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Dean Baker on His Latest Book
market fundamentalists market principles dichotomy corporate profit socialism

Free the Market to Work for the 99%

Can we rig the market in the other direction from now? This 2011 article is from AlterNet, Oct 13, J. Holland’s interview of Dean Baker (author of The Conservative Nanny State and The End of Loser Liberalism).

by Joshua Holland

Joshua Holland: Dean, you really hate it when progressives accuse the right of engaging in "free-market fundamentalism." You write that "the vast majority of the right does not give a damn about free markets," and you argue that progressives end up helping them conceal their true agenda. Can you unpack that?

Dean Baker: Conservatives are happy to have the government intervene. The banks had the government bail them out. Similarly, almost no one advocates the end of government deposit insurance or the back-up lines of credit provided by the Federal Reserve.

Consider patent monopolies for the prescription drug industry. In the absence of patent protection, drugs would be available for $5 per prescription. Instead, patented drugs average well over $100 per prescription. As a result, the country spends close to $300 billion a year -- around $1,000 per person -- for drugs that would sell for around $30 billion without patent protection.

In both these cases, the industries are pushing policies that have enormous distributional consequences that have nothing to do with market freedom. Yet, they claim to favor free market policies, and progressives give them support when they denounce them as "market fundamentalists."

Of course, it sounds much better to be fighting for free market principles, than to be fighting to increase bank and pharmaceutical industry profits. Progressives do the right an enormously valuable service when we imply that they are committed to free market principles instead of just making the rich richer.

JH: Is a strong stock market essential to a healthy economy?

DB: The value of the stock market is supposed to be the current value of future profits; when the market goes up, the expected amount of future profits has risen. This could be good news if people are expecting higher profits because they expect better economic growth and corporations will share in that growth.

However, people may expect higher profits because they think that profits will rise at the expense of wages, or corporations will win tax breaks. This would be good news for people who own lots of stock. Yet only about a quarter of the population owns at least $25,000 worth of stock.

The main impact of a higher stock market is that people with lots of stock will drive up the prices for housing, college tuitions, and dining out.

JH: You talk about how banking is an "intermediary good," like trucking, but the sector has become hugely bloated.

DB: The financial sector finances speculative bubbles, as was the case with the housing bubble. In this situation, money that could have gone to productive uses instead was diverted into housing speculation. Finance consumes a vast amount of resources; over the last three decades we're paying five times as much for banking and securities and commodities trading) relative to the size of the economy.

JH: Because progressives don't grasp these mechanisms by which the markets are rigged, we end up devoting a lot of time and effort sweating the small stuff rather than tackling what you might call the core inequities in the system.

DB: We beg politicians for jobs, but if the Fed is raising interests then we are just wasting our time; nothing Congress might do will offset the Fed action.

JH: How do you think these ideas -- that conservatives are champions of free markets, that there's an inherent tension between a "free market economy" and a robust safety net -- became so deeply entrenched? Is it just the power of repetition?

DB: The tradition of the left is embracing socialism -- public ownership of the means of production -- believing the market was inherently corrupt and inevitably led to undesirable outcomes. The dichotomy of government being "good" and market being "bad" still persists.

We can get very different market outcomes, depending on how we structure the market. The right has been very deliberate in rigging the markets in ways that redistribute income upward. They pretend that Bill Gates' and Angelo Mozilo's incredible wealth just sort of happened.

When we just complain about the outcome, rather than the structures that led to the outcome, then we are in the realm of loser liberalism.

JH: Progressives are wary of embracing free market arguments because of the widespread belief that you can't have a free market and a robust safety net. That strikes me as a false dichotomy. Is there really a tension between the two?

DB: I really don't see any tension whatsoever. Even conservatives support Social Security and Medicare by overwhelming margins. Our fights on these issues usually are over the best way to provide these services. Here again, I can see no reason why progressives would want to argue about free market principles. Most people like the free market.

JH: How do we end this "loser liberalism"?

DB: The market is an incredibly powerful tool. Progressives have to use the market to bring about the outcomes we want. Our focus has to be on reversing the rigging so that the benefits of the market are shared widely.

To see the whole article, click here .

JJS: Follow Baker’s reasoning and you end up with geonomics: replace most taxes with fees that charge polluters and others who impose costs on society in general and with dues that recover our commonwealth, then, instead of fund corporate welfare and other special interests, use surplus public revenue to fund a dividend to everyone. Do that and prices will be precise and the market will work right for everyone, automatically. You could lock the hood on the economy and even walk away from political squabbling forever. Then presidential campaigns would become even more boring!

One immediate step a locality could take is financing transit. Replying to an article in the Toronto Star, ( click here ) Frank de Jong writes (Oct 10): “Toronto needs more and better transit. However, the best way to pay for it is not out of income taxes, but by collecting some of the rise in land values that the new infrastructure generates. Improved transit always uplifts nearby land values by more than its initial cost. But instead of allowing this new wealth to accrue to local landowners, it should be collected by the city and used to finance the infrastructure. With land value taxation transit becomes self-financing, with no need to raise other taxes.”

Smart man.


Editor Jeffery J. Smith runs the Forum on Geonomics.

Also see:

A free-market fix to the nation's housing hangover

Far From Free-Market Prices for Gasoline

Free-Market Health Care

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