Good Reasons That Economics Is "The Dismal Science"

Don't count me among those mourning the recent death of free market economist Milton Friedman. I don't think that markets are really "free," first of all; nor do I think that markets, when left to their own devices, are good, wise, noble, kind, or rational. I do think that the current high esteem in which Friedman's ideas are held is depressing (that's my interpretation of "the dismal science," with all due respect to Adam Smith). I also think that people like Friedman who promulgate "free markets are the be-all and the end-all" of life are downright wrong, on at least four counts.

One: markets are not rational. Markets are artificial constructs. People make decisions. Most people are not rational. Consider how reporters present the daily Dow Jones news. Is the average higher or lower than it was in the most recent previous report? "Higher" is presumed good; "lower" is presumed bad. No one stops to think that the numbers might be down temporarily because investors (who want to) are taking profits. No one stops to consider that even if the numbers are down compared to the day before, the numbers may well still be higher overall than they were last week, or last month, or last year.

Graphic adjuncts reinforce the irrationality of the reporting. "Marketplace Morning Report" plays We're In The Money in the background when the average is higher than it was in prior reports; it plays Stormy Weather when the average is lower. Broadcast networks put the numbers on screen with arrows pointing up or down--and the arrows are physically larger and more colorful than the printed numbers accompanying them.

Newscasters tell us that the market is "jittery" because of things like the war in Iraq or that the market is "happy" with some economic report or company profit and loss statement. Hello! Markets are inanimate, artificial things. Markets cannot and do not have feelings . . . but people do. Again, people are not rational. There's a reason the grade of "C" is average--at least half the population operates at that level or below. Furthermore, people in groups are less rational than people acting as individuals tend to be. It has been well and oft demonstrated by sociologists that humans succumb to the herd mentality quite easily. So everyone waits around for the news about what everyone else is doing, and they then go do the same themselves. [Yes, there are exceptions. Those are your "A" and "B" students.--Ed.]

Two: each side in any give economic transaction does not share equal power. Why do you think labor unions were created? To gve at least the color of leveling the playing field. One lone job seeker is not on equal footing with any employer. Have you ever heard of anyone going into a job interview, informing the employer of the conditions under which he'll accept a job, and then getting that job on those terms? Anyone who is Joe Average, that is. Unique personal skills, such as those of the highest paid actors or the most talented athletes, change the scenario. But how many of such people are there compared to the entire work-seeking population? No more than a tiny, tiny percentage.

Yes, a potential buyer can choose not to spend his money . . . for a time. What if you've put off buying a winter coat for too long already, and it's 20° below and you can't wait any longer? You either freeze or buy whatever you can find, whether it's what you really want to purchase or not. No matter how bad your personal economic situation is, there comes a time when you cannot refrain from spending any longer. You must have transportation, food, shelter, clothing. And if any or all these things are in disrepair (or worse), and you don't have a good job, you wait as long as you can. Sooner or later, however, you must buy. Most sellers have the economic size and clout to wait you out. There is always someone else who's already reached that "point of no return," that point at which he cannot stall any longer, so there is always someone stoking the engine of profit by buying.

Three: markets and the decisions people make as expressed through them are not value-neutral. Businesses regularly break the law by hiring illegals. They do it because it's cheaper for them than it would be to hire legitimate, legal workers, who sometimes have union or other legal protections, such as the guarantee of a minimum wage. Even if the businesses get caught and have to pay a fine, it's often less expensive for them to take that course than it is to obey the law in the first place. Do you really want to teach our children that such disrespect for law is acceptable? I for one do not.

Businesses often close or move locations not because they are losing money, but because they are not making enough money (as they perceive it) at their present locations. They claim they are consolidating or automating [do you hate long voice mail menus as much as I do?--Ed.] or whatever for the sake of better customer service. Right. Since when is wasting a considerable amount of a customer's time by making the customer do the work improved customer service? The real bottom line is (oddly enough) the bottom line. If it's cheaper to automate than to have a live person on the other end of the telephone line, then the business will automate. The only people corporations are beholden to are their shareholders. Boards of directors are surprisingly frank in admitting that their sole responsibility is to maximize the returns on their shareholders' investments. We are at their service, not vice versa.

Larger and more long-term goals, like sustaining life on the planet, are of tertiary--if that high--importance. Good PR comprises the secondary tier of importance. Make no mistake, either: good PR is a question of style, not of substance. Only the appearance matters. The business would go back to having a live person instead of automated voice mail if enough bad publicity attended the use of voice mail.

But making money is what business is about. If it's cheaper to use single-hulled oil tankers and risk oil spills than it is to refit or build tankers with double holds, well, kiss the environment good-bye. If it maximizes profits to build and sell gas-guzzling SUVs ["SubUrban assault Vehicles"--thank you, Jay Leno.--Ed.] and it costs more money than it would generate in profit to build and sell alternative-fuels vehicles, well, don't expect to see fuel-cell-powered vehicles on your local car lot any time soon.

Four: markets aren't really free. Nor do they want to be. Nor do we really want them to be. Have you ever read Upton Sinclair's The Jungle? Do you want to go back to the days before USDA regulation of the wholesomeness and safety of our food? I, for one, emphatically do not.

Businesses want all the government regulations in the world which will maximixze their profits while minimizing or obliterating their risks. For instance, many want to keep foreign steel and wood out of the American domestic market--the steel companies and the wood processing companies being the two most vocal about it. Those businesses couldn't care less that their position hurts consumers by maintaining artificially high consumer prices. They care only about their own net profits. Where is the "free" market in that? Hint: there isn't any.

Globalization makes it impossible for any of us, as individuals, to be knowledgable, attentive, careful, and safe consumers. No one person can gather all the information necessary to protect himself from bad buying/consuming decisions. Governments exist to do the things that people as individuals cannot or will not do for themselves. Protecting us from predatory merchants, given the international interconnectedness of the global business community, is vital and fundamental.

Don't get me wrong. Most people in business are honest and upright. Besides, they themselves are consumers, too. But there are always those who will take advantage of the rest of us. Too many in position to influence business behavior think anything goes so long as it maximizes that bottom line. Does the name "Enron" ring a bell? The classic model of the free market does not reflect or incorporate the nature of modern life. "Free markets" might have been fine in the days where almost no one ever travelled more than 5 miles away from the place of one's birth . . . but that is not the world in which we now live. Our philosophies should recognize reality.

Unrestricted caveat emptor is no longer the rule of the day. It is impossible. The only question is not whether we should have free markets, but is rather to what degree should we regulate markets? It is folly to pretend otherwise. It is dangerous, to boot. Any honest student of US history will tell you that every time the government has relaxed the regulation of businesses and markets, we've had Hell to pay in terms of economic scandals and the disastrous financial fallout from same. In Nebraska, all you have to do is mention "Commercial Federal" and watch people who lost their life savings in that credit union deregulation debacle turn red as their blood pressures skyrocket.

No one wants the government to tell businesses how many widgets to produce in a given economic period. But anyone with half a brain would want the government to make sure that whaever widgets were made were both functional and safe for use--and produced under safe working conditions, to boot.