Argentina held parliamentary elections on Sunday. Like many others following the elections, I was disappointed to see that the party tied to Donald Trump’s chainsaw-wielding friend, Javier Milei, won the most seats. Milei waved his chainsaw as a symbol of his plans to destroy Argentina’s welfare state.

While it is disappointing to see Milei, who seems both inept and corrupt, win the election (with a boost from a $40 billion loan from Trump’s Treasury Secretary), it is understandable that Argentina’s voters would turn in this direction. The prior left-wing governments had not managed the economy well, leaving triple digit inflation. 

The full story is complicated. The I.M.F. seemed determined to deliberately sabotage the government, but ignoring the specifics, Argentinians had reason to be unhappy with the results from left-leaning governments, even if they aren’t fans of Milei’s chainsaw approach.

But without getting into the details of Argentina’s recent history, progressives should not be in the situation of fighting the market to get progressive outcomes. The right is constantly rigging the market to redistribute more income upward. If progressives allow this rigging to go unchecked, it will be virtually impossible to make society fair and decent through tax and transfer measures. It is essential to challenge the rules that cause the market to generate extremes of inequality.

Government-granted patent and copyright monopolies, again

I always harp on patent and copyright monopolies both because there is a huge amount of money involved, but also because it is impossible to argue that these monopolies were just given to us by the market. A market without patents and copyrights is still a market. These can be useful policies for promoting innovation and creative work, but they are government policies, not the market. If someone likes patent and copyright monopolies, they like government intervention, not the free market.

Also, as should be apparent to everyone, there is an enormous amount of money at stake with these monopolies. We will spend over $700 billion on prescription drugs and pharmaceutical products this year due to patent monopolies, more than $5,000 for every household. These drugs would likely cost us around $150 billion in a free market without patent monopolies.

These monopolies also make some people very rich. Bill Gates would still be working for a living if the government didn’t threaten to arrest anyone who copied Microsoft software without his permission.

How much we pay for things like drugs and software, and how rich we let people like Bill Gates get, depends on whether we make these monopolies longer and stronger or shorter and weaker. These are policy decisions not the market.

The Bankruptcy Laws that Private Equity Abuses are Not the Market

Many people have gotten very rich as private equity partners. One of the ways private equity companies have made billions is by abusing corporate bankruptcy laws. Their standard practice is to buy up companies and then leverage them as much as possible. This means having the companies issue debt and sell off land and other assets. The private equity firm then puts all this money in their pockets. If the company they purchased ends up succeeding, they have it go public and make tons of money. If it fails, they have the company declare bankruptcy and walk away. 

This scam can leave not only people who deliberately lent the company out in the cold, it also can screw inadvertent creditors, like landlords, vendors, and workers who are owed salaries and pensions. The market did not give us bankruptcy laws in their current form. We could write bankruptcy laws that specify that a company that effectively controls another company, as is the case with a private equity firm and the companies it owns, is fully responsible for the subordinate company’s liabilities. 

The current structure of bankruptcy laws was not determined by the market. This was a policy choice.

Bailouts for the Financial Industry is Not the Market

In the 2008-2010 financial crisis, the federal government directly or indirectly bailed out most of the country’s leading financial institutions. This was also a policy choice; it was not the free market.

Bailouts are not one-off. We saw this back in the spring of 2023 when the Silicon Valley Bank and several other large banks were bailed out by the Fed. Large financial institutions seem to operate with the understanding that if their risks turn out bad for them, they can stick the government with the tab.

However, the exceptional bailout is not the only way the government supports the financial industry. We also have deposit insurance, run by the Federal Deposit Insurance Corporation, which is an essential support for the modern banking industry. This is good policy (in my view), but it is clearly not the free market.

There are other ways in which the government supports our bloated financial sector. The sector is largely exempted from the sort of sales taxes that people pay when they buy food, clothing, and most other items. Giving trades in stock, bonds, and derivatives special treatment is a policy choice. If even a modest sales tax were imposed on these transactions, it could raise over $100 billion a year and radically reduce the great fortunes made in the financial sector.

The Market Does Not Generate Massive Inequality — How We Choose to Structure the Market Generates Massive Inequality

I could carry on this list much further to show how things like labor law, rules of corporate governance, rules on liability for pollution have all been structured to benefit the rich. (Read Rigged [it’s free] for a fuller argument.) But the point should be clear; the market is remarkably malleable. We have allowed the rich to get control over the process of setting the rules and therefore a massive amount of income has been redistributed upward.

The setting of the rules is often boring technical stuff that almost no one pays attention to, except the rich who stand to directly benefit. A great example is the TRIPS, which applied US-type patent and copyright rules to the whole world as part of the Uruguay Round of the WTO in 1995. This effort was largely at the initiative of Pfizer’s lobbyists who wanted stronger worldwide protection for their drug patents. Details of bankruptcy laws and rules of corporate governance will chase away almost anyone who is not on the payroll of the affected corporations. 

But obscurity does not change their importance for people’s well-being and the distribution of income. It is incredible negligence on the part of those who claim to be political leaders to ignore how the rules are set and thereby allowing the rich to rig them all in their favor. It is almost impossible to reverse the damage with tax and transfer policy, especially since the rich will use their money to buy politicians who will ensure that their tax bill remains as low as possible.

When I feel more ambitious, I will outline some measures that can both make some progress in reducing inequality and also call attention to how the market has been rigged. For today, I’ll just leave with saying that anyone who accused the right of being “free-market fundamentalists” is clueless and probably should be working for the other side.