Market Forces: No Matter What You Do, You Can’t Stop Them

I’ll use this story from the Wall Street Journal to illustrate something that no politician can change: there are immutable laws of economics that will always be in effect, even if you try to implement a communist government. The simple fact is that demand and supply are related. The simple fact is that the market is the best regulator of what should be produced. The simple fact is that a free market is dynamic and it is the best way to efficiently allocate resources and wealth.

There are a host of things that governments can do to screw up the market by making it more inefficient, produce the wrong matrix of goods and services (IOW, goods and services that people don’t want) and introduce harmful actions on the market. Several stories will suffice:

This story shows how production slows down and prices drop as demand drops for a product.

This story shows how bankruptcy is the appropriate end for companies that are poorly managed and workers who demand (and receive) more than the market should bear for their services. This is an example of the government wrongly intervening in the free market.

The entire TARP soap opera is another illustration of how corporations are just as prone to want someone to bail them out as individuals. Most welfare, in my opinion, should be handled by the church and neighbors, not government programs. After this $700B hits the market, along with the other stimulus packages, our market will have too much money in it and that money will need to find a home somewhere. When it does – likely in housing or the stock market – our economy will overheat again and then we’ll have another asset bubble that will burst even worse than the one we’re experiencing now (November, 2008 – February, 2009).

The simple fact is that free markets include pain. Job loss, bankruptcy, rewarding those who contribute most to the market are examples of this. There are winners and losers. That’s life. To the extent the government tries to “fix” it by saying the “market has failed”, the worse the government makes the market. Markets don’t fail. People fail. Markets punish those who make unwise choices and send a signal to everyone else to not do the same thing.

Let’s stay with a free market and keep out the government. Let’s allow businesses to go bankrupt. Let’s not bailout those that have failed. And let’s commit ourselves to understanding that markets have basic principles that shouldn’t be ignored.

Bill English