Free market failures

[TheHumblePhysicist]

Free market failures:

-Generational debt.
A man who spends his life partying and drinking on a credit card, and when he dies sticks his kids with the bill.

-Slavery.
If a person is an idiot and doesn't get insurance, and an unforeseen accident sends them into unpayable amounts of debt, the only solution is for them to work it off through bondage. Throughout history "debt slavery" of this sort has been the norm, not the exception. It is even described in the Bible.

-Fraud.
How do consumers know which products are safe or healthy? Answer: rating agencies would put a special sticker or stamp on the products they approve of. But what if competing companies put that same sticker on their products without the rating agencies permission? How would consumers know who to trust? An entire free market industry of fraud would develop with all the efficiency and profitability of any capitalist enterprise.

-Short term gain vs long term pain.
Most people tend to act rationally, in the short term. But when something is in their long term best interest, they tend to shrug it off. Examples: drugs, ponzie schemes, unprotected sex, not voting for Ron Paul, etc...


The free market assumes that everybody lives forever, is perfectly rational, has perfect knowledge, and foresight. If any of these conditions are violated the free market fails.

 

[Seraphim]

Free market failures:

-Generational debt.
A man who spends his life partying and drinking on a credit card, and when he dies sticks his kids with the bill.

-Slavery.
If a person is an idiot and doesn't get insurance, and an unforeseen accident sends them into unpayable amounts of debt, the only solution is for them to work it off through bondage. Throughout history "debt slavery" of this sort has been the norm, not the exception. It is even described in the Bible.

-Fraud.
How do consumers know which products are safe or healthy? Answer: rating agencies would put a special sticker or stamp on the products they approve of. But what if competing companies put that same sticker on their products without the rating agencies permission? How would consumers know who to trust? An entire free market industry of fraud would develop with all the efficiency and profitability of any capitalist enterprise.

-Short term gain vs long term pain.
Most people tend to act rationally, in the short term. But when something is in their long term best interest, they tend to shrug it off. Examples: drugs, ponzie schemes, unprotected sex, not voting for Ron Paul, etc...


The free market assumes that everybody lives forever, is perfectly rational, has perfect knowledge, and foresight. If any of these conditions are violated the free market fails.[/QUOTE]

The free market cannot assume anything, it is not a thinking entity.

No one who understand economics assumes any of these things.

 

[TheHumblePhysicist]

Free market failures:

-Generational debt.
A man who spends his life partying and drinking on a credit card, and when he dies sticks his kids with the bill.

-Slavery.
If a person is an idiot and doesn't get insurance, and an unforeseen accident sends them into unpayable amounts of debt, the only solution is for them to work it off through bondage. Throughout history "debt slavery" of this sort has been the norm, not the exception. It is even described in the Bible.

-Fraud.
How do consumers know which products are safe or healthy? Answer: rating agencies would put a special sticker or stamp on the products they approve of. But what if competing companies put that same sticker on their products without the rating agencies permission? How would consumers know who to trust? An entire free market industry of fraud would develop with all the efficiency and profitability of any capitalist enterprise.

-Short term gain vs long term pain.
Most people tend to act rationally, in the short term. But when something is in their long term best interest, they tend to shrug it off. Examples: drugs, ponzie schemes, unprotected sex, not voting for Ron Paul, etc...


The free market assumes that everybody lives forever, is perfectly rational, has perfect knowledge, and foresight. If any of these conditions are violated the free market fails.[/QUOTE]

The free market cannot assume anything, it is not a thinking entity.

No one who understand economics assumes any of these things.

You got me there. Poor choice of words. I guess I should have said, "the free market only works in the interest of mankind if people are perfectly rational, have perfect knowledge, etc..." However, I think you understand what I am saying.

 

[cubical]

Free market failures:

-Generational debt.
A man who spends his life partying and drinking on a credit card, and when he dies sticks his kids with the bill.

-Slavery.
If a person is an idiot and doesn't get insurance, and an unforeseen accident sends them into unpayable amounts of debt, the only solution is for them to work it off through bondage. Throughout history "debt slavery" of this sort has been the norm, not the exception. It is even described in the Bible.

-Fraud.
How do consumers know which products are safe or healthy? Answer: rating agencies would put a special sticker or stamp on the products they approve of. But what if competing companies put that same sticker on their products without the rating agencies permission? How would consumers know who to trust? An entire free market industry of fraud would develop with all the efficiency and profitability of any capitalist enterprise.

-Short term gain vs long term pain.
Most people tend to act rationally, in the short term. But when something is in their long term best interest, they tend to shrug it off. Examples: drugs, ponzie schemes, unprotected sex, not voting for Ron Paul, etc...


The free market assumes that everybody lives forever, is perfectly rational, has perfect knowledge, and foresight. If any of these conditions are violated the free market fails.

I don't understand Generational Debt. I am not responsible for my father.

Slavery isn't apart of a free market. Bankruptcy is.

How do you know your food is safe to eat now? How do Jewish shoppers know their food is kosher. If people want organic produce, how do they know its really organic? How do you know if you send someone money on ebay for an item, that you will get your item as described?

People who do not plan for the long term will suffer at the expense of the people who do plan for the long term. That is exactly what the free market allows.

 

[smokemonsc]

To further elaborate on Seraphim's point

Generation Debt: You can't transfer debt upon death unless it's against an asset that was held as collateral...unless you're the government, which isn't very free market is it?

Slavery: If you put yourself up as collateral for a loan whats the problem with that? You're playing the sophist here as historically most slaves were slaves because they were forced to by governments. (War, kidnapping, etc)

Fraud: The financial markets were heavily regulated/rated prior to 2008 and people trusted these rating agencies you are so confident in. Just because a rating agency says something is safe doesn't mean crap - in the end its your responsibility to assume the risks of trade. Fraud occurs because humans are imperfect not because of free markets and it certainly doesn't disappear when govt gets involved. In fact there's evidence that it increases.

Short Term Gain vs Long Term: The free market has a solution for people who prefer short term gain it's called bankruptcy, accidental death, etc.

The free market is not some collective hive mind as you've suggested, it's 6 billion independant unique minds working out their own needs and desires.

There's no such thing as a free market failure and as Seraphim said 'it' assumes nothing.

 

[smokemonsc]

You got me there. Poor choice of words. I guess I should have said, "the free market only works in the interest of mankind if people are perfectly rational, have perfect knowledge, etc..." However, I think you understand what I am saying.

No, you should've said "the free market only works in what I think the interests of mankind are if people agree with me, have my life experiences, etc".

How can you say you know what the interests of mankind are? How would you recognize them in the first place? And how can you make the claim that the purpose of a free market is to work in the interest of mankind? A free market is made up of individuals acting out what they think is their own best interests; not a disembodied collective.

 

[TheHumblePhysicist]

No, you should've said "the free market only works in what I think the interests of mankind are if people agree with me, have my life experiences, etc".

How can you say you know what the interests of mankind are? How would you recognize them in the first place? And how can you make the claim that the purpose of a free market is to work in the interest of mankind? A free market is made up of individuals acting out what they think is their own best interests; not a disembodied collective.

Don't give me that relativism crap. There IS an objective standard of measure for "good" and "bad".

Would you say that a giant monopoly enforcing itself through paid thugs, is a good thing, in the interest of mankind? What, NO you say? Oh look, you just made a value judgment about what is good and what is bad. How do YOU know what the interests of mankind are?

 

[Seraphim]

To further elaborate on Seraphim's point

Generation Debt: You can't transfer debt upon death unless it's against an asset that was held as collateral...unless you're the government, which isn't very free market is it?

Slavery: If you put yourself up as collateral for a loan whats the problem with that? You're playing the sophist here as historically most slaves were slaves because they were forced to by governments. (War, kidnapping, etc)

Fraud: The financial markets were heavily regulated/rated prior to 2008 and people trusted these rating agencies you are so confident in. Just because a rating agency says something is safe doesn't mean crap - in the end its your responsibility to assume the risks of trade. Fraud occurs because humans are imperfect not because of free markets and it certainly doesn't disappear when govt gets involved. In fact there's evidence that it increases.

Short Term Gain vs Long Term: The free market has a solution for people who prefer short term gain it's called bankruptcy, accidental death, etc.

The free market is not some collective hive mind as you've suggested, it's 6 billion independant unique minds working out their own needs and desires.

There's no such thing as a free market failure and as Seraphim said 'it' assumes nothing.

Yep yep yep

 

[Seraphim]

Don't give me that relativism crap. There IS an objective standard of measure for "good" and "bad".

Would you say that a giant monopoly enforcing itself through paid thugs, is a good thing, in the interest of mankind? What, NO you say? Oh look, you just made a value judgment about what is good and what is bad. How do YOU know what the interests of mankind are?

In a free market- or anything resembling one...service providers and producers must PROVE over and over and over to consumers forking over their labour (represented by whatever money they choose to use) that they deserve that money.

 

[tmosley]

In a free market, you can walk away from any debt or contract. All that means is that you will lose any collateral that you posted, and others will be less likely to deal with you in the future.

I don't know where people seem to get the idea that free markets force contractual obligations to be carried out no matter what. It's just not the case.

This is why in a developed free market, hardly anyone lends money. Instead, they save in undilutable currency while "loaning" their labor to society, which uses it to generate capital improvements, which leads to increased production and thus increased future purchasing power. If you read "The Creature from Jeckyl Island", you will see that this was indeed the case in 1910's America, but the bankers didn't want to go out of business as people started using profits to fund thier capital investments, so they set up the Fed to force people to use "cheap" credit instead.

 

[smokemonsc]

Don't give me that relativism crap. There IS an objective standard of measure for "good" and "bad".

Would you say that a giant monopoly enforcing itself through paid thugs, is a good thing, in the interest of mankind? What, NO you say? Oh look, you just made a value judgment about what is good and what is bad. How do YOU know what the interests of mankind are?

Strawman

I said you cannot make these decisions for others, I said nothing about your ability to hold personal opinions. My point is that your opinion may be different than mine. That's it.

 

[TheHumblePhysicist]

To further elaborate on Seraphim's point

Generation Debt: You can't transfer debt upon death unless it's against an asset that was held as collateral...unless you're the government, which isn't very free market is it?

Slavery: If you put yourself up as collateral for a loan whats the problem with that? You're playing the sophist here as historically most slaves were slaves because they were forced to by governments. (War, kidnapping, etc)

Fraud: The financial markets were heavily regulated/rated prior to 2008 and people trusted these rating agencies you are so confident in. Just because a rating agency says something is safe doesn't mean crap - in the end its your responsibility to assume the risks of trade. Fraud occurs because humans are imperfect not because of free markets and it certainly doesn't disappear when govt gets involved. In fact there's evidence that it increases.

Short Term Gain vs Long Term: The free market has a solution for people who prefer short term gain it's called bankruptcy, accidental death, etc.

The free market is not some collective hive mind as you've suggested, it's 6 billion independant unique minds working out their own needs and desires.

There's no such thing as a free market failure and as Seraphim said 'it' assumes nothing.

So a man holds his kids up for collateral. Who says he can't do it? He can and will.

Slavery is one of the greatest evils on the Earth, and once institutionalized, it becomes pervasive. In this day and age we have grown beyond that sort of thing.

The government needs to regulate rating agencies and other various companies because of the "bandwidth" problem. Back in the day, people were broadcasting radio on any frequency they pleased and the signals would overlap, and mishmash together. It was only when the government separated out different frequencies for private usage, that a system of property rights for radio frequencies could be instituted. What I am saying here is that the government needs to police rating agencies in order to make sure that a company not sponsored by a particular rating agency, does not "fake it" by starting their own bogus agency with the same logo.

I would love to see the free market solution to drugs. Ever read Brave New World?

 

[smokemonsc]

As an addition to my above comment, I don't want you to think I don't believe in good and evil or that I am a moral relativist. I'm most certainly not. BUT I don't accept your assumption that the free market 1) Even has a goal or purpose since it's not alive and 2) That if it did have a goal that it's goal was "for the betterment of mankind". I would argue that the evidence suggests that if there was a 'purpose' that could be gleaned from observing human action it would be that people operate in what they think/I] is in their best interests.

Hope that clarifies my point

 

[smokemonsc]

So a man holds his kids up for collateral. Who says he can't do it? He can and will.

Slavery is one of the greatest evils on the Earth, and once institutionalized, it becomes pervasive. In this day and age we have grown beyond that sort of thing.

The government needs to regulate rating agencies and other various companies because of the "bandwidth" problem. Back in the day, people were broadcasting radio on any frequency they pleased and the signals would overlap, and mishmash together. It was only when the government separated out different frequencies for private usage, that a system of property rights for radio frequencies could be instituted. What I am saying here is that the government needs to police rating agencies in order to make sure that a company not sponsored by a particular rating agency, does not "fake it" by starting their own bogus agency with the same logo.

I would love to see the free market solution to drugs. Ever read Brave New World?

You keep building strawmen, please address my points.

The idea you need to regulate utilities comes from the idea that you think there is only one way to accomplish something.

For your example: Broadcasting. At the time it was one way to transmit information long distances. Since then we have developed better ways such as the internet. Do you think it's possible that the chaos created by free market forces would've developed alternatives to radio waves quicker than what history has provided for us?

I think it's a pretty ignorant idea to think that more regulation and thus less competition induces more innovation, which is what your stance is implying.

 

[aravoth]

Would you say that a giant monopoly enforcing itself through paid thugs, is a good thing, in the interest of mankind? What, NO you say? Oh look, you just made a value judgment about what is good and what is bad. How do YOU know what the interests of mankind are?

You just described government intervention in the free market perfectly.

Thank you.

 

[mojobo]

Free market failures:

-Generational debt.
A man who spends his life partying and drinking on a credit card, and when he dies sticks his kids with the bill.

The free market does not force anyone to take on an estate they do not wish to take on. If a person owes more than he has then the total assets of an estate are divided up amongst the creditors. If we didn't have the FED backing up the banks then most consumer debt would not be given out and it would likely be impossible for this man to drink and party himself into a debt he could not repay. Almost all of the credit would go towards productive businesses who the creditors feel could repay their loans with interest.

-Slavery.
If a person is an idiot and doesn't get insurance, and an unforeseen accident sends them into unpayable amounts of debt, the only solution is for them to work it off through bondage. Throughout history "debt slavery" of this sort has been the norm, not the exception. It is even described in the Bible.

I haven't really heard of too many "debt slavery" cases. You can't really sue someone for more than they have. You can garnish their wages and have them pay their debts through future earnings. The alternative to this is holding the public responsible for one mans actions which would be a lot worse in my opinion. How would you suggest we systematically pay for the cost of one mans unforeseen accident? In my opinion the free market is still the best way to handle this.

-Fraud.
How do consumers know which products are safe or healthy? Answer: rating agencies would put a special sticker or stamp on the products they approve of. But what if competing companies put that same sticker on their products without the rating agencies permission? How would consumers know who to trust? An entire free market industry of fraud would develop with all the efficiency and profitability of any capitalist enterprise.

Again your confusing free market capitalism with an anarchic economy. Anybody who commits fraud is held liable in court. When people claim they want small government, this is part of the small government that they want. It is necessary for an economy to prosper.
You are also insinuating that a government would commit less fraud if it were the producers of goods. In a free market if something is claimed to meet certain standards and it doesn't then you not only can sue to get your money back, but also have different options to choose from (assuming there isn't a monopoly). If a government claims something it produces meets certain standards and it doesn't then your SOL.

-Short term gain vs long term pain.
Most people tend to act rationally, in the short term. But when something is in their long term best interest, they tend to shrug it off. Examples: drugs, ponzie schemes, unprotected sex, not voting for Ron Paul, etc...

There are trade offs between long term gain and short term gain that need to be left up to the individual. Part of life is balancing these two. I could spend more money today on something like an expensive TV and sacrifice money that could have been put into savings for my future benefit, but maybe the short term gain outweighed the loss of future savings. If I make the choice to sacrifice my future well being by doing drugs or having unprotected sex then the person responsible for the costs of these actions is me.
A person is much more likely to refrain from these things if the full cost of doing them are their responsibility. All of the things you mentioned exist to a far greater degree when the government is more involved in peoples lives instead of when people are more free.

The free market assumes that everybody lives forever, is perfectly rational, has perfect knowledge, and foresight. If any of these conditions are violated the free market fails.

The free market assumes none of what you just stated here. Almost every system besides free market capitalism assumes that we can have a centralized group of people to be perfectly rational, have perfect knowledge and foresight. Your implying that the only way a free market system will be successful is if all members in that society have this knowledge which couldn't be more false. It assumes no concentrated authority could have this knowledge whether they be elected or just assume power. It lets the people run the means of production, and if a business can efficiently produce goods or services then it is rewarded. If a business cannot efficiently produce then it will fail and have its capital purchased by those who feel they can efficiently use it.
However when a government inefficiently uses capital, other efficient production is sacrificed in order to keep it going. Instead of having a system that weeds out inefficient and poor use of capital, efficient and successful use of capital is sacrificed to subsidize the inefficiency. Every condition for success that you applied to free market capitalism applies to every system of economics besides free market capitalism.

 

[TheHumblePhysicist]

You just described government intervention in the free market perfectly.

Thank you.

Well first of all, the government is not a monopoly. There are many of them around the world, and as long as there is freedom of travel, there shouldn't be a problem. Second of all, a just government does not "enforce itself", but is enforced with the consent of the governed.

"And when any government becomes destructive of these ends, it is the right of the people to alter or abolish it."

Kind of ruins your whole "government is a tyrannical monopoly" thesis doesn't it?

 

[Seraphim]

Well first of all, the government is not a monopoly. There are many of them around the world, and as long as there is freedom of travel, there shouldn't be a problem. Second of all, a just government does not "enforce itself", but is enforced with the consent of the governed.

"And when any government becomes destructive of these ends, it is the right of the people to alter or abolish it."

Kind of ruins your whole "government is a tyrannical monopoly" thesis doesn't it?

He was making reference to SERVICES and companies provided by monopolies (which are GOVT granted, not market granted...at least so far in history).

The free market cannot fail. PEOPLE can fail. Which is good. Without failure there is no success.

 

[aravoth]

Well first of all, the government is not a monopoly. There are many of them around the world, and as long as there is freedom of travel, there shouldn't be a problem. Second of all, a just government does not "enforce itself", but is enforced with the consent of the governed.

"And when any government becomes destructive of these ends, it is the right of the people to alter or abolish it."

Kind of ruins your whole "government is a tyrannical monopoly" thesis doesn't it?

No, because I don't consent to having my paycheck robbed by them, but they do it anyway. Why? Because they have a monopoly over the use of force in this region of the world. They also enforce private monopolies in various areas of the country. Mass transit is a good example. Some are out right government ran without any competition by law, and some are private corporations, granted a competition free area of operation, IE a monopoly.

Quoting the declaration doesn't change anything.

The Government is a monopoly, and it does enforce itself. Whatever you think it should or should not do in theory is irrelevant. Reality is contrary to your pipe dream.

 

[TheHumblePhysicist]

The free market does not force anyone to take on an estate they do not wish to take on. If a person owes more than he has then the total assets of an estate are divided up amongst the creditors. If we didn't have the FED backing up the banks then most consumer debt would not be given out and it would likely be impossible for this man to drink and party himself into a debt he could not repay. Almost all of the credit would go towards productive businesses who the creditors feel could repay their loans with interest.


I haven't really heard of too many "debt slavery" cases. You can't really sue someone for more than they have. You can garnish their wages and have them pay their debts through future earnings. The alternative to this is holding the public responsible for one mans actions which would be a lot worse in my opinion. How would you suggest we systematically pay for the cost of one mans unforeseen accident? In my opinion the free market is still the best way to handle this.

Again your confusing free market capitalism with an anarchic economy. Anybody who commits fraud is held liable in court. When people claim they want small government, this is part of the small government that they want. It is necessary for an economy to prosper.
You are also insinuating that a government would commit less fraud if it were the producers of goods. In a free market if something is claimed to meet certain standards and it doesn't then you not only can sue to get your money back, but also have different options to choose from (assuming there isn't a monopoly). If a government claims something it produces meets certain standards and it doesn't then your SOL.

There are trade offs between long term gain and short term gain that need to be left up to the individual. Part of life is balancing these two. I could spend more money today on something like an expensive TV and sacrifice money that could have been put into savings for my future benefit, but maybe the short term gain outweighed the loss of future savings. If I make the choice to sacrifice my future well being by doing drugs or having unprotected sex then the person responsible for the costs of these actions is me.
A person is much more likely to refrain from these things if the full cost of doing them are their responsibility. All of the things you mentioned exist to a far greater degree when the government is more involved in peoples lives instead of when people are more free.



The free market assumes none of what you just stated here. Almost every system besides free market capitalism assumes that we can have a centralized group of people to be perfectly rational, have perfect knowledge and foresight. Your implying that the only way a free market system will be successful is if all members in that society have this knowledge which couldn't be more false. It assumes no concentrated authority could have this knowledge whether they be elected or just assume power. It lets the people run the means of production, and if a business can efficiently produce goods or services then it is rewarded. If a business cannot efficiently produce then it will fail and have its capital purchased by those who feel they can efficiently use it.
However when a government inefficiently uses capital, other efficient production is sacrificed in order to keep it going. Instead of having a system that weeds out inefficient and poor use of capital, efficient and successful use of capital is sacrificed to subsidize the inefficiency. Every condition for success that you applied to free market capitalism applies to every system of economics besides free market capitalism.

You are a minarchist and I respect you. I will admit, this post was mostly targeted at the anarchists which infest this forum.