Home > upward income redistribution > The Vicissitudes of the Market Would Be a Big Improvement

The Vicissitudes of the Market Would Be a Big Improvement

from Dean Baker

Bob Kuttner has a good column in the Huffington Post comparing the progress made in improving the living standards of ordinary people in the forty years following the New Deal with the deterioration of the last three decades. However the piece doesn’t go far enough in contrasting the former period with the latter period.

After noting the lack of progress in recent years he comments:

“You wonder why people are turning away from the Democrats’ proposition that affirmative government can buffer people from the vicissitudes of the marketplace? You wonder why millennials are attracted to the libertarian proposition that we’re all on our own anyway?”

Of course the problem of the last three decades is not the “vicissitudes of the marketplace,” but rather deliberate actions by the government to redistribute income from the rest of us to the one percent. This pattern of government action shows up in all areas of government policy. 

For example an explicit goal of our trade policy is to put our manufacturing workers in direct competition with low paid workers in the developing world. This has the predicted actual result of driving down the wages of manufacturing workers and less-educated workers more generally. At the same time we deliberately depress their wages we largely protect the most highly paid professionals (e.g. doctors, lawyers, and dentists) from the same sort of international competition.

The government has strengthened and lengthened patent and copyright monopolies. This allows for absurdities like a treatment with the hepatitis C drug Sovaldi costing $84,000 when the drug would sell on the free market for less than $1,000. There would be no hand-wringing moral dilemmas about treating people with hepatitis C at less than $1,000 per person. If we just had a free market the government would not be putting people behind bars for 16 months for allowing people to download recorded material.

The vicissitudes of the market would also not have bailed out the Wall Street banks, ensuring that many of the top 0.1 percent or 0.01 percent did not lose their fortunes due to their own greed and ineptitude. It also wouldn’t exempt the financial sector from the same sort of taxes imposed on all other industries. And the vicissitudes of the market would not have a Federal Reserve Board that is prepared to raise interest rates in order to keep people from getting jobs and keep workers from having enough bargaining power to get wage increases.

In these and other areas the government is actively working to redistribute income from the rest of us to those on top. Under such circumstances, a libertarian view that reduces the power of the government likely looks pretty good to many people. Certainly in these areas, less government would be a very big victory for most of the population.

  1. October 1, 2014 at 1:13 pm

    “At the same time we deliberately depress their wages we largely protect the most highly paid professionals (e.g. doctors, lawyers, and dentists) from the same sort of international competition.”

    I don’t begrudge these professionals their salaries. They, in fact, are probably the biggest force keeping our economy going as well as it does. Consider that if an entrepreneur can just come up with a luxury choice enough, any dollar among their wealth is potentially in play, whereas you and I have a greater chance of winning the mega-millions lottery than one of Charles Koch’s dollars has of paying for the morning breakfast bagel.

    Let’s keep our focus on the actual forces bringing our economy to a grinding halt and not get distracted by small business winners that arguably are a significant positive overall.

    “The government has strengthened and lengthened patent and copyright monopolies. This allows for absurdities like a treatment with the hepatitis C drug Sovaldi costing $84,000 when the drug would sell on the free market for less than $1,000.”

    Imagine a world in which Amazon was allowed to distribute all the e-books it desired without paying a penalty of author’s royalties. You describe an actual problem here, but the solution is not going to a “totally free” market by abandoning the idea of intellectual property, but rather to accept that a marketplace is only something that ever exists in the context of a rules framework and that when the rules lead to absurdly bad outcomes we have no choice but to choose a more palatable set of rules.

    “For example an explicit goal of our trade policy is to put our manufacturing workers in direct competition with low paid workers in the developing world. This has the predicted actual result of driving down the wages of manufacturing workers and less-educated workers more generally.”

    And what, pray tell, do you think a free market actually is? Putting our manufacturing workers in direct competition with third world workers working without environmental safety constraints is one of the biggest goals of free market apologists.

    “In these and other areas the government is actively working to redistribute income from the rest of us to those on top. Under such circumstances, a libertarian view that reduces the power of the government likely looks pretty good to many people.”

    If you are confused about the agency problem in economics, and you don’t understand the concepts of a non-excludable goods and external costs, to the extent that you confuse “government” the concept and “Corporation-corrupted government” the observable result, then I would agree that a libertarian view might look pretty attractive. Unfortunately, the results of libertarianism are precisely to create the agency problems and government monopolies that got us into this mess. Consider that barring the re-establishment of slavery, there is no way for a private owner to benefit from the product of 20 years of educating someone. Our education of our youth above and beyond the education that they would take in as part of free market activities is a non-dividable society benefit. The only way private enterprise can participate in such a benefit is through a contractor’s role, rather than an owner’s role, which removes the entire argument for privatization. Lack of a profit reward for long-term investment is a far better motivator than profit rewards for deliberately choosing short term optics over results. You see similar problems in the Prison industry, with completely disastrous results.

    It is the purification and removal of corruption from public services that is required, not attempted privatizations of public goods. But as long as corporations can point to their own hands in the public cookie jar and say, “See what happens with government?” you will see a continued downward slide of civilization.

  2. October 3, 2014 at 12:01 pm

    Nowhere is this argument more correct than in the case of income inequality. The “vicissitudes of the market”, as I’d interpret them, are in that case globalization, technology, etc. But these types or things are too naively blamed for the rise in inequality in the US and other advanced economies. What is not mentioned is the role of policy, things like reducing capital gains and dividend taxes.

    If inequality were only driven by those “vicissitudes”, and not exacerbated by deliberate policies, we’d have a much more equal society at the moment.

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