It's time we stopped believing in the Free Market Fairy.
To listen to the far right today, everyone from the movement conservatives to the lunatic fringe like Ron Paul, you can't get very far with out hearing about the Free Market Fairy. You know the one where you put your problem under the pillow and during the night the Free Market Fairy visits and your problem is solved the next morning.
Now no one on the right is using the term Free Market Fairy - they use is "free markets", or very rarely "invisible hand" - but let's be very clear that they are invoking not a general theory of markets nor a deep understanding of economic systems, but instead a magical mythical benevolent force that can do only good and can never do harm and will solve all the world's problems if only we'd let it. I will refer to that force as the Free Market Fairy.
The Free Market Fairy is a very different creature from the original Invisible Hand of Adam Smith, who only mentions it briefly in all of his works where it is couched in a whole framework of economic theory. Today we know that Adam Smith's Invisible Hand is the operation of free markets to maximize efficiency. It is the beginning of an understanding of emergent behavior, the power of individuals, acting locally, that can produce globally things no individual could produce.
In philosophy, systems theory and the sciences, emergence refers to the way complex systems and patterns arise out of a multiplicity of relatively simple interactions. Emergence is central to the theory of complex systems.
A great introduction to the idea is in the essay I,Pencil.
That is in contrast to the Free Market Fairy, which again has it's roots in the operation of free markets, but was grown and cultivated in the Reagan years as the reason for dismantling market oversight and has now grown to mythical proportions, trotted out at the slightest provocation as the solution to all the world's problems. For example the Free Market Fairy was the justification for taking a chainsaw to lending regulations in 2003 which precipitated the housing bubble, subsequent collapse, resultant credit crunch, and impending recession.
How to fix healthcare? The free market.
How to fix education? The free market.
How to fix global warming? Well, first deny it exists for seven years, then when the weight of scientific evidence is completely overwhelming claim it can be fixed, by the free market, even though the free market hadn't solved it over the previous seven years.
How to end slavery? The free market. (I kid you not, Ron Paul is that disconnected from reality).
I certainly believe in the power of a market economy to maximize efficiency and in the power of emergent systems. What I want to do away with is the Free Market Fairy, a fluffed up fraud injected into the conventional wisdom by movement conservatives and libertarians.
A Magical Fairy
The Free Market Fairy is invoked to solve all problems with no explanation given for its wondrous powers, just look at the magical incantation: highlight a problem, invoke free markets, and poof, out pops the desired result. The most important aspect of the Free Market Fairy is that it is magical, with magical devices having three hallmarks; they work outside normal physics, they are outside science (they may be invoked by mere muggles but can never be comprehended by them), and finally they have intent (either good or evil).
Outside Physics: From the list of problems that the Free Market Fairy has been trotted out to fix in the Republican primary, from solving global-warming, fixing health-care, and eradicating slavery, the Free Market Fairy obviously operates outside normal physics.
Outside science: The Free Market Fairy is magical because it is invoked even in the face of mountains of evidence to the contrary. Take, for a single example, health insurance in the United States. At the macro level we have had the same free market system for health insurance for 30 years and have seen nothing but rising costs and an increasing number of un-insured. At the micro level we have the case of Nataline Sarkisyan. Yet in the face of this kind of evidence every single Republican candidate for president still invokes free markets as the solution to the health insurance issue.
Intent: The last hallmark of the magical nature of the Free Market Fairy is that, as with all other magic, it has to be imbued with intent. That is, magic has to be good or evil. Since free markets are magical and so important to the libertarians and movement conservatives, they have to be good, not just a good thing like an ice cream cone on a hot day, but good as in the opposite of evil. From the true believers of the Free Market Fairy, what is truly evil is that which opposes the Free Market Fairy, and anything that stands in the way gets labeled as "communist", "socialist", or "big government", all appropriately draped in scary quotes.
Stop the Magic
This is, of course, all bullshit. There is nothing benevolent about free markets, they are a natural force, like gravity, and aren't magical, good, or evil. The free market will maximize efficiency and it will do so in a manner that is blind to externalities. Externalities are those costs that aren't factored into the market. For example, the operation of a fossil-fueled industrial economy has the externality of altering the amount of atmospheric carbon-dioxide. Global warming is an externality. So are dead people.
The free market is amoral.
Be clear that is a very different statement from free markets being bad or evil, they're not. Like gravity and electromagnetism, or simple machines like the ramp and the screw, they have no inherent intent, they are tools we use on a daily basis, and the expression of intent is in how we apply those tools. I can use a hammer to drive a nail while building a house, or I can use it to cause bodily harm, in neither case is the morality of the action tied to the tool, and in a similar way the blind action of a free market is free of morality.
The Tool User
If free markets are just a tool, then their morality comes from how we apply them. Herein lies the role of government, in setting up the rules and regulations for enterprise, the government is using free markets as a tool and in doing so is embedding our morals into that market. By putting a price on externalities we are giving moral weight to the operation of the market. It is through government that we as a people can shape and guide the force of free markets to do our bidding, and to do so with in a way that reflects our morals. While a perfectly free market is amoral, a regulated one need not be.
Beyond rules and regulations there are other ways in which we can inject our morals into a free market, such as public supported universities and public supported research. Such research would never be profitable for a single company to undertake, but in the end benefits everyone. The Internet, space exploration, and many medical discoveries are all done outside the free market. So while Burt Rutan is correct that space travel should now be fully exploited by the free market, there never would have been a space program to hand over unless the government had done the initial leg work.
No More Fairies
So let's retire the myth of the Free Market Fairy and get back to a reality-based strategy of using free markets, taxes, regulation and public spending to make the world a better place. Little things like rebuilding our transportation and energy infrastructure, expanding broadband access to everyone, and providing universal health insurance.