Question about the free market

[Lucid American]

I have grown to appreciate the concept of a true free market, but this morning I got to thinking . . .

OK, so if Paul were able to liberate the market and minimize the government, freeing up all these dollars that have been snagged by the government, both in individual and corporate taxes, is it possible that the market would adjust prices to where there might not be much of a difference from how we are today?

In other words, would prices increase on items to account for more people having more money, in essence still leaving the poor proportionally poor? An example is the raising of minimum wage -- it helps for, what, a day or a week? What would prevent the free market from adjusting similarly?

 

[Ilhaguru]

Keep in mind that even today it is a very small percentage of people who actually earn minimum wage. . . IIRC, I could be wrong, it's in the low single digits. So getting rid of the minimum wage will probably not have much of an effect at all, at least no a visible one.

As for the rest, I don't think so. Less regulation and less taxes will have a very positive impact on purchasing power.

 

[Goldwater Conservative]

Don't forget that part of the problem of government spending our money instead of us is malinvestment. Prices might be artificially deflated in some industries and artificially inflated in others.

Also, government is unaccountable, unlike consumers and producers in the private sector. Then there are efficiency savings (why send a dollar to Washington so it can give you 75 cents and tell you to spend it on health care?).

 

[jpa]

some markets without fierce competition can inflate to meet what the market can bare ('what can the buyer afford to pay') ... These markets are usually luxury and niche products.

most consumer goods are not priced this way, they are priced in a 'cost plus' model. (price = cost + target margin %). If anything, the prices will go down when you remove the corp tax (thats why some people call corp tax the hidden consumer tax). Its very hard to raise prices in a market when your competition can just do nothing, keep their current profits and increase their market share.

 

[therealjjj77]

I have grown to appreciate the concept of a true free market, but this morning I got to thinking . . .

OK, so if Paul were able to liberate the market and minimize the government, freeing up all these dollars that have been snagged by the government, both in individual and corporate taxes, is it possible that the market would adjust prices to where there might not be much of a difference from how we are today?

In other words, would prices increase on items to account for more people having more money, in essence still leaving the poor proportionally poor? An example is the raising of minimum wage -- it helps for, what, a day or a week? What would prevent the free market from adjusting similarly?

That's a very good question you bring up!

First, by eliminating these taxes and regulations on sectors in the free market, spending would increase dramatically. This would in turn cause businesses to start making a profit once again. This would cause other people to see the room for profit and no red tape in the way, plus since they are keeping all the fruits of their labor, they would have extra capital which would cause a lot of competition to rise up. This would then create a higher demand for laborers. This higher demand for laborers would then increase the pay that people earn for their labor. And since they are keeping all the fruits of their labor, they have more then enough to get by and work less hours.

And so what you end up with is the majority of people being fairly wealthy without working very many hours. And if someone wants to obtain more wealth, they just work more hours. But the opportunity is there and present as you now have a society working relatively efficiently. You don't have trillions of dollars being wasted and spent irresponsibly by the government.

So the net result is the average person gets the car(s), a large savings, a house, vacation, and only work 4-6 hours a day.

The only people who won't be wealthy are those who choose not to work a little over time(maybe 8 hours a day =P).

Does that make sense?

 

[therealjjj77]

It's important to first ask yourself:

Who invented these things? And who produces these things? The private sector(free market) or the public sector(government)?

-electricity
-TV
-microwaves
-refrigerators
-automobiles
-airplanes
-computers
-assembly line(economic efficiency)...

and the list goes on and on.

Just what DOES the government produce? Look around you and see if you're getting your money's worth from the government. Let's see,

-roads(and they're shoddy and in awful condition even with all them money they charge on gas taxes)
-education(the quality is declining every day and the costs are ballooning)
-welfare(no accountability produces people dependent on welfare while the costs continue to rise at alarming rates)

Let's talk about welfare for a little bit. This used to be the order of who is responsible for a person in need:
1st Family
2nd Organizations(churches, elk lodges, etc.)
3rd Communities

The advantage to this system is that the person is very unlikely to take advantage of people they know and since the people contributing know the person, they will hold that person accountable and can better determine that the person is truly in need. The administration costs are low if any. Everyone knows and can monitor where the resources are being used. And, one of the most important things, people can take their money elsewhere if they feel there is corruption and abuse. Also, this helps build relationships in communities. You get to know your neighbors better and this causes people to live and act more morally(people aren't looking to take advantage of society but are looking at how they can contribute instead). Socialism ONLY works on a local level when you know everyone involved. And that is where charity should stay.

Compare that with our current system and see which you prefer.

 

[internetsurfer]

Corporate Accountability?

Don't forget that part of the problem of government spending our money instead of us is malinvestment. Prices might be artificially deflated in some industries and artificially inflated in others.

Also, government is unaccountable, unlike consumers and producers in the private sector. Then there are efficiency savings (why send a dollar to Washington so it can give you 75 cents and tell you to spend it on health care?).

I have a concern about corporate executives making 500 times the average employee in the same company, with giant money balloons when they have to jump ship. If they are accountable to something (stockholders?) why would they command such an extremely high salary.

 

[Goldwater Conservative]

I have a concern about corporate executives making 500 times the average employee in the same company, with giant money balloons when they have to jump ship. If they are accountable to something (stockholders?) why would they command such an extremely high salary.

I don't know the ins and outs well enough, but if the shareholders don't complain then that's that. I'm not concerned about people making too MUCH money in this country, since we're a (supposedly) free society. What the little guy is making in REAL terms is more important, which is where monetary policy comes in. I can at least understand the bleeding hearts who want the government to provide certain standards of living, but the populists/communists who want to limit what people can achieve or acquire scare the living daylights out of me.

And why is it that the disparity between rich and poor has gotten worse since the Great Society welfare state was put in place...

 

[therealjjj77]

I have a concern about corporate executives making 500 times the average employee in the same company, with giant money balloons when they have to jump ship. If they are accountable to something (stockholders?) why would they command such an extremely high salary.

As a business owner myself, what would happen if you completely deregulated a sector in the economy you would create a large amount of competition which would require that a large corporation run efficiently or it would be taking losses to competition and losing market shares to individually owned businesses.

Paying too much to a CEO would be running inefficiently. So the free market would determine what is too much pay and what is too little. The same goes for the employees. There are some sectors that the employees get paid way too much compared to the amount they contribute to their fellow citizens. The free market pushes for everyone to be paid based upon their real worth. This then motivates people to increase their real worth by becoming more efficient.

 

[SuMuKong]

I have a concern about corporate executives making 500 times the average employee in the same company, with giant money balloons when they have to jump ship. If they are accountable to something (stockholders?) why would they command such an extremely high salary.

Consider what would happen if the shareholders did not give CEOs high salaries. Suppose that I am the CEO at K-Mart: I've done a great job, I have strong support within the company, and I'm making 50+ million per year. Why might I earn so much money? Well, 50 million may actually be much smaller relative to the amount of money I generate for the company. By turning around K-Mart from insolvency, for example, I've generated billions of dollars for the shareholders. Thus, it would be economically rational for the shareholders to pay me a lot of money to stay where I am.

Now suppose that another company with problems -- General Motors -- comes along and wants to poach me from K-Mart. First, they're going to have to pay me more than 50 million dollars, because otherwise I would just stay at K-Mart. But there's another problem: K-Mart's doing well, and General Motors is not. If I jump from K-Mart to General Motors, I'm taking a huge risk. What if I get fired next year? I'll lose out on receiving nearly 50+ million every year. Thus, it may be in the General Motor's shareholders' interests to give me a golden parachute: i.e. an insurance policy to persuade me to go work for their company.

The free-market sometimes leads us to strange conclusions, but we have to remember that successful CEOs are very rare commodities and generate far more wealth than we pay them in salary.

 

[KevinDW78]

Lucid American, if you want the best lesson in Collectivist (Altruistic) economics vs. Individualistic economics, go pick up a copy of "Atlas Shrugged" - It's the best book you'll ever read.

 

[Knightskye]

Keep in mind that even today it is a very small percentage of people who actually earn minimum wage. . . IIRC, I could be wrong, it's in the low single digits. So getting rid of the minimum wage will probably not have much of an effect at all, at least no a visible one.

I want proof.

 

[Lucid American]

First, by eliminating these taxes and regulations on sectors in the free market, spending would increase dramatically. This would in turn cause businesses to start making a profit once again. This would cause other people to see the room for profit and no red tape in the way, plus since they are keeping all the fruits of their labor, they would have extra capital which would cause a lot of competition to rise up. This would then create a higher demand for laborers. This higher demand for laborers would then increase the pay that people earn for their labor. And since they are keeping all the fruits of their labor, they have more then enough to get by and work less hours.

And so what you end up with is the majority of people being fairly wealthy without working very many hours. And if someone wants to obtain more wealth, they just work more hours. But the opportunity is there and present as you now have a society working relatively efficiently. You don't have trillions of dollars being wasted and spent irresponsibly by the government.

So the net result is the average person gets the car(s), a large savings, a house, vacation, and only work 4-6 hours a day.

The only people who won't be wealthy are those who choose not to work a little over time(maybe 8 hours a day =P).

Does that make sense?

Yes, very much -- although I have my doubts about working fewer hours! After all, you'll still have competition in the workplace.

Thanks for the concise summary.

Keep in mind that even today it is a very small percentage of people who actually earn minimum wage. . . IIRC, I could be wrong, it's in the low single digits. So getting rid of the minimum wage will probably not have much of an effect at all, at least no a visible one.

The minimum wage example wasn't tied to my concern about the free market -- it was just an example of how it increases, and prices increase correspondingly.

It is important to note that minimum wage should be for people just getting into the workplace -- i.e. kids flipping burgers after school. Anyone else not satisfied with minimum wage should strive for better.

 

[jm1776]

Minimum wage laws have destroyed the single most viable and centuries old means of learning a trade. Apprenticeship.

Let's say a young person graduates high school, still living at home, loves cars and wants to be an auto mechanic. The owner of the local garage would love to teach our aspiring mechanic but can not afford to pay him to teach him. But would welcome the help around the shop in exchange for teaching him the trade.

But no! The only way our hapless youth can learn to be an auto mechanic is by spending thousands of dollars attending the local trade school! So he is stuck flipping burgers in a futile attempt to save enough to attend trade school at night while flipping burgers during the day....

What a horrible waste and it repeats millions of times over all around the country.

 

[therealjjj77]

Minimum wage laws are destructive to young blacks trying to get greatly needed training to get into the work force. That's who it affects the most.

However, keep in mind that when the labor laws were not in place, the lowest wage a person earned was higher in relation to gold then it is today. These are just symptoms of a lot of different problems.

Let me say, though, that I believe in a minimum wage. A minimum wage set and enforced by the free market. The free market can better determine at what wage a person is worth.

The reason why they pass this kind of legislation, to take over this responsibility that the free market has, is because they are inflating the currency and using your buying power in ways you don't want it to be used. This effort simply pushes more of the population toward the poverty line. It puts the burden of the government entirely on the middle class punishing them for their skills and labor. It is not raising the minimum wage but is in essence reducing everyone's buying power through inflation/printing and then pulling up the bottom to condense the poverty class further.

 

[Mises]

Minimum wage laws are destructive to young blacks trying to get greatly needed training to get into the work force. That's who it affects the most.

However, keep in mind that when the labor laws were not in place, the lowest wage a person earned was higher in relation to gold then it is today. These are just symptoms of a lot of different problems.

Let me say, though, that I believe in a minimum wage. A minimum wage set and enforced by the free market. The free market can better determine at what wage a person is worth.

The reason why they pass this kind of legislation, to take over this responsibility that the free market has, is because they are inflating the currency and using your buying power in ways you don't want it to be used. This effort simply pushes more of the population toward the poverty line. It puts the burden of the government entirely on the middle class punishing them for their skills and labor. It is not raising the minimum wage but is in essence reducing everyone's buying power through inflation/printing and then pulling up the bottom to condense the poverty class further.

Good points, and it is important to note that minimum wage laws arose in northern states after blacks began migrating there. They were unskilled and willing to work for lower wages than whites. Passing minimum wage laws was a way to shut them out of the labor market, essentially by making it illegal for an employer to cut costs and hire them. The purpose of these laws was to prevent blacks from getting jobs.

Without being able to get a foot in the door, black workers struggled to move up the socio-economic ladder.

 

[Kade]

I want proof.

http://www.bls.gov/cps/minwage2002.htm

 

[RonPaulalways]

I have grown to appreciate the concept of a true free market, but this morning I got to thinking . . .

OK, so if Paul were able to liberate the market and minimize the government, freeing up all these dollars that have been snagged by the government, both in individual and corporate taxes, is it possible that the market would adjust prices to where there might not be much of a difference from how we are today?

In other words, would prices increase on items to account for more people having more money, in essence still leaving the poor proportionally poor? An example is the raising of minimum wage -- it helps for, what, a day or a week? What would prevent the free market from adjusting similarly?

No prices would not increase. Prices would decrease because more products would be produced (higher GDP-money ratio = lower prices).

As far as there "being more money" if the government stops taxing, that's not true, there would be the same amount of money. Right now, when the government taxes people, that money is given to government bureaucracies which spend it inefficiently, that money doesn't simply dissapear from the economy. How much money there is in the economy is the same whether it's individuals who are using it or government bureaucrats. The only difference is that when individuals use the money, things happen more efficiently, and more products/services are produced.

Here is a little write-up I made about inflation and the causes of it:

http://kineticreaction.blogspot.com/2008/01/causes-of-inflation.html

 

[forsmant]

No prices would not increase. Prices would decrease because more products would be produced (higher GDP-money ratio = lower prices).

As far as there "being more money" if the government stops taxing, that's not true, there would be the same amount of money. Right now, when the government taxes people, that money is given to government bureaucracies which spend it inefficiently, that money doesn't simply dissapear from the economy. How much money there is in the economy is the same whether it's individuals who are using it or government bureaucrats. The only difference is that when individuals use the money, things happen more efficiently, and more products/services are produced.

Here is a little write-up I made about inflation and the causes of it:

http://kineticreaction.blogspot.com/2008/01/causes-of-inflation.html

Lockheed Martin might go bankrupt if we ended the income tax. Then we would have to rely on are current air force to dominate the world. Oh, wait, it does.

 

[billyjoeallen]

free markets and free trade

I have grown to appreciate the concept of a true free market, but this morning I got to thinking . . .

OK, so if Paul were able to liberate the market and minimize the government, freeing up all these dollars that have been snagged by the government, both in individual and corporate taxes, is it possible that the market would adjust prices to where there might not be much of a difference from how we are today?

In other words, would prices increase on items to account for more people having more money, in essence still leaving the poor proportionally poor? An example is the raising of minimum wage -- it helps for, what, a day or a week? What would prevent the free market from adjusting similarly?

First, a direct aswer to your direct question:

If both the rich and poor doubled their wages and wealth, the poor would still be relatively just as poor, but they would in an important way be twice as well off and in no way worse off.

Second, an answer to your implied question:

By reducing transaction costs and removing barriers to market entry and trade, the economy would be more efficient, so more wealth would be produced. As we say in economics "a rising tide floats all boats." But also the small boats get an extra advantange. The extra wealth that would be created would largely be allowed to remain in the hands of those that produced it instead of being atificailly transferred to the politically powerful as in our current system.

Monetary inflation benfits debtors at the expense of savers. It is effectivey a regressive tax (one that the poor pay a far larger share of than the rich). One example is the recent drop in interest rates by the Federal Reserve which successfully propped up the stock market while simultaneously causing the calue of the U.S. dollar to plummet against foreign currencies. Dr. Paul's anti-inflationary policies would reverse or at the minimum reduce this econmic damage.

http://www.youtube.com/watch?v=xRJZWfqWcs0