Laissez-Faire's Consequences
We are living out the results of blind faith in economic ideology
There is a caste of decision-makers in the US who are the semi-witting architects of the dystopia that America is becoming. They are the managers in insurance companies who decide to place a profit/loss calculation above what a physician determines is in the best interest of a patient. They are the people who set up charge master systems to extract as much money as possible from insurers, regardless of the collateral damage visited upon patients who don’t challenge the arbitrary billing. They are the executives of agriculture companies like Cargill and Tyson who make price-fixing and wage-fixing a way of life. They are the executives of fossil fuel companies who suppress climate data and fight climate legislation because of a prioritization of their short-term profits over the viability of the planet to sustain human life. They are the weapons manufacturers and retailers who won’t act on their own initiative to reform how their products are sold and to whom. They are the bankers who launder money for cartels and dictators, who commit fraud in markets and against their customers, and who don’t let a conflict of interest stop them from making money. They are the members of the financial industry who charge as much interest as they can get away with. They are the CEOs who take as much money as they can while fighting tooth and nail against the unionization of their lowest-paid employees, insulting their intelligence while they do it with insultingly cheap “incentives”. They are the decision-makers who are cheap about the livelihood of the people making their business possible.
All other enablers stem from them. The lobbyists are taking their marching orders from the companies. The politicians are acting in the companies’ interests. The judicial system prioritizes the people with the means to fight protracted legal battles. The police mostly see the people who don’t have the means to avoid them, like the IRS mostly audits the people who don’t have the means to fight them.
None of these people are inherently bad people. They are acting with the perception of isolation, reasoning that their profits don’t come at the expense of society as a whole. The reasoning goes that the laws can be changed to reflect their interests, through their efforts, and others will act for other people’s interests, and through this, a balance will be achieved. This is akin to the concept of market equilibrium.
The problem is that market equilibrium, as much of mainstream economics, is fiction. Many professional economists understand this. But MBAs aren’t professional economists. Political scientists aren’t professional economists. Many professions get a smattering of economics education and come away feeling like they understand economics because they aren’t aware of the volume of information they haven’t learned. While the caveat of “all things being equal” is a mantra, it’s commonly forgotten in practice that the model has little to do with reality. Instead, causation is frequently made to fit axiomatic biases of self-interest or political ideology. Approaches to economics that only employ observation of what actually occurs are criticized for not employing fetishized mathematical models. When they can, economists defend their profession solely on the grounds that the criticism comes from someone who isn’t a professional economist, akin to Hegelians who claim that Hegel’s ideas can’t be criticized unless you’ve read all of his work.
The ideology of neoclassical economics is fundamentally responsible for our dystopian direction. The ideas that constitute mainstream economics have maintained their status through the lobbying and propagandistic efforts of a robust network of think tanks. Many people treat these ideas as “common sense”, that’s how successful the think tanks have been. In addition, donations to universities from oligarchs like the Koch family have come with conditions, such as employing professors who favor libertarian free-market ideology. None of this would be necessary if the ideas themselves were of objective value. Good ideas sell themselves. This is only done because the ideology serves several functions for wealthy people.
The ideas of Ludwig von Mises are foundational to many people’s understanding of economics, which is a shame because he wasn’t a very empirical thinker. For example, the contention that everyone’s economic activity is to the benefit of fulfilling other people’s needs is obviously false, painfully so after the 2008 financial crisis. Increasing amounts of economic activity today driven by self-interest fulfills no value at all to anyone but the person who stands to profit. Financial institutions administer fees punitively, as in the overdraft fee. Some rental companies apply fees to the very application process for an apartment. Increasingly, money is being extracted from people with nothing given in return. People are increasingly finding ways to profit without even providing the cancerous minute of reward that a cigarette gives or the seconds of anticipation from scratching off a lottery ticket.
The idea of the market as a natural phenomenon also stems from Mises, his interpretation of Adam Smith’s invisible hand. Hayek characterized it as spontaneous, Mises used the word natural. Both are plainly false, but natural is more false. Economic transactions like barter are a means for unrelated people to exchange goods. Within their families, everyone is a communist. It’s not hard to imagine hunter-gatherer societies where there are no strangers, so there is no need to barter in a rigidly formalized way. The rigid formalization of transactions is for people who may never see each other again, not for people who are sure to see each other every day.
The modern popularity of deregulation of market activity also can be traced to Mises, who gave it intellectual weight. Without his efforts, the degree of deregulation identified with the libertarian ideology would sound like meaningless bitching from the rich. Every marketplace has to have some basic rules enforced, or you have entities like J.P. Morgan or Goldman Sachs committing fraud. The size of a company like J.P. Morgan demands penalties of commensurate size. Ideally, non-economic penalties or the potential penalties become acceptable risks. No amount of money that a fine can be is equivalent to the disincentive of incarceration or sanctions that affect the ability to profit. Especially the more money a person or company has. 50% of $1,000 dollars leaves a person with 500 dollars, but 50% of a $1,000,000 leaves them with $500,000. The more money a company/person has, the more they can stand to lose. Beyond that, If fraud becomes routine behavior, then the odds of getting caught and a successful prosecution will be far more contained than the profits of ongoing fraudulent activity can be. Fraud can become a way of life for companies with the means to pay fines over the years it takes for a case to be brought against them, successfully investigated, and prosecuted. Justice takes much longer than profit-taking.
Regulation is also necessary for effects created by marketplace activity that have large effects outside the marketplace. Much has been said about climate change and the opiate crisis as non-economic consequences that are sufficient to impose regulations on people too short-sighted to temper their greed. A housing crisis is currently rolling through the country because people who own properties for profit are setting their prices purely for enrichment, without a care for the expansion of tent cities and people living out of their cars. As with price-fixing in other sectors, it becomes clear that the pursuit of personal profit is not a sufficient ethical guideline to construct a society around.
The people who are responsible for regulating have to be regulated themselves. Because of the opportunity for personal profit through future employment available to regulators and lawyers within the companies they regulate, they are incentivized to get along with the companies they regulate. This kneecaps effective regulation and law enforcement. In effect, what we are seeing following the march of deregulation is the collapse of the functioning of bureaucratic order. Weber identified one merit of bureaucracy to be accountability. Accountability is increasingly gone in our society, out of necessity, due to the ongoing absence of accountability for the entities setting the prices. Those in the position to have done away with any hindering effects of bureaucracy for the pursuit of personal enrichment are doing so. Police don’t respect their own rules, shielding one another from consequences for wrongdoing, harassing innocent people, and even harassing victims of their actions. Company boards routinely adjust rules or change standards so that a CEO can get paid in accordance with their desires, regardless of the performance of the company. The system of law has become tiered through decades of common law judgments and lobbying for legislation that on aggregate has privileged the wealthy.
The whole premise of the foremost political and economic ideology guiding decision-making since the Carter administration is that the market is better at allocating resources than human beings, no matter their education or expertise; that no individual is as effective as the market at allocating resources. What has resulted is not the market allocation of resources, it is the plutocratic allocation of resources. The market cannot allocate anything, its activity is an emergent phenomenon that can be weighted to privilege actors with greater access to resources. There is nothing spontaneous or natural about the market, it is merely complex. The market is collectively organized, one way or another. US policy for the last 50 years has simply ceded power to corporations and wealthy individuals like Elon Musk or Donald Trump, who have the means to game the system to their advantage.
A radically Democratic society would see a radically different allocation of resources. The biggest flaw in Hayek and Mises is the assumption that an individual will be making decisions. The majority of people want a smaller pay ratio between worker and CEO than 350 to 1. The majority of people think health care can be universal, like most other countries. The majority of people would be fine with nonprofit education, more gun control, and lower prices on food and housing. If we could put economic ideas of resource allocation to a true vote, not a representative or gerrymandered vote, we would be living in a radically different society. We are effectively living under precisely what Mises and Hayek thought rampant deregulation would avoid, though they’d likely say it’s not “true” laissez-faire.
Not sure about this piece. "Climate data" seems to be driving ESG. In my view it is good for society that fossil fuel executives suppress climate data.