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free markets

Markets, Competition Require Good Government

I just picked up "Free the Market: When Only Government Can Keep the Marketplace Competitive" by Gary L Reback. It starts with this quote by George Will (from this column):

It will remind everyone -- some conservatives, painfully -- that a mature capitalist economy is a government project. A properly functioning free market system does not spring spontaneously from society's soil as dandelions spring from suburban lawns. Rather, it is a complex creation of laws and mores...


Ayn Rand Was a Fool

After I studied economics, I learned that most people who talk about the "free market" have no clue what they are talking about. Those who want government to operate exactly as would a business do not understand how the motivations of government are different from business, necessitating different approaches to solving the different problems that these entities are expected to resolve.

After visiting Africa and living briefly in the Middle East, I understood that there is no magical "free market." Markets result from infrastructure (provided by government or some other non profit-maximizing entity) and often anti-trust regulations.

This is background for an important article I highly recommend -- "Wealthcare" by Jonathan Chait in the September 23, 2009 The New Republic magazine... yeah, I meant to write about it last year.

Right wing radio hosts, Fox News, and a variety of other conservatives who grew up in Reagan's revolution have internalized a whole lot of talking points about "free markets" that they parrot at every opportunity - but they have no sense of the many well known problems of deregulation. The problems range from externalities like pollution to the natural monopolies of broadband and cable TV (that I spend so much time working on).

Chait, who is reviewing two books about Ayn Rand, tackles her legacy:

For conservatives, the causal connection between virtue and success is not merely ideological, it is also deeply personal. It forms the basis of their admiration of themselves. If you ask a rich person whether he ascribes his success to good fortune or his own merit, the answer will probably tell you whether that person inhabits the economic left or the economic right. Rand held up her own meteoric rise from penniless immigrant to wealthy author as a case study of the individualist ethos. "No one helped me," she wrote, "nor did I think at any time that it was anyone’s duty to help me."

But this was false. Rand spent her first months in this country subsisting on loans from relatives in Chicago, which she promised to repay lavishly when she struck it rich. (She reneged, never speaking to her Chicago family again.) She also enjoyed the great fortune of breaking into Hollywood at the moment it was exploding in size, and of bumping into DeMille. Many writers equal to her in their talents never got the chance to develop their abilities. That was not because they were bad or delinquent people.

If I were a right winger, I would likely attribute my success in sports photography to all the hard work I put in -- hundreds of hours of practice without being paid, being willing to go weeks without a day off, etc. But I recognize that in reality, many put in that hard work. I got picked up at the U as a shooter because I was incredibly lucky in timing. Without my hard work, the luck would have been worthless, but the luck was still required ... if I didn't run into certain people at a time they just happened to need a certain kind of shooter, I would not be the photographer I am today.

Getting my foot in the door was mostly luck. Keeping my foot in the door required skill and hard work, so I understand why conservatives harp on that. But to deny the luck factor missing a key part of the equation.

It is not socialism to enact policies intended to create equal opportunities for everyone (funding public education, rural electrification and broadbandification). In many ways, these policies improve the efficiency of markets. But talk radio wants us to believe the U.S. is the land of opportunity and left wing policies want to punish the successful. The truth is that decades of conservative reforms have greatly damaged our dreams of poverty-to-riches opportunity in the US:

In reality, as a study earlier this year by the Brookings Institution and Pew Charitable Trusts reported, the United States ranks near the bottom of advanced countries in its economic mobility. The study found that family background exerts a stronger influence on a person’s income than even his education level. And its most striking finding revealed that you are more likely to make your way into the highest-earning one-fifth of the population if you were born into the top fifth and did not attain a college degree than if you were born into the bottom fifth and did. In other words, if you regard a college degree as a rough proxy for intelligence or hard work, then you are economically better off to be born rich, dumb, and lazy than poor, smart, and industrious.

We know this intuitively - perhaps the best example is talk show hosts or pundits who are consistently wrong with most of their predictions and yet remain very influential. Those who pushed the Iraq War lies the hardest continue to get more TV and radio time than the doubters who have been proven right regarding the Iraqi threat.

Is income really a measure of productivity? Of course not. Consider your own profession. Do your colleagues who demonstrate the greatest skill unfailingly earn the most money, and those with the most meager skill the least money? I certainly cannot say that of my profession. Nor do I know anybody who would say that of his own line of work. Most of us perceive a world with its share of overpaid incompetents and underpaid talents. Which is to say, we rightly reject the notion of the market as the perfect gauge of social value.

But it is important to understand why some on the right remain outraged at how much the rich are taxed. They are not incorrect, but the reason they continue paying so much in taxes is that the U.S. has become so incredibly stratified on the basis of income that even as tax rates drop, the rich pay more because their incomes have increased so incredibly much:

The reality of the contemporary United States is that, even as income inequality has exploded, the average tax rate paid by the top 1 percent has fallen by about one-third over the last twenty-five years. Again: it has fallen. The rich have gotten unimaginably richer, and at the same time their tax burden has dropped significantly. And yet conservatives routinely describe this state of affairs as intolerably oppressive to the rich. Since the share of the national income accruing to the rich has grown faster than their average tax rate has shrunk, they have paid an ever-rising share of the federal tax burden. This is the fact that so vexes the right.

The entire article is well worth reading.

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