What is a Free Market?

The “free-market” is a term that people use daily in economic and political conversation, and is nearly a sure thing when playing GOP debate bingo.  Often we’ll hear the terms “free market,” “capitalism,” and “laissez-faire” used almost interchangeably or combined into a mega talking point.  The free market has different definitions in different schools of economic thought but the striking thing is that in fundamental economic theory the free market is almost meaningless.  This is a topic I’ll be exploring further in an upcoming article, but let’s start with some basics for now.

First, the free market means different things.  In today’s use the free market could mean:

– A market or economy free of government intervention

– A market or economy where the means of production is privately-owned, like capitalism

– A highly competitive market or economy with few barriers to market entry 

– A market or economy where supply and demand determine price

From these definitions you might imagine a situation where a market falls in all categories, it’s more or less the economic situation classical liberalism strives for.  However, you could also imagine many markets where the conditions in the categories are not all present such as a capitalist economy with government regulation.  You can also have an economy in which only monopolies exist and no competitors are allowed to enter; under the first definition this is also a free market.

The problem comes in the way it was historically crafted.  In Adam Smith’s The Wealth of Nations he used the phrase “an open and free market”  as an antidote to the failed attempt of the English to establish a monopoly on wool.  In this sense a free market is free both of monopoly control and government intervention.  Nowadays economists usually denote an open market as one in which competitors can easily enter but still loosely tie it to the definition of a free market.

The first two definitions were effectively combined in Milton Friedman’s 1962 work Capitalism and Democracy.  The free market became a political system as much as an economic one embodied in the policies of laissez-faire capitalism.  The notion of a free market is inevitably tied to government policies because of the way we use it today.

However, in the general equilibrium theory, the mathematical foundation for notions like supply and demand, there needs to really be no difference between the government and any other economic agent.  The government may simply be viewed as a firm that enforces contracts for clients and provides other services that other economic agents subscribe to through what Rousseau would call a social contract.  When broken down to the theoretical principles it becomes hard to distinguish the government from other actors in an economy.

In theory, money and currency is not the base unit, it does not dictate rational actions.  Instead it is utility, the amount of meaning, pleasure, or value that a person (or firm) views in anything.  Broken down further, this means that every action is some sort of trade for utility.  Taking time to enjoy a sunset, has an opportunity cost in terms of time and utility.  You could be doing something else with that time and concentration and if you were a rational actor you would be maximizing your utility by viewing the sunset instead.  Of course economics starts with the assumption of rational actors, therefore any action somebody takes must be maximizing their utility.

A free market in this context becomes meaningless, it just means that any economy would be a free market as it has achieved equilibrium based on everybody’s utility maximization (actions) throughout history.  It is a larger invisible hand, similar to evolution, that creates order from chaos, the same way that anarchy will lead to a different political structure.

The problem is that the way we use free market in the vernacular rarely leads to our idealized version of free markets.  Free market as laissez-faire capitalism does not produce open markets.  If what we desire are highly competitive open markets then intervention is necessary to prevent monopolies.  Most agree that monopolies are a bad thing (except for specific circumstances) because they stifle competition and innovation.  Monopolies hurt consumers, and so while we relish success, we denounce control and view monopolies as dangerous.  Any firm able to exert coercive force on the market essentially starts intervening the same way a government would.  The only way to keep things highly competitive is to diversify the market as much as possible and therefore the only way a free market like this could exist is through constant government intervention.

A new game: Horoscope or Job Ad?

I have been absent recently, not because there’s nothing to write about but because I have been job hunting.  Couldn’t help but notice that a lot of the job descriptions sound like they were lifted from the horoscopes.

“You have excellent communication skills, you are independent and resourceful. You are creative, a good team-player and you are enthusiastic. You are able to see the big picture but you are also analytical and structured.”

Look for my new company soon, Astrology-Based Employment Solutions.

Santorum, Religion, and Politics – US vs. Europe

One of the themes in this GOP primary season is the fracturing of the party into the traditional, social, and libertarian wings, represented by Romney, Santorum, and Paul respectively.  Gingrich exists as his own manifestation.

Santorum has a strong focus on social issues but has been hurt in the campaign over his ties to union support, spending, and big government initiatives like No Child Left Behind.  A similar thing happened to the socially-focused Mike Huckabee, with Thompson and McCain attacking him for not being a true conservative.

The uneasy alliance formed under Reagan between fiscal and social conservatives appears to be withering and maybe for good reason.  Deeply religious candidates like Santorum and Huckabee also carry a strong tradition of community and charity which often pushes them away from the more strict-free marketeering of the old guard.  Instead, the Goddess of the traditional GOP, Ayn Rand, was an atheist, and accused of creating a Godless system in Atlas Shrugged.  And there’s the tension, but in Europe it’s quite the opposite.

More religious Europeans align much more with socialist parties, as they have since their inception.  Meanwhile more conservative parties are often popular with atheists, like Geert Wilders in The Netherlands.

Religion preaches messages of community and togetherness and it seems only natural that these in turn would lead to more socialistic thinking.  Atheism, on the other hand, is prone to see society as Darwinistic, as survival of the fittest, as capitalistic.

The past 30 years has seen a terribly tense imposition of free-market dogma upon religion in the US.  The noted sociologist Max Weber explained a similar trend nearly a century ago with The Protestant Ethic and the Spirit of Capitalism.  What has emerged recently is something altogether different, not simply a co-evolution of religion and ideology, but now using one to legitimize the other and attempting to re-write the teachings of Jesus.  Sometimes it’s just impossible though and you end up with deeply religious candidates holding more socialistic views.

Hannity and Breitbart.com Prove that Obama is Indeed not a Republican

Last night on his Fox News show, Sean Hannity “debuted” video of Obama in college.  I use quotes because the video has actually been in the media since 2008.  Breitbart had been hyping these videos since the last CPAC and Hannity was promoting them all of yesterday like they would change the world.  It sounded pretty scandalous too – the Obama college tapes, this had to be good.  Anyone’s “college tapes” have got to be scandalous, so speculation started swirling, would it show Obama smoking weed?  passed out drunk on the floor?  maybe he even kisses a white woman in them.  But what did the tapes show?  Obama speaking at a rally for a professor supporting racial diversity.

There are so many ways to go with this story: right-wing perceptions of academia, the boogeymen now created yearly by right-wing radio, academic freedom vs. public discourse, and so on and so on.  I might come back to these topics as they are all worth further explanation, but for now I’ll just make these points.

Are we supposed to be surprised that the now-President was politcally active in college?

Are we supposed to be surprised that a well-respected black student at a mostly-white institution was for more racial diversity in the faculty?

Does the right think that anything other than ultra-jingoistic free-market praise is controversial?

Hannity and Breitbart’s flying monkeys rest their argument on 2 other things.  First, that Obama embraced the professor he was talking up at the rally.  They claim it was edited out of the video for some nefarious reason (maybe because that’s when the speech ends).  Praising the professor publicly is one thing, but hugging him, that’s the first sign of a race war.  Second, they claim the video was hidden from the public, by showing a professor saying that he hid it from the media during the 2008 campaign.  However then the video immediately cuts and we’re left with no reason why it should be hidden, altho from the very brief clip, the professor makes it sound like he didn’t show it because Hannity would turn it into a weeklong special.  What Obama said in 1991 might be shocking to Hannity’s audience, but to the real world it just becomes laughable.  Congrats Hannity and Breitbart.com, you have finally proven that Obama is not a Republican.

Why Ron Paul Will Never Be VP

Over the past months there’s been some speculation about the eventual GOP nominee choosing Ron Paul (or Rand Paul) as their VP pick.  Paul has the fervent support that is lacking in all the other candidates and grabbing him as a running mate could help capture that energy in the party.

But there is one simple reason why this will never happen and it has nothing to do with public opinion.

The problem comes from Article II of the US Constitution, which says that the VP becomes President upon the President’s removal from office, but you already knew that.  You also know that one way a President can be removed from office is by death.  So now you have Paul, the VP, with a highly loyal, highly enthusiastic, and often highly paranoid group of followers that know that Paul will be president if the current president dies, one whom they most likely despise anyway.  All it takes is one, Paul’s most radical and confident supporters know this and the GOP nominee also knows this.  No nominee is going to issue their own death warrant by choosing Paul as VP.  Nominees instead choose someone with no following, someone bland, someone unlikely to get them killed.

It would be like Obama choosing a Klansmen as his VP.  He didn’t, he chose Joe Biden, the enthralling figure of Joe Biden.  The same thing happened when Cheney chose Bush to be his President.

Sarah Palin Gets History Wrong…Again

I really don’t try to disparage the woman, and I don’t even consider myself that partisan, but as a historian this shit has got to stop.

Sarah Palin, already known for her tendency to skew history and turn it into some convoluted GOP mantra, has done it again.  This time it went mostly unnoticed when she was on Greta Van Susteren’s show to talk about the GOP primary in Alaska.

You can watch the full interview here but the relevant part starts around the 8 minute mark.

Talking about the primary in Alaska, Palin referenced the importance of energy in Alaskan politics, then going on to say:

“Since we are an energy rich state, and we know that William Seward back in Lincoln’s cabinet all those years ago secured the territory of Alaska, purchased it from Russia, so that we could someday ultimately secure our union with our resources.”

Whoa whoa whoa, stop the clock.  First, Alaska was purchased under Andrew Johnson, not Abraham Lincoln, who was dead at the time.  Yes, it’s true that Seward was in Lincoln’s cabinet, but it stopped being Lincoln’s cabinet when he died.  But ok, that’s a minor mistake for anyone not from Alaska.

How about the claim that Seward purchased Alaska in order to “secure our union with our resources.”  I’m not entirely sure what that even means as I don’t speak grizzly, but here’s what I think she’s getting at.  By naming Seward directly she’s either showing off her learnings or playing off the “Seward’s folly” criticism and attributing considerable foresight to the man.  Palin’s version maintains that Seward purchased Alaska so the US would have a nice supply of oil.

Was this the reason for the purchase?  Of course not, the only discussion about energy in Alaska at the time was speculation of coal resources in the Aleutian Islands and that was pretty far down the line in terms of resources in Alaska.  Most of the early interest came from whaling and seal furs from Alaska with New England companies eager to get in on the action.  So, if by securing resources Palin means whale blubber and murdering seals, then ok she was right.

People did also see Alaska as a resource-rich territory, but more in terms of fisheries and timber.  The public was also infatuated with the idea of territorial expansion and the conquest of new lands which had decades earlier been considered terra incognita.  But this is simply the public reaction and doesn’t explain why Seward actually bought Alaska.  For that we have to go back to the Crimean War.

Russia lost the war to Great Britain, and weakened and financially unstable, they considered selling their territory of Russian America.  They figured it was best to sell it before Britain seize it in a future conflict.  They approached the US with an offer in 1859 but negotiations were interrupted during the Civil War.  At the outbreak of war in the US, the Russian government gave enthusiastic support to the Union, almost as if they wanted a favor later.  So when in 1867 the Russians again approached with an offer, Seward took the opportunity.  He had his own reasons too, he was an expansionist fulfilling Manifest Destiny.  He also had his sights on taking British Columbia from the British which had recently experienced a gold rush.  And most importantly, it was dirt cheap even for the time, selling for $7 million, or 2 cents an acre.

To put it simply, we bought Alaska to invade Canada and as a personal obligation to the Tsar.  I’m pretty sure Palin is only down with one of those.

If there’s another lesson to take away from this it’s also how we re-interpret Seward’s decision/obligation through history.  Despite the public enthusiasm for the purchase of Alaska, the territory ended up being a burden until gold was discovered in 1896 at which point people started praising Steward’s foresight.  An article from Richard Welch in 1958 talks about people praising Steward for giving us Alaska as a strategic Cold War region.  Only recently have people started talking about Alaska’s energy-rich resources, with massive drilling projects beginning in the 1960’s and ’70’s.

It’s not wrong to thank Seward for his purchase of Alaska and it’s nearly impossible to argue that it has not been highly profitable, but to re-interpret Seward’s decision as some clairvoyant concern for energy resources is remarkably dishonest or naive.

Super Tuesday: What to not Expect

Every debate, caucus, straw poll, and primary the media does a quick primer beforehand about what to expect.  Expect a fiery Romney Gingrich showdown, expect a strong performance from Santorum, expect Ron Paul to not give a shit about results at all, and so on.  Super Tuesday is a bit different, candidates compete for a geographically diverse area and their campaigns mostly focus on a fraction of the states.  For instance, Alaska is one of the states voting tomorrow (actually they just start voting tomorrow as they first day in 2 weeks, Alaska is big), yet as Sarah Palin pointed out, none of the candidates bothered showing up there.  Although she did make sure to say that Gingrich did do a teleconference, leaving her flirtation with a Gingrich endorsement somewhere around 3rd base.  So the media sort of knows how it’s going to turn out in each state and expectations are based on how much effort the candidates put into each state versus the results of the state.  You want to know these expectations then turn on the news tonight or tomorrow.  Instead, here are some things you should not expect.

Do not expect a Consensus

Super Tuesday is big, but not super big.  The delegates up for grabs Tuesday comprise about 18% of the total so even tho there may be a clear winner on the day, more than half the states have yet to vote.  This year Super Tuesday has actually meant less than previous years, so the results after tomorrow can’t really be contrasted against 2008, which effectively ended the GOP primary.  Each campaign will also spin the results into a positive sign for them as they have done every contest so far.  The only exception to this may be Newt Gingrich who, if failing to win Georgia, could end his campaign

Do not expect The Speculation About the Convention to End

Even if Romney wins big tomorrow he still won’t have enough delegates to put this to rest.  There’s also a general misconception about how these primaries actually choose a winner.  It’s not how many states a candidate wins, not even necessarily how many votes they get, but it’s all about the delegates.  Take Virginia for instance, another state voting tomorrow with a total of 49 delegates up for grabs.  33 are appropriated for each congressional district the candidate wins and 13 more for the winner of the state, and then another 3 as super delegates who represent the Bam Margera of primary voting by doing whatever the fuck they want.  Every state is different too and things will not be settled for Romney until both Santorum and Gingrich end their campaigns.

Don’t expect Democrats to Have Their Shit Together

So far this year the only one actually encouraging cross-party participation in the primaries has been Rick Santorum.   Now there’s a lot of open primaries tomorrow, Georgia, Tennessee, Vermont, and Virginia, that are just ripe for democrats and independents to try to exercise their voice, or manipulate the elections (depending on your level of cynicism).  Republicans meanwhile seem rather adept at this, with Romney bragging about it and the 2008 push for Obama to beat Hillary.  After most of the GOP field failed to qualify for the VA ballot, the Republican-controlled legislature introduced a bill requiring a loyalty oath to the eventual GOP nominee to be allowed to vote.  Thankfully this horrendously dumb idea was scrapped and it seems, will matter very little anyway in the end.

Don’t expect Calm, Balanced, and Straightforward Election Coverage

Look, there are 9 states that will have results tomorrow and we all know how it is when there’s only one.  CNN always seems to be the trendsetter for coming up with the most ridiculous burdensome shit, like holographs, overly-complicated wall interfaces, and what appeared to be an intern greenhouse.  Not only will they be constantly switching graphics from state to state but every interview or analysis will be interrupted with breaking news about how a precinct with 32 people just voted.  Take everything bad about the earlier primary coverage and multiply it by 9.  But at least it’s not a debate so we probably won’t have to sit through another Frank Luntz focus group.