Friday, May 8, 2009

Principle #2--Freer Markets

Here is Principle #2: Markets that are more free are better than markets that are less free.

This is the second installment of my ten part series on the Ten Principles of a Republican Renaissance, an attempt to articulate a series of principles around which the Republican Party can coalesce in an effort to attain an electoral majority.


Markets that are more free are better than markets that are less free.

Can anyone dispute that the exchange of $2.00 for six ears of corn made between a buyer and a seller at a Saturday morning farmer’s market is an act of freedom? The buyer possessed the means and the desire for the corn. The seller possessed the corn and the desire for the cash. Each placed a certain value on what he possessed and on what the other possessed, and a freely made bargain ensued. Exchanges such as this are at the heart the economic system that has kept our country strong and has brought it to the leadership of the world.

There are few “free markets” in existence; there may even be none. What modern Republicans seek are “freer” markets, markets in which the heavy hand of government intervention is imposed only after serious deliberation as to its consequences on the freedom of those involved.

Let’s take our Saturday morning corn transaction. The price charged by the seller reflected the value he placed on the goods. But what if that price charged was in some way a reflection not only of the value placed on the good by the farmer, but also the result of costs of production imposed by government regulation? What if the government decided for whatever reason that it needed more farmers, and therefore limited the acreage any one farmer could have under production at one time? In theory, this could raise the costs of production for the farmer, denying him the benefit of economies of scale, and raising the price to the consumer.

Our recent economic problems have been blamed by many as a failure of the free market. This is absurd. The mass failure of our capital markets was ushered in primarily by a failure of the home mortgage market, one of the most heavily regulated markets there is. Had the home mortgage market been freer, there would not have been the development of the “sub-prime” mortgage. Political, legal, and social pressure levied on the financial and mortgage industries by those in government with well-meaning social agendas led to the creation of a whole series of mortgage products that never would have developed on their own. The “free-er” market, i.e. the one in which those with money to lend at a fair profit were able to more freely choose to whom they lent that money (based on the ability to re-pay), was replaced by government pressure with a “less free” market in which those without the ability to re-pay were subsidized and underwritten by the US government; those with the money to lend then turned to complex financial tools in order to limit the risk created by this less-free market.

The Free Market (or more correctly, “Freer” Markets) will not solve every problem, and government does have a role to play. But that role must always first be the role of seeking to ensure that the market in question is “more” free. A market in which “insiders” trade for securities with knowledge not available to other buyers is not a free market, and government rightly intervenes to protect the interests of the disadvantaged buyer. There are many other examples in our modern system in which government rightly takes common-sense regulatory action designed to protect the freedom of the market, and these acts should be valued and encouraged. Where government intrudes in order to favor one party or the other in a transaction, we should always be wary.


Mudge said...

I have always felt that it ought to be very difficult to pass new laws that restrict our freedoms and that only after serious, contentious and, yes, even partisan (if that is what it takes) debate, should a thoroughly rung out piece of legislation find its way to the President for signature. Your comment about well-intended policies is a classic case of restrictions that came about far too easily. It is this that has me most concerned about the very Congressional leaders who, now without so much as a single check or balance, set the conditions for the mortgage soup-sandwich that we are all eating and for which we will be paying for Lord knows how long.

Anonymous said...

It is too late, there are more people in the electorate who believe that “the government” owes them a handout than there are those who are not. The Dems will continue to rob the rich to buy their votes until there are no longer any rich to rob.

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