On the Pernicious Myth of the Free Market
So: let’s begin the experiment in how quickly I can rebuild blog traffic after a summer’s neglect, shall we?
A week or so ago, there was a Twitter flurry on the subject of phrases some of us would like to see banned from science writing, stimulated by the annoyingly prolific Carl Zimmer‘s list of such sins. (His fault you’re a sloth? — ed.) Some very good ones there, this being my favorite (for obvious reasons):
Breakthrough (unless you are covering Principia Mathematica)
But the list of writerly shortcuts we should all avoid made me think of the phrase that gets my goat every time I hear it — which means that I am goatless a lot of the time. For that phrase is “the free market.”
I twittered my disdain for that term, noting in 140 characters or less that “free markets” as imagined do not exist in nature, and that hence, at best, they are the analogue to the physicists’ herd of spherical cows.
In fact, as friend of Inverse Square Ian Preston pointed out to me, that analogy is wrong — or at best, only a bit right. The bit that’s right is that there is a spherical-cowlike idea that economists make use of all the time. Where physicists simplify something like a shape to make a calculation or a proof-of-concept argument a little easier, economists will assume circumstances in which markets behave exactly as we were taught in our versions of Ec 10: there is perfect competition, perfect information available to all parties and so on. Such markets are spherical…goats, perhaps, just to keep the field clear for physicsts contemplating falling bovines.
What they are not is “free” markets, at least not in the sense that term is used in popular discourse. Remember: when a physicist says “consider a spherical cow” you and she know that you have just entered the realm of the imagination. When some right-radical* propagandist uses the term “free market” you also know what is being advanced: the notion that these drastic simplifications actually exist in the wild, and that any deviation from an absolutely unfettered market structure represents both a practical and a moral ill.
But, of course, there are no such creatures roaming the savannah.
Rather, as both economists and less rarified people who actually pay attention to the distortions in just about every market have recognized, all kinds of things in the real world make markets less than perfect, “unfree.” Assymetric information is one buzzword, regulatory capture is another phenomenon, various kinds of externalities apply other distortions to transactions, governments can intervene to increase or decrease the efficacy of market mechanisms…and so it goes.
The point, obvious to all but those willing themselves to believe in Adam Smith as the tooth fairy, is that his invisible hand is not placing dollars under virtuously self-interested pillows unbuffeted by all kinds of forces. Instead, the phrase “free market” is primarily propaganda, an attempt to perpetuate the big lie that there necessarily cannot be any better outcome than the one that transfers the most wealth and power to those who already have seized so much of it in the last years and decades.
That’s where Ian stepped in, both to echo my thought and to extend it (and perhaps, just a bit, to attempt to insulate his profession from the worst of what radical right hacks are trying to do in the name of modern economics). As he wrote in email he has kindly given me permission to publish…
Saw your tweet on “free markets” and completely agree but I think you’re only halfway to the truth. The real spherical cow is the “competitive market.” “Free market” strikes me as a phrase you hardly ever hear mainstream economists use in an academic context. (You do hear “free trade” but I think there’s a different political resonance to that phrase). There are plenty of reasons to link efficiency with idealised competition but “competitive markets” don’t make for such good right wing rhetoric as “free markets” and any fool can see that freeing particular markets up is often neither necessary nor sufficient for making them competitive.
Now why should you listen to Ian, even if you don’t to me? Perhaps because he is, in fact, a real economist and a very good one. As such, on being asked if he would let me disseminate his note above, he did what conscientious thinkers are supposed to do. He tested his own conclusions:
Since you’re thinking of basing a blog post on it, I thought it’d be a good idea to check that I’m not talking nonsense. I put the phrases “free market” and “competitive market” into Google Scholar, linking them to particular economic journals. The former does seem to be typically less common and particularly so the more theoretical or technical the journal to which the search is linked – see the attached table. “Free market” does appear to occur in technical phrases like “free market equilibrium,” which does have a ring of familiarity, so you can’t really say it is never used in that way but I suspect it is most often coming up in phrases like “free market policies”. There’s some evidence there anyway for my casual impression that “free market” is more often useful as rhetoric or as a description of a particular kind of policy whereas “competitive market” is the more precise and useful analytical simplification – the spherical cow, in other words.
At the bottom, in an attempt to put an upper bound on the ratio, I have added the results of a similar search linking to one of the journals associated with the non-mainstream Austrian school. I admit that I have never even looked at this journal but the results show the sort of heterodox economists who evidently do find it useful to talk about the “free market” – the sort of people who mistrust mathematical modelling, mistrust econometrics and mistrust any attempt by government to override the price mechanism.
Here’s the chart:
The moral of all this: (a) when someone uses the phrase “free market” in political discourse, hang on to your wallet. And (b) fight the con that such people are trying to run on you — us, everyone. What we need, again, as a practical matter as much as and before any moral considerations, are competitive markets, fair markets. One thing that recent experience has reaffirmed is that you can’t have a prayer of getting such at least sort-of-level playing fields (and hence, genuinely efficient allocators of capital and maximizers of desire) without explicit government regulation of market behavior.
Here this sermon endeth. Less abstract stuff to come. Happy first-day-of-school (at least for father and son in the Levenson household) to all.
*Another one of my pet peeves is the term “conservative” — which, IMHO, is in American politics a spinner’s term to describe people and views who are neither conservative in the formal sense of the term, nor connected to history in any way that resembles what traditionalists assert as the wellspring of their views. They are instead authoritarian (hence the right) and willing to do enormous damage to the polity to achieve authoritarian power — the radical part.
Image: Henri Rousseau, “Combat between the tiger and the buffalo,” after 1891.