June 17, 2024
The belief in free-market fundamentalism runs very deep. When I say that, I don’t mean that support for the concept runs deep, I mean the belief that we had been pursuing free-market policies in the years before the Trump and Biden presidency runs very deep. I was reminded of this fact in a New York Times column by Farah Stockman, touting the development of a new post-free-market fundamentalist paradigm.
To be clear, the period of so-called free-market fundamentalism was one in which we saw a massive upward redistribution of wealth and income as has been extensively documented in numerous studies. It is understandable that the people who are happy about this upward redistribution would like to attribute it to the natural workings of the market.
The story goes, yeah Elon Musk and Bill Gates are very rich, and lots of ordinary workers are kind of screwed, but shit happens. If we feel bad enough about it, we can toss some dimes to the left behind. After all, Bill Gates started a big foundation to help the world’s poor.
That’s a far more generous story for the rich than the reality. It was not just a case of “shit happens,” where the natural workings of the market gave them all the money. It was a story where they actively rigged the rules to ensure that a huge amount of money would be redistributed upward.
The place where I always begin is with government-granted patent and copyright monopolies. It is mind-boggling that serious people can think that these massive forms of government intervention are somehow the “free market.”
And to be clear, there is huge money at issue. In the case of prescription drugs alone the gap between the patent-protected prices we pay and the price drugs would sell for in a free market is likely more than $600 billion a year.
This is more than 2.2 percent of GDP. By comparison, after-tax corporate profits in 2023 were less than $2.7 trillion. And this $600 billion figure is just for drugs. Add in medical devices, software, computers, video games and all the other items where patents or copyrights account for a large share of the price, and we are almost certainly far over $1 trillion a year. Yet we are supposed to believe that this is just the free market here?
It is also important to recognize that we could use other mechanisms than these monopolies for supporting innovation and creative work. We can and do have direct public funding or tax credits in various forms. We can also make the patent and copyright protections we have shorter and weaker, rather than longer and stronger, as has been the case over the last half-century.
This is far from the only area where the government has played a huge role under “free-market fundamentalism.” While we were ostensibly pushing a free trade agenda, we did little or nothing to reduce the trade barriers that protect our most highly paid professionals, like doctors and dentists, from international competition.
As a result, these professionals are paid more than twice as much here as their counterparts in other wealthy countries. We would save close to $150 billion a year (more than $1000 per family) if we paid our doctors the same salaries they get in Germany or Canada.
Our policies were never about free trade. They were about selective protectionism, where we expose manufacturing workers to direct competition with low-paid workers in the developing world, but we protect our most highly-paid professionals from the same sort of competition.
Again, it’s not surprising that the winners from this policy would like to call it “free trade.” That sounds much better than structuring trade to make the rich richer. But why would opponents of this policy accept this dishonest terminology?
The UAW strike last fall highlighted the huge disparity in pay between the CEOs at the Big Three auto companies and the pay of top execs at the major auto companies in Europe and Japan. Our top execs get roughly four times the pay of their counterparts at European car companies and, in the extreme case, ten times as much as their pay at Japanese companies.
This gap in pay is not explained by differences in size and profitability. The European and Japanese car companies are every bit as big and profitable as the U.S. companies. They just have different rules of corporate governance that make it more difficult for the CEOs and other top executives to rip off the companies they work for. And rules of corporate governance are not set by the free market, they are set by governments.
The massive fortunes in the financial sector are only possible because the government has rigged the rules to encourage a bloated financial sector. If there was a tax on financial transactions, similar to the sales tax most of us pay when we buy food or clothes, the sector would be far smaller and there would be many fewer Wall Street millionaires and billionaires. The free market didn’t tell us to exempt the financial sector from the taxes most other sectors pay.
Similarly, tax rules, like the carried interest deduction, along with bankruptcy laws that are very favorable to corporate debtors, provide much of the basis for the fortunes earned by hedge fund and private equity partners. These were given to us by the lobbying of powerful interests, not the free market.
Facebook, X, TikTok, and other social media giants are able to thrive in large part because of their Section 230 protections. Here also Section 230 came to us from corporate lobbyists, not the free market.
It is hard to understand why we have this obsession in intellectual circles that we have been living through a long period of market fundamentalism. It is a lie and it should not be perpetuated, especially now that people are declaring its demise.
This is not just a semantic point. It speaks to the issue of how we want to structure the economy. If we fail to recognize that there is no such thing as a “free market,” then we are not thinking seriously about the economy.
The government always must structure the market. It is literally infinitely malleable. If we think of the options as government versus the free market, then we don’t understand what we are dealing with and it is likely to end badly.
(Yes, this is my book Rigged [it’s free]. There’s also the video version.)
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