Private Sector Fantasies

Policing the free market

Monopolies are bad. they raise prices and stifle progress. They are also by many measures growing in power. But they are not the only area where the free market needs to be protected from itself. For example, lack of business transparency perverts the capital markets, so the SEC plays a crucial role.

  1. It needs to act “countercyclically”. Despite the jargon term, this is so basic as to be biblical — save in good times to prepare for bad. In a recession the government is the only party able to stop the spiral of low sales -> layoffs -> even lower sales-> even more layoffs. It does that by injecting money into the economy to stabilize sales. But in a recession, tax revenues are down, and the money has to come from somewhere–preferably savings but if necessary debt. In 2008 George W. Bush had just fought an off-budget 2 trillion-dollar war, so the cupboard was bare. Republicans screamed about increasing the deficit, even proposing constitutional amendments for balanced budgets. Their line “real people tighten their belts when they have to” was a deliberate misrepresentation. Real people save for bad times; otherwise they have to borrow to put food on the table.
  2. Government needs to recognize and control the excesses that can creep in to cause havoc in the business cycle. While many factors contributed to the 2008 crash, the most spectacularly deadly was the perversion of the banking system caused by mortgage-backed securities. In the giddiness of deregulation no one was looking. The aftermath produced the Dodd-Frank legislation as an antidote.

Sustaining the free market

Adam Smith pointed out the need for government to supply a suitably-trained workforce. In the eighteenth century that meant simply literacy. The definition of suitably-trained has changed over time. By 1940 a then astounding 50% of American students finished high school. In that era no other country approached that level of broad education support. Then the GI bill made college possible for veterans, and public colleges expanded widely throughout the 1960’s and 70’s. This coincided with unquestioned American economic dominance. An educated workforce (at all levels) remains a critical national requirement.

Scope of the free market

Adam Smith felt that the private sector could not be trusted even to defend free markets. So it is not surprising that there are other aspects of society that need defending as well.

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