How do deregulation policies fit into a free market system?

[RudedawgCDN]

As a Canadian I have to admit our politics are pretty boring - we have a solid banking system, I have a home that is worth what it was 4 years ago before the collapse and I have excellent health care coverage. So it always amuses me to watch what happens in your discussions about health care and regulation in the banking sector in your country.

I remember when George Bush left office the American and the world economy was in the toliet. 500,000 Americans were losing their job each and every month and 1 in 8 Americans were losing their homes to foreclosure.

Here's what I don't understand.

Why do Americans have such a short memory?

If deregulation is a good thing, how come your banks and wall street needed to be bailed out?

Why didn't they prosper with the lack of regulation?

If the argument is you allow deregulation, and you allow the banks and wall street to collapse from their own mistakes - how does that create jobs?

So, let me get this straight - you allow deregulation so your banks collapse, they go bankrupt - people lose their savings, people lose their jobs.

And this is a good thing for your economy and job growth?

Seriously, how do you make that argument with a straight face?


If the argument is that the consumer caused the collapse by over leveraging themselves - how is that an argument that deregulation (lack of rules) for consumers/bank lending practises helped your economy?

I keep hearing the argument that "big" government and too much regulation is killing jobs - but didn't you have a Republican president for 8 years called George Bush?

Why wasn't that his primary agenda if gov't regulations were causing job losses during his administration?

I never once heard George Bush or Dick Cheney during their entire tenure ever say that gov't over regulation was why Americans were losing their jobs.

Are you saying the economic problems he passed on to Obama wasn't his fault? It was the administrations policies before him?

It baffles me after the worst recession I've ever seen in my lifetime, to see so many people unemployed, so many people lose their homes - that people can still make the argument that gov't deregulation was a good thing for your economy.

 

[KingNothing]

One argument I hear a lot, is that God likes them better.

 

[rootX]

There were two big threads on American economy and related topics like regulation.

What is wrong with the US economy?
https://www.physicsforums.com/showthread.php?t=130611

What is wrong with the US economy? Part 2
https://www.physicsforums.com/showthread.php?t=256784

 

[WhoWee]

If deregulation is a good thing, how come your banks and wall street needed to be bailed out?

Why didn't they prosper with the lack of regulation?

If the argument is you allow deregulation, and you allow the banks and wall street to collapse from their own mistakes - how does that create jobs?

So, let me get this straight - you allow deregulation so your banks collapse, they go bankrupt - people lose their savings, people lose their jobs.

And this is a good thing for your economy and job growth?

Seriously, how do you make that argument with a straight face?

It's not that simple.

Yes, a lack of regulation allowed futures trading to morph into a hundred $Trillion unregulated industry that nearly destroyed the world's largest banks and financial institutions. As for bailing out "our banks" - follow the money - hundreds of $Billions flowed through to Europe.

Next, it can be argued that TOO MUCH regulation of the bank lending practices/mandates were a major contributing factor to both the bubble and the collapse. Banks were required to make loans they wouldn't typically approve based on standard business models and (credit) lending policies.

As for people losing their savings due to bank collapse - please cite an example.

 

[Ivan Seeking]

It's not that simple.

Yes, a lack of regulation allowed futures trading to morph into a hundred $Trillion unregulated industry that nearly destroyed the world's largest banks and financial institutions. As for bailing out "our banks" - follow the money - hundreds of $Billions flowed through to Europe.

Next, it can be argued that TOO MUCH regulation of the bank lending practices/mandates were a major contributing factor to both the bubble and the collapse. Banks were required to make loans they wouldn't typically approve based on standard business models and (credit) lending policies.

As for people losing their savings due to bank collapse - please cite an example.

I guess we are going to have do dig this up again. It has been shown, I believe by the CBO, that only about 20% of the crisis can be attributed to the low-income loan program. This crisis was caused by a lack of regulation and a failure of a core principle of free markets - we can't afford to allow institutions that large to fail, and nothing in a free market prevents too big to fail.

What is your point about Europe? It's not secret that this was a global crisis and that European banks were connected to US banks.

Paulson make it clear that he needed a ~trillion-dollar check and no oversight.

 

[CAC1001]

If deregulation is a good thing, how come your banks and wall street needed to be bailed out?

The most unregulated area of the financial sector, the hedge funds and private equity funds, have not required any bailouts minus the LTCM debacle in 1998, but otherwise, thousands of hedge funds and private equity funds have failed since then, none requiring a bailout.

The institutions that failed were the highly-regulated investment banks, which also believed that the federal government would bail them out if worst came to worst, and thus they did not act in a free-market manner.

Why didn't they prosper with the lack of regulation?

There wasn't any lack of regulation, that's a highly regulated industry.

If the argument is you allow deregulation, and you allow the banks and wall street to collapse from their own mistakes - how does that create jobs?

The same way any market that allows firms to fail goes about creating jobs? If you won't allow the firms to fail, then they will not manage risk properly and will take on massive levels of risk.

So, let me get this straight - you allow deregulation so your banks collapse, they go bankrupt - people lose their savings, people lose their jobs.

Nope.

And this is a good thing for your economy and job growth?

Seriously, how do you make that argument with a straight face?

That's not the argument.

If the argument is that the consumer caused the collapse by over leveraging themselves - how is that an argument that deregulation (lack of rules) for consumers/bank lending practises helped your economy?

No one argued for lack of rules regarding consumer lending aside from many those with the social agenda of trying to let people who couldn't afford to be allowed to buy homes. And no bank in their right mind would have loaned to such a consumer who had no way of paying back, unless they could off-load the loans to another entity (such as Fannie Mae and Freddie Mac). Canada and Europe had no policy of trying to give everyone a home, and as such, didn't have such a crisis as the U.S. did.

I keep hearing the argument that "big" government and too much regulation is killing jobs - but didn't you have a Republican president for 8 years called George Bush?

George W. Bush was a big government president who increased regulations over the financial sector.

Why wasn't that his primary agenda if gov't regulations were causing job losses during his administration?

Don't know.

I never once heard George Bush or Dick Cheney during their entire tenure ever say that gov't over regulation was why Americans were losing their jobs.

Are you saying the economic problems he passed on to Obama wasn't his fault? It was the administrations policies before him?

The economic problems were not anyone person or entity's fault, it was a complex perfect storm that had formed.

It baffles me after the worst recession I've ever seen in my lifetime, to see so many people unemployed, so many people lose their homes - that people can still make the argument that gov't deregulation was a good thing for your economy.

Because blanket deregulation is not what caused the crisis, and government intervention to a good degree did. That's not to say lack of regulation in certain areas wasn't a contributing factor though, or that government was the sole factor.

 

[CAC1001]

I guess we are going to have do dig this up again. It has been shown, I believe by the CBO, that only about 20% of the crisis can be attributed to the low-income loan program.

Fannie Mae and Freddie Mac played a big role in contributing to the crisis as well, in serving as one of the primary customers for the bad loans made and being one of the originators of the collateralized debt obligations, which were then sold to Wall Street.

This crisis was caused by a lack of regulation

In certain areas yes, in other areas, too much government IMO.

and a failure of a core principle of free markets - we can't afford to allow institutions that large to fail, and nothing in a free market prevents too big to fail.

Yup. The question is how to let the institutions be large enough to service American corporations, while at the same time not being too big to fail.

 

[xeryx35]

Fannie Mae and Freddie Mac played a big role in contributing to the crisis as well, in serving as one of the primary customers for the bad loans made and being one of the originators of the collateralized debt obligations, which were then sold to Wall Street.



In certain areas yes, in other areas, too much government IMO.



Yup. The question is how to let the institutions be large enough to service American corporations, while at the same time not being too big to fail.

I think that the people whose loans were underwater should have been the ones bailed out, and the banks should have fallen. I could care less about what happens to someone who irresponsibly manages their money, is extremely rich, and hedges all risk by means of anticipated government favors. That is why all "stimulus" failed.

 

[mege]

I think that the people whose loans were underwater should have been the ones bailed out, and the banks should have fallen. I could care less about what happens to someone who irresponsibly manages their money, is extremely rich, and hedges all risk by means of anticipated government favors. That is why all "stimulus" failed.

But you're ok with someone not rich overextending themselves? There was plenty of stimulus that went to homeowners, in addition they were getting the biggest 'stimulus' of all 15 years ago by having the $100ks of their loan backed by the federal government (for those that wouldn't normally have been approved of a loan) and they blew it.

I think this most recent collapse is a perfect example of how tinkering with a relatively free market does NOT work. Any slight blow one way and the whole house of cards come down. Rational risk went out the window for a hail mary try at socio-equality and that is why we're in the trouble we're in IMO. And now, with infinite wisdom, here comes a 'market equalized' health care policy on similar principles... hmmm. BCBS Bailtout in 2020?

 

[OmCheeto]

There were two big threads on American economy and related topics like regulation.

What is wrong with the US economy?
https://www.physicsforums.com/showthread.php?t=130611

What is wrong with the US economy? Part 2
https://www.physicsforums.com/showthread.php?t=256784

Did anyone ever start a part 3? I can't remember. But anyways, it looks as though the market and country are in a "correction" period, and thankfully, at least foreign investors are once again looking at us as a viable manufacturing base.

New story:

http://www.masoncountydailynews.com/news/news-page/13693-regional-news-9211"
Written by Associated Press Friday, 02 September 2011
The SGL Automotive Carbon Fibers plant is a $100 million partnership of BMW and SGL Group, one of the world's leading manufacturers of carbon-based products.

Old story:

SolarWorld Opens North America’s Largest Solar Cell Manufacturing Facility
Hillsboro, Ore., October 17, 2008
SolarWorld acquired the Hillsboro factory, which belonged to Japan's Komatsu Group, in March 2007 for $40 million and is investing more than $500 million in the new facility. The Hillsboro plant today becomes home to SolarWorld Industries America headquarters.

Headquartered in Germany, SolarWorld is a veteran of the clean tech industry...

I don't know what this has to do with the topic, but with the "What's wrong with our economy" threads being closed, I thought this was as close as I could get.

Thanks Root!

And thank you Germany and Bavaria! Vee vill buy your autos und zolar penels vunz zey are made here, as ozervize ve vill hev no geld to buy zem. Yah? Du verstehst. Ich versteh. Wir verstehen. Gutten nacht. Bis morgan. =8)

 

[WhoWee]

So, let me get this straight - you allow deregulation so your banks collapse, they go bankrupt - people lose their savings, people lose their jobs.

And this is a good thing for your economy and job growth?

Seriously, how do you make that argument with a straight face?

my bold

Back to the OP. This is not a given - please cite a specific example (in the current recession).

 

[skeptic2]

In these discussions I'm confused by the term "free market." It seems that different sides have different understandings of what is meant by free market. The following is a list of laws that I am curious whether you would include or not in the definition of free market.
1. Sherman Anti-Trust Act (Outlawed most monopolies)
2. Clayton Act (Defined which combinations of businesses were lawful)
3. Interstate Commerce Act (Regulated rates railroads could charge across state lines)
4. Pure Food and Drug Act (Forbid the sale of impure, or dishonestly labelled food and drugs)
5. An assortment of laws to improve working conditions for workers including:
a. Work by women and children
b. Working conditions
c. Accidents
d. Minimum wages
6. Wagner Act (Granted workers the right to organize into unions)
7. Taft-Hartly Act (Limited the activities of unions)
8. OSHA (Occupational Safety and Health Administration)
9. Civil Rights Act of 1964 (Prohibits discrimination based on race, religion, etc.)

 

[Dickfore]

@OP You are comparing apples and oranges my friend. Have a look:

Canada:
Population:
34,030,589 (July 2011 est.)

GDP per capita:
$39,400 (2010 est.)
country comparison to the world: 22
$38,500 (2009 est.)
$39,800 (2008 est.)
note: data are in 2010 US dollars

Military expenditures:
1.1% of GDP (2005 est.) -> amounts to about $ 14.75 bil.
country comparison to the world: 126

U.S.A.:
Population:
313,232,044 (July 2011 est.)

GDP per capita:
$47,200 (2010 est.) (20% higher)
country comparison to the world: 11
$46,400 (2009 est.) (21% higher)
$48,100 (2008 est.) (21% higher)
note: data are in 2010 US dollars

Military expenditures:
4.06% of GDP (2005 est.) -> amounts to about $ 600.25 bil.
country comparison to the world: 24

Source: https://www.cia.gov/library/publications/the-world-factbook/index.html"

So, U.S.A. has one order of magnitude larger population than you, has military expenditures that are 41 times greater than yours and the GDP per capita is still 20% higher than yours.

 

[WhoWee]

As a Canadian I have to admit our politics are pretty boring - we have a solid banking system, I have a home that is worth what it was 4 years ago before the collapse and I have excellent health care coverage. So it always amuses me to watch what happens in your discussions about health care and regulation in the banking sector in your country.

I remember when George Bush left office the American and the world economy was in the toliet. 500,000 Americans were losing their job each and every month and 1 in 8 Americans were losing their homes to foreclosure.

Here's what I don't understand.

Why do Americans have such a short memory?

If deregulation is a good thing, how come your banks and wall street needed to be bailed out?

Why didn't they prosper with the lack of regulation?

If the argument is you allow deregulation, and you allow the banks and wall street to collapse from their own mistakes - how does that create jobs?

So, let me get this straight - you allow deregulation so your banks collapse, they go bankrupt - people lose their savings, people lose their jobs.

And this is a good thing for your economy and job growth?

Seriously, how do you make that argument with a straight face?


If the argument is that the consumer caused the collapse by over leveraging themselves - how is that an argument that deregulation (lack of rules) for consumers/bank lending practises helped your economy?

I keep hearing the argument that "big" government and too much regulation is killing jobs - but didn't you have a Republican president for 8 years called George Bush?

Why wasn't that his primary agenda if gov't regulations were causing job losses during his administration?

I never once heard George Bush or Dick Cheney during their entire tenure ever say that gov't over regulation was why Americans were losing their jobs.

Are you saying the economic problems he passed on to Obama wasn't his fault? It was the administrations policies before him?

It baffles me after the worst recession I've ever seen in my lifetime, to see so many people unemployed, so many people lose their homes - that people can still make the argument that gov't deregulation was a good thing for your economy.

I think it's time to support the basic assumptions and statements of the OP.

 

[mege]

In these discussions I'm confused by the term "free market." It seems that different sides have different understandings of what is meant by free market. The following is a list of laws that I am curious whether you would include or not in the definition of free market.
1. Sherman Anti-Trust Act (Outlawed most monopolies)
2. Clayton Act (Defined which combinations of businesses were lawful)
3. Interstate Commerce Act (Regulated rates railroads could charge across state lines)
4. Pure Food and Drug Act (Forbid the sale of impure, or dishonestly labelled food and drugs)
5. An assortment of laws to improve working conditions for workers including:
a. Work by women and children
b. Working conditions
c. Accidents
d. Minimum wages
6. Wagner Act (Granted workers the right to organize into unions)
7. Taft-Hartly Act (Limited the activities of unions)
8. OSHA (Occupational Safety and Health Administration)
9. Civil Rights Act of 1964 (Prohibits discrimination based on race, religion, etc.)

Those are mostly rules which are there to promote competition, not manipulate the market in an economically non-rational way.

Coersion and unethical manipulation are not free market principles. Its also important to note: all are supply-based manipulations (including the labor laws) which still allow flexability in how to react to changing demand and competition.

 

[skeptic2]

Those are mostly rules which are there to promote competition, not manipulate the market in an economically non-rational way.

Coercion and unethical manipulation are not free market principles. Its also important to note: all are supply-based manipulations (including the labor laws) which still allow flexability in how to react to changing demand and competition.

This is a good example of what I meant that different sides have different understandings of what free market means. Before the late 1800s we had something that was pretty close to a free market. Little by little corporations became better at manipulating the free market by creating monopolies, price fixing and exploiting workers. Those laws were designed to lessen the effect of a free market by introducing some government control.

These intent of these laws was not so much to promote competition as it was to prevent a company from taking unfair advantage of its competitors, customers or workers. There is nothing in the free market prohibiting coercion or unethical manipulation and that is why the government stepped in. In discussions about the free market are we talking about a market without these laws?

 

[mege]

This is a good example of what I meant that different sides have different understandings of what free market means. Before the late 1800s we had something that was pretty close to a free market. Little by little corporations became better at manipulating the free market by creating monopolies, price fixing and exploiting workers. Those laws were designed to lessen the effect of a free market by introducing some government control.

These intent of these laws was not so much to promote competition as it was to prevent a company from taking unfair advantage of its competitors, customers or workers. There is nothing in the free market prohibiting coercion or unethical manipulation and that is why the government stepped in. In discussions about the free market are we talking about a market without these laws?

You could argue that an absolute free market can only exist under total anarchy, but even the staunchest of modern libertarian pundits acknowledge the neccessity to employ limited rules (with the most basic being contract and property right enforcement). I think what happened in the 1800s is: the world shrunk. Communication and transportation all created a larger economic structure that became overwhelming. Adam Smith even advocated for his 'hand of Jupiter' to help the market stay healthy (because it is healthiest at it's maximum total value per Smith), and this was before any world-shrinking occured.

Each of the laws and regulations listed above could be argued ad nauseum in their own threads about their appropriateness in a generally 'free market' system - IMO the most contrary to free market beliefs are: 5a, 5d, and 9. These 3 policy-types cause losses for both consumers and producers using purely egalitarian reasons without economic basis. Do I think children should be exploited? Absolutely not, but do I think a 12 year old can work in an appropriate setting? Sure! The rest of the policies generally have a net benefit for the market (without consumer or producer bias).

 

[DoggerDan]

If deregulation is a good thing, how come your banks and wall street needed to be bailed out?

Did they? Or should they have died in order to communicate how not to do things? Perhaps then people would start paying attention to where they put their money.

 

[redsunrise]

If deregulation is a good thing, how come your banks and wall street needed to be bailed out?

1. That depends on what actually has been deregulated, and how. God/devil is in the details. For the specific example how things are done in political world, see e.g. California very specific and detailed energy regulation plan which had "deregulation" printed on the covers.

2. They needed to be bailed out because there was a lender of last resort to their very risky operations. It's called moral hazard. Suppose you gamble and you could lose $100 or gain $10,000. If you win, you get the big pot. If you lose, lender of last resort bails you out to $90. You're going to take huge risks rationally. Do it on a massive scale, you get a big gross error in institutional operation.

Why didn't they prosper with the lack of regulation?

Because it was not so much lack of regulation as bad regulation.

If the argument is you allow deregulation, and you allow the banks and wall street to collapse from their own mistakes - how does that create jobs?

It allows to write off losses and move money (read: capital) to sensible operations.

So, let me get this straight - you allow deregulation so your banks collapse, they go bankrupt - people lose their savings, people lose their jobs.

They don't. There's FDIC.

And this is a good thing for your economy and job growth?

Seriously, how do you make that argument with a straight face?

Because your argument rests on bad premises, and the whole mechanism is much more complicated than you seem to present at least.

I keep hearing the argument that "big" government and too much regulation is killing jobs - but didn't you have a Republican president for 8 years called George Bush?

Nowadays Republican isn't really conservative, i.e. classical-liberal (Adam Smith, Locke, Mill) re economy.

Why wasn't that his primary agenda if gov't regulations were causing job losses during his administration?

Because he's dim like a broken lightbulb and his advisors subscribe to a modern rewrite of conservatism into big-govt, centrist, highly regulated behemoth adapted to left-liberal voter mentality when it comes to entitlements, and libertarian attitude when it comes to paying taxes.

It baffles me after the worst recession I've ever seen in my lifetime, to see so many people unemployed, so many people lose their homes - that people can still make the argument that gov't deregulation was a good thing for your economy.

Deregulation would actually have to take place to any significant degree for the premise to be true. Another problem is if that you deregulate stupidly, i.e. leave in place policy A but deregulate B where A is in complex relationship with B, you're going to have trouble. Regulation or deregulation is not done via politics in any sensible, sane, parsimonious or empirical manner.

 

[redsunrise]

I guess we are going to have do dig this up again. It has been shown, I believe by the CBO, that only about 20% of the crisis can be attributed to the low-income loan program. This crisis was caused by a lack of regulation and a failure of a core principle of free markets - we can't afford to allow institutions that large to fail, and nothing in a free market prevents too big to fail.

What is your point about Europe? It's not secret that this was a global crisis and that European banks were connected to US banks.

Paulson make it clear that he needed a ~trillion-dollar check and no oversight.

1. People in US lose house in mortgage default, but no more - so they rationally speculate.

2. NINJA loans, downpayments increasing only after two years = millions of people taking mortgages they cannot realistically afford (moral hazard increased by point 1), wait for the house value to rise, flip. Works until everyone does it and market crashes, then they're caught with pants down.

3. Rating agencies lied.

4. Bank managers lied re realistic risk inherent in mortgage CDOs.

5. Democrats pressured banks for more bad loans. Whatever vestiges of integrity were left in banks disappeared with this.

6. Republicans looked other way because they like rising home values (economy is doing well. See? see?)

Work safety theorists have the "swiss cheese" theory: in order to have a disaster, you would have to have all the holes lined up so that the damaging agent could fly through all those and not be stopped by some barrier on the way, and good systems feature such solutions that put at least some barriers in the way of disaster. In case of a mortgage crisis, there was such a perfect lineup of "holes" -- every precaution failed -- making disaster possible.

 

[redsunrise]

Republicans aren't better. They're bad, really bad, just not as horribly bad as Democrats.

Optimum would be libertarian attitude of population, having pay-per-use in place for public resources, fiscally responsible public and direct democracy.

That is unavailable: Americans want entitlements, but do not want to pay taxes. They want energy, but not accompanying pollution. NIMBY is displaced by BANANA, but give me more cheap electricity, please. They oppose both spending cuts and tax increases, demanding the govt to do the impossible. They're not alone in this as e.g. Italians or Greeks are even worse, but bad enough to guarantee country sinking in deep ****. The govt in turn doesn't do anything beyond next reelection, it's always easier to kick the can down the road. Increasing public debt is the easiest way out of quandary, so they do it. Democrats do this, Republicans do this:

http://mercatus.org/publication/30-years-raising-debt-ceiling"

So both parties dance around core issues as dealing with them directly and honestly is impossible in representative democracy: political losses are concentrated in reformed areas (say, serious spending cuts), but voters at large do not notice, making meaningful reforms proposition incurring net political losses. In representative democracy, only an irrational politician could further public cause. But he would have to be a sneaky bastard at the same time, saying what public wants to hear, doing the right thing, and then somehow getting away with it. That's not realistically possible. Only politicians with big charisma, like FDR or Reagan can get away with this, and they are in short supply. A tweak here, a tweak there do not change a thing.

I have a theory that representative democracy is prisoner's dilemma game of demanding entitlements run in loop, guaranteeing breakdown via runaway public debt.

 

[redsunrise]

So, U.S.A. has one order of magnitude larger population than you, has military expenditures that are 41 times greater than yours and the GDP per capita is still 20% higher than yours.

Not to mention that much of Canada's economy now is delivering oil, natural gas and timber to US economy, with companies like Robinson (helicopters) or QNX being exceptions to the rule.

Oh look, Soviet economy v2.0. How impressive.

I remember a pie chart of Canadian economy in South Park's "Bigger, Longer and Uncut" where Terrance&Philip fart cartoons were like 40% of Canadian economy and "making porn" was another 40%. Sarcastic, but largely true.

 

[Dickfore]

How is it possible to have 0 posts and you had posted 2 posts here?!

 

[206PiruBlood]

How is it possible to have 0 posts and you had posted 2 posts here?!

How is it possible you have nearly 2000 posts and can't answer that?!

General discussion posts don't count :)

 

[Dickfore]

How is it possible you have nearly 2000 posts and can't answer that?!

General discussion posts don't count :)

Perhaps cause I am rarely here.

 

[OmCheeto]

Perhaps cause I am rarely here.

I did once jokingly state that the intelligent people at PF almost never post in P&WA.

(90% of my posts are in P&WA. It was meant to be a self deprecating joke.)

 

[skeptic2]

In these discussions I'm confused by the term "free market." It seems that different sides have different understandings of what is meant by free market. The following is a list of laws that I am curious whether you would include or not in the definition of free market.
1. Sherman Anti-Trust Act (Outlawed most monopolies)
2. Clayton Act (Defined which combinations of businesses were lawful)
3. Interstate Commerce Act (Regulated rates railroads could charge across state lines)
4. Pure Food and Drug Act (Forbid the sale of impure, or dishonestly labelled food and drugs)
5. An assortment of laws to improve working conditions for workers including:
a. Work by women and children
b. Working conditions
c. Accidents
d. Minimum wages
6. Wagner Act (Granted workers the right to organize into unions)
7. Taft-Hartly Act (Limited the activities of unions)
8. OSHA (Occupational Safety and Health Administration)
9. Civil Rights Act of 1964 (Prohibits discrimination based on race, religion, etc.)

IMO the most contrary to free market beliefs are: 5a, 5d, and 9. These 3 policy-types cause losses for both consumers and producers using purely egalitarian reasons without economic basis. Do I think children should be exploited? Absolutely not, but do I think a 12 year old can work in an appropriate setting? Sure! The rest of the policies generally have a net benefit for the market (without consumer or producer bias).

One of the criticisms of free markets is that they exploit workers. Lack of a minimum wage is one way. As wages are lowered, workers have fewer and fewer options of finding a different job. Worse yet, when the company is the major employer in an area, there is no place to go. A minimum wage is protection against that.

The problem of employing 12 year olds, even in an appropriate setting is that those kids should be in school, not working in a factory.

The problem with a free market is that it is concerned with creating an environment where companies can prosper. Employers may feel that they have the right to hire or fire whomever they want without regard to race or religion. Don't workers also have the right to be hired for their qualifications and not fired simply because the employer wants to replace him with someone of another race?

I worked in Mexico for five years and Mexico doesn't have many of the laws that you don't like. If you were to go to Mexico you could learn a lot about how the lack of regulation affects the workplace. For instance Mexico doesn't have anti-discrimination laws. Often you can find want ads for workers whose qualifications are single, good looking woman between the ages of 18 and 24. If you lose your job and you are over 35, it is very difficult to find another one. Worse yet, if you are fired, you get black listed and you will not find a good job again. This is why workers are willing to accept poor and dangerous working conditions. This is how companies operate when there is no regulation. That is also why they want to come to the U.S.

In Mexico only primary education is required and even then, many kids don't go to school. It's easy to find kids 12 years old and younger in factories, working as street vendors, or in gangs selling drugs. On my first trip to Mexico I saw kids that looked like they were 5 years old, selling newspapers in rush hour traffic. They were so short you couldn't see them between the cars. That is what you get with the lack of regulations.

I see no point in discussing the free market with redsunrise who apparently gets his economic education from cartoons.

 

[mege]

The question was posed asking how the policies fit into a free market system, I was making no judgement on the policies themselves except for their economic impact. Any policy* which manipulates the labor market neccessarilly is rent seeking for the labor business and generally creates a loss in overall market size. You just need to realize that when a policy is implemented like that - there is a market shrinkage. But let's remember, also, that education in this country isn't always seen in an economic sense. English majors with $250k in student loans aren't thinking economically - the same goes for child labor. There are many that are probably gaining little from their secondary school education. I'm not advocating that we start putting kids in factories again - but IMO we need to tell the difference between an economic policy and an egalitarian policy and the reasons for each for the sake of this discussion. Manipulations of the free market are different than things which have an impact on the free market. The first needs to be evaluated extremely carefully, and the second should just factor into environmental concerns for any entity in the free market.

*Policy meaning something like minimum wage or child labor laws. Unions for skilled workers are, IMO, a different ball game and totally have a proper place in a free market system, but there are far too many advantages given to unions in the US currently which cause labor exploitation from the labor side - thus a competitive advantage exists overseas regarding many industry's labor. Unions acting as legitimate business entities, and not labor exploiters, serve the free market well because they can adapt and won't be as succeptible to the idealogical corruption like they have been.