Decades ago parents (mothers, mostly) colored hard-boiled eggs and hid them in the lawn and around the garden. On Easter Sunday, children would go looking for these eggs. Only a few of them asked why a bunny left the eggs, not a chicken.
Traditions vary from family to family and change over time. My mother let us decorate our own eggs. This was a lot of fun and got to be competitive in my family. But I wondered why a rabbit would sneak into the house and hide the eggs I colored (I resented having to find my own eggs), why my parents thought this was okay (it was not okay for me to leave eggs under the sofa), and why my cat couldn’t stop the intruder.
The hunt has mostly moved indoors now, because we’re afraid to eat anything we pick up off our own lawns (knowing what we put into them). Now my kids color eggs the night before but look for chocolate ones. My youngest has seen bags of these eggs in the supermarket, on the shelf at home, in her school. But we expect her to believe that the Easter Bunny has brought them.
We pretend that an intelligent, magical bunny sneaks all over the world, crapping out these little aluminum foil covered chocolate eggs and leaving mysterious baskets full of chocolate bunnies, marshmallow Peeps, shredded green plastic grass, and jellybeans. We pretend to be happy about this, even though those jellybeans look suspiciously like deer droppings and the buds have been chewed off all the daffodils. We act like this is normal. We don’t call the police or the animal control department.
And our children go along with this. They act like it’s fun to pick up after a crazy rabbit, mostly because there’s candy involved and partly because it’s what their parents want them to do.
This is bad parenting. We train our children to believe in something that they know is not real. And they do it for us.
We want our children to make good decisions and to not take candy from strangers, but we fill their lives with imaginary beings full of good intentions.
No wonder they grow up like us and believe in things like the Free Market.
It’s one thing for me to out the Easter Bunny here. I don’t think that’s going to be a surprise to anyone reading this.
The Free Market is a different story.
You have to believe in the Free Market if you want to be a good American. If you don’t believe in the Free Market, then you can expect to be called a socialist.
I used to believe in the Free Market. But the more I learned about it, the more imaginary it became.
Take, for starters, the key transaction of a Free Market: two individuals exchange economic goods. The goods are tangible (product) or non-tangible (service). Each side expects to gain from the exchange because they value the two goods differently. Their choice is voluntary. Both sides have complete information about the actual worth of the goods.
“Complete information” is as real as the Easter Bunny. It’s as accurate a model of the real world as frictionless surfaces in introductory physics. It helps to explain the theory, but it doesn’t exist. Many transactions in the real world involve trying to learn (or hide) information in order to get an edge in the deal. If we had complete information we would not have bubbles and Ponzi schemes.
Then there’s the law of Supply and Demand. In its simplest form: given perfect competition, price equalizes supply and quantity sold. Unlimited supply is available to meet unlimited demand.
This doesn’t explain what happened to oil prices three years ago. It doesn’t explain real estate bubbles. That’s because there’s no such thing as “perfect competition” or “unlimited supply”.
The more you learn about it, the more you realize that the Free Market works great only under idealized conditions. Everyone can benefit (a “Pareto efficient outcome”), but only under a set of assumptions that don’t exist.
In a perfect world a Free Market never crashes, and a block on a level frictionless surface never stops moving. But this isn’t a perfect world.
The Energizer Bunny may keep going and going, but the Free Market does not.
The Free Market Easter Bunny is called the Invisible Hand.
The legend goes like this: if every consumer freely chooses what to buy and every producer freely chooses what to sell, the Invisible Hand will make everyone happy and we’ll all live happily ever after.
Here’s how Adam Smith described it in The Wealth of Nations
“By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.”
- Adam Smith, The Wealth of Nations
These days, the Invisible Hand has taken many of our jobs overseas. The more you know about the Free Market, the less you want to trust it.
In the past decade we turned a budget surplus into a deficit by giving a $2 trillion tax break to the very rich. This was not one of those completely voluntary transactions between two fully informed parties; it came down to a 50-50 tie in the Senate that the Vice President broke. Most of us are still waiting for the Invisible Hand to make things right, but it keeps beating us about the neck and face.
To make the Free Market frictionless we removed regulations and let banks get too big to fail. Then we had to bail them out. We should be regulating those banks until they are no longer too big to fail. But the believers want us to deregulate some more, to feed the Invisible Hand.
In America a long time ago, in the 1950s, Wall Street was regulated and boring. The top marginal tax rate was around 90%. We weren’t socialists; we had a controlled capitalist economy. Businesses prospered, people left their doors unlocked, and the Invisible Hand was our friend.
Then we listened to the fairy tales of the Free Market fundamentalists. We took their candy. We believed their lies. And things have gone downhill ever since.
There are so many misrepresentations about our economic system here I don’t know where to start.
1. Except for maybe the very early days of the USA we have always had a mixed economy (free market/government regulation) not a free market economy.
2. If more regulations are the answer then why was Fannie Mae, the most heavily regulated financial institution in the US the first to fail? It failed because government regulators decided to become social engineers and force Fannie Mae to essentially loan money to people that could to afford to pay it back
3. You conflate a high tax rate with prosperity as if there is a cause and effect relationship. If high tax rates are the key to success, why not make it 100%?
4. Nothing is too big to fail not even our country. Under a free market system the bad actors in the financial world would have lost everything when the housing bubble burst because of their mistakes. Under our government run system they were saved and rewarded for failure.
5. Our budget surpluses during the Clinton years were largely caused by a booming economy mostly in the tech sector. Tech companies are one of the least regulated industries in the US.
6. Name one socialist, Marxist or communist country that has had sustained prosperity for more than 200 years.
Freedom along with personal responsibility has lifted millions of people out of poverty. In order for more people to have a higher standard of living, wealth needs to be created. Free markets create wealth and governments consume wealth.
Freedom is more important than anything else we have. Don’t be so quick to throw it under the bus because it may be inconvenient at times. You will miss it when it is gone. And it will be gone if we don’t all protect it as if our own lives depend on it.
It’s great to see you here! I’m going to try to get to all of your points, thanks for taking the time to put them together.
As with most things, extremes are less productive. We do have a mixed/controlled economy, and it’s mostly worked for us. If I say a little more regulation in the right spots would help, that shouldn’t imply that I’m always in favor of more regulations. And when I’m critical of free market proponents, it’s really only against those who think the free market is only answer to all our problems.
We’re going to see some things differently. I see the problem with Fannie Mae being that we relaxed regulations and that made subprime mortgages more attractive, and that eventually led to trouble.
By noting that we had a 90% top marginal rate in the 1950s all I was trying to do was to point out that there was no cause and effect relationship showing high taxes stifle business growth or crush prosperity. We also have proof that lowering tax rates does not increase income for everyone.
I think we agree that the too big to fail bad actors should not have been rescued; I am not certain that we would be able to have this conversation right now if we did allow the right thing to happen.
Unfortunately I can’t name a single country that has had sustained prosperity for more than 200 years.
Individual freedom and the free market are not the same thing; I fully agree with you that freedom and personal responsibility are essential. I don’t believe corporations should have the same rights as people. We would be better off if government wasn’t trying to protect business from people, and got back to protecting people from business.
Wait people, I’m not over the bunny part yet…”This is bad parenting” Paul concurs, that’s what I’m doing wrong with my kids?
“Crapping out these little aluminum foil covered chocolate eggs” and the “jellybeans look suspiciously like deer droppings” You mean we’re making our children not only eat crap but believe in crap? And the invisible hand helped with this too?
Holy cow, the Government really pisses the Easter bunny and me off. He’s a capitalist (the bunny) and well I want to be protected from zealots and crap stuff that’s bad for my kids, not to mention that menacing “invisible hand.”
Next year I’m planting carrots…and maybe just one small boiled egg, maybe, with pretty pink paint placed on my organic lawn, near the carrots.
http://thelintscreen.com/2010/04/02/easter-bunny-blasts-boy-as-socialist/
To me corporations are just groups of individuals (good and bad) with a common purpose. It is like saying a computer made a mistake when all they do is what you make them do.
The real question is; who will protect us from the government? It reminds me of when Super Man swept in and saved Lois Lane. “Don’t worry miss, I’ve got you” said Super Man. Lois said “you’ve got me who’s got you?”.
Freedom is something you believe in or you don’t. It is not an à la carte menu. Once you start picking and choosing which freedoms you want, you will find you have lost them all.
“Those who would give up essential liberty to purchase a little temporary safety deserve neither liberty nor safety.” Ben Franklin
I too was disturbed by the image of the Easter Bunny “crapping out chocolate eggs” but I’ll work that out on my own!
Nice link Juve.
Scott: Corporations don’t do what we make them do, they do what we don’t keep them from doing, thats a big difference.
Corporations or governments don’t do anything. The people in them do. Good people bad people and everything in between.
There are thousands and thousands of companies out there offering good products and services. To characterize them all as a wild dogs that needs to be chained to a post is completely unfair to 99.9% of them.
I am far more concerned with what our governments do.
I am as concerned about what government is doing as you are, maybe I just see a different cause.
Leash laws are a good analogy for corporate regulations. The CT leash law doesn’t mean your dog is wild, and it doesn’t apply to cats. Regulations like Glass-Steagall were intended to protect us from the wild dogs and did not impact most of the businesses in the US – except that they helped create a stable growth environment.
Repeal of these financial regulations has been a mistake. It only happened because the financial industry can influence government with money and through the misguided belief in the importance and “correctness” of the financial sector (as in “what’s good for Wall Street is good for America”). It has nothing to do with whether they are made up of good people or bad.
We must cut the influence of the financial industry that is killing all the other business in this country. The recent change in campaign finance law will allow them to consolidate and hold their power. And they have pit bulls.