Free markets a Silver Bullet?

In a detailed comment, Anirudh asked:

Is free-market or government non interference as much of a silver bullet to a country’s problems as some people would have us believe? While advocating for free-markets do people sometimes have a tendency to overlook other factors like the country’s demography, its history, its geopolitical situation etc…

There are no silver bullets when it comes making things work in an economy. What we have is a choice between imperfect means. The search for the perfect solution is a fool’s errand. All we can do is to choose the best and realize that the best may not be very good.

Free markets don’t lead us to some kind of utopia. They don’t solve all problems but at the very least they don’t create problems that were not there in the first place. This is important to note.

Free markets are expected to address one particular feature of the world: how do we get the most out of what we have in terms of people and the material means at our disposal? That’s all. Free markets don’t solve philosophical or moral questions because they are not the right institution.

Free markets don’t perfectly solve the “how do we get the most material welfare for ourselves” question. But compared to any other system, it is the best that humans have devised.

Are there situations under which we should not have a wooden insistence on free markets? Yes, one can always come up with corner-cases where it would be better to not have a free market. But exceptions don’t invalidate the general principle.

In fact, the problems that the free market “appears” to create are generally “pre-existing” in the world. Inequality, for example, is a feature (not a bug) in the world. Free markets cannot solve the problem of inequality. And the alternatives to free markets make every problem worse. You think inequality in a free market is bad? Wait till you see the inequality in a socialist economy.

Does the workings of a free market have any dependency on history, geography, strategic moves by governments and other powerful entities? Absolutely. But again, which human institution is immune from all those factors?

There are two basic reasons for why free markets are the best (even if you argue that they are not good.) First, it is the only system that is morally permissible because unfree markets restrict human freedom. Free humans are happier humans than enslaved humans.

The second argument is utilitarian: free humans produce the most materially. This is just a bonus feature because as far as I am concerned, I’d choose free markets even if it were not as good in producing stuff. I’d rather be free and materially poor compared to being rich but slave to someone else.

In the end, countries have different degrees of freedom. How much depends on the tastes and preferences of different peoples. It appears that the people of the Western & Northern parts of the world value freedom more than the rest of the world. They are also more prosperous. Coincidence? I don’t think so.

 

Author: Atanu Dey

Economist.

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