free markets

Archive for Tag “free markets”


Apple and Standard Oil: Paragons of productive virtue

One of the commenters on my recent Investor’s Business Daily op-ed argued that if antitrust law were abolished,

we’d ultimately regress to the big monopolies we had a century or so ago. Those big monopolies were a problem, to say the least. Monopolies are good only for the monopolizing entity and they are bad news for everybody else . . . .

I’m here to say that the widespread fear of monopolies is based largely on historical myths. My colleague Alex Epstein has written extensively on what is generally regarded as the biggest, baddest granddaddy of all monopolies: Standard Oil. If you’re troubled by scary notions of what might befall the consumer on a free market without antitrust laws, you should read his article, “Vindicating Capitalism: The Real History of the Standard Oil Company.”

I can’t repeat all the factual documentation Alex assembles, but here’s a passage that summarizes an important point:

The fact that Standard Oil faced such stiff competition and was driven to expand output and lower prices even further demonstrates the myth of Rockefeller’s “control” of the market. Markets are not possessions that one can acquire or control. They are dynamic, evolving systems of voluntary association, in which competing producers have no ability to force customers to buy their product, nor any ability to prevent others from offering their customers superior substitutes. The expression “control a market share,” translated into reality, means simply that at a given time one has persuaded a given group of individuals to buy one’s product—a state of affairs that can quickly change if someone offers a superior substitute. Read the rest of this entry »


Buying shelters from the storm

In the movie “The Wizard of Oz,” a powerful tornado sends Dorothy’s house—with her in it—spinning high in the air only to deposit it safely in the land of Oz. In real life, of course, the story is different: tornadoes and hurricanes often destroy houses and sometimes kill their occupants. A below-ground shelter is good protection (remember the root cellar where Dorothy’s family huddled to ride out the storm?), but mobile homes and houses without basements often lack good protection.

Now a new manufacturing industry has emerged, offering ready-made storm shelters (also called safe rooms) to the general public, at a cost of $4,000 to $15,000. Usually made of concrete or steel, these rigid structures can be trucked to a home and bolted to a concrete slab, whether inside the house, outside, or in the garage. Increasingly, too, they are being built into newly constructed homes. According to a report in The Wall Street Journal, safe rooms are replacing danger with security:

When a powerful tornado roared through Murfreesboro, Tenn., last year, David Glass ducked into his newly installed “TornadoSafeRoom,” a $4,300 galvanized steel shelter bolted to the concrete floor of his garage. Mr. Glass waited out the storm in the shelter with his brother-in-law who was visiting and Mr. Glass’s two cats, Buggs and Lady Buggs. (His wife was at work.) They emerged to find the home battered but still standing. Five doors down, though, a neighbor’s house was flattened.

I just want to make two points about this:

1. The emergence of this market illustrates an important truth: increased safety is a product of increased wealth. It’s long been noted that natural disasters in wealthy countries like the United States are far less dangerous than similar events in underdeveloped countries overseas, where hundreds or thousands of people might die in an event that would injure far fewer people here. But the direct connection between wealth and safety is even more obvious when you think about how an intelligent investment in a safe room can provide personal safety against violent storms for many years in the future. Even owners of mobile homes, notoriously vulnerable to tornadic winds, can obtain security that would have been impossible before.

2. The rise of the safe room industry also illustrates how individualized risk assessment works on a free market. Each resident of a disaster-prone area must make his own risk/benefit calculations, involving such factors as: How likely is it that a storm will hit? How solidly built is my house? Do I have a basement or other suitable protected area? What else could I do with the funds necessary to buy and install a safe room—and would that other choice provide me a greater value than increased physical security? The individual is in charge of his own life and his own safety.

For contrast, think what a collectivist approach would look like: a multibillion-dollar program to install safe rooms in every home, funded by taxpayers who aren’t even exposed to the risks. In a world where government frequently makes disasters more disastrous, it is worthwhile to contemplate the alternative: a free market in disaster insurance, prevention, protection, and recovery.

Image: Wikimedia Commons


Controls breed controls – part 2

chainIn my previous post I described how controls breed controls: when politicians intervene in the economy, they create distortions and problems which, unless corrected by rescinding the controls, necessitate further controls–a process ultimately resulting in total control by the government over the economy. We can see this process at work in the two domestic issues that have dominated headlines over the last year: the debate over health care and the financial crisis.

In both cases, the conventional wisdom has been that the free market created problems only government intervention can solve. In both cases, the conventional wisdom is wrong: it was government controls that created the problems. Read the rest of this entry »


Alan Greenspan isn’t a capitalist but he plays one in the media

Federal Reserve Building, Washington, D.C. Every time Alan Greenspan opens his mouth to blame some aspect of the financial crisis on free markets, rather than government intervention, many commentators gleefully proclaim it another nail in the coffin for laissez-faire capitalism. Even Alan Greenspan, the refrain goes, acolyte of Ayn Rand, lover of laissez-faire, admits that the current crisis was a failure of his free-market philosophy.

But Greenspan has no free-market philosophy. As Yaron Brook and I explained in “The Maestro vs. the Market,”

Greenspan, while once associated with laissez-faire philosopher Ayn Rand, hasn’t advocated genuinely free markets for decades. Remember, this is a man who for two decades reveled in being, as the New York Times put it, “the infallible maestro of the financial system.”…. Early in Greenspan’s tenure, some expected the onetime opponent of the Fed and supporter of a gold standard to minimize the Fed’s distortion of markets. Instead, Greenspan became our Manipulator-in-Chief, repeatedly inflating the money supply and artificially lowering interest rates to allegedly magnify prosperity…. Thus, when Greenspan speaks, he does so not as the voice of a (non-existent) free market in finance and housing, but as the voice of government central-planning–a voice with every incentive to blame the market rather than the Fed’s market-distorting policies.

Which brings us to Greenspan’s latest salvo against the free market — a call for government to break up institutions classified as “too big to fail.” According to a Bloomberg news story:
Read the rest of this entry »


A free press requires a free economy

newsApparently Dan Rather thinks Obama should not only make news, but remake the news. In a recent Washington Post op-ed, Rather called on the President to form a “nonpartisan, blue-ribbon commission to assess the state of the news as an institution and an industry and to make recommendations for improving and stabilizing both.”

While I disagree with Rather’s suggestion, he does raise one issue that anyone who follows the news should regard as tremendously important.

The big conglomerates that own most of America’s news media may have, at any given moment, multiple regulatory, procurement and legislative matters before various arms of the federal government; their interests, therefore, can often run contrary to the interests of the citizens whom journalism, at its best, is meant to serve. There is little incentive to report without fear or favoritism on the same government one is trying to lobby. Increasingly, the news we get–and, significantly, the news we don’t get–reflects this conflict of interests.

Virtually every decision a business makes today is controlled and influenced by the governmentRead the rest of this entry »


Another non-argument for the failure of capitalism

Picking up on a press release from the Center for Economic and Policy Research, New York Times columnist Floyd Norris recently reported that the rate of unemployment in the U.S. is now equal to and may soon surpass that of Western Europe. Norris echoes the main thrust of the press release: “the current economic crisis . . . has turned the case for the U.S. model almost entirely on its head.” The CEPR authors imply that the European model of “large welfare states and high levels of labor-market regulation” should be the economic standard to which nations aspire.

Leaving aside the question of the validity of the data (unemployment data is notoriously politicized and difficult to acquire), it is telling that neither Norris nor the CEPR authors clearly identify what they take the U.S. model to be. There is only an assertion of “inherent” “flexibility” in the U.S. economic system, which Norris explains as meaning “it is easier to both hire and fire workers [in the U.S.] than in many European countries.”

The accepted premise, of course, is that the U.S. model is free market capitalism. But, as Ayn Rand argues, capitalism means a “full, pure, uncontrolled, unregulated laissez-faire capitalism—with a separation of state and economics, in the same way and for the same reasons as the separation of state and church.” This is not the system we have in America.

Read the rest of this entry »


Discovering new ways to pay CEOs

In my last post on CEO pay, I pointed out that undeservedly high pay for executives would not be a problem on a truly free market, where CEO pay is undistorted by government intervention, as it is today. Nevertheless, there are real challenges in setting CEO pay, challenges that would exist even in a free market. But this is an argument for free markets and against regulating CEO pay. Here’s why.
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The imaginary perils of executive compensation

Megan McArdle, liveblogging from the Berkshire Hathaway shareholders meeting, reports that Warren Buffet was asked about executive compensation. Buffet gave his usual answer: that CEOs are able to nab undeservedly high pay packages from pliant compensation committees. But Megan points out, there’s a problem with this narrative: Read the rest of this entry »