Debunking Myth #2: “Government obstructs the free market”

Bunk! The choice is not government or free market, because government creates the market.

Friends,

Welcome back to our DEBUNK series.

Last week, we saw how economics is inextricably connected to politics and morality — and the underlying questions are what we mean by a good society and how we achieve one.

Today we’re debunking the myth that follows directly from the first one: that our system poses a choice between the free market or government, and that government intrudes on or obstructs the free market. Bunk!

Please click on our short video above for today’s overview.

The real choice is not between a free market and government. A so-called “free market” can’t exist without a government to organize and enforce it. 

There’s no “free market” in nature — only a contest for survival.

The most important choices concern how the government organizes and enforces the market — what the rules of the market are to be. Legislators, judges, and people working in the executive branch continuously decide on these rules.

Rules have changed over time. In the 1800s and through much of the 1900s, human beings could be bought and sold as slaves. Debtors could be imprisoned. Monopolists were given free rein. Union organizers risked being shot.

What are the key rules?

Property rules determine what can be owned (or for how long) — human beings? Property that Native Americans once considered their hunting grounds? Songs? Recipes? Google’s algorithms?

Antitrust rules determine what degree of monopoly is permissible. Can one person or corporation own a railroad, internet platform, airline, grocery chain, or natural resource that almost everyone depends on?

Contract rules determine what can be exchanged and under what circumstances. Can I sell my child? My kidneys? My blood? Can I sell or buy sex? Is my employer allowed to limit my options for future employment or force me not to disclose something?

Rules governing debt and bankruptcy determine what happens when borrowers can’t pay up. Can my creditors put me in prison or bondage? Can they charge me 300 percent interest on my debt? Can they take a percentage of my future earnings?

There are also rules for labor unions, international trade, banking, corporate takeovers, corporate buybacks, and taxes.

Rules like these have to be made in order for a market to exist. But who has the most influence over these rules?

Over the past several decades, large corporations, Wall Street, and wealthy individuals have gained increasing influence over the rules. Their wealth has translated into political power.

How? Follow the money. Corporate PAC spending has reached hundreds of millions of dollars a year. Business lobbyists now spend 68 times as much on lobbying as labor unions spend. Big corporations march into courtrooms with platoons of lawyers. 

Between the 1930s and 1970s, America’s middle and lower-middle class offset the power of big corporations and the wealthy through labor unions, small businesses, small investors, and local political parties.

Since then, though, all such centers of countervailing power have withered.

Labor union membership has fallen from a third of private sector workers in the 1950s to just 6 percent in 2023.

Small businesses have been replaced by giant big-box and online retailers.

Small investors have been replaced by giant institutional investors: money market funds, index funds, university endowments, and pension funds.

Political parties that were once anchored at the state and local levels have become giant Washington-based fundraising machines. Much of the power they once influenced to get out the vote and persuade voters to back specific candidates has shifted to giant social media platforms.

That’s why the rules of the American economy are now largely determined by big corporations and individuals with great wealth.

What’s been the result? Ever-larger upward distributions inside the market — from the poor, working, and middle classes to the top. We don’t notice them because they’re hidden from view behind a so-called “free market” that’s assumed to be neutral.

But remember, the “free market” is not neutral. How it’s organized is a direct reflection of who wields power.

Next week, we debunk the third myth.

Thanks again for joining me today.