I came across this article by author Henry A. Giroux recently, and I found myself drawn in by the first paragraph or so, strongly agreeing with his words, and then the cracks began to show. He rails against the invective of the talking heads on television, and the mindless jingoism of the current Tea Party movement, all of which is to be applauded, but then he concludes by claiming that in light of “the most painful evidence imaginable of the failure of laissez-faire economics and the destructive force of the alliance of big business and government against the interests of ordinary Americans … the Tea Party movement wants to abolish government and expand even more the deregulated capitalism that has unsettled the lives of so many of its members.” I’m not sure how he got here from there, but I am not willing to make that leap with him. The failure of the free market is not a foregone conclusion, no matter how much the pro-regulation movement would like to believe it to be true.
My first question is, how does laissez-faire economics fail? By what criteria is the author judging it? I contend that the market cannot fail. It does exactly what it is desgined to do. You can go into Wal-Mart and not find what you’re looking for, and call that a failure of the market. But in reality, the market has provided exactly what customers want, with the constraint that those things can be provided at a profit. When you do not find what you’re shopping for, it simply means that there is not enough profit in providing that good or service.
I see two problems with this author’s assessment. First, our economy is not laissez-faire. Quite the contrary, government regulation of markets has never been more burdensome, and it gets worse on a daily basis. Here is a definition of laissez-faire:
1 : a doctrine opposing governmental interference in economic affairs beyond the minimum necessary for the maintenance of peace and property rights
2 : a philosophy or practice characterized by a usually deliberate abstention from direction or interference especially with individual freedom of choice and action
Can anyone claim that this is an accurate description of the marketplace in the United States? Hardly. Second, even if it was laissez-faire, a market that rewards only those entrepreneurs who satisfy their customers is, by definition, a success.
I completely agree with the evil collusion of corporations and government, and it is interesting to me that we can agree on something like this, and yet be so far apart on the other aspect of his statement.
How about the recent example of Apple’s tribulations with the iPhone 4 and its poor reception? Consumer Reports came down hard on Apple, claiming the problem seriously hampered the abililty of the device to function as a phone. Within days of this poor review, Apple responded with a fix (or at least a work around), to mollify its angry and disappointed customers. No government intervention was necessary. No regulatory agency stepped in. Just a well-respected free market watchdog organization, whose opinions are valued by millions of consumers. That was enough to cause many to question Apple’s reputation in the marketplace, and that potential damage to their reputation was enough to motivate them to address the issue. This incident is a perfect illustration of how the free market is self-regulating. Many might argue that this regulation is not strong enough or does not go far enough. But anything more than this places an undue burden on the market (which consumers experience as higher prices) and serves only to distort the market signals that would otherwise cause self-correction (which consumers experience as problem resolution taking longer than it should).
I am wary of anyone who looks at the major problems our economy has experienced in recent years and wants to affix blame to the market itself. How can anyone look at the sub-prime mortgage market and claim that it is laissez-faire? The mortgage industry is one of the most highly regulated areas of our economy, so you cannot blame the free market and call it a failure. The market as it is currently configured is not free, so the source of failure must be elsewhere.