The Limits of Free Markets

On both ends of the economic scale,  increasing the minimum wage and reducing CEO pay, conservatives like to make the argument that the market is the best mechanism to set the right value for those jobs.  I actually think this is sort of ridiculous; you start with the assumption that the free market will set the right value for a commodity, then you plainly see that this is not the case and the value looks out of whack, so rather than adjust the assumption, you decide that the value must be correct, because free markets always work.  Even when they obviously don't.  Or something like that.

However, there is a great deal of theoretical and empirical support for the value of free markets, so I would not just dismiss the idea.  I just think that, before we accept the idea that CEO pay is currently very reasonable, and the minimum wage should be left alone or abolished altogether, because free markets are the answer, we ought to consider some evidence.

So here are a few things that free markets have given us:

• Slavery
• Discrimination against minorities
• Discrimination against women
• Discrimination against older workers
• Discrimination against gays
• Starvation wages
• Child labor
• Unlimited work hours
• 7-day weeks
• Unsafe working conditions
• Unsafe products
• Unfettered pollution
• Fraudulent companies
• Monopolies
• The stock market crash (1929, if you need to pick just one)
• The Depression
• Snake oil
• Bernie Madoff
• Enron
• The housing bubble
• And so on and so on and so on

On the other hand, government intervention in the markets has brought us:

• The end of slavery
• Laws against discrimination
• A minimum wage
• Restrictions on child labor
• 40-hour weeks
• Safer workplaces
• Safer products, food inspections
• Cleaner air
• The power to break up monopolies
• Prosecution of fraud
• Regulation of banks
• And so on and so on

Completely free markets don't work; that has been proven by experience.  Capitalism is a tool, and a very useful one; it brought us Microsoft and GE and Coca Cola and lots of good stuff.  But when you make the assumption that the market always knows best, there are plenty of reasons for doubt.