The Myth of the ‘Free Market’ and How to Make the Economy Work for Us

One of the most deceptive ideas continuously sounded by the Right (and its fathomless think tanks and media outlets) is that the “free market” is natural and inevitable, existing outside and beyond government. So whatever inequality or insecurity it generates is beyond our control. And whatever ways we might seek to reduce inequality or insecurity — to make the economy work for us — are unwarranted constraints on the market’s freedom, and will inevitably go wrong.

By this view, if some people aren’t paid enough to live on, the market has determined they aren’t worth enough. If others rake in billions, they must be worth it. If millions of Americans remain unemployed or their paychecks are shrinking or they work two or three part-time jobs with no idea what they’ll earn next month or next week, that’s too bad; it’s just the outcome of the market.

According to this logic, government shouldn’t intrude through minimum wages, high taxes on top earners, public spending to get people back to work, regulations on business, or anything else, because the “free market” knows best.

In reality, the “free market” is a bunch of rules about (1) what can be owned and traded (the genome? slaves? nuclear materials? babies? votes?); (2) on what terms (equal access to the internet? the right to organize unions? corporate monopolies? the length of patent protections? ); (3) under what conditions (poisonous drugs? unsafe foods? deceptive Ponzi schemes? uninsured derivatives? dangerous workplaces?) (4) what’s private and what’s public (police? roads? clean air and clean water? healthcare? good schools? parks and playgrounds?); (5) how to pay for what (taxes, user fees, individual pricing?). And so on.

These rules don’t exist in nature; they are human creations. Governments don’t “intrude” on free markets; governments organize and maintain them. Markets aren’t “free” of rules; the rules define them.

The interesting question is what the rules should seek to achieve. They can be designed to maximize efficiency (given the current distribution of resources), or growth (depending on what we’re willing to sacrifice to obtain that growth), or fairness (depending on our ideas about a decent society). Or some combination of all three — which aren’t necessarily in competition with one another. Evidence suggests, for example, that if prosperity were more widely shared, we’d have faster growth.

The rules can even be designed to entrench and enhance the wealth of a few at the top, and keep almost everyone else comparatively poor and economically insecure.

Which brings us to the central political question: Who should decide on the rules, and their major purpose? If our democracy was working as it should, presumably our elected representatives, agency heads, and courts would be making the rules roughly according to what most of us want the rules to be. The economy would be working for us.

Instead, the rules are being made mainly by those with the power and resources to buy the politicians, regulatory heads, and even the courts (and the lawyers who appear before them). As income and wealth have concentrated at the top, so has political clout. And the most important clout is determining the rules of the game.

Not incidentally, these are the same people who want you and most others to believe in the fiction of an immutable “free market.”

If we want to reduce the savage inequalities and insecurities that are now undermining our economy and democracy, we shouldn’t be deterred by the myth of the “free market.” We can make the economy work for us, rather than for only a few at the top. But in order to change the rules, we must exert the power that is supposed to be ours.

This piece is cross-posted from Robert with permission.

8 Responses to "The Myth of the ‘Free Market’ and How to Make the Economy Work for Us"

  1. Glen   September 17, 2013 at 8:22 am

    Poor Robert, he doesn't realize that the Government intervention into the FREE market over the past 50-100 years is what has caused the huge gap in income. GE pays no taxes and I pay 50%, hows the hope and change working for you? The Government always picks winners and losers, and always gets it wrong. I don't think the progressives understand how the free market is really suppose to work. If they did, we wouldn't be reading this nonsense.

    • annamarina   September 17, 2013 at 12:52 pm

      Sure, financial deregulation is a stellar example of how the whole society improves when Rubin, Summers, and likes liberate wall street and city. And now we are waiting for even more miracles from the deregulated Monsanto. Sure government can be bad for business, particularly when the government is bought out and is not democratic anymore. Such government always has money for a war and never for the universal healthcare, education, and infrastructure. And of course, such government always has money for the main puppet-masters that adore socialized losses.

  2. SBG   September 18, 2013 at 7:20 am

    Robert Reich's last statement explains his alternate reality and thus the illogic of so many of his arguments. His suggestion that the US is full of SAVAGE inequalities and insecuriites is absurd. Savage inequalities and insecurities occurred in Communist Russia, Cuba, Venezuela. WHenver a few people, aka the Robert Reich's of the world, believe they can decide for the many what is best, we have the societies mentioned above. The US's capitalisitic, minimalist government approach has provided the most security and equality and freedom to the most people in any society. And the basic concept of the Free Market and the Free People, able to make decisions without government (or Robert Reich) control and with very low government involvement has provided that security, wealth and equality.

    • Davlip   September 19, 2013 at 7:56 am

      SGB is uninformed of the facts when stating that the U.S. has the most equality. Income inequality is far greater in the U.S. than in the westernized countries in Europe. The last timel inequality was this large was just before the market crash in '29. The middle class is shrinking and the numbers of working poor are growing. Unfortunately the poor are mostly invisible to the rest of society. Our democracy is becoming a plutocracy, ruled by the rich. To get a better understanding of the plight of the working poor in America I suggest reading "Nickel and Dimed:
      On (not) Getting by in America" by Barbara Ehrenreich

  3. ewulf   September 19, 2013 at 12:48 pm

    The problem is government ability to control the market for its own purposes.These day NGO have more credibility than Government to define market rules and institutions.
    On the other dude markets solve what otherwise should be done discretionally.Sure markets ,line democracy are not perfect,but it has worked quit Dell to lift people out of poverty.

  4. Robert Coutinho   September 19, 2013 at 9:23 pm

    To suggest that NGO's (such as NASDAQ or NYSE) control markets better than government is to completely misunderstand those government agencies that are supposed to control the markets. The SEC has been captured by the lawyers and financiers on Wall Street. The banks have been consolidated into near monopolies. Mine owners can run unsafe mines and get slaps on the wrist when their employees die. When individuals stand up and shout that the system is broken (Occupy Wall Street) they are abused by the justice system.

    This is not the America I volunteered to fight for back in 1983. I do not know what it is, but it is definitely not a constitutional democracy–the Citizens United decision has institutionalized that!

  5. Patriot   September 24, 2013 at 2:25 am

    The core message of Reich's article points out that the "free market" is really a bunch of rules. Who could argue with a fact like that? I guess Glen and SBG can. Lore, beliefs and ideology trump facts any day.