The Unlearning Economics blog offers a supposed list of inconsistencies inherent in the free market. Unfortunately, the reasons are themselves a convoluted, inconsistent collection of strawmen. Below is a response to each of his twenty four points.
1. Credit expansion does, indeed, cause boom-bust cycles. Many Austrians agree that outlawing fractional reserve banking would eliminate the problem–it is fractional reserve that allows the expansion followed by contraction. Additionally, fractional reserve also constitutes contract fraud because it essentially creates two claims to one piece of property. Capital controls are not the solution; solvent banking is.
2. The existence of regulatory capture is hardly the only argument against the vast majority of regulations. Most regulations cause secondary effects which are usually countered with (you guessed it) more regulation. There is not space in this post to detail the myriad distortions caused by government regulations. Of course, the same arguments can be applied against police and corruption.
3. Information asymmetry can be a form of fraud which is precisely why institutional arrangements such as warranties arise on the free market. Consumers demand protection against fraud through such arrangements. In reality, information asymmetry exists in every exchange to some extent. Should the state police every single exchange that occurs?
4. Expansion of the division of labor is one of the greatest engines of prosperity. It allows more and more preferences to be satisfied at lower and lower costs. Peasants did, indeed, leave the fields voluntarily for factories because they saw the choice of the latter as superior to the former. To argue otherwise is to either insult their intelligence or argue with the historical record.
5. This is, perhaps, the primary way we acquire income. However, any method in which income is acquired voluntarily is legitimate. Gifts would also fall under this legitimate category.
6. Wages that are imposed above market-clearing levels will result in unemployment. However, the trend for wages to rise on the free market will not cause unemployment. Rising wages are caused by increasing amounts of capital accumulation which make labor more productive. A minimum wage law cannot make a worker more productive.
7. The trend in a free market is for increasing standards of living. the author acts as if economic prosperity and ecological health are opposed when actually the two are positively correlated. He asks, “Can the economy be too big in its physical dimensions relative to the ecosystem?” This is a faulty way to think of the economy. The economy is simply an integrated nexus of individuals who are trying to satisfy their preferences. To the extent that the economy is “too big,” humans will have to go. Of course, many environmentalists propose this very “solution”.
8. Of course, whether there are tax cuts for the rich has nothing (necessarily) to do with inflation. If the government taxes the rich, it will spend that revenue. Either the rich spend it or the government spends it. Actually, taxes guarantee it will be spent–it’s no guarantee that the rich will.
9. Economic theory is not correctly based on empiricism. You cannot isolate human action and subject it to experiments like you can with chemicals (for example) which can be held constant.
10. Some economists do, indeed, question the state’s ability to define property rights, but that is beyond the scope of this post. However, just because the state cannot enforce property rights perfectly does not mean that the state is absolved from doing so. This is the state’s primary function. A minimalist state which enforces property rights is preferable to a lumbering Leviathan.
11. Why do many who care so much about the plight of the poor insist on policies that are proven failures? Why not insist on something that works…like enforcing property rights?
12. I’m opposed to Keynes, and I don’t advocate expansionary fiscal and monetary policy.
13. True. Property rights apply to things which are scarce goods. Ideas are not. If someone “steals” an idea, you are also still in possession of it.
14. The difference between the private sector and the public sector is that the private sector can employ economic calculation through profit-and-loss analysis to determine whether they have squandered resources. The public sector cannot–production choices are a shot in the dark. Which is more likely to squander scarce societal resources?
15. Corporations cannot rule the world except at government behest. They are subject to the demands of consumers.
16. Deficit spending is never ok, and tax cuts do not constitute spending.
18. There is not, and will never be, any such thing as a free lunch. In fact, the free market emphasizes this more than any other institutional arrangement. Ask any entrepreneur who is reaping losses. But competition always improves market conditions and will continue (as it has in the past) to drive down prices of consumer goods.
19. Everything is not subjective, though only individuals act, feel, and think. And it is impossible to impose liberty, as there is nothing to impose.
20. Monopolies and cartels cannot arise on the free market.
21. Taxes are coerced. You cannot avoid being taxed as long as you are alive. But by definition, rent is paid voluntarily, and can be avoided. It’s hard to argue against someone who is failing to draw elementary distinctions.
22. We don’t claim the name of Adam Smith, though many of our self-supposed “allies” do misuse the term “invisible hand”.
23. We claim the name of Mises, but do not think he was infallible.
24. Mises was not infallible. Perhaps this blogger should interact with specific propositions instead of painting broad groups of individuals with the same brush…