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Leave Free Markets to Themselves, Nothing Else Will Work

Economics / Economic Theory Dec 10, 2009 - 07:39 AM GMT

By: Don_Cooper


Best Financial Markets Analysis ArticleA market is the voluntary coming together of two groups of people: those that have something to sell and those that want to buy what is being sold at the price it is being offered. The former group is called producers and the latter consumers.

A healthy, sustainable economy is one in which producers invest in the necessary resources to produce the good or service that is being consumed. If business is good and the producers see that they can’t produce enough then they invest in expanding their productive capacity, adding jobs and financial and physical capital and the like. The decision to expand is based on the actions of the consumers. The information to the producer is so clear and accurate that the decision to incur additional debt in anticipation of future profits is made. Hence we then have and economy with a sound manufacturing infrastructure based on good information that is sustainable into the future.

A sick, unsustainable economy is one in which market information is not clear. It’s one in which the manufacturing infrastructure is volatile and weak due to this unclear information and the inability of producers and consumers to make good decisions: home loans being made to people who are unemployed, construction jobs building bridges to nowhere, people buying new cars when the one they have is paid for and runs just fine, people investing in funds that are Ponzi schemes just to name a few.

When the government intervenes and spends trillions of dollars, it does nothing to improve the manufacturing infrastructure. Their position is that they understand what consumers want better than the consumers themselves. Of course that sounds ridiculous just saying it, but that must be their position otherwise how could they justify being able to “fix” the banking and automobile industries? Of course only if producers are producing what consumer truly want will the economy be sustainable and obviously they are not when the government intervenes.

Logically, how can the government claim to understand the financial markets and automobile markets well enough to “fix” them when it would seem they didn’t understand them well enough to keep them from reaching the verge of bankruptcy in the first place? Furthermore, if the governments’ argument is that they understand these markets better than the market participants themselves and so well as to know how to go about “fixing” them in order to improve the welfare of Americans then shouldn’t the government take over all the markets? What are they waiting for? Surely, their ability to understand markets isn’t limited to just finance and cars. Certainly with this great wealth of financial market information and knowledge and the power to predict financial markets the federal government could simply play the stock market and pay off our $14 trillion debt in a matter of years, but we don’t see them doing that do we?

Obviously the whole situation is a joke; trust me, there are thousands of economists in academia around the world who have made careers out of trying to develop models to predict markets, of all kinds, and no one has succeeded yet. I don’t think the likes of BO or Bernanke are up to the task.

What the government is doing is simply going on a shopping spree with credit cards. Like someone who lives beyond their means, it all looks really successful and opulent on the outside but eventually all the credit cards are going to be maxed out and no one will be willing to issue a new one. Then who will pay the debt off? Of course no one will; it will be defaulted, all or in part, and/or the fed will monetize it which is nothing more than another form of default.

Oh sure for the upcoming midterm election cycle it all looks good. One can hardly read a major news outlet story today without seeing something about how the economy is in recovery, the fed saved the world ( sound the cavalry charge ) but of course that’s just a temporary illusion until the government stops spending then we’ll really see just how bad the economic situation is.

The government with its irresponsible and economically dangerous programs is taking money and future profits from successful consumers and producers and giving it to unsuccessful ones. The immediate affect looks really nice: $1 million can put a lot of people to work very quickly but once the government stops spending the long term effects on the producers and consumers the money was taken from to pay for the spending will be catastrophic.

As many have pointed out: it’s not a matter of when the financiers of this fraudulent economy will stop loaning us more money but rather simply when. It may not be in our lifetime or our children’s lifetime but regardless, if we don’t do something to address the problem then it doesn’t matter when our country is ruined; we too are just as responsible.

Now so many will say: but if we leave the markets to themselves then greed will ruin us. Firms collude and monopolize and cause high prices and we’ll be in the same situation we’re in now. After all, it was the free market and lack of sufficient regulation that got us in this mess to begin with.

On the contrary, the fact that our economy isn’t already in ruin is a testimony to the power of the free markets. Our economy has persevered despite the government thanks to the remaining ability for people to come together and trade.

Economic barriers such as monopolies and government intervention are what motivate people the true market players with the best information to innovate and invent. To be creative and expand mans’ breadth of knowledge to new horizons and beyond. It’s true: necessity is the mother of invention and it is only because of this that our economy hasn’t completely collapsed already.

When gas hit over $5/gallon in the summer of ’08 you could read about ordinary people turning their cars into hybrids for petty cash. Regular Joe’s like you and me and now they are selling their newfound ideas and technologies to others for a profit! That my friends is the free market at work and with all its faults, it’s the best strategy around for the future of these United States.

Don Cooper [send him mail] is a Florida native, Navy veteran, economist, and editor of the daily non-partisan column

© 2009 Copyright Don Cooper / - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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