Free Soukh Economics

The Christian Science Monitor reports on the burgeoning free market in Iraq. Things are off to a heartening start, although there are undertones of coalition plans to "manage" the transistion (deciding, for instance, which state enterprises will survive and which to have shut down). I doubt we'd want to make them go cold-turkey laissez faire right off the bat, of course—the last thing we need right now is massive economic dislocation—but especially in an oil-rich nation, there's the danger of (probably necessary) temporary safety nets becoming permanent state sinecures.

Comments

[Pedro]

Why are they necessary, again?

[Julian Sanchez]

Because a pure market adjustment from that grotesque command economy would throw a huge proportion of the population into unemployment for the near future. And, normally, the economy would eventually adjust. But before that could happen, you'd see a massive backlash against coalition forces and a bunch of disgruntled young men swelling the ranks of the resisters. Basically, the alternatives are not safety net or free market. The alternatives are safety net or breakdown of what little order there is, probably followed by rampant warlordism.

[thoreau]

Julian, you flunked the purity test. You let this annoying thing called "reality" cloud your thinking.

Take off those blinders and see the rose-colored world...

[Ray]

I agree with Julian but they shouldn't require too much in safety nets when you consider the life of Riley that they're used to.

[SPUR]

Isn't what you describe below the current situation in Iraq?

Because a pure market adjustment from that grotesque command economy would throw a huge proportion of the population into unemployment for the near future. And, normally, the economy would eventually adjust. But before that could happen, you'd see a massive backlash against coalition forces and a bunch of disgruntled young men swelling the ranks of the resisters. Basically, the alternatives are not safety net or free market. The alternatives are safety net or breakdown of what little order there is, probably followed by rampant warlordism.

[Ray]

spur,

Not completely. There are going to be forces competeing with this budding free market, mad mullahs and the like, and as much as it pains my laissez faire heart to say so, we're probably going to have to hold their hands a little bit.

I don't mean the second coming of the New Deal or anything but there should be something to keep the religious freaks from scooping up the lower tiers of Iraqi society.

[Ray]

Jean Bart,

And all of the stridently Islamic nations operating under anything we would recognize as a free market are where?

Black markets are what crop up in the absence of a free market. I know what you're trying to say and I'm not trying to trivialize with semantics here but the definitions really are important.

You can actually measure a country's lack of a free market by the size of their black market. Try DeSoto's "The Mystery of Capital." It'd be a real eye opener for you .

[Ray]

JB:

Since you might confuse Turkey with a stridently Islamic country, let me clarify.

Capitalism and freedom are in many ways synonymous and as we all know, the mullahs aren?t real hip to liberty. Generally speaking, capitalism means I can open up a business and grow my business as I see fit if I harm no one else. This just isn?t happening in any hard line Islamic countries and thus my use of the term ?mad? mullahs and not just the Moslem faith in general.

The hard liners view capitalism as one of the big Western Evils as it encourages all of the things that they don?t want their people doing.

[InternationalANSWER]

Now CAPITALISM in Iraq???? Now you know why we were against the war.

[Anonymous]

"I doubt we'd want to make them go cold-turkey laissez faire right off the bat," WTF? Why is this even an issue? We don't have to *make* them do anything. The government should just leave them alone and let the market take care of itself. Let freedom reign.

[xray]

Ray: You said "You can actually measure a country's lack of a free market by the size of their black market."

So I guess Canada and Holland, for example, are freer than the US since their drug black markets are so proportionately smaller? I'm glad to see you are finally acknowledging the US is not the beacon of freedom you normally preach.

[tievsky]

With respect to recreational drugs, yes, Canada and Holland are more free than the U.S. I doubt Ray or any other libertarian has ever claimed that the U.S. is anything but authoritarian and freedom-hating when it comes to recreational drugs.

[xray]

tievsky: I'll bet right Ray is unable to type these words "Canada is freer than the US." He may sound like a libertarian, but his top priority is defending the bush-republican way of life, not evaluating liberty in all its forms.

[Ray]

x-

The reason most people don't understand economics is that they see everything in snap shot mode. They freeze their little picture of how they think things are and close their minds to all other discourse.

Holland and Canada of course, as you know X, do not have a free market in pharmacueticals. They are government subsidized and thus by definition, not part of a free market.

Our black market in illicit drugs is of course classic economics in action; if they want it, they will find it.

[Ray]

x

Do you understand the very concepts of free market and black market? Really.

What Canada has in their national pharma situation is a case of subsidization, not the free market.

The US does not have a free market in the sense of recreational drugs.

Now, are you attempting to measure our overall freedom by pharacueticals or pot, or what?

[xray]

Ray: It makes these discussions tiresome when you are intentionally obtuse, you know I was referring to pot. The US has the biggest black market in recreational drugs on the planet, with high costs spread to all of society.

On the "legal" drugs: Obviously Canada does not have a free market in pharmas. However, the "black market" in pharmas is also pretty obvious in the US, because politicians support it openly. For someone reason, it is profitable to smuggle into the free-est market in the world. That's kind of strange.

[Ray]

x,

So you are judging our overall freedom by our pharmacuetical market.

Back to what I was saying; you can measure a country's lack of a free market by their black market. No one with any knowledge of economics would judge a country by one measure but if you went down a list of indices, you could get an accurate measure of how economically free a country is.

Our recreational drug market would be a mark against our overall free market score and of course we could find more subtractions; farm subsidies of numerous varieties, tax funded sports arenas and so on.

This is why I suggested De Soto's outstanding book "The Mystery of Capital." He concentrates on personal property rights but in so doing he indirectly highlights a great many other measures of how free or unfree an economy is.

Bottom line is that there is no need for a black market in a free market and so 1 unit of restriction in a free market creates approximately 1 unit of black market.

[Ray]

Sorry x, I was being intentionally obtuse.

Of course you meant the recreational market. But I don't judge any economy by one indicator nor am I really all that aware of Canada's stance on recreational drugs. I've assumed it's more lax but I was unaware that you could buy marijuana the same one could buy a six pack.

[xray]

Ray: how do you explain the fact that the US has a black market in both kinds of drugs? The illegal drugs are costly and the costs spread to non-users - basic result of not having a free market, but the legal (free market) drugs are quite costly, so a black market has emerged. Somehow, it doesn't seem like an American is too free to choose drugs of whichever type.

We've had this chat before about who is freer. Frankly, it all depends on which freedom is most important which country is freer.

[Hovig John Heghinian]

Whoa! Even if you can measure a country's lack of a free market by its black market, what does that have to do with Iraq?

I think Jean Bart's point about Iraq's black market was that its people are able to create markets when the opportunity arises. They know what a market is, and they "get the point."

I also think DeSoto's point is moot. He's saying a black market indicates the lack of a free market BY THE CURRENT REGIME. In other words, a command economy is an unfree economy, so a black market springs up in order to go the rest of the way to freedom.

Iraq's regime is no longer current, and its economic command has collapsed, so the black market, as was, has every opportunity to become the dominant economy, as is.

I completely agree that Iraq can create free-market capitalism on its own, without much hand-holding at all. All required of the world is to make sure the rule of law is codified (among other legal innovations), and I think things will be okay from there.

I also think people will find that Iraq is a unique country among the Arab people. As an Iraqi artist said the other day (in the NYT?), Iraq will be the Arab world's conscience. He meant that Iraq would not forget the Arab world turning its back on the Iraqi people, and not removing Hussein from power.

[Ray]

x,

I suppose it might make sense to move to a country where your prescriptions were cheaper or free if your life hinged on those drugs.

But to measure an overall economy on one indicator though is not accurate and that is essentially where I'm coming from.

There are a number of different think tanks and NGOs who rate countries by X amount of indices. Some countries come off as more livable if they have more govt supplied goods and others come off as better by of course, not having the govt that involved in their every day lives.

I haven't seen one however that is based solely on economic freedom. As in measurable indicators such as the drug markets we've touched on here. This might make a neat little exercise.

I'll let you know what I come up with, this should be fun.

[Julian Sanchez]

Ray-
Both the Cato Institute (in collaboration with an international consortium of think tanks) and the Heritage Foundation publish economic feedom indices and rankings. I'm slightly biased, but I think the Cato/international one is the more objective and well grounded. You can find all their data here:
http://freetheworld.com/

[Ray]

hovig,

The black market topic came to the center as kind of a fluke.

Jean Bart's assertion was that the Iraqis' heretofore black market was a free market and then we got into semantics.

Essentially you're right though, we should stand back as much as possible and simply let the natural market instincts evolve into a thriving free market. "Free" as in being codified by their government.

[Jean Bart]

Whoever said that Iraq didn't have a "free market" to begin with? Clearly it did. Which is why "Where is Raed" discussed the black market so much. Given the fact that the ancestors of these people invented markets, I would say that this is a rather arrogant stance.

BTW, why would mad mullahs be a hindrance to free markets? Given the protestant stamp on Anglo-American capitalism, the notion that religion and capitalism can't go hand and hand is a rather ignorant one.

[Ray]

Julian,

Yeah, Cato's was the one I was initially thinking of but I thought they included some subjective measures. I'll look back into; worst case I could just edit out anything I found to be overly subjective and even combine other findings into it.

[Ray]

Retraction

That Cato study wasn't the one I was thinking of. That freetheworld.com is a pretty cool site.

They have listed their an annual report written in part by J. Gwartney. He has one of the better economics text books, I highly recommend it.