Free Market Fallacy

One of the frequent topics of conservatives and libertarians is the notion of market freedom. The idea is often expressed with longing. Take for example the discussion of the 2008 credit crisis. The story is often told how Fannie mae and Freddie mac being backed by the government introduced a distortion to the free market and as a result the “natural” things that would have prevented global economic crisis were perverted. It takes a great deal of faith in the market to lay all the bad decisions by citi, AIG, Lehmann Brothers, and the banks of Ireland and Iceland at the feet of Fannie and Freddie. However it takes a great deal more faith to believe that free markets have natural stop gaps to all economic distortions. The market is good at one thing and one thing only, rewarding success. This sounds like a good thing, but success has no noble mandate. There is nothing in success that equates to good for the world as a whole. Ted Bundy was extremely successful at killing people, though no one would argue his success was good. To the same point if one becomes successful at making money from crashing the market what in the “natural” factors of the market is in place to prevent constant catastrophe.
There is so much talk about market distortion in the USby the government as a bad thing, except when in comes to the price of oil. Despite the fact that gasoline in many parts of the world is double what we pay there is no real push to eliminate the manipulations that make these prices possible. The truth of the matter is the market responds to the actions of its major players. In this regard it is absolutely true that the government could force the market to move in a direction not necessarily “natural.” The notion though, that removing the government as a major player will remove economic distortions from the market doesn’t seem to pass a simple logic test.  If the largest player in the market exits the market does it render every other player equal? No of course not, all it means is the next major player becomes king of the hill, and gets to decide the directions of the market.
A simple example of this can be found in the electronic accessories market. The apple accessory market is a pure example of a major player taking their market position and using it to distort the market in favor of their apple product line ecosystem. In my opinion this distortion makes it a lot more difficult to compete and, while perfectly legal, slightly unfair.
So the question becomes do you want the government to be a major play in the market? I’ve brought this up before but it bears repeating. People often talk about letting consumers vote with their wallet I must again stress that this is advocating tyranny. The same is true for removing government as a major player in the market. This would cede market position controlled by the will of the people to the will of an unelectable board of directors. We can have a debate on how much and in what ways the government should use its position to guide the market, but to argue that the economy would just self correct if the government just kept its grubby hands off seems like to great a leap of faith.

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