Free-Market Hoax – Fosters Distrust of Government, Obscene Wealth Gap and Destruction of Ecosystems

Updated: Aug 9, 2021

A Vacuum of Governance Permits Abuse of Power

As advocated by organizations on the right of the political spectrum, the Free Market is a theoretical, utopian dream. Governance and social order are left exclusively to the, presumably, non-coercive workings of the self-regulating market. Ideally, this theoretical, free-market replaces the need for political power and thereby fosters individual liberties, societal prosperity, and the freest of all possible worlds.[i]

These Free-Market ideas were widely assumed to have died because of their role in leading to the Great Depression. Roosevelt’s successful, interventionist New Deal was extended into the 1960s by Lyndon Johnson’s Great Society programs. Those regulations and programs had placed severe restrictions on speculative activity by financial institutions, reduced the extreme inequality of income and wealth distribution of the 1920s, provided organized labor with a stable and recognized position in both the workplace and in the polity, and created protections for citizens from the risks involved in becoming unemployed or growing old.

The fortunes of Free-Market thought, however, changed in the 1970s as conservatism again became a powerful force in United States politics. Milton Friedman, an economist from the University of Chicago, was the architect of this rebirth in free-market theory. As a cherished advisor to both Ronald Reagan and Margaret Thatcher, he helped to marshal the political power to dismantle much of the New Deal framework. Friedman rejected the proposition that the role of government is to secure our rights and assumes that the Free-Market can suffice to shape and manage national life.

Robert Reich, a former Secretary of Labor, who served in the administrations of Presidents Carter, Ford and Clinton, remarked on the inequitable impacts of the Free-Market in “The Myth of the Free-Market and How to Fix It,” posted on Tyson Grandison’s blog, 3/19/2015,

By this view, if some people aren’t paid enough to live on, the market has determined they aren’t worth enough. If others rake in billions, they must be worth it. If millions of Americans remain unemployed or their paychecks are shrinking or they work two or three part-time jobs with no idea what they’ll earn next month or next week, that’s too bad; it’s just the outcome of the market.

Implicit Free-Market assumptions are that 1) political power is a chronic threat to freedom and commerce and that 2) the economic sphere, free of government intervention, does not entail the exercise of power. In reality:

1) there is no marketplace outside of a sociopolitical context; and it is a matter of government policies that determine how personal freedom and free commerce are created and preserved or thwarted;

2) the pretense that absent political power, the marketplace provides an objective equilibrating process, masks how the powers of wealth and monopoly bias the marketplace in their favor.

Notice in the above graph how the compensation ratio begins to climb markedly in the Reagan era, wherein the emphasis on a free-market aspiration was implemented. Nowhere else in the world, has the ratio of CEO pay over worker pay been so dominant as in the United States. Given the long-term nature of this trend and its escalation, it appears that the US citizenry as a whole implicitly endorses this decision made by the marketplace (as Interpreted by corporate Boards of Directors.) Not only has the CEOs' wealth outpaced workers, all those who enjoy economic power have disproportionately benefited from the increasing emphasis on a not-quite free-market, creating a governmental power vacuum for the powerful barons and their descendants to fill. The following graph and chart show how the wealth gap in the United States has grown in parallel with the pattern of increasing emphasis on aspirations toward a so-called free-market.

The powers of the marketplace to propel economic growth have enticed followers throughout the American centuries, since Europeans began to settle in the fifteen hundreds. Moving economics from a static pie to a growing feast was a novel happening compared to Europe’s several centuries of stagnant economics. The followers of this so-called free-market were sometimes enthused, sometimes concerned and sometimes they idolized it. Indeed none of these attitudes were exclusive, rather they were often combined. Thomas Jefferson, for example, was enthused but also saw that wealth often accumulated to the powerful and that there could never be invented too many ways to keep dividing lt more equitably. Jefferson was less aware of the amorality of the marketplace. His slaves were essential to the profitability of his enterprise and he has been quoted as remarking on the profitability of pregnant slaves.

From the beginning, those who were victimized, especially Blacks and Native Americans, saw that there was no limit to what could be commodified in a not-quite free-market. Their flesh was out for sale to the most profitable bidder. Justice is not intrinsic to the free-market!

Milton Friedman's "Perverse Effects Doctrine" is another aspect of his Free-Market theorizing that continues to contribute barriers to the fruitfulness of American polity. In his idolizing of the market, Friedman does admit that it can make mistakes. But he qualifies that by saying it is "self-corrective." He gives no such mercy to government interventions that are meant to solve problems. Instead, he argues that no matter how well-meaning the intention, government efforts to make things better are bound to make problematic situations worse. Bringing the "Perverse Effects Doctrine" up to date, I will highlight two problematic situations that stand out, the first being climate change. The Republican Party contains many deniers of climate change, especially human caused change. But making it even more difficult to effectively address human causation, there are a majority within the Republican Party who believe that government interventions to address the situation would cause more problems than climate change itself. Is not the Perversity Doctrine itself perverse?

A second ongoing debate in which the Perversity Doctrine is being implicitly applied is to the minimum wage. Milton Friedman perfected one of the most popular uses of the perversity doctrine, in his claim that setting a minimum wage induces unemployment and drives down all wages: He wrote, “Minimum wage laws are about as clear a case as one can find of a measure the effects of which are precisely the opposite of those intended by the men of good will who support it.”[ii] The influence of free market ideology, with its perverse effects doctrine, has shortchanged increases in the federal minimum wage despite research findings. In 2016, the federal minimum wage of $7.25 in real dollars was 25 percent below its peak value in 1968. [iii] More than 2 decades of research on cities and states when the minimum wage has been raised, refutes the claim that increasing the minimum wage causes increased unemployment and business closures.[iv]

The major problem with Milton Friedman's Perversity Doctrine is not that he, posthumously, remains such a broadly known opinion leader that he is sticking a wrench in America's machinery of governance. Rather, his doctrine is representative of America's deep distrust in their own government. Without the trust, there is little that citizenry can do collectively to address so many issues, such as: childcare public education at all levels, impoverishment, medical care, emergency response, environmental protection, infrastructure and so many more. Most everything that we can do collectively at a national level requires trust. Trust is required to elect the representatives and senators who are running their campaigns to deliver on such national needs. America's trust in government peaked in 1964, permitting the go-ahead for the Great Society legislation, which enabled preschool , economic development in impoverished neighborhoods, and a great many other programs that had demonstratively positive impacts. Now however, many Americans have lost faith in their government to provide such humane services. Most Americans don't trust national government intentions, nor its competence to provide such services. The following graph provides a visual story of how that trust has deteriorated during recent decades.

The overall showing of deteriorating public trust shades over major themes within that trend. I don't have access to a complete data set with analytical tools to tell the story precisely but I can do so suggestively with some empirical support.

Factor 1) there is a huge partisan gap regarding whether or not government should be involved in societal problem solving; or, should this be left up to individuals and businesses. There are echoes here of the free market ideology which is more prevalent among Republicans. In this factor, public trust In government to effectively provide services is compounded with marketplace ideology.

Factor 2) A sizable gender gap exists between those who favor a larger size government and more services contrasting with those who favor smaller government and fewer services being provided. There are no statistical controls here that would separate out political party as a related cause, but the gap among women preferring government do more problem-solving is 19 percentage points larger than the related gap among men. The gap is reminiscent of the gender gap that plagued Trump in

the recent election. . Here is an explanatory hypothesis about this gender gap, which precedes issues of public trust. I dig back into the precognitive messages from their unconscious that were formed in the men's personality development. Boys ordinarily switch from prominent identification with their mother to their father somewhere between the ages of 4 and 8, depending upon DNA and family factors. In making the switch they will often become aggressively or passive aggressively hostile towards "mom" and buddy up to daddy who is seen as the more powerful. During this time, It is not unusual for boys to express their fear of dependency on mom through dreams of being eaten or otherwise harmed by an old woman. At the same time, they are still dependent upon mother, with dependencies they often intensely dislike, but nevertheless feel they must stick up for Mom but try to avoid their dependencies. My hypothesis is that Trump in putting America, the Motherland first (notice that America is referred to with feminine pronouns) appealed to the idealization of mother, while rejecting humane programs, appealed to the males desire to avoid dependencies upon her (from "God Bless America," "Stand beside Her, and guide Her, Land that I love").

Put together these psychodynamics plus residual free-market ideology in the Republican Party and it is possible to account both for the gender gap In men versus women among Trump voters and the gap between political parties with regard for support of the government to do more with service programs that reach out to people in need.

To illustrate the referenced transition in male identity development, here is part of my own story. I recall that from about ages 5 to 7, I had a series of dreams wherein a devouring woman was trying to catch me. To show my independence (my adult interpretation), I would run across the devouring woman's yard, daring her to catch me. Sometimes I got away, sometimes I didn't. But if I was in the process of being readied to eat, I would wake myself up before it happened :-)

Perhaps if there were more child rearing consciousness dedicated to helping children with their deep self developmental transitions, and less emphasis on behavior control through rewards and punishments, fewer men would grow up needing to work out there childhood issues in electoral politics?!.

In closing this Post, I will enumerate further aspects of the marketplace wherein justice concerns need to be infused:

for equitability, for the thriving of non-human beings and for ecosystems.

In my next Post on sustainable business opportunities, strategies for creating a just marketplace will be presented.

1) The Free-Market implication that labor can be commodified in the same way as goods that are produced for market, has led to increased poverty and violations of human rights, dignity, and sometimes life itself.[vii]

Employees depend upon a community matrix of socioeconomic relationships. To pretend that employees can equitably be hired and fired, allocated to different locations, all independently of the communities that provide their life-support is a falsehood. In other words, contractual relationships with employees depend upon a prior non-contractual matrix that provide employees with life-support.

Requirements for living wages, family benefits, and an adequate safety net to cover the swings in the marketplace are how the community base of employees and their dignity can be honored. When this community matrix is ignored to employ “cheaper” labor, the underemployed and unemployed, and their families face perilous risks. A prime illustration of this peril, are the thousands of impoverished people who died in the aftermath of the Hurricane Katrina, who had nothing of value to offer the marketplace; their non-contractual value as people was ignored. The marketplace is dependent upon compassionate governance to assure the honoring of communities.

2) The Free-Market implication that land and the resources that it holds, can be commodified in the same way as products that are produced for the market has led to exploitative deterioration of soil, the ravishing of non-renewable minerals and the destruction of freshwater resources.[viii]

Lacking the appropriate balance of incentives and regulations, the marketplace has often induced farmers to exploit their land, making it vulnerable to droughts and wind, as in the dustbowl; and again, in World War II when market prices boomed; and again, when the price of corn was elevated by demand for ethanol. Market incentives that ignored the conservation of freshwater have led to the depletion of aquifers, the pollution of rivers and world-wide coastal dead spots from the runoffs of crop fertilizer. Not until the Cuyahoga River caught on fire for the 13th time, was the Clean Water Act established, an important, but less than sufficient framework for conserving America’s freshwater.

3} The Free-Market implication that subject only to the forces of the marketplace, emissions can be freely externalized to the air, has been partially curbed by government policies to control ozone, some toxic pollutants, and smog-creating nitric oxide; greenhouse gasses are freely emitted.

Free-Market proponents still resist putting a price on greenhouse gases, despite the climate calamity and geocide[ix] that we are bringing upon ourselves. [“geocide,” meaning that with catastrophic climate change, we are bringing other species and ecosystems down with us.]

4) Free-market proponents for policies regarding the extractions of minerals and fossil fuels, advocate for production to be limited only by the profit margin of market price over cost of extraction.

Insufficient regulation has permitted the ravishing of land, water and air; and the mining of nonrenewable resources without thought of conservation for future generations.

5} The Free Market as understood and pursued by business, is less theoretical and more practical than the above-named implications.

The idea that the marketplace will ever function without government is hardly considered; rather, the Laissez Faire strategy of minimizing government intervention into the market is pragmatically assumed to mean cutting taxes and reducing regulations.

The conservative Free Market theoretical ideal and the business strategy of pursuing a marketplace with reduced regulations are both pursued as a matter of religious-like faith. Validity of their effectiveness is assumed, quite independently of historical and empirical research; and with very inadequate consideration of externalized costs. Businesses, less bound by theoretical ideology than right wing think tanks and politicians, are often leading the way toward more responsible social and environmental practices. [See a summary of how how sustainable business practices can lead America toward a shared future-fit pathway in a forthcoming Post, “Sustainable Business Practices – Promises Delivered.”]

6) The marketplace functions within social and environmental realities, a nested system perspective

It is truth telling to map the relationships of the economy, society and the environment in a nested systems model.[xii] These three nested-systems are not equal. All of life is subservient to and depends upon the environment. The parameters of the economy, with its marketplace dynamics, are set by our socio-political system. The economic system and the sociopolitical system in turn are both dependent on and nested within the environment.

Economy is at the core. Discussions of the advancement of national and international interests, both private and public, often look to economics for guidance. But the directional compass which is sought is illusory. Economics when taken out of its sociopolitical context has no sense of direction, no “Northstar.”

Confusion from the lack of direction is compounded by the collective delusion that there is a “Free Market.” Economic policies, especially those of the United States, promulgate the idea that the more we can minimize regulations and cut taxes, the closer we will come to a “free” marketplace that will bring an inclusive prosperity. The widening inequalities that characterize society provide basic evidence that the so-called “trickle-down” theory is superseded by the whooshing sound of a “vacuuming upward” reality. The proportional ranks of the impoverished are increasing; infrastructures, education, and healthcare scramble to survive with inadequate funding.

That's it for now. I hope to see you soon at the Sustainable Business Practices Post, forthcoming. There, we will be discussing fewer problems and more solutions. Thank you for joining in these reflections. Your comments are welcomed. Karl

Copyrights – Respect the Internet Commons: when this material is used, make attributions to Karl Ostrom <>, including the title of this Post and . Additionally, you are legally responsible for respecting the copyrights of others cited within the material that I have created.

[i] Block, Fred; Margaret R. Somers. Op. Cit. [ii] Milton Friedman, Capitalism and Freedom, Chicago: University of Chicago Press, 1962. [iii] David Cooper, Raising the minimum wage to $15 by 2024 would lift wages for 41 million American workers, Economic Policy Institute, 4/26/2017. [iv] Holly Sklar, Research Shows Minimum Wage Increases Do Not Cause Job Loss, Business for a Minimum-Wage, 2017. [v] [vi] c'est la vie strategies you are able. Janet Gerick and Jantti Markus, “Child Poverty in Comparative Perspective: Assessing the Role of Family Structure and Parental Education and Employment,” LIS 2011. [vii] Block, Fred; Margaret R. Somers, Op. Cit. [viii] Ibid. [ix] Susan George, “Corporate Power + Climate Change = Geocide,” Climate and Capitalism, November 23, 2016 [x] [xi];; [xii] Image from Bob Willard, Sustainability Advantage, open source slides

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