When is a completely free market bad?

[yadayada]

I am assuming NO crony capitalism here. So a pure free market where corporations cant lobby to get unfair advantages. In what ways could this be bad?

[PatientCheetah]

I am assuming NO crony capitalism here. So a pure free market where corporations cant lobby to get unfair advantages. In what ways could this be bad?

 

The type of companies that you want to own = unregulated local or national natural monopoly is bad (e.g. utilities, health insurance, Google) - stuff you learned in intro econ class.

[tradevestor]

How will there be a natural monopoly in free market ? Someone will copy Google's algorithm and setup Google1.

[yadayada]

it seems almost all of the abuse and all the examples of 'capitalism is broken here', are examples where politicians are protecting them by regulation.

 

Like with comcast, or with healthcare. People say, look capitalism is broken! when in fact government is unfairly protecting them.

[PatientCheetah]

How will there be a natural monopoly in free market ? Someone will copy Google's algorithm and setup Google1.

 

They are too entrenched and capital rich - like in the example of instagram, whatsapp, diapers.com, etc. if they can't destroy you, they will buy you out. To courage innovation, natural monopoly should be given free rein for 10-20 years, then they should only make regulated rate of returns. What Google charges is an invisible taxes on all consumers.

[LC]

utilities are the obvious example.

[yadayada]

How will there be a natural monopoly in free market ? Someone will copy Google's algorithm and setup Google1.

 

They are too entrenched and capital rich - like in the example of instagram, whatsapp, diapers.com, etc. if they can't destroy you, they will buy you out. To courage innovation, natural monopoly should be given free rein for 10-20 years, then they should only make regulated rate of returns. What Google charges is an invisible taxes on all consumers.

they dont have a monopoly on advertising. If they charge too much, then advertisers will go away. If their search engine doesnt work well, then people will start using bing.

[Parsad]

I am assuming NO crony capitalism here. So a pure free market where corporations cant lobby to get unfair advantages. In what ways could this be bad?

 

Even in a pure free market, what services or goods can a baby or a senior with dementia offer?  Society has to decide exactly what level of safety nets they need to provide those in the least competitive positions. 

 

Once you do this, you have special interests who twist and bend things, and then you get the corporate/free market cronies trying to level the playing field.  A free market can never be completely free, but you can get it as free as possible depending on what that society desires.  Cheers!

[turar]

it seems almost all of the abuse and all the examples of 'capitalism is broken here', are examples where politicians are protecting them by regulation.

 

Like with comcast, or with healthcare. People say, look capitalism is broken! when in fact government is unfairly protecting them.

 

Just curious, what laws are protecting Comcast from competition?

 

Also, apart from regulation of abuses, another side to why free market isn't the best is, paradoxically, innovation. For example, current wave of tech innovation by free market is looking kinda lame in comparison to innovation of the 50s-70s fueled by the government, like space program. Or the Internet itself, which was invented by the government program. Good article along this tangent: http://www.technologyreview.com/featuredstory/429690/why-we-cant-solve-big-problems/

[ERICOPOLY]

Regarding a completely free market:

Under such a system are the owners personally liable for the errors/debts of the corporation?  So no more legal protection behind the corporate veil?

 

I think some regulations are meant to deter the kinds of behaviors that limited liability would tend to encourage.

 

So I'm wondering... to get rid of the regulations, you also need to get rid of the corporate legal protections.  Then you have a free market.  But under such a system, things like oil drilling would be too risky without the corporate legal protections.  So certain things simply would no longer get done.  So could such a system even exist successfully? 

[claphands22]

 

Just curious, what laws are protecting Comcast from competition?

 

 

Planet Money had an episode called The Last Mile that talked about a FTC ruling that allowed the companies to control the cable they installed. This is unlike long distance in America which got opened up and competition drove down the prices.

 

http://www.npr.org/blogs/money/2014/04/04/299060527/episode-529-the-last-mile

 

Maybe this doesn't answer your question fully, or isn't a great answer -- best one I can give.

 

[Palantir]

I think an obvious example are with corporations that have externalities, things like pollution etc, where market mechanisms aren't enough to reverse harms.

 

 

Other cases are in markets with incomplete and asymmetrical information. I'm sure you can think of obvious scenarios in healthcare.

[vinvestor2010]

Markets where

1) The cost of failure is unacceptably high e.g. nuclear power, medicine, banks etc (can't let people die, become broke)

2) Markets which may initially be free but have network effect tendencies e.g. newspapers i.e. and therefore tend to monopolies over time

 

[yadayada]

[Olmsted]

-Imperfect information

-Incomplete and/or poorly-defined property rights (externalities, free-riding)

-Principle-agent issues

-Moral hazard

 

I think most market failures boil down to one of these phenomena at some level.

[Guest hellsten]

When it's not "preventing cable company f**kery":

 

or when companies put "Misleading Labeling of Food Products:

https://www.youtube.com/watch?v=_JLxHgsEjzw

 

or when their products "only killed 13 people":

https://www.youtube.com/watch?v=yPQ44RDOAx4

[yadayada]

yeah but a market constricted by regulation is not a free market. Some people here raise some good points tho.

[APG12]

So I'm wondering... to get rid of the regulations, you also need to get rid of the corporate legal protections.  Then you have a free market. 

 

Why is limited liability inconsistent with freedom?

[rkbabang]

When is a completely free market bad?

 

A few other ways to phrase that exact question are:

 

When is dealing with other people on a voluntary basis without aggression bad?

When is aggressive deadly violence against peaceful people good and necessary?

When is it necessary to force people to do what you want them to do even thought they were not using force against anyone?

 

[Otsog]

Bhopal was tragic.  The Bangladesh (and other) sweat shop fires are incredibly sad.

 

I wouldn't really want to consume anything without the FDA/HPFB.

[Olmsted]

I am happy to eat something not regulated by the FDA if I can look the producer/distributor/etc. (every step of the value chain) in the eyes, develop trust, and know who is accountable if there is a quality issue.  Obviously aside from farmers' markets/locavore movements that is not possible.  I think this is the point - if you have good information and accountability, no regulation is ever needed, ever.  In many cases it is difficult to obtain good information and difficult to directly enact accountability as a consumer.  Not everyone is peaceful and honest, rkbabang.  In these cases there can be market failures, and regulation is one way to attempt to develop trust in the face of anonymity/disaggregated responsibility.

 

Now, a very fair question is whether the cure is worse than the disease.  I think that in the US the answer is often, "yes."

[yadayada]

I am happy to eat something not regulated by the FDA if I can look the producer/distributor/etc. (every step of the value chain) in the eyes, develop trust, and know who is accountable if there is a quality issue.  Obviously aside from farmers' markets/locavore movements that is not possible.  I think this is the point - if you have good information and accountability, no regulation is ever needed, ever.  In many cases it is difficult to obtain good information and difficult to directly enact accountability as a consumer.  Not everyone is peaceful and honest, rkbabang.  In these cases there can be market failures, and regulation is one way to attempt to develop trust in the face of anonymity/disaggregated responsibility.

 

Now, a very fair question is whether the cure is worse than the disease.  I think that in the US the answer is often, "yes."

 

A coutner argument against arguments like this is that the market will adjust. Things will become a bit more expensive, but company's who wish to sell food are now very motivated to be very transparant.

 

ANd obviously your brand loyalty will erode very quickly if your food turns out to be bad for health with no FDA. People will become much more distrustful, and it will ruin the brand.

 

And you can argue that the FDA isnt even doing a very good job.

[oddballstocks]

it seems almost all of the abuse and all the examples of 'capitalism is broken here', are examples where politicians are protecting them by regulation.

 

Like with comcast, or with healthcare. People say, look capitalism is broken! when in fact government is unfairly protecting them.

 

Just curious, what laws are protecting Comcast from competition?

 

Also, apart from regulation of abuses, another side to why free market isn't the best is, paradoxically, innovation. For example, current wave of tech innovation by free market is looking kinda lame in comparison to innovation of the 50s-70s fueled by the government, like space program. Or the Internet itself, which was invented by the government program. Good article along this tangent: http://www.technologyreview.com/featuredstory/429690/why-we-cant-solve-big-problems/

 

How about the law that only one cable company is allowed per township/city?  Cities and townships get to decide which single provider will be the company of choice for citizens.  If the city council or township doesn't choose you then you can't provide services.  Cable is notorious with this.  They began this practice initially as a way by saying they could only run wire to customers in a township if a township gives them exclusive rights.  Google "Cable Franchise Agreement" for more information, this is rampant in the Midwest and Eastern US.

[Otsog]

Self regulation is an unconvincing argument to me.  Humans don't have a very impressive track record with that.  We have proven to be pretty good at locating moral hazard and then exploiting it as hard as possible.

 

US Economic Crises with bank failures 19th-21st Century:

1819

1837

1857

1873

1893

1907

1929

2008

 

 

 

 

 

 

[rkbabang]

.  Not everyone is peaceful and honest, rkbabang.  In these cases there can be market failures, and regulation is one way to attempt to develop trust in the face of anonymity/disaggregated responsibility.

 

There are only two ways people can deal with each other.  One way is the honest/peaceful/voluntary/"free market" method, where all parties agree to whatever takes place or have the option of opting out completely from any interaction.  The other way is the fraudulent/violent/threatening/political method where one party uses fraud or violence, or threatens to use violence, in order to control others.  You say that not everyone is peaceful and honest, I agree, but to the extent that they are not, they are using the political method rather than market method to deal with others.  Dealing with this type of person is what self defense is for.  No one has the right to initiate violence, but everyone has the right to defend themselves from it.  I make no distinction between what a person or a group calls themselves.  If someone calling himself an "IRS tax collector" telling me I need to give money to his organization with an implied "or else", is the equivalent of someone else wearing a ski-mask and explicitly pointing a gun in my face demanding my wallet.  They are both using the political method of dealing with others, rather than the peaceful market method of somehow convincing me to want to give them money, by maybe doing something for me for which I'd be glad to pay.  When an organization decides that it would be nice if more people used solar panels then proceeds to steal from some people to help pay for others to buy solar panels, that is the political method of dealing with people.  Doing research and developing a cheaper more efficient solar panel that people would be willing to buy from you without theft or violence is using the peaceful/voluntary/market method.

 

Anyone who says something like they wouldn't by food unless the government inspected it, isn't paying enough attention to what is going on to even be worth having a discussion with.  The FDA has sickened & killed more people (through both its actions and inactions) than a free market in food and drugs ever would.