The Free Market – Do We Have One?

Issue: One thing you can count on is universal devotion to the “free market.” Every media outlet and every politician says first and foremost that they believe in the free market; that we have to do [insert any policy here] to support and/or maintain the free market; if we don’t support [insert any policy here] then the free market will suffer and dire consequences will follow.

The “free market” is used by liberals and conservatives to support everything they do and to bash the other side. But what if the free market didn’t really exist? What if every columnist and politician writing about the free market knew for a fact that it didn’t really exist and just used the notion of the absolute importance of a free market to support whatever idea they were trotting out on a given day? That would certainly take some of the fear out of calling them out when they say that their policies are essential to preserving and supporting the free market, wouldn’t it?

Let’s take a quick look at some current topics that most often get tarred with the Free Market brush and decode them.

Free Trade – The US supports free trade, and only does business with countries that play by the same rules, right? Wrong. If you wanted to import sugar into the US from another country, you’d have to pay a tariff on certain types and certain amounts of sugar. Why? Because we limit the amount of sugar that can be imported in order to support the domestic sugar industry. Because of this, sugar prices periodically go through the roof. Then the tariff is lowered and foreign sugar comes in, lowering the price of sugar.

What if a US auto maker wanted to export cars to, say, Korea? Good luck. While sales of KIA and Hyundai go through the roof, Ford Motors reports that for every 52 Korean cars sold in the US, 1 (yes, ONE) American car is sold in Korea. With the US taxpayer owning big chunks of GM and Chrysler, it would be nice if traffic went both ways on this street, wouldn’t it?

Stock Markets – The ultimate example of the free market, right? Wrong again. Let’s say you wanted to buy or sell a certain stock. Shouldn’t you be able to do that in a market where information is equally available to all participants? You should but high speed traders (owned by the usual suspects: GoldmanSachs, Barclays etc.) don’t just trade faster, because they trade only through computers, they actually get information before others do.

So you bypass stocks and decide to buy commercial paper. The financial rating given to that paper was put together by an impartial analyst, right? Wrong. Moodys, one of the largest rating agencies in the world is owned in large part by Warren Buffet, one of the largest owners of stocks and other commercial paper in the world. Just a minor conflict of interest.

Currency – If the relative value of a country’s currency goes up, then the cost of its exports goes up, and they become harder to sell. So it’s essential that the world’s currencies trade on markets which allow them to fluctuate with market conditions, right? Yes, that’s right, but it’s not true. China, the country with which we have the largest trade deficit by far, keeps its currency artificially below the dollar, thus making its imports more competitive in the US than our exports would be in China.

And you could poll a couple dozen US economists who think the current policies of the Federal Reserve are designed to unfairly manipulate the value of the dollar.

These are just a few fish in the barrel.

What’s the point of this, and what does it mean to you?

The main point is that the markets are NOT anywhere near free. Every country rigs parts of the market for their own purposes, and every market has built in biases that outsiders don’t know or can’t compete with. So when someone bases their argument on the requirement of free markets, remember, the markets aren’t free.

More importantly, if you work in the agricultural industry or the auto industry or an industry that is being hurt by imports from China, you should know that the lack of a free market is having an impact on your industry.

Why wouldn’t we limit the import of Korean cars? Maybe Korea will take us down in a trade war. Maybe that will be the spark that starts a global trade war. Maybe it will, but I doubt it. And in the meantime, we all hope that GM keeps making money or the US taxpayer will lose a ton of money on the investment it made in GM.