The Gross Generalizations of Free Marketeers

One of the most bizarre and common traits of the free marketeering crowd is a return to the most simplistic argument on the planet: the hasty generalization. "Look," they scream, "there are so many kinds of toothpaste due to competition. We have high cost brand name toothpaste that keeps your teeth clean and white and we have cheap generic toothpaste for people who just want to clean their teeth. It's brilliant. Markets work and they do amazing things always. Now let's privatize health care."

It's a little like these poor souls got beaten over the head with a free market stick when they were young and can now only see the positive results of competition and never its downsides.

It should be enough to point out that this simplistic inductive reasoning is deeply flawed. Pointing it out, though, never seems to work.

I was actually laughing about this over Christmas dinner with my family. A number of my family members are voting Republicans and economically are far more conservative than me. Someone ribbed me a bit about being a socialist at which point I declared my belief that our dinner that evening (and every evening) should be prepared by the government, a caricature of my view of the world that some people seem to believe.

The truth is, virtually none of us on the left are truly anti-competition or socialists. What we are is market cynics. We simply don't believe that markets really live up to all the grandiose promises that libertarians make about them. We don't think they always lower prices while improving quality.

But this morning I read just about as good of a parody view of the libertarian view as I had ever read, except that it wasn't a parody. It was a signed op-ed written by a staffer for FREE, a libertarian environmental think tank based out of Montana. Here's what John Downen writes after marveling at the wonders of modern luggage:

"What all this demonstrates, besides my ignorance of modern luggage, are the benefits competition brings to a market economy. Many fear that free markets and competition lead to Big Business monopolies and homogenization. In reality, competition fosters diversity -- more and better products with more features -- while constantly lowering prices."

The problem, of course, with this understanding of markets is that it is as fundamentally wrong as my joking belief that we would all be better off if government cooked our meals for us.

The problem with government cooking meals for us is that there is no way to centrally plan the meal preferences for 270,000,000 people. The individual preferences demand niche appeal and when every different restaurant and grocery market line is going to need the freedom to appeal to different people with different needs, there is no point in having an oversight bureaucracy that runs up costs. That and central planning would introduce incentive for corruption that would additionally limit choices and increase costs.

But the problem with people choosing their own, say, medical treatments all the time is that virtually none of us really knows what constitutes a good doctor, a reliable diagnosis, or a well-formulated treatment. Most of us don't even really know whether we should see a general care physician or a specialist. It's significantly different from buying luggage, where we face no such quandries. We know what kind of bag we wish to purchase.

Or consider the "market" for energy or roads. The infrastructure to sell energy or transportation (the "good" we seek when using roads) is massive and damn expensive. It's also particularly hard to have competition in these industries (imagine "competing" road systems in your hometown, complete with underpasses and overpasses to avoid companies "stealing" roadway from eachother). We call them natural monopolies because huge barriers to entry and declining marginal costs create an incentive structure that rewards economies of scale on a massive level. Two road companies would virtually always be better off merging into one. Monopolization is the way of the game, or would be in roads even if the government gave up its monopoly.

Energy is no different and actually contains pieces of both of these. True competition is unlikely and the complexity of the market leaves individuals at the whims of a relatively small number of companies. All of these realities make price manipulation and gouging possible. And when crime pays, it tends to occur.

The reality is that markets are extremely good at delivering low-cost, high quality goods in some market -- clothing, luggage, food, etc. In other areas, they tend to be acceptable -- electronics, etc. But in places, the results can be downright bad -- health care, energy, and transportation.

But, hey, what do I know? I'm just a socialist.

--Matt Singer

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