Free markets and government intervention
I am a fierce proponent of free markets. Therefore I am a fierce proponent of government intervention in the market.
Or, to put things less inflamatorily, one thing that often bothers me about US defenders of free markets is how easily they (and we) forget that free markets are created, maintained and curated by, well, the government. Free market conservatives often behave as if free markets are like a state of nature in which ham-fisted government arrives after the fact and wrecks everything when, in fact, it is the opposite. In a state of nature, you have permanent war. Traders and entrepreneurs can only exist once you have a Leviathan to enforce things like private property, money and contracts — all things created and maintained by the State. The rules of the market are set by the State. And if the State doesn’t intervene — justly — in the markets, you cannot have a free market.
To use a more down-to-Earth example, in France retail prices are on average 20% higher than in Germany (and this even though Germany has a higher VAT). Why? Because retail in France is a cartel. France’s big retailers hold local monopolies that they do not contest from each other. Government regulations also play a role — zoning laws prevent the opening of “big box” suburban stores to protect central “mom and pop” stores and other laws make it hard to “squeeze” suppliers. But the big companies have created a comfortable cartel. To create a free market there would require government intervention. Negative intervention, to be sure — scrapping wrongheaded regulations —, but also positive intervention, i.e. good ol’ trust-busting. It is the government’s refusal to step in which is stifling free markets, not the other way around.
The limited liability corporation, the contract-as-legal-document, all of these things are government inventions, and government institutions.
You see this in countless examples.
For example, many on the left point to the ballooning CDS market as one of the causes of the financial crisis (not without merit). The whole market was deregulated! And then the shit hit the fan! Ergo deregulation is bad, and regulation is good! In response, many free market conservatives point out that the success of the CDS market was a form of regulatory arbitrage, a way for banks and other institutions to meet their capital ratio requirements under the Basel rules. Free marketers use this as a Gotcha — see! It was all the government’s fault after all! — but in doing so miss a much more important insight: that all markets are dependent on how they are structured, and they are structured first and foremost by the government. There is no free market in finance, there never was, and there never will be, at least in the sense that these people think. Banks were insured by the government before the crisis. Ten years ago, if you asked anyone if, supposing some catastrophe, the government would let the biggest banks in the US fail, the (honest) response would have been: “Of course not.” (The actual response would’ve been: “It’ll never happen.”)
Free markets require a strong and active government. The US is a “more free market” place than “Europe” (insofar as these broad strokes mean anything), in part because it has a government that is less high about maintaining a free market. There was never any trust busting in France. Among my friends who work in finance in Paris and New York, they scared of the SEC; meanwhile its equivalent the AMF is the butt of jokes.
The reason I write this now is because, as much as I’ve enjoyed Megan’s spirited defense of pharmaceutical and medical innovation — and as much as I agree with her on the merits —, at times she does sound too much as if the pharmaceutical industry as it exists today is an unadulterated free market. In her Bloggingheads with Mark Schmitt, even though I was hootin’ and hollerin’ when she excoriated Schmitt’s attacks on Big Pharma as crypto-socialist, I couldn’t help but take Schmitt’s point that Big Pharma as it currently exists was created and is made possible by the government. Leave alone the FDA approval process — the pharma business is based on patents and copyright, which are government created and enforced institutions if there ever were. When pharma companies pay off generics companies not to bring generics to the market, that is a voluntary transaction between private entities, and yet it is the opposite of a free market. It is, in fact, cartel formation. And it begs for big bad government to come in, perhaps with black helicopters, take people to court and slap big fines.
The question of health care reform vis à vis the healthcare and pharma markets is not whether to leave the market intact or not. It’s how do we structure a market so that the incentives are aligned in a way that serves consumers best.
Just a thought.
I’m not going to watch BloggingHeads today, so I can’t vet what Megan said, but this seems a straw man. There are very few anarcho-libertarians out there. Virtually every libertarian will go through the litany of the properly limited roles of government in the marketplace, including enforcing contracts, patents and copyrights; and regulating currency. They may disagree with you as to whether trust-busting is too much government, but in principle you are in agreement with most free-marketers that free-markets require government in order to be stable.
When you write
and
I am left wondering what defense you would allow the free market against its detractors. Both these cases, it seems clear to me, result not from wild-west unregulated chaos, but from governments that couldn’t leave well enough alone. But by your formulation, those burdensome regulations are the free market, since the free market could not exist without regulation of some kind, while the removal of those regulations (and cleaning up the mess they caused) is simply “government intervention,” as though specific government intervention weren’t the source of the problem in the first place.
In the cases you cite, the free-market criticism in saying “It was all the government’s fault after all!” is not to say that all government regulation is bad, but that specific regulations are bad when they create distortions that lead to an unfree market. To conflate good and bad regulation, and to draw equivalence between bad regulation with its abolition, is incredibly backwards.
— Blar · Aug 21, 05:13 PM · #
Well said. I wish more conservatives were making this kind of argument.
— Chris · Aug 21, 05:14 PM · #
Congratulations on coming over to the liberal position on free markets.
I don’t understand this. Everybody I’ve talked to and read who has any knowledge of biochemistry, or the biochemical industry, or any aspect of “big pharma” has concluded that Megan’s position is completely without merit; that medical and pharmacological innovation are essentially the sole province of the American government, largely through the NIH and the public university research apparatus.
Big Pharma isn’t in the business of innovation; the amount they spend on basic research is minuscule. Almost non-existent. Big Pharma is in the business of mining the results of public basic research for monetizable biologically active chemicals, and then making TV commercials for them. The day-to-day doings of Big Pharma is far more Mad Men than mad science.
Medical innovation in the US is largely the province of the public, not the private sector. It basically always has been. Megan McArdle is ideologically presupposed to believe this to be impossible, however, and thus she can’t possibly countenance that it is true. But then that’s just the kind of circular reasoning she’s known for.
— Chet · Aug 21, 05:18 PM · #
I believe much of the problem with the “financial crisis” involving CDS’s and mortgage-backed securities was due to the government being too involved—in this sense: the government, in effect, told the big financial institutions they would back them by buying the debt. There was too little risk for the big banks. I don’t see any other reason for them to act so stupidly.
— jd · Aug 21, 05:40 PM · #
“I am a fierce proponent of free markets.” No, you are not. You may be a proponent of markets, but a free market is a more specific thing. I will grant you naming the defense of property rights an “intervention”, but this is a nonstandard use of the idea of intervention.
There are many vigorous defenses of freer markets than what you appear to recommend. You portray the more libertarian position as a consequence of not having considered the points you raise, but it seems to me that the failure to examine points goes in the opposite direction.
— Constant · Aug 21, 06:10 PM · #
Although I am NOT an anarcho-capitalist, the free market is NOT a creation of government, and in fact is its antithesis.
1. “The rules of government are set by the State.” Do you honestly believe that without courts, people wouldn’t voluntarily trade or provide goods and services? Of course not- a spontaneous order would form. These so-called primitive societies might not create our modern, fancy words for these things, like “limited liability corporation, the contract-as-legal document,” etc., but the private property rights and sanctity of contract would nevertheless exist. The author also ignores private arbitration as a cost-effective alternative to litigation.
2. His argument about “positive” government intervention in the case of French retailing is completely wrongheaded. As the author clearly ADMITS, it is French government regulations that prevent big box stores from opening up, hence government regulation led to the cartel formation. So how in the hell can he say that “government’s refusal to step in is stifling free markets?” I just don’t understand this logic.
3. Then, with regard to the financial crisis, he says “the whole market was deregulated! And then shit hit the fan!” Okay, so just ignore the Community Reinvestment Act, Fannie Mae and Freddie Mac, cheap credit supplied by the Fed that created the housing boom, and so on. Wow, the author really played right into the liberal playbook on this one. And then, when he tries to say that the government would NOT let the biggest banks fail, he’s only proving the point of moral hazard, which was established within the finance community 10 years ago when the feds intervened in the collapse of Long Term Capital Management.
4. How are pharma companies paying off generic companies are violation of free market principles? Voluntary transactions are THE ESSENCE of the free market. Even the simplest knowledge of economics will tell you that cartels are inherently unstable and subject to collapse- even OPEC loses its pricing power from time to time due to member states reneging on their production quotas. Furthermore, you simply can’t buy a marketplace; that would be like saying Bill Gates could buy all the pairs of pants in the world; it would never happen, because then people would keep making more and more pants for him to buy, and it would be never-ending. If big, evil pharma was paying to prevent competition, wouldn’t that imply that more and more companies threaten to start selling generics unless Pfizer and the like bribed them to shut down. That strategy would be inherently self-defeating.
5. There is no need for government to “structure a market” or “align the incentives.” Look at the least regulated markets, like software and computers; these industries have fast turnover, high levels of innovation, and excellent response to the desires of consumers. No state intervention was necessary. All of this tinkering by the heavy hand of politicians and bureaucrats only opens up the door for special interests to place THEIR priorities ahead of that of the consumers and competitors.
I can’t help but think that this article was planted by the statists to undermine and confuse the opposition. Pay no heed to it.
— Vake · Aug 21, 06:18 PM · #
It’s funny, then, that they don’t.
— Chet · Aug 21, 06:33 PM · #
As PEG alludes, when you have a currency, there is no such thing as a free market. There can’t be.
— Freddie · Aug 21, 06:43 PM · #
You mean there is no such thing as a completely unregulated market. Anarchy != free market. Modern free markets require the issue of currency, enforcement of contracts, etc., but these necessities do not make markets less free, nor do they logically justify more intrusive regulations.
— Blar · Aug 21, 07:07 PM · #
I believe several of you are making similar arguments so I’m going to lump them together.
First of all — and I should have made this clearer — I am not so much arguing against specific policy positions as I am arguing against a kind of rhetoric.
The main point that I am trying to make is that a- all markets operate under parameters explicitly or implicitly set by the government and b- the question of how free a market is is not about whether the government intervenes but how it intervenes. Government intervention covers a lot more things than what we tend to refer to when speaking about “government intervention.”
The financial sector is often thought of as — so to speak — the “most” free market of free markets. And yet, as many on the right have pointed out, it is also one of the most heavily regulated sectors of the economy. There is no market out there which is not underpinned in one way or another by government regulations.
The world wide web is also a very free market-y place, but it wouldn’t exist without standards, such as the domain name system, which are set by public bodies. Or without software patents. Or without government regulations on how packets are transmitted on the network. Etc.
On to more specific points.
Blar:
Yes, except that no. In practice these things are impossible to do, because in practice the boundaries between what one considers “just” enforcing contracts and what someone else considers “just” enforcing contracts are very, very different. So you need a law, and therefore a politics and a (bigger) government to set what those boundaries are, and those boundaries evolve because of changes in technology and public sentiment. Welcome to the real world.
“Just leave us alone” is a fine idea, and even a fine principle. But as a matter of policy, it is insufficient. I wouldn’t go as far as to say that it’s wrong, but it is insufficient.
You might be right. I allow this defense to the free market: explaining why this instance of government intervention is bad. The defense I don’t like is: government intervention is bad because it is government intervention.
Chet:
I don’t know much about the pharma industry, but what you’re saying doesn’t convince me. It does not follow from the fact (?) that Big Pharma spends little on “basic research” that they do not innovate. In fact, it’s probably the opposite.
The Unix operating system was invented by professors at Stanford and Berkeley and MIT in the 1960s. Yet it did not become a user-friendly and widely used consumer product until Steve Jobs at NeXT and then Apple in the 1990s took those publicly available, publicly-funded bits and packaged them into Mac OS X. Is Apple not in the business of innovation?
Innovation, as commonly understood, and basic research are two different things. Innovation is all about taking good ideas and turning them into actual products that people will use. Basic research is to innovation what physics is to engineering. Marketing, in the sense of assessing market needs and how to respond to them, is very much a part of innovation. If you look at every innovative company out there in any sector, the odds that they did the “basic research” that goes into their products is quite low. It doesn’t mean they’re not innovative.
Again, I don’t know, maybe Big Pharma is a big scam. But your arguments are not leading me to that conclusion — in fact, they tilt me in the opposite direction.
Vake: For someone who claims not to be an anarcho-capitalist, you sure sound like one.
Please show me one historical example of what you describe occurring.
Replacing one set of regulations with another set of regulations is an intervention. Also, I admit that regulations are one part of the problem. The regulations were put in place to protect the pre-existing cartel.
Wow, Vake really overlooked that I was rephrasing the liberal argument, not subscribing to it on this one.
Actually, the simplest knowledge of economics will tell you that it’s more complicated than that.
It’s interesting to find out that no state intervention was necessary to build Univac, the first computer, or ARPANet, the precursor of the internet, both projects of that notorious free market competitor, the United States Department of Defense.
I can’t help but think this comment is a highly evolved form of satire. (If so, you have my congratulations.)
— PEG · Aug 21, 09:08 PM · #
What I’m telling you is that Big Pharma works like this: they troll the public research for promising chemicals that have already been identified as effective for some condition, then they do a study to see if one of two things is true:
1) There’s enough people with the condition to support a profit base, or
2) There’s not enough people for 1, but there’s enough people to support a government subsidy under Congress’s Orphan Drugs Act.
If either of those two things are true, then they figure out how to mass-produce the medication (which is just the same chemical engineering problem over and over again), start drumming up the massive marketing engine, start the FDA approval process, etc.
Is any of that innovation? Innovative in any way? Maybe a little, but it’s nowhere near as innovative as the basic research that identified the compound and its efficacy in the first place, and the vast, vast majority of that basic research is done in the public sector.
Absolutely they are, but the BSD kernel in Mac OS X isn’t what they’re known for innovating (since they didn’t); it’s the form-factor, industrial design, and software interface guidelines that they developed in-house, which have no analog in the world of public research.
But that’s a completely different field. Apple isn’t in the pharamceutical business. And no one would say that preserving Apple as a company was intrinsic to preserving computer innovation, or that government sponsorship of the “One Laptop Per Child” program (or, for that matter, government creation of the internet, which competed with Apple’s proprietary online service “eWorld”) was a threat to a future of faster and cheaper computers. Quite the opposite, in fact.
Turning chemicals into medicines, though, isn’t particularly innovative. When Big Pharma decides to mass-produce a certain chemical, that problem is just recursion to a problem they’ve already solved. (Ask a chemical engineer about this.) Really, the only thing they have to “innovate” is a new shape and color for the pill to register in the Physician’s Desk Reference.
I don’t know what to make of this; it isn’t even remotely close to a true statement. And to say that basic research isn’t innovation is absurd, especially in medicine; it’s Alexander Fleming we remember and credit with the innovation of antibiotics, not the guys who wrote the jingle or chose the pill color.
— Chet · Aug 21, 09:55 PM · #
“I don’t know much, but you’re probably wrong”? Wow, compelling riposte. I see now why you get along with Megan so well. She doesn’t feel the need to know whereof she speaks, either.
— Chet · Aug 21, 10:02 PM · #
The “free market” is an ideological weapon, not a substantive economic, political, or philosophical concept.
The term arises whenever the business community (insurance companies, pharma, etc.) and its allies decide that some form of government intervention threatens corporate profits/autonomy/power; the “free market” instantly disappears from discussion the moment that businesses (financial sector, auto industry) benefit from the proposed intervention (TARP, etc.), in favor of a rhetoric of shared community sacrifice, useful investment, the public good, creating/saving jobs, etc.
No one (apart from the occasional doctrinaire libertarian) who advocates for this mythical beast known as the “free market” can define it in a way that accords with their practices, even as a normative or asymptotic concept. This post leaves the content of the word “free” completely empty. I suppose it here means “markets operating without intervention, except for those interventions the author happens to like.” Right, that’s exactly the kind of “free” market I like, too: markets left alone except when I don’t like some aspect of how they operate. I sure do like that word “free,” though; makes me feel more American every time I say it.
— Lee · Aug 21, 11:29 PM · #
“Even the simplest knowledge of economics will tell you that cartels are inherently unstable and subject to collapse”
Not in France.
BTW, good post PEG. I think that if you take an historical perspective, it looks as though we are still trying to find the right balance between government involvement and laissez-faire.
Steve
— steve · Aug 21, 11:29 PM · #
Yes! Exactly.
It’s not Government vs the Free Market but Government AND the Free Market. Nice to hear from a “right” perspective.
Chet – I think PEG is right here, Pharma plays an “innovative” role in bringing good product to market. But this actually strengthens (what I assume) is your policy argument: in as much as Big Pharma provides little in the way of “basic research,” squeezing their profit margins will do little to deter the actual “basic research” innovation. All the incentives to market good products will remain.
— Wiley Quixote · Aug 22, 01:55 AM · #
This is an excellent post, thank you.
— Steve C · Aug 22, 04:11 AM · #
Megan’s series on obesity and this most recent once on healthcare are low points. They verge on becoming reasons to ignore her blog. I’m very surprised given her past thoughtful writing how shoddy, unsupported reasoning was put forward in such an aggressive and unapologetic manner. It amounted to a long libertarian tone poem and was (mistakenly) taken seriously only because of the merit and goodwill she’s built up.
I guess everyone has their “off” periods.
— Steve C · Aug 22, 04:21 AM · #
Well, I had the sense reading this post that it was mixing up separate concepts, so I took a look at the Wikipedia page on “free market,” and it seemed to justify my concern. To the extent that we can trust that source, a free market is definitionally one where the government doesn’t intervene apart from enforcement of contracts, so trust-busting and such will never make a market freer per se. The question is in what situations economic intervention by the government can make a market more competitive, and/or more directed towards desirable ends, even as it makes the market less free.
Also, the wiki page on “economic interventionism” makes what I think is a helpful distinction between that and “economic planning” — my impression is that Megan is willing enough to accept the necessity of the former and is reacting more to the latter.
— kenB · Aug 22, 04:46 AM · #
Chet:
It’s innovation in a dictionary sense, sure. What is referred to as “innovation” in the business world refers to a specific process which is narrower than innovation as “thinking of something new.”
And actually, I’m pretty sure it’s a true statement. Toyota did not do the basic research on lithium-ion batteries when it built the Prius. Dell and Apple doesn’t do basic research on anything, yet they constantly churn out newer and better computers. Intel does basic research, but not that much — about as much as Big Pharma. If you look at almost all innovative products, they took pre-existing ideas and/or basic research and combined them in a new way that made them more user-friendly and/or accessible to a mass audience, etc.
Also, if it’s so damn easy to make a drug from basic research, why aren’t all professors a the NIH and medical schools multimillionaires by now?
…
You said “A, therefore B.” I responded “You might be right that B, but it does not follow from A that B.”
Steve:
Exactly.
Steve C:
I’m sorry, but I have to disagree with you. I think Megan’s role in the healthcare debate is important and twofold: 1- clearing up misconceptions that many wonks/journalists/scientific experts/etc. have about how economics and business really works, and 2- making a principled argument against a government takeover of healthcare. I oppose a government takeover of healthcare but even if you don’t I think you’ll agree that an intelligent defense against it is a good thing to have in the debate, especially given how sand-poundingly dumb some “critics” are.
Her perspective on obesity, meanwhile, is wholly grounded in fact and reasonable. Which may not mean it’s right, btu she makes her points well and it’s certainly an interesting perspective. Whenever everyone left, right agrees so vehemently about something like they do on obesity, I want to hear someone make the strong argument against that, and Megan does that very well.
I don’t think she’s gone off the rails and I think she’s tremendous.
kenB:
Hang on for a second, I’ll make Wikipedia agree with me…
— PEG · Aug 22, 06:34 AM · #
Every now and then I find myself in a tiresome argument with someone who contends that nirvana would be achieved if only government would melt away. At one time I made the argument that you’ve made Pascal, now I simply say that if that is what they truly believe, then I know a country in which they can implement their vision. That usually prompts the question of where, to which I reply Somalia.
— jim · Aug 22, 01:42 PM · #
Has Karl Polanyi infiltrated The American Scene?
— Chris · Aug 22, 02:59 PM · #
jim: That’s where they point out that Somalia has the best internet penetration in Africa…
Chris: A tip of the hat to you, Sir! This post was indeed inspired by Polanyi.
— PEG · Aug 22, 03:14 PM · #
Oh, I see, you’re just playing word games. Then I call bullshit, frankly, and suggest that your argument and McArdle’s is nothing more than equivocation on the term “innovation”, and further I suggest that the kind of innovation you’re talking about has absolutely nothing to do, then, with the availability and development of new treatments and drugs, which was what you and McArdle wanted us to believe was imperiled by a small decrease in the profit margins of big pharaceutical companies.
Except that you “don’t know much about it.” Your words. So I’m not impressed by what you’re “pretty sure about”, and I’m not impressed, again, by your examples from other industries, because other industries simply don’t function anything at all like the pharmaceutical industry. Apple Computer doesn’t operate by trolling the National Institute of Gadgets for marketable new computer prototypes. Pfizer does.
They don’t have enough money, at the start, to mass-produce drugs. Setting up a nationwide-scale chemical production line takes multiple millions or billions of dollars. That’s before you even get to the ten years of human trials you need for FDA approval.
And they’re not in it for the money. Because if they were, they’d be terrible at it; 90% of basic biochemical and medical research leads to zero marketable medicines. That’s why Big Pharma doesn’t do the research; it’s not profitable. They make much more money by having the taxpayer pay for the basic innovation and then cherry-picking the results for the most marketable and profitable drugs.
Except that it does, by any reasonable English definition of the word “innovation.” Strip-mining a public research base for the most marketable successes produced by someone else and then cranking up the production line you already built isn’t innovative except, apparently, to libertarians. But it does prove that the advance of medicine would be completely safe from a move to public single-payer health care, contra Megan.
— Chet · Aug 22, 04:52 PM · #
“, and 2- making a principled argument against a government takeover of healthcare.”
It was by necessity principled because there was nothing beyond the rote application of vague/general principle in anything she said.
And who is proposing a government takeover (specifics please)? How do you make such a claim unironically in the face of the excellent post you have here on that very subject (govt laying down rules)? Wouldn’t you agree that if she is indeed making arguments against a “government takeover of healthcare” that that’s a strawman and therefore anything that follows is not a valuable contribution to the debate (?)
— Steve C · Aug 22, 06:12 PM · #
Would it be too much to ask either you or Megan to provide one? The argument that we can’t have government healthcare because we’ll lose Big Pharma’s oh-so-crucial “innovations” in marketing and pill-shape isn’t the “intelligent defense” you’re referring to, is it? It surely can’t be.
In fact after all this I’m not entirely sure what you mean when you refer to “innovation”, specifically to the pharmaceutical industry. When I ask you tell me something like “innovation like what Apple computer does”, but that doesn’t tell me anything about pharmaceuticals (and Big Pharma doesn’t innovate like Apple innovates, anyway.) Consider this a request for you to be much, much more specific about what innovation in medicine Big Pharma is solely and uniquely, irreplaceably, responsible for.
— Chet · Aug 22, 08:11 PM · #
I disagree: there is a substantial amount of innovation and creativity that goes into deciding on the brand name of a drug.
— mcdruid · Aug 23, 05:22 AM · #
Free markets require a strong and active government.
Not so sure about that, PEG. A free market is not necessarily a diverse market, or a responsive one.
In fact, I think you’re misusing the term ‘free’. A free market is a complex parallel system of trade that evolves non-teleologically, that is, a free market is an id market, in the same way that a jungle is an id ecosystem (zero meta.) A free market is the uninspired motion of homo economicus.
But as you say, we are wise to cultivate the chaos by tuning its parameters to affect its morphology (i.e., gene-doping the economy). An excellent example is the standard currency, which diminishes transactional noise enough to allow distributed knowledge to coalesce into a more robust, more communicable signal called price.
But still. By definition, a market tuned by mind is not a free market.
— Kristoffer V. Sargent · Aug 24, 04:52 PM · #
If you haven’t, you should watch Deadwood.
— Tony Comstock · Aug 24, 05:56 PM · #
Deadwood is fantastic, as is David Milch’s ‘formidable intuition’ of the superorganism. I actually spent a few months trying to map Deadwood’s evolution onto a mathematical space. Surprisingly, not as much of a waste of time as it sounds.
— Kristoffer V. Sargent · Aug 24, 10:33 PM · #
Before I die I hope to see a series that is a free, inventive, and artful with nudity and sex as Deadwood is with language and violence.
But the first thing I thought of when I read PEG’s post wasn’t Deadwood. It was Jared Diamond accounts of New Guinea, and what it’s like to live in a place where there is not a state monopoly on violence. There’s a certain sort of libertarian who likes to think he’s going to by the guy who is always first and hardest with the axe (or the pistol).
— Tony Comstock · Aug 25, 12:47 AM · #
There’s a certain sort of libertarian who likes to think he’s going to be the guy who is always first and hardest with the axe (or the pistol).
In Deadwood, Milch hints at a core strategy if one finds himself in a state of nature: covalence, a course-of-dealing mutualism underwritten by constancy and self-control.
— Kristoffer V. Sargent · Aug 25, 04:45 PM · #
Subscribers to this magazine!
— Chet · Aug 25, 04:45 PM · #
PEG, I hadn’t seen your post. I think one example of your point that free markets need government is the current French project to create a carbon market. It won’t create itself, so several people from the State are brainstorming about what this market should look like. Even if their conceptions might be wrong (and I think they will), at least it’s a base on which the market can be built.
As for innovation, Megan gave the example of a pharma company that finds a way for a patient to take his drug only once a day, instead of every couple of hours. I agree with her in naming this “innovation”.
Besides, VAT has recently risen to 19% in Germany — slightly lower than 19,6% in France.
— Marie-Laure · Aug 26, 08:43 AM · #
Chet:
<i>Big Pharma isn’t in the business of innovation; the amount they spend on basic research is minuscule. Almost non-existent. Big Pharma is in the business of mining the results of public basic research for monetizable biologically active chemicals, and then making TV commercials for them.</i>
The validity of this claim is entirely a function of the fact that you’re defining “innovation” as stuff that the government does and pharamceutical companies don’t. The following facts are not, to the best of my knowledge, in dispute:
1. The research done or funded by the government does not generally produce anything of immediate practical use to consumers. A journal article can’t cure anything.
2. Taking the products of basic research and turning them into a product consumers can actually use is both difficult and expensive.
3. The bulk of this work is currently done by pharmaceutical companies.
To quibble over whether this should be called “innovation” is beside the point. It’s useful work that needs to be done. If the government makes it harder for pharamceutical companies to profit from it (and remember that there were just a few years ago serious proposals to do just that by either allowing reimportation from Canada or by allowing Medicare to “negotiate” prices), we’ll get less of it. Maybe you think that that’s a reasonable trade-off, but if so you should come out and say it instead of pretending that we can get a free lunch by forcing down the prices of pharmaceuticals.
— Brandon Berg · Aug 26, 09:21 AM · #
Great post as usual. It brings out a new perspective and challenges the common wisdom in how we name the political and economic concepts we debate over and over again.
Speaking of common wisdom, I will speak to all the free market fundamentalists (also referred to as anarcho-capitalists) above doubting PEG’s genuine attempt to poke holes in flawed reasoning: think hard and along about the consequences of full market deregulation taken to the extremes you believe you want/need. Arguing for deregulation altogether is very slippery slope that is ideological but not practical.
Everything in this world is transactional in one way or another. Another way to say that everything has economic implications by nature. People marry each other (a very personal life event) but you can also view it as a transaction of sorts since event the most sincere love stories have economic impacts when they end in marriage (sharing of expenses, real estate transactions, fiscal implications, etc.) People have kids, and again, there is an economic impact and government regulation. People’s religious beliefs, love for arts, interests in sport, death, etc. all have the same transactional aspects among other dimensions. An endless list of life events which you can’t just fit into a nice neat box away from the impersonal dryness of economics.
Am I saying that economics is meant to be governed by an emotional rationale like brotherly love? Certainly not, some could argue that this what communism attempted and we all know how flawed and impractical pure communism was. What I am saying though, is that everything in human life is, among other aspects, economical in nature. Economics is therefore just a name for an area of social interactions which has to do with transactions but has implications for other dimensions of these interactions.
Just as much as we all want an unruly violent drunk reined in by the police at a sports game, we probably also want unruly bankers, pharma execs, tax payers, and other economic actors reined in by a cop too. That’s very simple. Very basic. We can argue over the amount of regulation. But arguing over regulation altogether makes no sense unless you are a full blown anarchist and want the end of statehood altogether. An event that would probably also bring the end of nation states. Think about it.
Now for those who still believe that absolutely free markets is the only way to go, I propose two questions to which I would love an answer.
If you think that government is not needed at all, why don’t you just seriously consider leaving this country for Somalia or Nagorno-Karabakh which are not recognized as actual states and where I am sure you can do as you please with little government oversight? If you find them too violent for your taste, good luck finding another place with no government regulation over economics as much or less crime than the US. This is genuine question. Seriously.
If the question above is not suitable to you, would you say that you just don’t care and that your urge for less regulation stems from self-interest. You “want to pay less taxes and feel free to operate in the economy as you please” maybe. If that the case, do you think that this qualifies as an ideology, or a mere political and economic point of view? Probably not I would say. Economics and politics are after all created for the greater good, don’t you think? If you think not, please go back to the first question right above.
That’s it you’re looped in!
Thanks,
Dan
— Dan Nicollet · Aug 28, 07:38 PM · #
Brandon, really? Move to Somalia? If you love government intervention so much why don’t you move to Zimbabwe? If you can’t recognize that Somalia is doing better economically, and socially without a government than with one, then you’re just not looking at the facts.
http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6WHV-4PW05BG-1&_user=2139851&_rdoc=1&_fmt=&_orig=search&_sort=d&_docanchor=&view=c&_searchStrId=996201759&_rerunOrigin=google&_acct=C000054275&_version=1&_urlVersion=0&_userid=2139851&md5=182971446d1dbee16fd4087292066af6
— A G · Aug 31, 06:39 PM · #