There is an on-going debate between those who believe in the power of free markets versus those who believe in the power of government regulation. Let’s look at the pluses and minuses of these arguments.
Government regulation pluses:
- quick results are possible, as political force is brought to bear
- initial results may be positive, making the politicians and bureaucrats appear effective
Government regulation minuses:
- decisions are political, with actors usually acting on their own personal best interests (consistent with human nature)
- decisions are arbitrary, based on the judgement of a person or group of limited size
- decisions are based only on information available to the limited number of actors
- business failures can be politically painful, resulting in inefficiencies as resources are redirected to politically-powerful elites
- long-term results tend to be negative because of the other minuses
Free market pluses:
- decisions are based on the judgements of many persons (the whole market) each acting on their own best interests, using the whole pool of information
- competition reduces the power of any person or limited group to dominate, resulting in impartiality
- the failure of any entity within the market strengthens the market as a whole, improving efficiency, resulting in a growth of widely-distributed wealth
- long-term results tend to be positive because competition weeds out failures and inefficiencies
Free market minuses:
- initial results may be negative, such as the failure of inefficient businesses, with its dislocations of jobs and sources of supply
- allowing the market to work may make politicians look like they are not doing anything constructive
Free markets can only exist within the context of limited government. We had that once, for about four score and seven years, resulting in an era of unprecedented growth of general wealth. With the growth of government has come the growth in the disparity of the (politically well-connected) rich and the poor, and the slow but consistent shrinking of real wealth. To see for yourself, go to this website (http://www.tradingeconomics.com/united-states/gdp-growth), set the “From” year to 1947, click on the Trend checkbox, and see where we have gotten to because of years of government regulation of the economy.
Will this be our legacy? It’s not too late to fix this. I’m not talking about “de-regulation” as it has been known in the past, since it still allows the few to micro-manage the economy. I am talking about a distribution of power (via cantons) that will allow the economy to once again be free of arbitrary political control.