Market Forces and the Real World

Market Forces and the Real World

If you believe in an economy which relies on market forces, like I do, you might not have considered these important and basic truths…

Market forces are not natural forces which exist independently of everything else. In order for market forces to work their “magic”, they must exist within a social framework. Without a government to provide a framework, market forces as we think of them would not exist.

Economic outcomes depend on the details of the government’s framework. Every policy which affects the economy will alter the outcome and become part of the framework. This includes unintended consequences of seemingly non-economic policies. Since policies are constantly being altered on some level, the framework is fluid. The world itself is constantly changing. New technology and other changes in real-world conditions affect the results of specific policies.

For example, somebody might find a way to exploit new technology to gain an unfair economic advantage. Or perhaps somebody will figure out a loophole in current law and gain an unfair advantage; an advantage which runs counter to the intention of the law. When such changes occur in the world, economic outcomes of existing policies also change. When a new policy is implemented to correct for such undesirable outcomes, then the government’s framework also changes.

There is no single set of policies from any time frame that we can rightly point to – and state unequivocally that those policies are the best possible policies for all time. There is no such thing as an economic system that is a pure market economy. Every economic system is the sum of all policies which affect the economy. Every economic system is unique.

We can’t point to “no government” as a desirable market system. A market system doesn’t exist without government. We can’t honestly state that “less government” is always better regardless of the current situation. The natural outcome of less government as a continuing policy is going to be no government; the result would be that no market economy could exist.

We also can’t honestly state that “more government” is always a better solution.

What is important is to understand the outcomes of policies. Do specific policies create desirable or undesirable outcomes? Who gets to decide what a desirable outcome is? (Hint: “We the People”) It takes simplistic thinking to frame every economic issue in terms of “too much” or “too little” government. The existence of government is a necessity. The size of the government alone is not a factor in determining the desirability of economic outcomes. Only the specific outcomes of specific policies matter. A policy may have desirable outcomes. A policy may have undesirable outcomes. A policy may have mixed outcomes, leaving its net benefit open to debate. What matters is whether the outcomes of the policy are desirable.

When I hear people express opposition to a policy because it is a “big government” policy, instead of demonstrating knowledge of the actual economic outcomes of the policy, I know that these people are using simple-minded thinking. When I hear people state that “less government is always better” or “government is always the problem”, I know that these people are using simple-minded thinking. People who continuously make such claims are not aware of how things work in the real world.

When I hear people constantly argue against policies they don’t agree with on the basis that such policies represent “socialism”, I know that these people do not know what they are talking about. We do not have socialist (read: government ownership of the means of production) policies in the United States, and there are no serious proposals on the table for such policies. When I hear people claim that proposed policy changes, designed to correct for unintended or undesirable consequences, are “redistributions” that are somehow unfair – yet these same people avoid mentioning the earlier policy changes which created the undesirable consequences – I know that these people don’t know what they are talking about. Unfortunately, there is no shortage of politicians and pundits who will repeat such nonsensical claims so often that honest yet gullible people actually believe them.

When I hear people boast that they only listen to people who tend to make such claims, and ignore all other sources, I know that these people do not value the truth. They don’t care about real economic outcomes as much as they value partisanship.

Market outcomes do not occur by magic. There is logic to how the economy works, but not everyone is willing and able to learn the logic. You won’t find the truth by relying solely on sources which will provide you with simplistic talking points. Those sources rely on your ignorance and gullibility.

A version of this essay is included as a chapter in the book Common Misconceptions of Economic Policy by Jerry Wyant. You can purchase this book in paperback form from Amazon and other online book distributors. The list price is $12.99 (only $9.99 using discount code TA9GTK7E when ordering, depending on the distribution channel). Or if you prefer, you can download a digital version on your device (Kindle, Nook, etc.) for $4.99.

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Jerry Wyant