercial music stations on radio), adulterated products (melamine in pet foods), the destruction of the environment (which has no direct say in profits) and very bad incentives for those who work in the various industries (if the mortgages you sell pay you by number of mortgages sold, why would you care if the buyers can never afford that specific house?).

It's time to become literal in interpreting what competitive markets require, to point out that those requirements are far-from-filled in almost all real-world markets. But even more importantly, it is time to point out that the term "free markets" is empty of any real meaning and that it often hides something truly vile, something truly frightening, something that we need to fix if we want our civilizations to continue: The very reverse of the benign perfectly competitive markets of economic textbooks.