Wednesday, August 25, 2004

Free Market?


This was a response to a GOP troll on JRE blog on October 29, 2003:

First, let me state for the record that I grew up in a socialist country and know first-hand what it really means. My father forfeited his career so he could be openly anti-Tito. I went to anti-Milosevic demonstrations and voted for the democratic opposition. You cannot touch my credentials on understanding socialism. And yes, I spent some time in Sweden, too. And yes, I decided to come here and become a US citizen and am as patriotic as anyone. I really like it here. This is the best place to be. That out of the way, let me tell you something about free market. Who came up with the idea first? Adam Smith in "Wealth of the Nations". Go to a bookstore and pick up a copy. You will notice that it is 'abridged'. So, go to a library and if you are lucky you will find a complete edition. Compare the two. What was omitted from the 'abridged' version? Yes, the chapters in which Smith argues that, although sweet in theory, free market is impossible in practice. Why? Because human beings do not usually act as rational economic beings, because there is great individual variation in selfishness and altruism and, most importantly, because due to inheritance not everyone starts the game from the same starting point. Mathematical economic models mostly ignore these factors and that is why they do not work. If you run them for more than a couple of generations (on the computer) they run out because all the goods and money end up in the hands of the few and the rest die of hunger. So the economy stops, and even the rich die of hunger. In real life, before hunger comes in, you can expect revolt. When East European and ex-Soviet countries revolted against the neo-Stalinist system, they tried, advised by academic economists from Chicago, Harvard etc., to implement the pure free market system. Result? Chaos, money-grabbing by the most unscrupulous, and soon, voting the commies back into power. There was never ever free market operating anywhere on this planet at any time in history. Market has to be checked. All politics is about is the types and levels of control of the market. It is a smooth continuum, from a wildly unregulated economy like ours is getting to be these days (on one end) to the Soviet-style central control (on the other end). Point number two: remember the title? Wealth of NATIONS! Not 'wealth of individuals'. Smith argued that some level of free market can make one country beat another country in the economic race. The price for such a victory is vast inequality of wealth WITHIN each nation. That was in the19th century. Today, even that inter-nation competition cannot work, because national markets are not closed systems, but deeply embedded in the global economy. Go figure. Those who tout free market never read Smith. Those who use "Marxist" as an insult have never read Marx. Old Karl is rolling in his grave because of what his name has been attached to - dictatorships of the likes of Stalin, Mao and Causesku used his name to describe something horroendous that he would have never approved of. Those who use 'liberal' as an insult are scary - libero means freedom - if they really mean that lovers of freedom can be wrong. World is much more complicated than the black/white dichotomy you see. How can you characterize me according to what I just wrote? Anti-communist, so I must be right-wing. But also anti-free-market, so I must be a commie. So, which is it? Isn't it possible that neither extreme is viable and that one needs to study the problems for a while before adopting a view that is somewhere in the middle. Hmmm, 'middle' implies a point on a line. But this is not a line, or a plane, or a sphere, it is a multi-dimensional space. Takes some sophistication to get oriented there. You need to do a lot more studying before you can state your views so confidently as you just did.

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