Free To Lose – The Power of (Dr. Friedman’s version) of the Market

7 11 2010

Journal Entry Two (On Prompt Three)

The Friedman Free Market

Dr. Friedman seems to have some clear ideas of how an ideal market should operate. His ideas are so clear and one sided that some might find them irrational. He believes in a free market economy, a pure free market economy. I personally believe too much of one thing is not good. Therefore, I support a free market with certain mixed market components, not the extreme version cooked up by Dr. Friedman. I have no problem with many of the things that Dr. Friedman says but some of it is a bit too irrational and illogical. Moreover, a pure free market economy has never existed and never will as the 16th president of the United States Jean Kirkpatrick said, “There is no pure free-market economy.” Therefore, the primary purpose of this entry is not to prove that a free market will not work, as it does to a certain degree of effectiveness, but rather to prove the flaws in a pure free market as Dr. Friedman proposes.

Law And Order

The purpose of the government is to serve the people’s needs. How can the government serve the people’s need if it is not allowed to have a hand in people’s monetary matters? In a democracy the fate of the people and the government is connected, the two bodies are interdependent. In all free markets there is a certain degree of government intervention no matter what, there is no pure free market. But we have to decide on where the government can interfere and where it cannot. However, it is necessary that the government regulates and implements laws in order to prevent business fraud. Competition does not always necessitate that the best quality products will enter the market, but rather the most profitable products will. It is up to the government to ensure that product quality and business integrity is maintained. There must be a neutral body between the businesses and the consumers that prevents unethical business activities such as monopoly, price fixing and price gouging. An economic system without any degree of regulation would cause a lawless market, unless you trust firms to look out for consumer interests.

A different corporation

Moreover, as Canadians we would probably have nightmares if  something like our health care was privatized to ensure a pure free market. There will always be claims that it can be done cheaper, better and more efficiently if these sectors were privatized. However, crown corporations, government controlled corporations, have served us well. Few notable crown corporations are the Canadian Broadcasting Corporation (CBC), Via Rail and Canada Post. Don’t get me wrong, Canada ranks 7th in the global economic freedom index, one above the United States. But we still have a progressive tax system, tariffs on trade and numerous public services. As a daily commuter I can tell you that the TTC is not perfect, but it gets me where I need to. There have been global attempts to privatize public transit but all of them have failed miserably, Vancouver and London U.K are two examples. It goes to show some markets are best left public. Furthermore, the profits from crown corporations come back to benefit the public and help provide further governmental services. Moreover, there has to be a controlling body which regulates services that we cannot afford to privatize, for example the army, fire service and police. We call this controlling body the government. Unless, Mr. Friedman can enlighten us on how we can turn fire service, law enforcement and the army into private services I think we need the government.

 

You may have seen one of these notorious red boxes in your neighbourhood. Canada Post is a crown corporation.

 

Human decisions, inhumane market

In a free market economy the private entrepreneur is not out there to look out for the interest of the public, this is why we need the government. A tragic flaw of the free market is it makes few better off and leaves the rest where they are (or worse). Creating a giant gap between the rich and poor. Whereas, the mandate of the government is to ensure the improvement of the economic situation of those left behind. A free market is a market controlled by human actions, but human actions can be irrational. Money will always get in the way of ethics, morality and humanity in a free market. Even though, the market is determined by human actions, the market by no means is humane. It is up to the government to look out for the people, this is something the firms will not do. I would like to end this entry with a quote from the former head of U.N, Kofi Annan, who said “We have to choose between a global market driven by calculations of short-term profit, and one which has a human face.”

Canada ranked 7th overall in the global economic freedom index of 2010.

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7 responses

12 12 2010
arielshain

I can agree with you by saying Dr. Friedman’s idea of a free market economy is somewhat irrational. His belief in a total free market cannot exist in a country like Canada. For example, if we were to employ a total free market, then during the recession, the government would not bail-out many of the large business, which in turn could have plunged our economy into a deeper recession. The role of the government in our economy is to make sure that everything goes smoothly, and no one cheats the system. As you said, in a free market, the rich tend to get richer, and the poor tend to get poorer. The government utilizes social welfare programs to have a more equal distribution of wealth, so that we don’t see the wealth gap grow. For the most part I agree with your argument; however there is one thing I feel you didn’t fully address. Just because the privatization of certain industries failed in other cities, doesn’t mean it would fail here in Toronto. The TTC has many issues, and personally I believe if we negotiate some deal with a private firm, the TTC could improve immensely. Although it is not the same as public transit, the privatization of garbage collection greatly benefits many cities across North America. Not only is it cheaper, but it is also more efficient. For example Los Angeles pays about 30% more for garbage collection than its suburbs that employ a privatized garbage collection. And also, even though Canada has a free healthcare (well not exactly free, we do pay taxes) it is generally understaffed and underfunded, with long waiting lines, and although the U.S.A has a pretty unfair healthcare (with how expensive it is) it is efficient, and gets the job done much quicker, why do you think they send people on Canadian hospital waiting lists to the U.S for treatment? That’s just something for you to think about. But generally, that was a well written and though out journal.

17 12 2010
arielshain

http://www.mackinac.org/3155 (link to above statistics)

17 12 2010
Ariel Shain’s comments « The Blog for WLMac Economics

[…] Comment 3, Comment 3 continued […]

17 12 2010
stinkingluck

I completely agree with your standpoint of how the rich get richer and the poor get poorer. It seems to me that the less restraints that the market has, the more risky behaviour it may participate in. Take the financial crisis for example. Since banks were not regulated by the government as socially optimal, they made bad investments which would have been averted had the government set better restrictions on whom should be loaned money.

However, as Ariel mentioned, there is a fallacy involving how some markets should be private/public. Each country has its own needs and Toronto trying to privatize its transit may not be a bad idea. For example, by privatizing industries such as transit, it provides incentive for the owners to perfect it and maximize profit, whereas public goods tend to be neglected as all the money is being returned to the general public.

Lastly, “of” was repeated twice in your title.(heads up)

18 01 2011
BrokeBroker

I would like to thank Stephen and Ariel for their comments and concerns . Also, I have to apologize for the late reply as too just too much things have been going on. Both your concerns are very valid. Both the TTC and our national health care systems are government-operated and do have their shortcomings. However, they may not be perfect but they are fair and equitable. In my opinion, this is the way essential services should remain, if we do truly believe in the constitutional rights to life and freedom of mobility for all. Also, I believe it is possible to be equitable and efficient, maybe just not as efficient as the private sector. To see that, we have to look no further at the world’s busiest transit system, the Hong Kong subway, which is government operated and works like a charm. This is just one of the many government-operated public transit systems which are considered truly world-class, something the TTC is not.

Regarding our local public transit system, the TTC, its downfall is not that public transit cannot be world-class. The problem as often it is with public industries is poor policies and petty political game. The subway was never fully completed and the deadlines just keep being push back and the price to expand just keeps rising (thank you inflation.) We never got around to becoming a world-class transit city. However, to improve efficiency a private-public partnership is plausible and has worked to a certain degree of effectiveness, elsewhere. However, despite the shortfalls the transit system does serve the good of the many and that is something that Canadians may not be willing to give up. The extra five minute wait in the cold may be worth it considering that someone else is waiting for the same bus in the cold as well, how would you feel if that person was excluded because their route was not profitable or they could not afford taking the transit?

I think many of the same things I mentioned about transit applies to our health care system. It is our values as Canadians and firm belief in the “good of the many” that continues the support for a health care, which is close to mediocre in efficiency compared to the States. However, we try to save all lives rather than lives of those who can only afford to pay. That is something I am not willing to give up. Our health care system is truly a beautiful concept and what we need to do now is make is better in reality. To achieve that it comes down to good governance and effective policies.

18 01 2011
Tahmid Rouf – ISP « The Blog for WLMac Economics

[…] Free To Lose – The Power of (Dr. Friedman’s version) of the Market […]

19 01 2011
Ariel Shain – ISP « The Blog for WLMac Economics

[…] Comment 4 […]

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