The “Free Market” Economy

One of the on-going Republican policy positions, as well as a stand taken by President-elect Trump, is that too much government regulation hampers the economy and costs jobs, and that the “freer” an economy can be, the better.

The problem with this stand is that it ignores reality. Markets don’t work very well, and sometimes not at all if there isn’t a certain amount of order. In turn, maintaining order requires an overriding structure and authority backed by some sort of force, or at least the possibility of force. Most conservatives will accept that as a necessity.

So the question really becomes one of what, if anything, should government [or the authority structure] do beyond providing basic order. Despite those who feel government should do nothing, in historical practice, most western governments have, if spottily, required some basic standardization and regulation of trade. The size, weight, and composition of basic foodstuffs have been set forth; counterfeiting forbidden; and often the times and places prescribed where goods could be sold, as well as where certain noxious practices, such as rendering and smelting, could be carried out.

Most societies have been aware of the dangers of adulterated foodstuffs. Rye contaminated by ergot fungus and turned into flour can result in ergotism, which caused tens of thousands of deaths in Europe from the 1300s through the mid-1800s, but more than a few unscrupulous farmers still sold contaminated grain to millers, even after the cause of the disease, popularly known as St. Anthony’s Fire, was known. Meat-packing in the U.S., even in the early part of the twentieth century, was often terribly unsanitary, as revealed in Sinclair Lewis’s The Jungle, a book which spurred public outcry, which led to reforms including the Meat Inspection Act.

Bit by bit, the U.S. government passed laws and implemented regulations to improve food safety. Later, after it become clear that industrial practices had resulted in rivers that caught fire and were too toxic for fish to survive, and that air in some areas was barely breathable because of airborne pollutants, Congress passed environmental laws to regulate the emission of various classes of pollutants.

Now… the question that tends to get overlooked by those who claim that all these regulations are excessive and that business and industry could do just fine if they didn’t have to comply with all the regulations is, if businesses could protect public health, why they never did. The answer is simply that the economic structure didn’t allow them to do so.

Producing anything in the fashion most beneficial to consumers’ health and in the most environmentally sound way costs more than ignoring the health and environmental issues. Therefore, the way to maximize profits is to do the bare minimum in terms of health and environmental issues, the bare minimum being not immediately poisoning your consumers and workers or the surrounding environment. Any business that does more than that jeopardizes its own future because, when there are no regulations, or lesser regulations, the business that increases its costs to improve health and environment becomes less profitable.

And that is exactly what’s happened in terms of the thousands of U.S. businesses that have offshored production of goods to third world nations or those with lower environmental and health regulations.

There’s a definite trade-off between environmental and health safety and cost of production. And higher costs of production mean higher prices. U.S. consumers want cheaper goods, but they also have wanted cleaner air and waters. The only way we can have both, in the present world, is to import cheaper foreign goods from other countries who are polluting their air and water, endangering the health of their workers and environment, and paying those workers far less.

What China is already discovering is that there is, in fact, even under an authoritarian government, a level of pollution that is too much, but even if other nations improve their health and safety standards, and most will have to, over time, they’ll still be able to produce goods more cheaply.

Which brings up the question of exactly how a Trump administration intends to “return” jobs to the U.S. without increasing the price of goods produced by those workers. Or does he intend to attempt [because it’s not clear that he can succeed] to reduce environmental protection in order to lower costs of production? If not, then he and Congress will have to impose tariff barriers and those barriers will increase the costs of goods to U.S. consumers.

Of course, I haven’t yet seen anyone in the incoming administration publicly dealing with these questions… and I have some doubt that we will.

1 thought on “The “Free Market” Economy”

  1. Devildog says:

    I agree with everything that you say in this article except the equation higher costs = higher prices. It is simply just not true. Cost and price have no relationship with each other than in the long run a business cannot sell products that cost more than the price that they can get get for said product. This is the simple economic law of supply and demand. Profits might be smaller when things have to be made in the United States in order to be sold. But I guarantee that if a profit can be made, a US entrepreneur will figure out how to make it. The problem with governments is that they set up some regulations that skew the functioning of the laws of supply and demand and we get situations like the price of housing (skewed higher by the writing off the interest on our taxes); the price of higher education (skewed higher by easy access to loans) are two such examples. We should have clean water and air. Everybody wants that. If a plant is throwing carcinogenic pollutants in the air and can’t mitigate its production then SHUT IT DOWN. But regulating naturally occurring gases such as methane and CO2 with another government managed boondoggle like cap and trade is a farce. Government regulation of our food stuffs and especially our financial industry is a must. But capricious regulation by fiat by a government agency that is unaccountable to the general populace such as the EPA is a slippery slope towards a dictatorship and a direct assault to our individual freedoms.

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