The Wonders of the Free Market

A student asks:

I have considered the future and it scares me a bit. If those people in leadership positions of both corporate America and our government are unable to make and handle the hard choices and correct the real problems, what kind of future do we as individuals and we as a country have to look forward to in the years to come?  

I realize this is a very pessimistic point of view and a very depressing thought as well. I try not to allow such thinking to influence me too much, but I have come to the conclusion that the only course of action would be to protect my investments as much as possible, be cautious when taking on any financial risks in relation to increased burden or investments, and always be aware and prepared for the worst, but try hard to not let that affect my happiness in the present. 

My response:

Your worry, in my opinion, is exactly why the free market can come to the rescue. Increased freedom and liberty in general, are the answer to your future concerns, and truly free markets, in particular. The free market thrives because needs are being met, and there is a free exchange of money for goods or services that rewards the suppliers for knowing what goods and services to provide and rewards the buyers by getting them exactly the goods and services they want and need.

But a free market does not need to be unregulated, rather the most effective market is appropriately and reasonably regulated. Reasonable regulations mean that market regulations are balanced correctly: neither too onerous for the suppliers nor too restrictive for the buyers. There must be true political freedom too, in order for economic freedom to be sustainable for the long-term.

Political freedom means that government:

1)    holds regular elections (we replace useless politicians),

2)    enforces a reasonable rule-of-law, and

3)    protects individual rights, including property rights.

When free markets are accompanied by meaningful individual rights and property rights and a tightly enforced, yet reasonable rule-of-law, then we will have a future worth anticipating. Such a happy prospect is only possible when a government exists based on blind enforcement of the rule-of-law, that is, justice is dispensed without respecting one’s name or station or level of income.

In my opinion, for you and millions of worried American citizens just like you, the best course of actions would be to do all things possible to enlarge the prospects of freedom and liberty in America. Then we citizens can revel in the wonders of the free market, which supply a constant stream of innovation for decades into the future.

For example, consider the music industry. For years, even decades, the music industry tried hard to behave like a cartel, mostly successfully, creating an industry consisting of relatively few choices for music tunes, yet insisting we consumers buy the entire album for $15 or more in order for us to own the single tune we wanted.

Then with the advent of digital offerings, the few firms at the top grew further and further apart from their customers – to such an extent that by the 1990s they were suing their customers in court!

Why? How did this level of disconnect between supplier and consumer happen? In response to the heavy hand of the music cartel, music consumers were illegally downloading ‘free’ music, and not giving the music recording cartel their legal, though usurious cut – therefore something obviously had to be done.

The free market, in the guise of Apple, rode to the rescue. By 2001, Apple created both the iTunes digital store and the iPod and those two innovations made it both possible and easy to download music from the Internet to the iPod for $.99 a tune. Customers loved this option and the music industry was saved, mostly – with a heavy dose of Apple, of course.

Now, music creators also get a cut for being creative and music owners can own loads of relatively inexpensive music and carry the music around with them anywhere. Billions of tunes are purchased each year and owned one-by-one by consumers for less than a dollar each. How many billions of tunes have been downloaded from the iTunes store in the last 12 months? Is there a better example of the free market fixing a large problem?

The government need not intervene in determining price, whether $15 or 99 cents, but ought to enforce a reasonable rule-of-law across the board, thereby maintaining robust competition in the marketplace, allowing the price signal to be clearly heard by both buyers and sellers in the marketplace. Markets can prosper with the light touch of government regulation.

Long story short, for a happy future, you want and need as much freedom and liberty and property rights and free markets thriving as possible. Government intervention such as establishing price ceilings and price floors always mutes the price signal, mucking up the future and killing most of the options available.

Government is best when it acts as the referee of a reasonable rule-of-law, applying justice evenly and blindly, without regard to how much money the offender might contribute to a specific politician’s re-election campaign.

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