Honolulu , HI
Monday, February 22, 2016

Why we do NOT live in a free-market economy

A free market economy is one in which supply and demand control what products are produced and at what price those products are sold. The theory holds that the actions of sellers will be driven by the actions of buyers. If buyers recognize a product as being poor quality, or not useful or dangerous – they will not buy it and therefore producers have no profit-motive to continuing to create it. If producers produce a product that buyers do like, then the price will be determined once equilibrium has been reached between the supply of the product that exists and a price that is low enough where enough buyers exists to consume the entire supply. In theory, producers are therefore driven to produce higher and higher quality goods – at lower and lower prices in order to increase the demand for their products. Everybody wins!

However, there are several very important parts of the above equation, which are fundamentally different from our economy in the U.S. and is why it is dangerous for us to continue to make decisions – as if we actually lived in a free-market economy.

First off, the concept of markets being regulated by supply and demand; buyers and sellers reaching equilibrium requires that “buyers” and “sellers” have equal power. If a seller can cause a buyer to buy a product even though its poor quality by limiting alternatives or disseminating false “facts”, then the seller has tipped the scales in his favor. We have reached a false equilibrium. In a true free-market economy, this could never happen because buyers and sellers have equal power – which assumes equal access to unbiased information – and therefore the seller cannot compel the buyer to buy anything that is sub-standard, dangerous or useless.

In our economy today, corporations control billions, if not trillions of dollars. I don’t think anyone would argue that they have become experts at influencing buyer behavior. They know what colors to use in adds, what catch-phrases to get people to act and where we go for entertainment, news etc. You many have heard of the new craze in the technology sector, “big data.” This new technology trend is about corporations gathering terabytes of data on you, the common man, the consumer [the buyer]– and crunching that data in what are essentially super-computers to figure out how to cause you to buy their products, regardless of the quality, usefulness, or safety. In order of our economy to be a true free-market economy, buyers would also have billions of dollars that were organized in a way that created a counter-balancing resource that would for instance conduct complex analysis of a products components and safety and would deliver completely objective summaries the pluses and minus of a product. That would be a step toward buyers and sellers having equal power. But that’s not the case the U.S. Sellers have considerably more power than buyers. Sellers pay millions of dollars to lobbyist to influence laws that benefit them buyers do not. Thanks to Citizens United, they now have incredible power to influence what politicians get elected and what they must do if they want to get re-elected.

Corporations own what we refer to as “news” outlets which are used to influence us. Corporations spend billions on TV adds, newspaper adds, website banners, etc. They control the vast majority of information we consume each day. We use this information to evaluate how we spend our money and who we support in elections. Corporations have a fiduciary responsibility to its shareholders to increase profits. They have NO responsibility to the masses or to you. This was recognized over a century ago and our government stepped in to help counter-balance the enormous power of corporations by enacting legislation to protect the common citizen. Once our government is completely controlled by corporations, what do you think will happen to those profit-stealing protections? This new, post-Citizens United system of government will destroy our democracy. Citizens of the U.S. (human-people, with hopes, dreams, fears, kids, etc.), must recognize and correct this mistake through a Constitutional Amendment that narrowly defines “Personhood” for the purposes of involvement in our political system as a living, breathing human-being NOT a corporation or any group whose interests are in conflict with the interests of ordinary citizens.

[Even by Ayn Rand’s own definition of a capitalism, we do NOT live in a free-market economy: “When I say “capitalism,” I mean a full, pure, uncontrolled, unregulated laissez-faire capitalism—with a separation of state and economics, in the same way and for the same reasons as the separation of state and church” – Ayn Rand

So let’s stop with the nonsensical argument of “we don’t need government regulation because we live in a free-market economy.” We actually don’t and continuing to pretend like we do threatens to ruin our country.]

Neil J. Holmes, MBA