While theoretical approaches are useful to modeling the way we think about the world, they can also serve as a detriment when misunderstood or misapplied to the real world. Take international law, for example. Are their rules that govern international norms and methods of recourse if they are broken? Yes. Are international actors automatically held accountable if they break those norms? No, international laws are broken with impunity every day.
Likewise, proponents who fetishize the free market are similarly misapplying a theoretical approach. A free market, that is a market in which prices are determined purely by unrestricted competition between private businesses, does not exist.
“The free market doesn’t exist. Every market has some rules and boundaries that restrict freedom of choice. A market looks free only because we so unconditionally accept its underlying restrictions that we fail to see them.” Political Scientist Hajoon Chang writes, “How ‘free’ a market is cannot be objectively defined. It is a political definition.”
Chang is right. Markets are human creations, and thus there are command structures and rules governing how they operate. Perhaps if we had a 1 to 1 transaction between a buyer and a seller in a vacuum said transaction could be free of any outside regulation, but free market theory necessitates that there be no barriers to entry, meaning 1 to 1 transactions don’t exist.
So conservatives and libertarians aren’t actually advocating for a free market. A “truly” free market economy, that is to say getting as close to the mythical free market as possible, would require dismantling entirely every governing body in the country that has any authority over any sector of the economy. That’s a very radical view that very few actually advocate for.
So what are conservatives saying when they push for free markets? Ostensibly they mean that they want business to be less regulated. This is an admirable goal in some economic sectors. For example, it’s believed by reasonable people on both sides of the political spectrum that the nuclear power industry is over-regulated.
The issue is that conservatives miss the most insidious affront to the free market myth that exists, that of rent seeking. Take Rand Paul, arguably the biggest free market advocate in Congress. Paul has voted down budget provisions to end oil industry tax breaks, against budget amendments to end tax breaks for companies who offshore their business, and in favor of killing legislation to rollback tobacco farm subsidies.
What better way to create a competitive market than to subsidize oil companies, offshoring multinationals, and tobacco farms?
Regulations are important, but rent seeking is the much bigger culprit in our crony capitalist economy. Seeking rents has, in many ways, become its own industry. Companies don’t focus on production anymore, because it’s much more lucrative to move money around and exploit tax loopholes. The automotive industry used to hire CEO’s who were engineers and experts in the industry, now they hire financial experts to shift profits.
Rent seeking costs our economy trillions of dollars each year. The market oriented Mercatus Center estimates that the aggregate annual cost of rent seeking behavior is between 7 percent and 22.6 percent of gross national product, which equates to between $1 and $3.5 trillion. Rent seeking has destroyed any allusion we had of a market economy, and yet market fundamentalists very rarely choose to focus on it.
In January President Trump signed an executive order to get rid of 2 regulations for every new rule, stating, “There can’t be any discrimination.” If he truly wanted to get rid of market discrimination, he would propose getting rid of 2 rent seeking behaviors for every new one.