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Givens: Free market theory often is misrepresented

POSTED: November 18, 2011 1:00 a.m.

The pitfalls of communism are well known but people still have undeserved faith in laissez-faire capitalism. Laissez-faire capitalism is like communism in that both sound nice on paper but they don't work in real life.

The Irish Potato Famine reveals how free market idealism can lead to tragedy. Ireland had many potato famines. The crown usually sent grain to be sold at cost and forbad the export of grains from Ireland so the people would have something to eat. Though not adequate, these measures helped.

However, during the great potato famine of 1845 the government advocated laissez-faire capitalism. In 1846, it closed the stores selling subsidized grain, and though it created public work projects, it paid people less than the cost of food, lest they become dependent on welfare.

Since laissez-faire capitalism doesn't allow government interference in markets, the government refused to ban exporting grain from Ireland. The wheat was controlled by absentee landlords who sold it for higher prices overseas. Ireland experienced excellent grain harvests while 1 million people died of starvation.

History is often oversimplified. Pundits favoring free-market theory oversimplify it to popularize it. They twist the ideas of free market economists like David Ricardo.

Ricardo's theory went something like this: The U.S. has a natural advantage at rearing cattle, perhaps due to its abundant prairies. China makes TVs. The U.S. can make a superior TV for the same cost needed to rear one cow. China needs cattle and is willing to sell two TVs for one cow. If the U.S. could import two Chinese TVs while exporting only one cow to China, it should. Americans could then have two TVs for the price of one.

Pundits have reduced Ricardo's theory to this, "We shouldn't have trade restrictions and we should just import whatever is cheapest because that way we can buy a lot more stuff."

Ricardo's theory supposes that actual trade is taking place. If we just buy Chinese because it's cheaper than buying American, and they don't buy from us, then in a few years they'll have all of our money and we'll have a bunch of broken gadgets. Right now, the U.S. runs a trade deficit of $497 billion.

America is losing industries to nations that have no environmental regulations and cheaper labor that often is slave-based. When free market economists Ricardo, Adam Smith and Mises wrote their theories, pollution wasn't a major concern and the transportation cost of importing goods from the developing world was more than the money saved through lower wages. Technology outpaced their theories.

Another free-market pundit ploy is to point out how government-run operations aren't profitable or cost more to run than private counterparts. Of course, how can a government mental health clinic for the uninsured be more profitable than a private clinic for the insured? How can a school charged with educating impoverished children be expected to do so more cheaply and efficiently than a school educating the children of the educated? The government does these sorts of services because they aren't profitable.

It's easy to fall for the fantasy that if there were no government welfare, people would act more responsibly and private charities would fill the gap left by government. What we see around the world is the opposite. Where the safety net is small we see higher levels of poverty and illiteracy. Where the safety net is thick we see education and wealth.

Without government services, this nation would economically look more like Western Africa than Western Europe. Also, as our government has cut services, so have private charities.

They myth that government always hurts business is false. Our greatest technological advances — the Internet, nuclear energy, satellites and the jet engine — were cost prohibitive to private companies and funded by government research.

Free market idealists point out how England, Holland and the U.S. all experienced our greatest periods of economic growth when they embraced laissez-faire capitalism. A closer look reveals their periods of massive economic growth were coupled with periods of slavery, colonialism and environmental exploitation.

The faith that believes laissez-faire capitalism is even possible should have been crushed when the very same Wall Street investors who decry regulation sought to be bailed out when faced with the consequences of their own irresponsibility.

All this doesn't mean capitalism is bad. There are just instances where we need government. Believing that is not a rejection of capitalism, it is a rejection of an idealized faith in the "free-market."

Brandon Givens is a Gainesville resident whose columns appear occasionally and on gainesvilletimes.com.



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