Praise the Free Market, Damn the Central Planners

I read a lot of junk.

Most of it is in the mainstream press.

I don’t know why I keep reading it.

I must be a glutton for punishment.

But if there’s one subject that’s guaranteed to make my blood boil, it’s the subject of what the government should do to make things better.

Don’t these clowns understand? Governments never make things better, they only make them worse…

The latest chunk of junk to poison my eyeballs was in today’s Age.

You can probably guess the subject matter. That’s right, Toyota’s decision to get out of Australia.

To be honest, I’m not sure that I’ve seen so much hooting and hollering over the end of an industry in years.

Everyone knows why Toyota is leaving, and it’s simple. Australia is a tiny market which has outsized levels of red tape, and a strong union culture that would rather an entire industry shut down as long as it doesn’t impact the wages of the union members who won’t lose their jobs.

But that’s not how it is according to the mainstream media. No, according to them the fault is…yours.

The Mainstream Gets it Wrong Again

There is a huge misunderstanding in the mainstream media and the general population about the meaning of ‘free markets‘, otherwise known as laissez faire economics.

If you listen to the mainstream you’ll believe that laissez faire economics is all about fat rich white men who smoke cigars, wear pinstripe suits, have a white moustache, and throw money and gold coins in the air every 10 seconds.

On the flip side of this is everyone else…the poor downtrodden masses. The people who work in slave-like conditions because the fat rich white men force the workers to work without pay and then blow cigar smoke in their face. Hah!

Well, let me make something clear. That isn’t the free market. That’s a cartoon…a caricature…a fallacy.

Not surprisingly, the Age manages to encompass that imagery in the article that spoiled my morning:

Now the Abbott government has to decide whether to intervene or let laissez-faire economics take its course. The prerequisites for the latter are already in place: there are no goals, no vision for what the Australian economy should look like in 10, 15 or 20 years.

The only settings we see at present appear to be lower living standards for workers through the reduction of working conditions and, where possible, wages, less regulation for companies, more power (sorry, “flexibility”) to employers and no restrictions on trade or dumping or price gouging, as practised by many multinational companies in Australia.

As I say, it’s complete junk. No wonder the mainstream press is heading down the toilet.

For a start – and let’s clear this up straight away – anyone who thinks Tony Abbott or any previous Liberal government is laissez-faire really doesn’t know the meaning of laissez-faire economics.

The literal translation of laissez-faire is ‘let it be’. In other words, leave things alone. There isn’t a government in existence anywhere in the world, let alone Australia, that would ever leave the economy alone.

The whole reason politicians seek election is so they can meddle and fiddle with things. That’s part of their psychology. It’s what makes them sociopathic.

You are the free market

But this is important. It’s important to understand that the free market doesn’t create problems, the free market creates solutions. It’s the government that creates the problems.

Let’s take one step back. I’ve said the free market isn’t about fat white rich men smoking cigars and throwing money around. OK. But what is the free market?

That’s simple.

The free market is you…and the other 22 million people in Australia. It’s the millions and billions of people around the world.

The free market is simply your ability to do something without the influence or control of the government. That’s got to be a good thing, right?

I mean, you don’t want the government deciding which car you should buy, do you? You may not realise it, but for years that’s exactly what happened. It was the tariff system. It’s why there were so many Fords and Holdens on Aussie roads.

It wasn’t that Australians ‘loved’ Fords or Holdens more than any other car, it’s because that was all Aussie’s could afford, because import tariffs made other brands more expensive.

Thanks to the tariff cuts, Aussies now have more choice over car brands than ever before. And now that the local firms are leaving the market and losing their taxpayer subsidies, the choices will get even better and the prices even cheaper.

That’s a free market.

Let me put it another way. Who do you think best knows what you should have for dinner tonight? Do you think you know what foods and flavours and cooking styles you like?

Or do you think it’s the government? A government that doesn’t know what you like. A government that couldn’t possibly tailor a meal plan for each person in Australia, and so would have to establish a limited set menu of food that it would assign to you.

Again, you may think that’s ridiculous. But that’s exactly what happens when governments take control of the food supply. It’s exactly what happened in the former Soviet Union, it’s what happened under rationing in Britain during and immediately after the Second World War, and it’s what’s happening today in North Korea.

The government controls which crops the farmers plant. It controls when they harvest the crops. It controls which food processing plants or stores receive the crops. And finally it decides how much food you get to eat.

The cult of the mastermind

The point with laissez-faire economics and the free market is that things just happen. I know the author of the Age article pines for a 10, 15 or 20 year plan. But who would devise that plan? The government?

Really?

That’s central planning, as I’ve highlighted above. It’s as Richard Maybury calls it, ‘the cult of the mastermind‘. It’s the idea that people think they can pull levers or press buttons to direct an economy of 22 million people.

That’s not how things work. The free market works because it is unplanned. The free market works because entrepreneurs, capitalists, investors, individuals, and businesses freely interact with each other to create solutions to problems they face every day.

Yesterday I got home and faced a problem. We had run out of milk. The solution? I went to the local shop and bought a four litre bottle of milk.

Problem solved. That’s the free market. I didn’t need a central planner to put that in their 20 year vision. I just needed the store owner to understand that on any given day people demand milk. And based on the store owner’s experience in the retail sector he or she knows roughly how much milk to order into the store to meet the demand.

That’s the free market.

But let me just quickly address a couple of other points in the Age article. For a start, technological advances have ensured that working conditions have never been better. That’s right, technological advances have ensured better working conditions, not trade unions.

If trade unions had their way working conditions would be worse, because at every step of the way trade unions oppose any measure that improves technology. They would rather 10 men take part in back-breaking work every day, ending up with chronic and life-shortening injuries, than allow a business to buy a digging machine that one man can operate.

The same goes for automation in other industries, especially manufacturing and mining.

Technology, not Government, Drives Progress

But what about the author’s final argument, that there are ‘no restrictions on trade or dumping or price gouging, as practised by many multinational companies in Australia.

I love the arguments against so-called ‘dumping’ of products at a lower than cost price into a market. The claim is that Chinese firms deliberately sell their product in Australia at a cheap rate so that it drives local firms out of business.

Once the local firms are out of business the Chinese firm then raises its price and holds the consumer to ransom, which they then call price gouging.

This whole notion is ridiculous.

To begin with, if a company wants to dump its product below cost into the Aussie market, then surely that’s good news for the consumer.

However, where is the evidence that this strategy either works in the long term, or that the dumping companies are smart enough to guarantee a 100% monopoly on the market?

There’s no evidence of this at all. That’s because from a commercial perspective it’s a terrible way to run a business. First, by selling a product below cost, the company is foregoing a profit.

If the company does this for an extended period it will only ever lose money and won’t be around to benefit from its ‘monopoly’ position.

Second, it assumes the local company is unable to cut prices for a short period too. If the local company can cut prices then the product dumping has failed at the first hurdle.

But finally, it also assumes that other firms won’t recognise the opportunity to sell their product to compete against the new monopoly. Another company would see the monopoly and begin competing on price. This will ensure lower prices. What will happen next? Will the first company begin dumping again?

The argument is ludicrous. That’s not how things work in a free market.

Of course, even if it did happen, it doesn’t guarantee success for the monopoly business. There is after all the potential for substitution. That’s where the consumer switches from a higher priced product to a lower priced alternative product.

So there you have it. It’s important to stand up for and protect the idea of the free market against the Statists and central planners who would rather have a King or Czar controlling everything from an Ivory Tower…or a panel of unionists and bureaucrats voting on what cars, meals or toilet paper you should use.

Bottom line: free market or laissez-faire economics is the system that has led to the amazing advances the world has seen in technology over the past 250 years.

This has all happened despite the role of governments, not because of them. Praise the free market, and damn the central planner.

Cheers,
Kris+

Ed note: By the way, next week Pursuit of Happiness technology analyst Sam Volkering will launch his brand new free email Tech Insider. Six days a week he’ll bring you the latest tech breakthroughs around the globe, the innovative companies behind them, and reveal how to potentially profit from these changes.

Written by Kris Sayce

Kris Sayce

Kris Sayce is Editor in Chief of theThe Pursuit of Happiness. (To have it delivered free to your inbox simply enter your email address in the section above and click ‘subscribe’).

He is also the Chief Editor of Money Morning Australia — Australia’s biggest circulation daily financial email.

If you want to see which important information Kris is taking an active interest in, then we recommend you join him on Google+. It’s where he shares investment insight, commentary and ideas that he can’t always fit into his regular The Pursuit of Happiness emails.

Share this post on...





1 Comment

  1. Steven Baker

    Hi Kris, I think you’re being a little naive in the last section of this article.

    First, I totally agree with you that central planning is bad and the free market should be left to operate un-fiddled. The thing is, the free market is totally free, in that people can do anything they want. That includes price gouging.

    If a company like Tesco for example, which is massively profitable, wants to become the dominant grocer in a town, it can open a store there and run by selling at cost or even at a loss to drive consumers there. This will have an impact on the profitability of that particular store, but to the overall corporation this is minor and not going to drive it out of business. It will however, drive the little guy competing with them out of business, which is the whole point.

    Other examples are Amazon selling without profit when it first started; and even now selling the Kindle at cost price.

    To say “The argument is ludicrous. That’s not how things work in a free market.” is not an accurate statement. It can be how things work, because by its very nature, a free market is exactly that.

Leave a Reply

Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments. If you would prefer to email the editor, you can do so by sending an email to letters@pursuitofhappiness.com.au