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Thursday, June 22, 2017

Free markets need equality [feedly] amusing take, but it needs a game theory backing -- some descendant of the Prisoner's Dilemma -- that can MODEL the payoffs and trade-offs that iterate more toward the equality enhancing outcomes, as opposed to the opposite. If there were such a credible model, or models, it would be a good policy framework for managing a mixed economy tilted toward cooperative strategies for sustainable societies.

Free markets need equality

These are dark times for free marketeers. Voters are only lukewarm about the virtues of capitalism; the Grenfell disaster is widely regarded as showing the case for greater regulation; and, as Sam Bowman says, even the Tories "have totally failed to make a broad-brush case for free markets."

I share some of their disquiet. Flawed as they are, markets have virtues as selection and information-aggregation mechanisms.

What, then, can be done to strengthen the case for markets?

There's one thing that's crucial – equality of power. For free markets to have public acceptance, the worst-off must have bargaining power. Without this, "free" markets merely become a device for exploitation.

Imagine, for example, that we had overfull employment and/or high out-of-work benefits. Workers would then be able to reject low wages and bad working conditions. Market forces would then deliver higher wages and good, safer, conditions simply because employers that didn't offer these wouldn't have any workers. Equally – though it's harder to imagine – if we had an abundance of housing, landlords who offered shoddy or dangerous accommodation would either have to refurbish their property to acceptable standards or suffer a lack of tenants.

We wouldn't, therefore need "red tape." The market would raise working and living standards.

We don't need thought experiments to see this. We have empirical evidence too.

Philippe Aghion and colleagues have shown that there's a negative correlation across countries between unions density and minimum wage laws. Countries with strong unions have less stringent minimum wage laws – because greater bargaining power reduces the need for such laws. Remember that the UK adopted minimum wages in the 1990s, when unions had been emasculated. In the 60s and 70s, when unions were strong, the market raised wages.

Also, there is a negative correlation across developed countries between inequality (as measured, imperfectly, by Gini coefficients) and business freedom. Egalitarian Denmark and Sweden, for example, score better on the Heritage Foundation's index of freedom than the unequal US. There's a simple reason for this. Working people want what they regard as a fair deal. If they can't get it through bargaining in free markets, they'll seek it through politics and regulation.

The inference here is, for me, obvious. If you are serious about wanting free markets you must put in place the conditions which are necessary for them – namely, greater bargaining power for tenants, customers and workers. This requires not just strong anti-monopoly policies but also policies such as a high citizens income, full employment and mass housebuilding.

In short, free markets require egalitarian policies. Free marketeers who don't support these are not the friends of freedom at all, but are merely shills for exploiters.

 -- via my feedly newsfeed