Free Markets

There's Nothing Mysterious About the Market

The mystery is why we keep letting government get in the way.


Market Magic

People have long lists of things they think the market can't possibly do—from building subways to fighting wars.

Sometimes, the market does them anyway.

War, for example. Even conservatives, who often praise markets, assume that only government can fight terrorists. Tell that to Matthew VanDyke.

VanDyke and his group, Sons of Liberty International, spent the past months in Iraq training the Nineveh Plains Protection Unit, several thousand Christians willing to risk their lives fighting against ISIS's brutal forces there.

I don't know if Sons of Liberty are as competent (or more competent) than the U.S. military, but they're not using taxpayer dollars or getting the U.S. involved in a wider war.

My TV show on "market magic" this week looks at other things markets do that we're always told only government can do—like run courts.

People frustrated by legal bureaucracy and tired of waiting endlessly for government courts to make decisions now have alternatives. They can go to private arbitration companies and have their day in court without ever entering a government courtroom. An ABA survey of lawyers found 78 percent said arbitration was more efficient than government.

"But maybe the for-profit arbitrator is not fair or your opponent bribes the judge!" say market skeptics. That can happen. But if an arbitration firm gets a reputation for making flaky decisions or taking bribes, customers just don't use it. It goes out of business. That's how the free market works.

By contrast, badly run government courts, like other government agencies, never go away. When they fail, they just claim to be "underfunded" and demand more money. Congress usually gives it to them.

Our air and most of our water are of course public property. It's good that we have an Environmental Protection Agency (though we could use a less oppressive one) to protect such resources. But that also leads people to think we need more government force to handle problems like California's drought.

Economist Zachary Donohew points out that California's water shortage isn't just caused by drought, though. It's caused by government refusing to allow the price of water to be set by market forces.

"Water shortages are manmade," says Donohew. "We don't send the right signal to indicate how valuable it is, and we don't make it easy to move water from one use to the other."

In most of America, taxpayers pay for reservoirs and aqueducts, but water sent to consumers, farmers, etc., is practically "free." So people waste it. But if the price were allowed to rise to reflect its scarcity, everyone would economize. You might decide you need to cook but not wash your car. Important activities like agriculture would continue, but farmers might grow grapes instead of oranges, because oranges need so much water.

Decisions like that happen naturally when markets set prices. A price is more than money—it's information. It tells people what is valuable. Then people adjust.

When we forget that, we panic needlessly. Even The Wall Street Journal, which generally understands markets, recently reported on a "looming shortage" of airline pilots.

But if there really is a shortage of pilots, pilot salaries will rise. More people will train to become pilots and any shortage will be brief.

The market steers people and resources to where they're most valued. That happens even faster if government doesn't interfere with markets by offering its own, poorly run versions of the services people want.

My fellow New York City subway riders believe government had to dig the subway tunnels and run the trains because "there's no profit in mass transit—it loses money!" But in fact, most of New York's subways were built by private businesses.

They only turned them over to government because politicians forced them to. A mayor claimed a proposed fare increase to 5 cents was "too much." Now a subway ride costs $2.75.

I used the phrase "market magic," but the market is actually better than magic, because there's nothing mysterious about it—it's all logical.

The mystery is why we keep letting government get in the way.


NEXT: Georgia Cops Shoot Resident, Kill His Dog After Responding to Wrong Home During 911 Call

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  1. I see prices and money as the most important invention of all time. They make markets much more flexible.

    What people don’t understand is that markets are like gravity — they exist regardless of what governments say or do. Governments corrupt markets all the time — mess with the signals inherent in them — but governments can’t control markets and only waste my taxes in trying to do so. Governments have as much control over markets as they do water falling from the sky and creating rivers and lakes. Dams fail, silt up, crack, fail. Earthquakes will win in the long run. Eventually gravity wins there too.

    1. Only if you presuppose the existence of rules against theft, fraud, collusion, etc., i.e., government. There is nothing natural about any market, except insofar as humans and their various invented institutions are technically of nature.

      1. Tony can you provide evidence that the markets would best be run by the government?

        Does it bother you when people engage in things without your permission?

        1. The concept of a market doesn’t make sense without government. It’s not about permission, it’s about some organizing institution setting the rules of interaction that *are* a market. You tell me what a market is without government. For this exercise, you don’t get to outlandishly assume the automatic good will of all humans in a society.

          1. So how do you explain bitcoin?

            Why do you assume that the government is all about good will when setting the rules? Are they not humans as well with their own interests? So do you approve of the republicans controlling congress since they are the government?

          2. Tony:

            The concept of a market doesn’t make sense without government.

            “Just as you may think that markets are people voluntarily exchanging goods and services, you may think that sex is people rubbing naughty bits and exchanging bodily fluids. However, sex doesn’t make sense without government! You need an institution to set up rules of sexual interaction that *are* sex. Otherwise, people rape other people, and have sex with children, and animals, etc. What, do you outlandishly assume automatic good will of all humans in society?

            Therefore, sex *requires* government, and sex *is* government. And, there is nothing natural about any sex, except insofar as humans and their various invented institutions are technically of nature! QED!” /Tony

            God, you are so repetitively, fucking retarded, Tony.

          3. What is government?

          4. So wait, government is required so that kids can trade a package of cookies for a frickin’ juice box at lunch? Your brilliant argument is that government is necessary in order for individuals to mutually agree to exchange items of value? All a market is, is an aggregation of individual exchanges, which occur with or without government intervention.

      2. Tony,

        I think you are conflating “social rules” with “market intervention.” Having a law against theft is a social rule and, while it does have an enforcement value within the market (e.g. don’t steal a car from the factory or dealership), it is actually a social construct necessary to keep us away from Might Makes Right. Otherwise, you’d have to constantly fend off those that wanted to steal the new iPhone/Galaxy phone you just got, and that is historically done with force. This is a fundamentally different sort of law versus ones that interfere with market transactions as a specific function of that law.

        A common market interference law, for instance, is banning alcohol sales on a Sunday. Not only is this geared towards a single religious interpretation of the Sabbath, but it specifically interferes with the market as the point. This particular law is innocuous, but most others aren’t.

        You can see the bad sort of interference basically everywhere to “help people/the downtrodden/the children.” The problem is that even if the interference starts off helping the market actors it was designed for (e.g. the children) both the market forces and government operators quickly move to exploit these rules to their benefit. By the time a generation has passed, the intervention has become a bureaucracy that is merely exploited and actively harms the market actors it was meant to help in the first place.

        1. And note that it’s not to say that some market interventions can’t be made and be used effectively, it’s rather that they have to be small, focused interventions that affect every member in the market and not just a selected class. Most of the interventions of this type involve protecting the individual from being outclassed by the larger corporate entity and ensuring that competition continues. The anti-trust and anti-collusion laws, for instance, are designed to prevent a single or a few companies from manipulating the market to their benefit at the detriment of their market consumers.

        2. “This particular law is innocuous”

          Like hell it is.

      3. Really? Explain Ebay.

      4. Tony, we’ve been over this. Government is not necessary for property relations and markets to exist and function. There have been so many examples in history, it’s silly to reiterate all of them again. But let’s look at just one from modern times: drugs. Drugs are not only not recognized as property by the government, they are in fact “anti-property.” That is, not only does the government not protect your property rights to them, it will actively hunt you down to confiscate them and put you in jail. Yet there is a very real and flourishing market in drugs. Ask the cartels if they own the cocaine they ship to the United States. You’ll find that their concept of ownership is independent of government sanction.

  2. If there is money to be made, then market can do it. If you are smart enough or have good imagination, then you can make money out of anything so I would put it this way: is there enough market for market to do it?

  3. And that “airline pilot shortage” is really pretty easy to understand. Why would you choose a job that required training and education that cost more than a medical doctor (typically over $100,000) for a job with an entry level salary around $35,000 a year, with irregular hours, and you will seldom be home?

    Oh, and don’t forget that like a professional athlete, one medical issue and you are grounded and no longer able to fly commercially. Sure, you might do well years (decades) later if you can stay with it and get on the high pay routes using seniority, but it is a high cost with a risky payback.

    Of course, it used to be that the FAA could make it difficult and expensive to become a pilot and not be concerned because the US military was training them, then they left the military young and started flying commercial. Not so much any more, they tend to stay in the military longer and the military trains far fewer.

    So this too, is a government created problem.

    So, when the airlines start paying for the training and increasing the salaries in the early years, I will believe there is a shortage. Right now, the shortage, is what it usually is, a shortage of people willing to work cheap.

    1. On a related note, the airline industry is a pretty bad case of limited competition. Too many snot nosed cronies running the few that are out there, and the tag team of overreaching FAA and ubiquitous government ownership/operation of big airports only makes things worse. That’s why people hate the airlines by and large, both consumers and employees. Some smaller airlines are trying to pave a new way though.

      Military pilots have been staying in longer largely due to the shitty economy over the last 7 years, but more of them are bailing out now that things are (painstakingly slowly) getting better, and as the highly bloated, frustratingly bureaucratized military jades them into seeking greener pastures.

      The next 10 years will be interesting to observe to say the least.

    2. Right now, the shortage, is what it usually is, a shortage of people willing to work cheap.

      Yes, every time I hear someone talk about a shortage this is what automatically pops in my mind.

  4. If things are simple enough for me to understand them, that makes them true!

    –John Stossel/libertarian principle #1

    1. What kind of true thingd do you know?

      1. All I know is that I know nothing.

        …and that John Stossel is not the discoverer of the best and most virtuous way men should live.

        1. You got something right. Do you feel you should be the one to determine how others live?

        2. Finally something we can agree on Tony. You know nothing.

          I wish you could have said THAT earlier! LOL

          1. Sorry Tony, I just couldn’t resist.

        3. Again, one of the most ubiquitous misconceptions about the general libertarian philosophy.

          First of all, we don’t assume men are on average virtuous, but then again define virtuous? Self-sacrificing? On average, if you always cheat your customers, who will utilize your services? If you are that bad, I am sure someone will come along to do it better, cheaper etc. Not because they are necessarily more virtuous, but because there is a market for it.
          In addition, outside of the real anarchists here, many of us aren’t against the government acting as a neutral arbiter, and prosecuting true force or fraud.

          Second, why do you assume that men who run a business, who always have the possibility of competition are inherently bad, while men who work for government, in which there is no choice for the citizen, are inherently good.

        4. Tony: “All I know is that I know nothing.”

          That’s the first thing you’ve ever said that made sense.

  5. Tony are you happy? You seem pretty miserable

  6. “The mystery is why we keep letting government get in the way.”

    It doesn’t seem like such a mystery to me. Some people have more productive and pleasurable ways to spend their time than shopping. That’s why government schemes like socialized health insurance are so popular. People would rather simply participate in the government scheme and have done with it than poring over page after page of insurance forms, deciding which plan to spring for, a decision they are not qualified to make unless they’ve received a medical education. There’s no mystery really. Time is limited. Time is finite. Not everyone wants to spend their precious time shopping.

    1. Then they’re free to pick the first name that pops up on a Google search. Why should my choices be restricted because of their laziness. Sometimes I’m lazy, too, and I don’t look for the very best deal I can. That doesn’t mean I don’t think anyone else should have the freedom to do so.

      1. “Then they’re free to pick the first name that pops up on a Google search.”

        There’s no arguing with that. What I think you want to say, and here is where I disagree with you, is that ‘they shouldn’t be free to forget about the tedium of shopping and the anxiety of making choices in the dark, and avail themselves of some government scheme.’

  7. “The mystery is why we keep letting government get in the way.”

    Because there are people such as this working against the us and the market:

    Tony: “The concept of a market doesn’t make sense without government.”

    This has got to be the one of the stupidest things I’ve ever read.

    It always amazes me that people who believe such things are able to feed themselves; but I guess I have no proof that Tony can feed himself, so I shouldn’t extend that argument.

  8. *be one of the

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  10. Yeah, I don’t get why people don’t trust businesses, who keep trying to voluntarily offer us more choices, but *do* trust governments, which keep trying to coercively limit our choices. They usually talk about “accountability”, as if voting for a restricted choice of candidates every few years provides more accountability than the several businesses you’re free to choose among EVERY EFFING DAY!

    No, really. I don’t get it. It seems so backwards!

    Seriously. If you don’t like WalMart, shop at K-Mart. Or Target. Or Sears. Or Dollar General. Or Family Dollar. Or Gordman’s. Or a ton of other stores that you’re free to choose from. If you don’t like Obama, wait a few years, and then you’ll get to vote for Hillary or another Bush, and maybe, if you’re lucky, there might be a third party or independent candidate you can vote for, too. Sure, I trust government. I trust government to not give me much choice in what they decide. Isn’t that self-evident? Taxes. ObamaCare. The War in Iraq. Bailing out failed financial institutions. Local monopolies on the utilities I have to use. Little, or more often, NO choice.

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  12. Water used on farms isn’t “practically free” as Stossel asserts. It is priced according to the cost of delivery, just like all other water in California. Homeowners pay more for their water because it is treated to meet drinking water quality standards and is delivered to the tap 24 hours a day. Farm water often flows by gravity in canals and pipelines to farms and is generally not continually accessible like tap water. Additionally, over the past 12 years farmers have invested $3 billion upgrading irrigation systems to become more efficient, growing 43 percent more food and fiber than they did on about the same amount of water used on California farms in 1967.

    Stossel assumes that a farmer might grow grapes instead of oranges because of the cost of water. Farmers make decisions on what to plant based on what they reasonably believe they will be able to sell?at a profit. So it’s consumers that ultimately decide which crop a farmer plants because they’re the ones buying the food at the grocery store and generating the market demand. One only needs to look at the world market for almonds and see why California farmers are planting more and more of them. They’re responding to a market force and also being widely criticized for it. Yet they’re doing exactly what Stossel suggests. Rising water costs wouldn’t end agriculture in California; rising water costs would just make the foods we love more expensive to buy.

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