"Free Market" Capitalism......Why do the clowns peddling this tripe always get a pass?

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Ron Bailey commented that Nestle discovered and dropped the Georgia supplier of tainted peanuts a year before the FDA discovered the problem. He cites Nestle as an example of how "free market" was able to detect a problem (tainted food) and take preventative action (ie. terminate all supply contracts) before governement "regulation". Mr. Bailey's Nestle reference raises some larger questions.

Small Question: Why did the "free market" not work for the more than 70 companies that were purchasing from that same supplier?

http://abcnews.go.com/Health/story?id=6749660&page=2   

Larger Question: If companies in an unregulated market will detect problems faster than government regulations and supervision, WHY are there product / food recalls? Basically, how can the market participants not notice: toxic waste jewelry (cadium), tainted eggs, tainted meats, tainted dog food, toxic dolls, etc.

Is there some particular government regulation that actively prevents companies from discovering the supply chain is compromised?

LARGEST QUESTION: Before deregulation advocates even begin extolling "free market" virtues, isn't it incumbent upon them to explain WHY companies consistently FAIL to catch the "bad apples" in the market? Shouldn't we be asking, what governement regulation prevented all (or nearly all) market participants to not: notice the housing bubble, discover the tainted foods / consumer products, properly vent methane from a Masey coal mine, realize the Global Financial System was nearing collapse, not notice Berney Madoff was a fraud, etc., etc., etc.?

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StevenLeBald
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"LARGEST QUESTION: Before deregulation advocates even begin extolling "free market" virtues, isn't it incumbent upon them to explain WHY companies consistently FAIL to catch the "bad apples" in the market? Shouldn't we be asking, what governement regulation prevented all (or nearly all) market participants to not: notice the housing bubble, discover the tainted foods / consumer products, properly vent methane from a Masey coal mine, realize the Global Financial System was nearing collapse, not notice Berney Madoff was a fraud, etc., etc., etc.?"

Let me attempt to clarify all these for you:

The housing bubble was caused by the Federal Reserve's dropping of interest rates to essentially 0% after the collapse of the dot-com bubble. The bubble can be traced directly to that. Gramm-Bliley Leach and The Commodity Futures Modernization Act increased the effects of the economic collapse, but *only* because of the Federal Reserve's actions. The price system is what guides economic action, and in the absence of the fiat money printing press, economic bubbles are literally *impossible*. Every single economic crash in history can be traced back either to a central bank or a government-backed collusion of banks (as in the case of the 19th-century panics).

The interest rate is a price, like any other. It is a ratio of consumer preference for future goods vs. present goods. In a free market (as opposed to the current corporate-fascist state), interest rates would reflect real savings and thus the entire apparatus would be self-regulating. Low interest rates would reflect the consumers' desire to invest in future production processes, while high interest rates would reflect the consumers' desire to consume more and save later.

If the government lowered the price of your local grocery store's milk from $2.00 to $0.49, what would happen? There would be a shortage. When the Federal Reserve cuts interest rates, it causes malinvestment of scarce resources, resulting in a capital shortage that ends in a massive economic collapse. If the paper money is channeled into one particular economic avenue -- ie housing -- it leads to a bubble which then feeds upon itself. When the progressives blame credit-default swaps for causing the crash, they are confusing correlation for causation: more swaps were taking place *because* of the Federal Reserve's actions. That kind of behavior cannot occur in a vacuum.

At some point, it is realized that there are not enough resources available to fulfill all the projects that were commenced due to the artificially-low interest rate. Selling begins, companies crash, and malinvestments are liquidated. And without government pump-priming fiat money and uncertainty into the system, the free market restores itself anew according to consumer preferences. This is precisely what happened after the crash of 1920-21, an economic crash that resulted in worse unemployment than the Great Depression, and liquidated in a YEAR thanks to a laissez-faire policy by Warren Harding. (For more on this topic, see the book "Meltdown" by Thomas E Woods Jr.)

The bubble guided people into the trap of Madoff as well. In regards to consumer products/regulation: one has to analyze this at the individual level. Some products are 100% safe, others 90%, others 40%, etc. Each individual has a unique reason for choosing to consume X product regardless of its safety. This was the case with the lead toy debacle in the summer of 2008. One child swallowed a toy and died. The lead ban not only deprived consumers who *voluntarily* wished to buy the product and undertake any risk it entailed, but also cartelized Mattel and put countless small businesses out of business at the time.

Regulation does not benefit consumers, and does not hurt corporations. It helps a handful of consumers, screws the rest over, hurts a few corporations, and cartelizes the rest. Another thing that must be taken into account is the effect that government regulation/licensure of business effectively gives most corporations an oligopoly which *allows* them to use more dangerous inputs in their products. Either way, it is apodictic that the government creates and exacerbates the consumer safety issue. Same goes for Massey Mines.

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monsieurb54
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Jul. 31, 2007 4:01 pm
Quote monsieurb54:

Let me attempt to clarify all these for you:

Really misses the point.

No government interference prevented anyone in the market from discovering that a Georgia company was introducing tainted peanuts into the supply chain. Only Nestle discovered the trouble. Over 70 other companies did not. Why? If the "free market" naturally discovers and corrects these little problems, why didn't any other buyers discover the product was tainted? Shouldn't anyone declaring the virtues of the free and unregulated market be asked WHY tainted products, frauds, unsafe mines, unsafe oil rigs, commodity bubbles, etc. can exist for years before discovery?

As an aside: generally, the discovery is accidental: a mine collapse, asset / commodity collapse, an oil spill, dying consumers, explosions, etc. Strangely the market players never seem to notice these things before it splashes all over the newtainment channels. Again: if "free markets" self-regulate, most (if not all) of these "accidents" wouldn't happen.

No regulation prevents bankers from thinking: "gee, these mortgage backed securities seem pretty risky" or "wow, the housing market is WAY over valued."

No regulation prevents peanut buyers from checking the quality of the products they purchase out of the supply chain.

No regulation prevents toy companies from checking the materials and manufacturing processes of toys it contracts to have manufactured.

Please advise if you know of ANY regulations preventing the above: ie. the EXACT behavior the deregulation advocates say occurs regularly in the Magic Market.

Literally nothing prevents market participants from discovering hazardous commercial practices. Yet, over and over they fail to discover the hazards, dangers, irregularities, etc.. Thus, some minimal standards (ie. regulations) are appropriate.

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StevenLeBald
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Jul. 31, 2007 4:01 pm

"If the "free market" naturally discovers and corrects these little problems, why didn't any other buyers discover the product was tainted? Shouldn't anyone declaring the virtues of the free and unregulated market be asked WHY tainted products, frauds, unsafe mines, unsafe oil rigs, commodity bubbles, etc. can exist for years before discovery?"

^Because there are individuals who -- for one reason or another -- are still purchasing the "unsafe" good.

Let me give you an example. Marijuana is illegal. They have this synethic version called K2. Apparently, some people have died from it. But there are others that would rather risk death than arrest. These people are not assaulted by evil corporations poisoning their products. Rather, they purchased them voluntarily, thus giving a demand incentive for their continual production. Regulation (or banning, which is really just regulation's logical conclusion) of K2 would either 1) cause more economic distress for those who still wish to purchase it, or 2) drive individuals to even LESS safe alternatives. Economic interventionism is a vicious cycle.

"No regulation prevents toy companies from checking the materials and manufacturing processes of toys it contracts to have manufactured.

Please advise if you know of ANY regulations preventing the above: ie. the EXACT behavior the deregulation advocates say occurs regularly in the Magic Market.

Literally nothing prevents market participants from discovering hazardous commercial practices. Yet, over and over they fail to discover the hazards, dangers, irregularities, etc.. Thus, some minimal standards (ie. regulations) are appropriate."

^The "magic market" is nothing more than the aggregate of all individuals' actions in the world or in a particular part of the world. To insult the market to insult individuals and their rationality. My point was not at all that the government prevents firms from checking their goods. On the contrary, they continue producing them because there remains demand for them, for reasons that are as heterogenous as there are individuals. If people are buying Product X that has some risk but is profitable, why would they switch to the safer equivalent Product Y which is more expensive to make and is less demanded?

If consumers STOP buying the products altogether, then the companies are forced to change their ways.

Of course, this leaves out my entire second point about our current corporate-fascist state and how its thousands upon thousands of regulations literally prop up corporations and allow them to have cheaper and more dangerous inputs than would exist in a free market.

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monsieurb54
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Jul. 31, 2007 4:01 pm

Basically, I'm saying let's challenge these clowns on their narrative. When "self-regulated" market advocates say (and they ALWAYS DO): "see government regulation didn't work!!!!! We have tainted [peanut butter, deli meat, etc.] The unfettered "free market" can do much better."

THE FIRST QUESTION MUST BE: "WHY didn't the "free market" work it's magic and discover the very problem you CLAIM that government regulations missed? Is there some regulation that prevented them?

Self-regulation will not discover the unsafe practices, tainted products, etc. for one reason: THERE IS NO OMNISCIENCE!!!! The actors in the market lack perfect information. THAT is why regulation, inspection, and enforcement are essential.

Just saying: we have to stop letting these clowns get a pass on their claim the "free market" works better than regulatory oversight. Call them out on their theory's clear failure.

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StevenLeBald
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Jul. 31, 2007 4:01 pm

I'd like for the libertarian to address the fact of negative externalities. The clearest reason we need regulations, particularly with pollution and things like food safety, is the benefits accrue to a tiny few, but the harm is spread out over a wide population who don't have the information to either estimate the cost of the harm and therefore "rationally" calclulate whether they should bear it, or the ability to do anything to recover that cost even if the amount could be properly estimated.

For those peanuts, all along that chain, the benefits of ignoring the potential harm of tainted food are known and quantifiable by a business - costs saved from testing the food or monitoring the suppliers.

But, the harm is unknown and uncertain, might very well fall on a consumer without any tracking back to the producer. The costs, risk of getting sick, fall on millions of customers, and ultimately a few hundred or thousand consumers who fall ill bear a large burden. Nowhere in there is the cost really quantified or rationally dealt with as the libertarians assume in this rational economy.

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