On page thirteen of the May 30th–June 5th edition of The Economist, an editorial aimed at describing the threat posed to our economy through excesses of central planning, the author writes the following paragraph:
Moreover, even the most stalwart defenders of the free market, including this newspaper, admit it has shortcomings that only the government can address. The financial system requires close oversight, or crises will destabilise it (see page 75). In recent years, such oversight has often been absent or fragmented. Only government can enforce competition rules, insist that business and consumers limit carbon-dioxide emissions, or intervene to make health care available to those too sick or poor to afford it. And the current crisis calls for aggressive and temporary fiscal and monetary intervention that is not justified in ordinary times.
The first sentence of this paragraph alone contains three grave problems. Firstly, since when has the government been able to fix things? Even liberals and conservatives readily admit that the government is at best inefficient and at worse downright detrimental. Ask the average person if government is good at solving problems. The person doesn’t have to be a libertarian to laugh at such a question.
Secondly, the most “stalwart defenders of the free market” do not make the sort of concessions that this magazine wishes to make. I should know, being a stalwart defender of the free market myself.
Finally, The Economist calls itself a “stalwart defenders of the free market.” But how can it be one, when it itself believes that government can “intervene to make health care available to those too sick or poor to afford it.” The government does not possess some magic button that can make healthcare cheaper, and in fact every intervention the government makes into the healthcare field ultimately raises the costs (or decreases the quality) of healthcare. And this hurts the poor more than anyone else! No, The Economist is not a “stalwart defenders of the free market.” If you want an example of a magazine that stalwartly defends the free market, I would recommend The Freeman.
I estimate that a point of confusion for some people arise when they hear a libertarian say, “The free market is not perfect.” Even “stalwart defenders of the free market” admit that the free market is not perfect. But what precisely does that mean? Does it mean that the government is better, more effective, or more efficient than the market in some area(s)? To jump to that conclusion is to misunderstand the libertarian who correctly says that the free market is imperfect.
When I say the free market is not perfect, what I mean by this is that the free market will not solve all of the world’s problems. The free market does have an anti-discriminatory effect on businesses (i.e. businesses operating on a totally free market tend to ignore race, finding it more profitable to hire whatever employee is best for the job), but it will not likely have much of an impact on men’s hearts, for example. This does not, however, mean that we should initiate some litany of statutory laws aimed at eliminating prejudice within men’s hearts, nor that the government would be more effective at eliminating prejudices than the market.
The market will also not fully eliminate addiction to alcohol, the making of bad investments, the promulgation of “improper” religious beliefs, et cætera. Thus, the free market is not “perfect.” But it’s still better than the government—at everything! (Even archists like John Stossel have admitted to this last point.) And this is because the state is a political institution, and thus lacks the same incentives that one would find in an economic institution. (I am indebted to Franz Oppenheimer for the distinction between the political means and the economic means.) Political institutions always inevitably allow politics to affect decision-making. Whenever a politician grants something to, say, a corporation, you can be sure that the decision was affected by, if not based on, politics. Beyond this, politicians lack any meaningful mechanism for evaluating the utility of their actions. The market, on the contrary, has a pricing system that reflects consumer demand relative to supply, and it is this pricing system that allows market actors to make rational choices.
The market is not perfect because it is not, in short, a god. Thus, there is no need to worship it, or to pretend it is anything other than it is. But the fact that the market is not a god does not therefore imply that the state is a god, or that the state can even make up for the market’s imperfections. The market, at least the truly free market, has no “market failures,” it just has natural limitations based on its nature. It is, after all, merely a mechanism for most efficiently allocating resources in a world of scarcity; it is not a magic cure-all that can save humanity from, say, bad thoughts or addiction. But then, neither is the state. The same natural limitations we find in the market are found in politics, except that in politics they are ultimately far more detrimental to social harmony and human rights. The market may not be a god, but that doesn’t mean the government is better than it—at anything.
—Alexander S. Peak