Tuesday, June 05, 2007

Freedomnomics: Introduction

This is the first in a series of articles about the recently published book "Freedomnomics" by John R. Lott, Jr. Ph.D. I will be offering my thoughts on a chapter by chapter basis, as I read and annotate the book. This first installment begins with the introduction.

Lott says on page one:

The free market works. This notion was clear to Adam Smith in the early days of capitalism, but since then has come under a great deal of skepticism...

First and foremost, I am immediately suspicious of people who make this article because unlike most of his readers, I in fact have a copy of The Wealth of Nations and have read it. I have also read many articles by other equally educated and experienced economists who have read Adam Smith, and this endorsement of "free markets" as being the focus of Adam Smith's observations and writings is terribly skewed.

Let me quote to you David C. Korten, in his article The Mythic Victory of Market Capitalism, as follows:

Proponents of economic liberalism - that is, [unregulated] free market capitalism - like to suggest that their is an economic system created for the purpose of satisfying the economic needs not of [corporations] but of people...First published in 1776, Wealth of Nations presented a radical critique of government and state protection of business monopolies. Smith demonstrated the ways in which state support and protectionism tended to distort the self-corrective mechanisms of a competitive market that comprised small buyers and sellers. What today's economic liberalists fail to report is that the economic system they are now creating in Smith's name bears a far greater resemblance to the monopolistic market system he condemned than it does to the theoretical competitive market system he hypothesized would result in optimal allocation of society's resources.

Lott claims that countries that stuck with free markets have prospered and continue to prosper far above all others, but as I have shown you in recent articles, real income has actually fallen 12% for most wage earners since GATT and NAFTA were put into place, and continues to fall. We're not better off with unregulated multi-national CEO's running the "free" market. We're worse off.

Lott says that a free-market economy rests entirely on the pursuit of economic self-interest but this is absolutely not true. People can and do base their economic decisions on other criteria entirely - religious, ideological, philosophical, environmental, and even altruistic ones.

Lott claims on page three that one great benefit of a free market - it created incentives for people to behave honestly. Again, this is only relevant of local businesses serving local clients. In the globalism paradigm, it doesn't create an incentive to honesty. Instead, the incentives are to use the overwhelming power of multi-national corporations to either change laws to suit themselves or move to locations without such laws. Their good reputation Lott claims they will not be dishonest in order to preserve is entirely the work of propaganda/marketing departments of those self-same corporations. The scale and scope of these CEO's and their underlings are far beyond the average person's ability to investigate. The same is true of the products we buy - they are produced far away on purpose, so that we cannot see the working conditions and the environmental impacts that might cause us to boycott them. They know that news from other lands doesn't really interest Americans - a result they themselves helped to create. (Gee, I wonder why?)

Also, Lott asks on page three: Is everyone from corporate CEO's to your local car salesman really looking to make a buck at your expense? Well, has Lott been doing any of his own shopping lately? Enough said.

On page four Lott seems to think that giant firms like Con-Agra are somehow like small E-Bay sellers, for whom consumers can rate their transactions. But in real life, no one in America has the foggiest about about Con-Agra's transactions or any other multi-national conglomerate's transactions. How do we know they're ethical? Audits? Ha. Commercials? Ha. There is NO WAY to know, and they know it. Hence they operate with little to no fear of anyone passing judgment on their transactions, because the transactions are for the most part so far removed from their clients that it is literally nothing for them to worry about. In Adam Smith's world of local businesses serving each other and their local clients, this could not be so.

Lott sets up a nice straw man on page four, when he asks: ...Do politicians really based their votes on the wishes of their donors? If that were the case, shouldn't we see retiring legislators in their last term break away from special interests, whose money they no longer need for re-election? Yet, we do not see this at all.

Well, duh. They don't want to go to jail for taking bribes. Their party doesn't want funds to future candidates cut off by these lobbyists, and more to the point, the politicians DONT EVEN READ the bills they support or study the issues they're voting on. They get their information entirely from lobbyists, so why would they think they had made any wrong votes?

In an article by Lori Wallach and Ralph Nadar called GATT, NAFTA, and the Subversion of the Democratic Process, the lack of interest of Congress in actually ruling in the people's best interest or even know what it was they were voting on was documented in the fall of 1994:

In the fall of 1994, just prior to the vote by Congress on the Uruguay Round of GATT, the vote that would established the World Trade Organization, we offered a $10,000 donation to the charity of choice of any congressperson who could do the following: (1) Sign an affidavit stating that he or she head read the five-hundred page agreement and (2) successfully answer ten simple questions about its contents.
Not one member of Congress accepted...The text is several hundred pages long, complicated, and duplicitous. However, if legislators are vested with the responsibility to legislate, they should have read what they were voting on. Finally, after the scheduled fall vote was postponed until December 1994, one senator, Colorado Republican Hank Brown, stepped forward and accepted the challenge. He read the text, signed the affidavit, and with the media watching in the Senate Foreign Relations Committee room, answered all ten questions correctly.
He then held a news conference stated that he had planned to vote in favor of GATT, but after reading the text of the agreement, he was aghast. Even though he had described himself as a supporter of "free trade" and had voted for NAFTA in 1993, he could not support GATT because of its elimination of even the most basic due process guarantees.

Want to bet the Congressman didn't read NAFTA, either, before voting on it, class?

On page 10 Lott says, I was surprised by the vehemence with which people who receive their income from taxes fought to protect that largesse. Was he talking about Congress here? Nope. He was talking about the Economics Department of the University where he was then employed. What he fails to recognize in the introduction, and throughout the book, I suspect, is that all people, administrators, congressmen, and certainly CEOs, are very much attached to spending other people's money, and they don't care a great deal how much it hurts the other people when they do it. The best interests of the public, the nation, the state, the county, the community, or individuals are NOT EVEN ON THE RADAR of any corporation - except to word their warranties and packaging and instructions in such a way to avoid lawsuits. Their stated goal is profit, and anyone who tries to work in any manner that lessens profit is fired - because the shareholders won't tolerate anything else.

My final problem with Lott's introduction, on page 12, concerns the gasoline shortages of the 1970s that accompanied government price controls. Apparently, Lott believes that the price controls fell out of the clear blue sky onto a surprised government and public. Not once in this idiotic piece of non-scholarship here or from what I have seen so far in Chapter One does Lott even MENTION the words OPEC, boycott, or embargo. He neglects to mention it because it doesn't look good for his pro-corporate perspective. The purpose of the price controls was to keep people from going bankrupt trying to buy gasoline after the OPEC EMBARGO CAUSED OIL PRODUCT SHORTAGES, including gasoline. Class, when OPEC, the cartel of the largest petroleum producing countries in the world, decided to BOYCOTT selling oil to the United States, shortages naturally followed. That's not rocket science here.

But as is the case today, the Oil Companies somehow managed to make record breaking PROFITS while the embargo was going on - just as Oil Companies today are making billions-with-a-B dollars in profit while the price of gasoline is getting to the point where the poor have to choose between being able to get to work and buying medicines, everyday household needs, clothing and yes, even food.

According to Lott, this is just fine and dandy - after all, the price is what the market will bear, isn't it? At no point does any ETHICAL consideration trump his distorted non-Smithian idea of "free market economics." Profiting off of a necessity of life in a time of crisis and burdening the poor are just fine with Lott, but any government action to try and protect people from losing their water, electric, gas or basic local phone service is "bad" or even "evil" because it "interferes" with "free market capitalism." What he means is it interferes with the corporations "right" to make obscene profits off of a captive audience.

Is this immoral or amoral? I forget. Either way, it is not the kind of society that we want or need.


JJM said...

Why stop at price controls on gasoline? The money I spend on clothing for my child is ridiculous and I know apparel makers and retailers makes hundreds of millions every year. What about airfare? It costs my family an arm and a leg to visit relatives nowadays. We need caps on airfare, too.

We need government intervention to regulate prices on everything so that I don't have to worry...so that I don't have to take responsibility as a consumer in making choices and adapting my lifestyle to the world around me. I, as a consumer, along with millions like me, am powerless against the big corporations. There is nothing that I can do.

Without gov't, we wouldn't be able to survive. The gov't is my security blanket.

Ahavah bat Sarah said...

I presume that was supposed to be sarcastic, jjm.

There's a difference between monopoly control of basic human necessities and regular companies that actually do compete against each other to sell their ordinary goods and services.

No one here is advocating communism. There are plenty of cheap clothes out there for your kids. Plenty of cheap widgets and what-nots for your household.

That's not the issue.

The issue is basic necessities of human life, like gasoline, that are controlled by cartels and a handful of supposedly "competing" companies that in reality aren't.

Is it right to deny people water, electricity, basic local phone service, home heating gas/oil for lack of ability to pay when these foreign and absentee-owned companies are raking in billions? No, it isn't. In fact, it's a crime against humanity to do so.

Until the time that local governments get off their lazy bums and actually do some real planning for the future by installing electric trolleys/streetcars and electric light rail, gasoline is the only way the vast majority of people in this country have to get to work. It's a basic necessity of human life and competition doesn't apply - so it should not be a for-profit enterprise, just like water service shouldn't.

Did you hear about the case recently where the old woman on medical equipment died because her power was shut off? Is that your idea of just or fair? Is that the kind of society you want? If so, I feel sorry for you.

If not, then it's time to admit that some things just shouldn't be an opportunity for robber baron CEO's to fleece the public for something they have no choice about buying.

There are dozens of brands of children's clothes. All the gasoline in our area arrives in one pipeline and every gas station, regardless of what franchise they are, get their gas from it. This is not competition. This is collusion and price gouging. And government should have the right to stop it.

JJM said...

Gas is a basic necessity of life? Are you kidding me? It is a drug that we've grown to be dependent upon. It's OUR fault for being so blind and gas companies have taken advantage of that. By the way, many Americans could walk or ride their bikes to work. I have.

The problem is you believe gov't is the solution. It's not. Consumers banning together and exercising their buying power is the solution. By converting their dependence on gas to other energy resources, they force gas companies to drop their prices. If I buy a hybrid with great gas mileage, I'll use less gas. Demand goes down. Prices go down. Economics 101.

It'll take years, but our dependence on gas will diminish. Our demand for cheaper sources of energy will galvanize companies to bring products to the market that are cheaper and cleaner than gas-guzzling SUVs. In fact it already has. Free markets at its finest.

The citizens have the power. The last thing we need to do is give our government more power. We already have too many politicians believing they have the solutions to all our problems...and it starts with MORE government. In case you haven't noticed the US government is not very good at managing anything. And they don't like to give power back.

Your solution comes straight from a communist handbook. Stop trying give our government more power and encourage your neighbors, your family, your friends, your co-workers, and everyone else to fight back as a consumer.

Don't like the gas "cartels" and high prices? Then stop using so much gas. Walk. Ride a bike. Telecommute. Buy an electric car. Take a public bus that runs of natural gas. Take the subway.

Just take responsibility for your life and stop whining.

torrant said...

I found your site from a link from Lott's site. I haven't read his book so thank you for the effort to provide a chapter by chapter review.

I am confused about how you see markets and government controls. In your reading of Adam Smith does he address the issue of the East India Trading Company which had a monopoly on trade in the East Indies and is probably the closest analog in his era to our current multinational corporations?

Secondly it seems that your objection to oil company profits is misplaced. Oil fields require substantial investment to be kept productive and new exploration and development requires hundreds of millions of dollars and our shareholder ownership structure of corporations also requires profits. So unless you are advocating nationalizing oil companies like Russia and Venezuela we must allow oil companies to make profits to remain viable. Reports I have seen indicate that nationalized oil fields are at risk of losing optimal output due to lack of proper reinvestment and care.

Your example of the elderly lady dying because her power was cut off is not the result of free markets but poor judgment by the utility which is a highly regulated enterprise.

Also, mass transit is not a workable solution for the vast majority of America which is still small towns and rural. One size does not fit all in transportation.

When is a profit obscene? Who gets to decide that- you or some government employee? I think the trajectory of that kind of thinking can only lead to greater centralized control, planned economies, and our loss of freedom. No thanks!!!

Ahavah bat Sarah said...

First, the issue of the old lady is absolutely about free market economics. She couldn't pay the bill so they cut her off and let her die. The entire point of the market economy is that it has no morals. For-profit companies don't give away their products for free, unless made to do so by government looking out for people. Corporations only look out for themselves.

RE the oil companies, every last stitch of the earth has been geomapped and investigated for oil deposits - and basically there aren't any more left worth developing. The latest "big" finds only have about 3 years worth of oil in them at current usage rates. Maybe you've heard of peak oil? Why do you suppose there aren't any new refineries or handling facilities being built now (and haven't been for the last 30 years)? There basically isn't going to be any reinvestment in oil production because it will simply not be profitable to do so. No company is going to invest in infrastructure that won't pay back the production costs. They will use the old refineries and processing equipment until it falls apart, and that will be the end of it.

Mass transit will therefore not be optional, it will be that or have no transportation at all. Pie in the sky schemes to make ethanol for cars ignore the fact that you'd have to put every single acre of viable farmland in this country to work making ethanol instead of food to produce enough to fuel all our personal automobiles - not to mention you still have to use industrial farm practices to get that much output from the available acreage - neat trick with no gas or diesel. The government will confiscate all diesel and gas for military and govt usage long before there is any danger of actually physically running out. Tanks don't run on ethanol. The scarcity will occur long before physical peak oil is near being an issue.

Anyway, so you think it's ok for basic necessities of life to be for-profit. Fine. That's your choice. But then you have to be responsible for all the people in this country who have no water, sewer, basic local phone service, heat or electricity and are therefore living in squalor because of it. You're going to be paying for it either way - in healthcare and crime containment costs or by insisting these monopolies be non-profit and provide basic human needs to people regardless of ability to pay. I'm glad you can live with yourself knowing that children and the elderly go to bed cold and in danger every night because of lack of basic services. Good for you. Some of the rest of us consider it unethical to let people freeze or live in unsanitary conditions due to lack of money - especially when it is the contraction of decent jobs in this country CAUSED by the corporations that has made it more difficult, if not impossible, to pull themselves out of poverty.

Ignoring ethics doesn't make them go away. The for-profit corporations that control our basic necessities of life have proved beyond a shadow of a doubt that they are in it for the money and couldn't care less about people who can't pay.

The free market works fine for everyday objects - there are dozens of shoe companies, widget companies, etc. It doesn't work for basic necessities of life, which are natural monopolies. You can always find a cheaper hairbrush. You either pay what the water company demands or they cut you off.

How can you claim these are equivalent situations (with a straight face)?

Ahavah bat Sarah said...


I'm guessing you haven't read any of the other posts here, or you would know I have been trying to tell my readers to get off their gasoline and credit card addictions for some time.

Those other solutions you seem to have so much faith in are a) not going to come soon enough, b) based on misleading data, and c) not relevant to the issue of whether or not necessities of life should be for or non profit.

The fact that the govt is terrible at managing things does not in any way preclude the reality that people do in fact need protection from corporations who have the power of their life and death in their hands. We're not talking about Brittany Spears CD's here. This is about utilities and gasoline.

Oy, veh. I'm a "communist" because I think old ladies shouldn't be killed by for-profit CEO's who want money they don't have. OK, then I'll take it.

Which part of Crime Against Humanity did you have trouble with?

It is IMMORAL to kill people when they can't pay their utility bills. Hello? Ever been to sunday school? Shul? Mosque? Buddhist Temple? This is about ETHICS. I may be a closet socialist when it comes to natural monopolies of utilities, but you're an ethically impaired monster.

And I have a funny feeling when you're too old to be valuable to society anymore and some corporation decides to pull the plug on you because you cost too much to maintain, you'll feel differently. Don't expect government in your world to protect your right to life. You don't have one.

Ahavah bat Sarah said...

Silly me, jmm.

I forgot to add, would you like to actually comment on something that I wrote, or something I quoted from other writers?

Or is this whole conversation just going to be more yelling "communism! communism! Look out for those evil communists! They're out to get you!"