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.
