It’s time to tell the truth about the free market.
It’s a useful social tool — sometimes — but it’s no panacea. People get to the conclusion that it produces the best outcomes only by arguing in a circle: The best outcomes are, by definition,those produced by the free market, so … the market produces the “best” outcomes. (QED)
Let’s get specific, with an issue which is now roaring to the front. What determines the price of labor under a market system? Advocates of capitalism say that it all comes down to productivity; productive labor is more highly paid. Nonsense. I’m no economist, but I did take basic econ back in the day. Back then we said that, in an unrestricted market, prices are set by (surprise) supply and demand. Anything that increases the supply of a commodity or reduces the demand drives down the price.
What raises the supply of labor? Population increase, of course, but also bringing new populations into the labor force. End discrimination against women or minorities, and suddenly there’s more labor. Reduce shipping costs so that products can be brought in from Mexico or China — or call centers can be located in India — and again, more supply. Productivity increases, of course, reduce the demand for labor. So do reductions in the aggregate demand for goods and services as working people’s incomes go down — because their wages are falling and their credit lines are tapped out. In sum, there is a “natural” tendency for the wage rate to fall. That’s not a distortion of the market — that’s how it’s supposed to work.
Won’t increasing people’s education levels bring them higher pay? Why would it? You’re just increasing the supply of educated workers. If everyone got an engineering degree, engineers would be paid minimum wage.
So what will raise the price of labor? Raising demand or lowering supply. If someone — anyone, including the government — puts in orders for, say, new infrastructure or green technology, the demand will go up. If the supply is restricted by, say, rebuilding the unions, the supply will go down.
Won’t that violate the “laws of the market”? Well, yeah. You got a problem with that?
