Dear Dr. Paul: (Free) Market Economy OR Mixed Economy?

[FountainDew]

Foreword: I'm a Dr. Paul supporter. And this is a megalo-monsteriffic-ly enormous discussion topic. I'm not an economy student nor do i claim to be one, so feel free to correct me! So be advised, the following is my understanding of economics.

1.) Free Market Economy (in the form of: Austrian School, and Milton Friedman Economics)

• Era: ~19th century to Present Day.
• Pros: Absolute freedom, No State intervention, "laissez faire" attitude (or self-regulation), flat tax for everyone, closest functional "pure" private economy with no forced duty to society.
• Cons: Can sink hard, high unemployment, no minimum wage, no unions, enormous income gap, favors corporate profiteering, no trade "protection" for developing economies.
• Countries: Iraq, Chile, Indonesia, Argentina, United States*, Hong Kong*, Iceland, etc
• Success Stories: 1980's Hong Kong?
• Disaster Scenarios: Argentine economic crisis, Bolivia's Cochabamba protests, U.S. Subprime Mortgage Crisis, Indonesian Economic Crisis and Suharto, etc

2.) "Mixed" Economy (in the form of: Keynesian economics)

• Era: ~1936 to Present Day.
• Pros: Adaptable to change, Tax-funded state services (roads, post office, schools, hospitals, water, etc), social security protection, protected minimum wage (strong union laws), consumer protection, antitrust protection (to preserve competition) minimized income gap between poor and rich.
• Cons: Unstable monetary policies (central banking), fundamental collectivism (totalitarian abuse), heightened fear of communists (okay i'm kidding)
• Countries: United States*, Canada, United Kingdom, France, Germany, Italy, Sweden, Japan, South Korea, etc
• Success Stories: Japanese economic "miracle", The New Deal, and pretty much all developed nations of the world...
• Disaster Scenario: Socialism.

* At some point in their modern history

3.) Discussion
Q: What would a Ron Paul economy look like?

I've been wondering about his thoughts on the entire economic system but i couldn't really pinpoint the answer I needed. It seems he is prefers very little government intervention, he prefers people regulate themselves, and that the market should be free. And on these terms, I'd put him as an anarcho-capitalist (or austrian school, or even a Friedman economist).

But my judgement tells me this kind of economic system leaves more profit to the rich and even less to the poor. The reason I see that the system can fail on is the low adaptability once wealth begins to collect in a very few number of pockets. And in my opinion, today's Coporate America itself a proponent of the Friedman economic system, because they see enormous profits to be had with no accountability or government regulation to make sure they consider externalities (ie. us, the rest of society who could be severely harmed).

Ron Paul is a hero in my eyes, no doubt, but I wonder what his stance is on the entire economic system. Or what could a Paul economy do better than an Austrian School economy so that there isn't a small collection of great wealth? Because if he really sees the Mixed economy as unconstitutional, then wouldn't that become a huge problem for America if he was president?

[ArrestPoliticians]

1.) Free Market Economy (in the form of: Austrian School, and Milton Friedman Economics)

* Era: ~19th century to Present Day.
* Pros: Absolute freedom, No State interventionNo intervention, but some regulation in the form of contract enforcement, policing of fraud, protection of property and property rights, etc., "laissez faire" attitude (or self-regulation), flat tax for everyone, closest functional "pure" private economy with no forced duty to society.
* Cons: Can sink hardcore,Not really high unemployment,Nope no minimum wage, no unionsnot necessarily, just no unions with government backing., enormous income gapPreposterous, capitalism invented the middle class, favors corporate profiteeringwhat does this mean?, no trade "protection" for developing economiesSee: Law of Comparitive Advantage.
* Countries: Iraq, Chile, Indonesia, Argentina, Brazil, United States*, Hong Kong**, Iceland, etc USA had a relatively free market in parts of the 19th century, but thats about it. The rest are even less free.
* Success Stories: 1980's Hong Kong?
* Disaster Scenarios: Argentine economic crisis, Bolivia's Cochabamba protests, U.S. Subprime Mortgage Crisis, Indonesian Economic Crisis and Suharto, etcRidiculous, all of these were due to massive interventions.


2.) Mixed Economy (in the form of: Keynesian economics)

* Era: ~1936 to Present Day.
* Pros: Adaptable to change, Tax-funded state services (roads, post office, schools, hospitals, water, etc), social security protection, protected minimum wage (strong union laws), consumer protection, antitrust protection (to preserve competition) minimized income gap between poor and rich.Mostly opinion based pro's, its hard to find any inherent agreed-upon value in most of these
* Cons: Unstable monetary policies (central banking), fundamental collectivism (totalitarian abuse), heightened fear of communists (okay i'm kidding)
* Countries: United States***, Canada, United Kingdom, France, Germany, Italy, Sweden, Japan, South Korea, etc
* Success Stories: Japanese economic "miracle", The New Deal, and pretty much all developed nations of the world...

Some comments on your analysis.

Now on to the questions:

Q: What would a Ron Paul economy look like?

I've been wondering about his thoughts on the entire economic system but i couldn't really pinpoint the answer I needed. It seems he is prefers very little government intervention, he prefers people regulate themselves, and that the market should be free. And on these terms, I'd put him as an anarcho-capitalist (or austrian school, or even a Friedman economist). Right, except he is a minarchist because he believes in some government to protect borders, property rights, contracts, etc.

But my judgement tells me this kind of economic system leaves more profit to the rich and even less to the poor. The reason I see that the system can fail on is the low adaptability once wealth begins to collect in a very few number of pockets. And in my opinion, today's Coporate America itself a proponent of the Friedman economic system, because they see enormous profits to be had with no accountability or government regulation to make sure they consider externalities (ie. us, the rest of society who could be severely harmed).

Capitalism CREATED the middle class. The growing disparity is blown out of proportion, but it is growing. The fact that we don't have capitalism today means that this can't be attributed to it.

Ron Paul is a hero in my eyes, no doubt, but I wonder what his stance is on the entire economic system. Or what could a Paul economy do better than an Austrian School economy so that there isn't a small collection of great wealth? Because if he really sees the Mixed economy as unconstitutional, then wouldn't that become a huge problem for America if he was president?

There would not be a small collection of great wealth in a true Free Market economy. He would be president to change things, where's the problem?

[FountainDew]

Wow fast reply, i had to edit a small piece of what i wrote.

Anyway to ArrestPoliticians: Profiteering is a made-up word when businesses do unethical things to gain profits, such as needlessly aggressive marketing to third world countries and wiki lists the Nestle Boycott as an example.

Also do you have a document or article or anything where Dr. Paul actually talks more in depth about the economic system and not just the effects of the Federal Reserve? I'm confused about the whole issue of privatization. First I was taught it was a good thing, cuz we're Capitalists. Then I was taught it was bad cuz it hurt third world countries and gave corporations too much power over them. And now I'm hearing its good, so long as the government protects constitutional stuff, but not necessarily concern itself with minimum wage or support unions. So is it good, is it bad? I'm confused!

And I'm not saying I trust the government, but I trust the corporations even less. So who would fight against them in the event an Austrian School free market were to happen tomorrow morning?

And finally, I thought both Austrian and Mixed economies were forms of Capitalism... So if I'm uninformed, could you explain what it means to say that Capitalism invented the middle class, which one exactly Mixed or Austrian?

Thanks for the quick reply.

[ShannonOBrien]

Foreword: I'm a Dr. Paul supporter. And this is a megalo-monsteriffic-ly enormous discussion topic. I'm not an economy student nor do i claim to be one, so feel free to correct me! So be advised, the following is my understanding of economics.

1.) Free Market Economy (in the form of: Austrian School, and Milton Friedman Economics)

• Era: ~19th century to Present Day.
• Pros: Absolute freedom, No State intervention, "laissez faire" attitude (or self-regulation), flat tax for everyone, closest functional "pure" private economy with no forced duty to society.
• Cons: Can sink hardcore, high unemployment, no minimum wage, no unions, enormous income gap, favors corporate profiteering, no trade "protection" for developing economies.
• Countries: Iraq, Chile, Indonesia, Argentina, Brazil, United States*, Hong Kong**, Iceland, etc
• Success Stories: 1980's Hong Kong?
• Disaster Scenarios: Argentine economic crisis, Bolivia's Cochabamba protests, U.S. Subprime Mortgage Crisis, Indonesian Economic Crisis and Suharto, etc

2.) Mixed Economy (in the form of: Keynesian economics)

• Era: ~1936 to Present Day.
• Pros: Adaptable to change, Tax-funded state services (roads, post office, schools, hospitals, water, etc), social security protection, protected minimum wage (strong union laws), consumer protection, antitrust protection (to preserve competition) minimized income gap between poor and rich.
• Cons: Unstable monetary policies (central banking), fundamental collectivism (totalitarian abuse), heightened fear of communists (okay i'm kidding)
• Countries: United States***, Canada, United Kingdom, France, Germany, Italy, Sweden, Japan, South Korea, etc
• Success Stories: Japanese economic "miracle", The New Deal, and pretty much all developed nations of the world...
• Disaster Scenario: Socialism.

* Mostly due to deregulation by the Bush Administration.
** Not a country anymore, but imagine its the early 90's.
*** Minus a few core services mentioned.

I can't believe there aren't more responses to this post!

Ok some notes now. Free Markets in the Austrian meaning of the term would not mean that there was no regulation whatsoever. Just minimal regulation. For example, the courts need to protect consumers when a business acts fraudulently. Private property should be protected by the courts (a big business couldn't pollute a private citizen's air), etc. Now when I took economics courses I had one teacher who was a Keynesian who taught us that totally free markets would produce when you mention in the cons. But all of my other teachers (I'm not sure what their beliefs were) actually explained that in a free market, things reach equilibrium. So you would have a naturally low unemployment rate (of maybe 3% or so) in a free market. You wouldn't need a minimum wage because the minimum wage doesn't raise a person's standard of living at all. It just creates more unemployment and causes businesses to have to raise their prices. Always trying to reach an equilibrium. And you wouldn't have corporatism because you can only have giant corporations if competition is being thwarted. Even if a company did have a monopoly in one area (for example, microsoft putting their OS on every computer) it would not last very long because someone else could come along with a better OS. Then people would not buy the computer that only had Microsoft OS. They would only want to buy the better one. So computer companies would stop putting Microsoft OS on their shelves. After all, they aren't making a profit off of them. As far as countries that are examples of that, I would say that the US is pretty much the only example of that. And it hasn't been a free market for a long time. Some people think we haven't had free markets since the early 1900s. But even with that, we still have one of the freest economies in the world. Though that's not really saying much when you look at other countries. All of the latin American countries you mention were completely raped by the IMF through corporatism. There is nothing free market about it. I think it is very common for people to believe that free market and corporatism is the same thing. But it is not at all. Corporatism means that the government is giving special privileges to certain businesses by destroying their competition. This is what happened in Latin America. It's very sad what was done to those people. The IMF and US brought facism to many of those countries and they have never been brought to justice for it.

As far as Keynesian, I was totally brainwashed in college to believe that Keynesian was the best thing since sliced bread. Then when I actually did the research and got information from economic journals instead of whitewashed textbooks, I learned that Keynesian economics is very detrimental. Austrian economics isn't perfect. But Keynesian economics is far worse. Austrian economics is not survival of the fittest. In the Austrian world, everyone has the equal opportunity to live a quality life. Keynesian economics has the government promise everyone what they think is a good standard of living by taking from others who have a higher standard of living. Which gives everyone a lower quality of life. I remember reading that the New Deal was great and helped us get out of the great depression. But then I learned later that the consequences of the New Deal are that millions of people starved to death! The New Deal wanted to protect farmers so they decided to keep the prices artificially high. They did this by paying farmers to produce less and destroy whatever food they grew that the government said was too much. People were begging to buy this food. Instead the food was too expensive for poor people to buy. Keynesian economics is the mainstream school of thought because populism is the mainstream school of thought. The motto is "it is the government's duty is to help you and they will. Government is not perfect but they can help you the best." The problem is that the statistics and the history is just not on the Keynesian side. There is no such thing as "mixed economy." There is just a spectrum of how much government intervention there is. I hated it when my teachers would say that. They just used those words so that we would think we naturally came to the conclusion ourselves that mixed economy was the most fair. Even if you can't afford to buy the economic journals (some of them are $300 for a year's subscription!) you can still find a lot in places like wikipedia. I would look at "minimum wage" in wikipedia for an example of how the studies are not on the Keynesian side.

Sorry this was such a long post. I just get so excited when we talk economics! :/

[Truth Warrior]

What is it about Ron Paul that some of the SOCIALISTS just really don't seem to WANT to get?

[Ilhaguru]

I'm from Brazil, and we have NEVER had a free market economy.

Maybe if you go back to the colonial and imperial years it was more like one, with a gold standard, but I really wonder how you can put Brazil under the Free Markets category.

Be it under the right-wing dictatorship we had or not, there was always lots and lots of government control. There still is.

[Ilhaguru]

The often talked about "Brazilian Economic Miracle" was nothing but the period in which our government took out billions upon billions of debt and spent it. Then the bills came in, and the period came quickly to an end.

We are still paying back those loans. We've had several crisis on the way because of them, including hyperinflation.

[FountainDew]

I'm from Brazil, and we have NEVER had a free market economy.

Maybe if you go back to the colonial and imperial years it was more like one, with a gold standard, but I really wonder how you can put Brazil under the Free Markets category.

Be it under the right-wing dictatorship we had or not, there was always lots and lots of government control. There still is.

The main reason I included Brazil was because of the market reforms that were influenced from the Chilean "Chicago Boys" during the 70's and 80's under the dictatorship. No markets are in the world were ever free, and imo can never be free because of Milton Friedman himself stated so during an interview with the Huffington post:

Gardels: In the end, your ideas have triumphed over Marx and Keynes. Is this, then, the end of the road for economic thought? Is there anything more to say than free markets are the most efficient way to organize a society? Is it the "end of history," as Francis Fukuyama put it?

Friedman: Oh no. "Free markets" is a very general term. There are all sorts of problems that will emerge. Free markets work best when the transaction between two individuals affects only those individuals. But that isn't the fact. The fact is that, most often, a transaction between you and me affects a third party. That is the source of all problems for government. That is the source of all pollution problems, of the inequality problem. This reality ensures that the end of history will never come.

So I'm not saying the countries listed including Brazil were ever true Free Markets, but they at one point tried to push the idea of extreme privatization (without any third party considerations) and came to some disastrous outcomes. But if it offends you, I've removed it from the list.

Always trying to reach an equilibrium. And you wouldn't have corporatism because you can only have giant corporations if competition is being thwarted. Even if a company did have a monopoly in one area (for example, microsoft putting their OS on every computer) it would not last very long because someone else could come along with a better OS.

I wonder though, what would stop a Microsoft corp from simply buying the competitor or legally/illegally sabotage or ruin them? Judging from today's monopoly and cartels, that's exactly the message they're giving us right?

All of the latin American countries you mention were completely raped by the IMF through corporatism. There is nothing free market about it. I think it is very common for people to believe that free market and corporatism is the same thing. But it is not at all. Corporatism means that the government is giving special privileges to certain businesses by destroying their competition. This is what happened in Latin America. It's very sad what was done to those people. The IMF and US brought facism to many of those countries and they have never been brought to justice for it.

I think your correct in saying they are two different systems entirely. However, I think the reason I saw them as the same thing is because often times Corporations would "rape" their competitors all while under the banner of "Free Market" Capitalism. Unfortunately, they succeed around half the time. Is there anything in an Austrian system that would prohibit this kind of behavior?

I remember reading that the New Deal was great and helped us get out of the great depression. But then I learned later that the consequences of the New Deal are that millions of people starved to death! The New Deal wanted to protect farmers so they decided to keep the prices artificially high. They did this by paying farmers to produce less and destroy whatever food they grew that the government said was too much. People were begging to buy this food. Instead the food was too expensive for poor people to buy.

That sounds terrible, do you have any reference or keywords I could research more into this topic?

I would look at "minimum wage" in wikipedia for an example of how the studies are not on the Keynesian side.

Sorry this was such a long post. I just get so excited when we talk economics! :/

Not at all! I'm so glad there was discussion without the need to resort to labels! As for the minimum wage discussion, I read the article on wikipedia and agree with much of what it said. It has opened my eyes concerning minimum wage and the obvious unemployment effects. I do not doubt the correlation is a direct one. I do believe the argument that the abolition of minimum wage would relieve our "transfer spending" by welfare and government could focus on other parts of labor law.

However, I'm not convinced by all the claims. Because I also believe the counter-argument of monopsonistic competition creating an uneven balance. From my eyes, I see the biggest corporations in the world with the most massive revenues of $50 billion to $400 billion+, and they employ a mere 30,000 employees. The minimum wage obviously doesn't hurt their hiring practice, they simply don't want more employees. So the abolition of minimum wage wouldn't necessarily explode the job market by "freeing" the revenues of the world. Effectively, the "Demand for Labor" curve would reach equilibrium much much sooner than the depicted minimum wage equilibrium wouldn't it?

I don't know if the following factors are even related to this subject, but my question to economists would be: what effects would illegal immigration and outsourcing have on the economy after the abolition of the minimum wage? (IMO, i see a positive outcome, but I'm not an economist)

[Ilhaguru]

The Chicago Boys were limited to Chile as far as I know, and they did a decent job over there too. Privatizations in Brazil didn't start until the mid to late 1990s, and they have been a resounding success, even considering many (which includes highways) were only half-ass privatizations.

We are now slowly (and thankfully) moving towards airport privatizations. Two airports are on the line so far.

Privatization has been a blessing, nothing short of it. We had the debates over it 10 years ago, and now Americans are having it too. I hope you guys follow the same road, but do it even better than we did, i.e., a proper privatization.

If you want a personal example, my family didn't even own a basic phone line service (until 1998, iirc) because under the government it cost thousands of dollars just to get one line. Once the telecom industry was privatized, we were able to afford it, as prices plummeted.

Now cell phones are all over the country, too.

Keynes has been a disaster for the world's poor. Friedman gets a lot of flak in the Ron Paul Forums, but he was infinitely better than Keynes for this region.

[theoakman]

the issue today isn't so much that we need to get to a pure free market economy. With ignorance and human nature, it's virtually impossible. We became the richest nation in the world on a crap capitalism/central banking model. The real issue is now that the government has grown so large and it's interference has actually destroyed the economy, what they need to do is get the hell out of the way. Instead, they try to fix it, which is the wrong move. You don't need a 100% free market. You just need a really small government.

[Ilhaguru]

the issue today isn't so much that we need to get to a pure free market economy. With ignorance and human nature, it's virtually impossible. We became the richest nation in the world on a crap capitalism/central banking model. The real issue is now that the government has grown so large and it's interference has actually destroyed the economy, what they need to do is get the hell out of the way. Instead, they try to fix it, which is the wrong move. You don't need a 100% free market. You just need a really small government.

That is very true, Theoakman. Of course, the freer the better.

"Highly explosive" things like central/fractional reserve banking must be at the edge of debate, however.

[spudea]

We are not presently in a free market...the US Subprime mortgage crisis is caused by socialist intervention. Starting with the belief that its an american "right" to own a home, the government pushed mortgage companies to expand lending practicies. The regulating agencies ignored the types of securities being created on purpose. Coupled with drastically artificially low interest rates allowed an enormous wave of risky lending. The resulting credit crisis is again an effect of massive government deficit. If the government is absorbing 1 trillion per year out of the credit markets, that is less for businesses and consumers, and the world, to re-invest in efficient economies.

You state that free market can "sink hardcore". The periods of expansion and recession of the business cycle is caused by intervention. A truely free market system would use resources highly efficiently, allowing people and capital to move freely. When you introduce protectionism and favoritism, inefficiencies are produced and will eventually, given enough time, cause destruction in the market.

the problem is that a true free market has never existed, or at least not long enough to effectively describe and study. Within a short time, power hungry would be dictators take any chance they can to control or influence the system.

[ShannonOBrien]

I wonder though, what would stop a Microsoft corp from simply buying the competitor or legally/illegally sabotage or ruin them? Judging from today's monopoly and cartels, that's exactly the message they're giving us right?

-- Well a company could be bought out by Microsoft. But if the company believes it will be more profitable, they won't take the offer. I'm not sure what you mean by sabotage or ruin so I am not sure how to answer that. It's hard to determine what could be considered a "free market" monopoly. For example, a saran wrap company might be the only saran wrap company that exists and someone might charge it with being a monopoly. But the company might say that saran wrap is a very small business in the very large food storage industry. It gets into a gray area rather quickly. However, what is usually the culprit for a company being a monopoly is usually its patents, strangely enough. Patents are good for businesses because investors know that they could have a monopoly on an idea. I'm not against patents and copyrights and I don't think Ron Paul is either. But recently the government just expanded how long you can have a patent. It used to be that you could have a patent for your life time but now they have expanded it to your lifetime plus 70 years! I don't think we can encourage that and not expect to see more monopolies results.

However, I think the reason I saw them as the same thing is because often times Corporations would "rape" their competitors all while under the banner of "Free Market" Capitalism. Unfortunately, they succeed around half the time. Is there anything in an Austrian system that would prohibit this kind of behavior?

---That's a great way to put it. I hadn't thought of that before. It's true that I also believed corporatism was the same thing as free market capitalism because they always call it that. I think the system we have now which is Keynesian economics breeds corporatism because it is a much softer socialism. Instead of saying, "we need to hand out money from the government to the poor" they say, "the government needs to hand out money to giant corporations who will create jobs for the poor." But it's not really all that different. Austrian economics would allow anyone to open a business without too much government intervention which would make businesses have to compete against each other. In the Austrian world, you might be allow to patent the idea of a computer but it would only last 15 years (I'm just guessing). So you might have a monopoly for 15 years but then after that the floodgates would open and lots of businesses would come in with your idea for cheaper or maybe a more improved version.

That sounds terrible, do you have any reference or keywords I could research more into this topic?

---(You were talking about the Americans starving because of the farm bill) I can't remember off the top of my head where I read about that. I tried to find it online but I couldn't. I will have to message you when I find it. Rats.

However, I'm not convinced by all the claims. Because I also believe the counter-argument of monopsonistic competition creating an uneven balance. From my eyes, I see the biggest corporations in the world with the most massive revenues of $50 billion to $400 billion+, and they employ a mere 30,000 employees. The minimum wage obviously doesn't hurt their hiring practice, they simply don't want more employees. So the abolition of minimum wage wouldn't necessarily explode the job market by "freeing" the revenues of the world. Effectively, the "Demand for Labor" curve would reach equilibrium much much sooner than the depicted minimum wage equilibrium wouldn't it?

--- I'm not sure how to answer this well enough so I will have my husband respond: Hi! I agree with you that a monopsony would destroy the whole anti-minimum wage argument, since the one employer would be able to essentially pay whatever he wanted. However, this situation seems unlikely for the job market, because human labor is always inherently valuable to everyone. If one monolithic corporation was paying everyone 5 cents an hour, Joe across the street would give you 2 bucks to mow his lawn. Or other, smaller companies would rise up to offer higher wages, because labor is always valuable. And like you said, these big companies don't employ a majority of the job market anyway, so it's not a matter of the big guys hiring more workers - it's a matter of OTHER companies demanding more workers. This doesn't mean 100% employment, though. Equilibrium of supply and demand for labor will always be reached at the "natural rate of unemployment," which for the US I think is supposedly around 5% or so. Did that answer your question?

what effects would illegal immigration and outsourcing have on the economy after the abolition of the minimum wage?

---Well right now there is a black market for labor because we have a minimum wage. Our minimum wage actually isn't higher than the equilibrium so most businesses pay their workers more than that. But there is still a black market. The money in Mexico is not very strong but U.S. dollars are pretty strong so they come up here and work to earn our dollars. The low wage jobs like farming like to take on the illegal workers because they don't have to pay the high payroll taxes and the minimum wage. That also means they can lower their prices and gives them an edge against their competition. So right now illegal immigrants are working without a minimum wage and they manage to survive. If we had no minimum wage, people wouldn't leave the U.S. in search of higher wages any more than they are now. As far as outsourcing, if there are people who are willing to work for less, businesses will be attracted to them and give them jobs because of the demand for cheap goods. But outsourcing is not the bad guy everybody makes it out to be. Outsourcing gives jobs to people in countries were they need them the most. There is no evidence that shows that outsourcing takes away jobs within the U.S. That would only be true if there was a fixed number of jobs in the world. We have had such a low unemployment rate for so long that there is always a job for someone if they really want to do the work. However, because of our current financial crisis, that doesn't seem like it's going to be so true in the near future.

[FountainDew]

@spudea
--- "the government pushed mortgage companies to expand lending practicies."
That's sort of an oxymoron isn't it? To force somebody to act more freely.

--- "You state that free market can "sink hardcore". The periods of expansion and recession of the business cycle is caused by intervention. A truely free market system would use resources highly efficiently, allowing people and capital to move freely."
That's very similar to what Milton Friedman would teach, but how can one be so optimistic about a theoretical system that has so far, never seen existence anywhere in the world, and every time it is given a chance it is quickly converted to Corporatism, torture, and military dictatorship? ie. Chile, Argentina, Uraguay, Iraq, etc. Milton Friedman's pupils all had very prominent roles to play in each of these scenarios and each time the country's real wages would collapse ~25%-40%, inflation would break records ~325%, and unemployment absurdly high ~20%-40% again.

--- "the problem is that a true free market has never existed, or at least not long enough to effectively describe and study. Within a short time, power hungry would be dictators take any chance they can to control or influence the system."
As a citizen of a nation, how can governments implement an Austrian market when it is clear that power-hungry entities will snatch it up at the slightest chance? In other words, what hope do we have once the doors swing wide open to multinationals?

@ShannonOBrien
--- "I'm not against patents and copyrights and I don't think Ron Paul is either. But recently the government just expanded how long you can have a patent. It used to be that you could have a patent for your life time but now they have expanded it to your lifetime plus 70 years! I don't think we can encourage that and not expect to see more monopolies results."
I wish I could ask Dr. Paul himself about the issue of patents. As I do agree with your statement but would also like to open the topic on patenting life. For example, BT Corn and some estimated 10,000 strains of crop are patented by Monsanto Corp alone. If we are to honor patents, how can a law be made to prevent patent "hording" to the point where it hurts farmers?

--- "Austrian economics would allow anyone to open a business without too much government intervention which would make businesses have to compete against each other. In the Austrian world, you might be allow to patent the idea of a computer but it would only last 15 years (I'm just guessing). So you might have a monopoly for 15 years but then after that the floodgates would open and lots of businesses would come in with your idea for cheaper or maybe a more improved version."
Good point. Essentially it comes down to who writes the patent laws and what ideals he or she has in mind.

--- "And like you said, these big companies don't employ a majority of the job market anyway, so it's not a matter of the big guys hiring more workers - it's a matter of OTHER companies demanding more workers. This doesn't mean 100% employment, though. Equilibrium of supply and demand for labor will always be reached at the "natural rate of unemployment," which for the US I think is supposedly around 5% or so. Did that answer your question?"
Yes, argument is very good. Although one thing is unclear, just what factors determine the "natural unemployment?" I keep hearing this term used to describe some kind of harmonious equilibrium in which the balance of unemployment and employment alone will eliminate all complications that exist with the market today. As nice as that sounds, I wish I understood how.

--- "Outsourcing gives jobs to people in countries were they need them the most. There is no evidence that shows that outsourcing takes away jobs within the U.S. That would only be true if there was a fixed number of jobs in the world. We have had such a low unemployment rate for so long that there is always a job for someone if they really want to do the work. However, because of our current financial crisis, that doesn't seem like it's going to be so true in the near future."
Hmmm, don't you think this depends on the scale used? I don't know any industry stats but in my view it seems like anytime you have big companies changing their policies to outsource nearly half of their employees, that's a loss of jobs in that country. But if you were to see it on a world scale, it would just be a transfer of jobs.... however, I don't believe we are even close to having a unified world economy yet.

[wilcox71]

we are not presently in a free market...the us subprime mortgage crisis is caused by socialist intervention. Starting with the belief that its an american "right" to own a home, the government pushed mortgage companies to expand lending practicies. The regulating agencies ignored the types of securities being created on purpose. Coupled with drastically artificially low interest rates allowed an enormous wave of risky lending. The resulting credit crisis is again an effect of massive government deficit. If the government is absorbing 1 trillion per year out of the credit markets, that is less for businesses and consumers, and the world, to re-invest in efficient economies.

You state that free market can "sink hardcore". The periods of expansion and recession of the business cycle is caused by intervention. A truely free market system would use resources highly efficiently, allowing people and capital to move freely. When you introduce protectionism and favoritism, inefficiencies are produced and will eventually, given enough time, cause destruction in the market.

The problem is that a true free market has never existed, or at least not long enough to effectively describe and study. Within a short time, power hungry would be dictators take any chance they can to control or influence the system.

amen!!!

[Dsylexic]

all talk of 19th century free markets in the US must be taken with a pinch of salt.the two gorillas in the room nobody wants to talk about are a)free labour -slavery and b)gold accumulated by looting native americans .there is no free market when a large section of the populace has no rights or has been dispossessed of honest money -gold

[NolanLawson]

Yes, argument is very good. Although one thing is unclear, just what factors determine the "natural unemployment?" I keep hearing this term used to describe some kind of harmonious equilibrium in which the balance of unemployment and employment alone will eliminate all complications that exist with the market today. As nice as that sounds, I wish I understood how.

I only vaguely remember from my economics course, but I think the "natural rate of unemployment" is what unemployment would be if there were no inflation/deflation, or if labor supply met labor demand. So for instance, because France has laws that restrict businesses from operating at certain hours and mandate that everyone have so-many weeks of vacation per year, they would have a higher "natural rate of unemployment" than the US, because those factors would naturally contribute to higher unemployment. But they may have a different ACTUAL rate of unemployment due to inflationary monetary policy, "sticky wages" during deflation, etc. It's sort of abstract and theoretical.

That's very similar to what Milton Friedman would teach, but how can one be so optimistic about a theoretical system that has so far, never seen existence anywhere in the world, and every time it is given a chance it is quickly converted to Corporatism, torture, and military dictatorship?

I don't think free markets can be faulted for leading to corruption or corporatism, because it's the only system that actually discourages people from corrupt means of profit-seeking. In free markets, a person's natural greed is translated into working hard to compete and provide a better service to customers. In a planned economy (corporatist or socialist), that same greed is naturally channeled to trying to persuade bureaucrats into giving you a bigger slice of the pie, since they're the ones who decide who gets what and how much. Hayek's book The Road to Serfdom talks about this a lot.

Even if capitalism did somehow "tend" toward corporatism, the alternative would not be much better. The alternative would be regulation, which leads to 1) higher prices, since bureaucrats are dictating how much a company can produce, how they can produce it, etc. instead of the market, and 2) what's called "regulatory capture," where basically the regulators are in bed with the businesses they're supposed to regulate. Such regulatory capture is predictable in a planned economy, since (as Hayek points out), companies will focus all their efforts on gaming the system (i.e. the regulatory commissions) rather than competing. The fact that the FCC, the Fed, and the FDA have such cozy relationships with the CEOs of the companies they monitor attests to that pretty well.

ie. Chile, Argentina, Uraguay, Iraq, etc. Milton Friedman's pupils all had very prominent roles to play in each of these scenarios and each time the country's real wages would collapse ~25%-40%, inflation would break records ~325%, and unemployment absurdly high ~20%-40% again.

I'm no expert on the history of these countries, but I would imagine their problems come from trying to transition from central planning to corporatism/cronyism, which is pretty much "out of the frying pan, into the fire." As for inflation, inflation is always the outcome of an increase in the money supply (see: http://mises.org/money.asp), so in a free market with sound money there would be no inflation.

Also, if I'm not mistaken your points sound similar to the issues discussed in Disaster Capitalism by Naomi Klein, which is rebutted here: http://www.reason.com/news/show/128903.html

That sounds terrible, do you have any reference or keywords I could research more into this topic?

America's Great Depression by Murray Rothbard is a great source for the real scoop on the Great Depression. I also heard that this book called The Forgotten Man (don't remember the author) was pretty good.

Thanks for the spirited discussion; it's nice to remember what we're fighting for anyway.

[Ilhaguru]

@spudea
--- "the government pushed mortgage companies to expand lending practicies."
That's sort of an oxymoron isn't it? To force somebody to act more freely.

"forced somebody to act more freely" is the oxymoron.

[Ilhaguru]

That's very similar to what Milton Friedman would teach, but how can one be so optimistic about a theoretical system that has so far, never seen existence anywhere in the world, and every time it is given a chance it is quickly converted to Corporatism, torture, and military dictatorship? ie. Chile, Argentina, Uraguay, Iraq, etc. Milton Friedman's pupils all had very prominent roles to play in each of these scenarios and each time the country's real wages would collapse ~25%-40%, inflation would break records ~325%, and unemployment absurdly high ~20%-40% again.

Argentina's government ruined their own economy. They chose a monetary system but didn't follow through with what this system would require. Look up Currency Boards and research how well Argentina followed the idea.

Chile is the most advanced country in South America. That's where the Chicago boys started. Chicago boys convinced Pinochet to follow some of Friedman's ideas, they never converted Chile into a military dictatorship.

And lastly, I'm not sure you are even aware that Austrians don't agree with Friedman on macroeconomic issues. I suggest you go to lewrockwell.com and do a search for Milton Friedman. I don't see why you keep bringing him up.