The free market has failed!?

The free market has failed!

There has also been talk recent in the media that the free market has failed and that the world political spectrum is shifting to the left. Unfortunately the journalist's writing these articles do not define what a free market is. Today's monetary system is far from a free market. Most markets have increasingly become more and more manipulated over the decades.

A free market has no role for big government, or mass market manipulation (by central banks, Governments and other market participants such as hedge funds and speculators). Why does Europe, the US and other parts of the world pay its farmers not to grow crops or pay their farmers for being grossly inefficient? Why are a couple of US banks allowed to manipulate one third of the silver spot market currently? Why have government's all around the world taken over more and more areas of responsibilities over the last one hundred years? No one living today has ever lived in a free market. The media, who fails to define what a free market is, has skewed the meaning of a free market. Instead we are hand fed to and told "the free market has failed". Government's have failed in maintaining their manipulation of the markets, and now they are refocusing attention back on big business so as to create a mandate for further Government intervention.

Go back in time before the 1900s. There was little inflation. There was little Government intervention in economies. Nation building still occurred. Railroads were built across America and Europe which provided, arguably the biggest technology productivity gains to human kind (the economic efficiencies from horse to rail was very significant). There was still a need for doctors, nurses and teachers. The US built an economic empire and became a world power long before the Government introduced income tax.

Today, Governments are getting larger and larger. The more people working in Government (and indirect jobs of Government), the less productive a nation becomes. There is a limited role for Governmentto provide some boundaries in certain markets, or to provide goods which the market will not provide. Boundaries are important, but too much regulation disrupts free market flows.

By in large though, big government creates more inefficiencies. We pay more for roads, health and everything. Nothing can compare to an efficient private sector firm, assuming the firm operates in a competitive market place. People want the Government to provide bigger and better systems for health, education, security etc. There is an economic cost and consequence for all social desires. Almost daily we hear X amount of beds are closed in the hospital system. It's desirable to have beds for everyone, but the cost of keeping a bed open requires staff, equipment, and maintenance. Hence, it all comes down to economics. Limited money means limited hospital services.

There is less individual responsibility in the economy today. The more individual freedoms we give to Government the greater the economic cost (and ultimately social cost) for individuals. We pay more taxes then ever, and yet out health and education systems aren't improving.

The problem is Government, not the free market

The free market has incorrectly been criticised and labelled by Governments and the media as the root cause to today's financial problems. Today's monetary system is a mess because of Keynesian economics. A Keynesian monetary system is a sloppy system that distorts free market principles. It's a system which encourages individuals and governments to use unaccountable money by increasing debt and consumption, and eroding purchasing power through inflation. The monetary system needs to revert back to honest money – money backed by a finite resource (gold and silver), not a printing press. If a ship sinks in Sydney harbour carrying gold and Australia Dollars – which would a scuba diver go after?

Now is not the time for the world to turn left on the political spectrum and allow Governments to discourage entrepreneurship and individualism. Turning left will encourage more dishonest money from the government’s printing press, encourage banks to be even more reckless. Banks and companies which should be left to die, will hang onto overpriced assets so they can sell them back to Governments, rather then back to the marketplace. Companies do not go completely bankrupt. Bad assets are sold to the nearest buyer, whether its 5c or 10c in the dollar. But Government’s will probably pay 40c or 80c in the dollar for the same assets. If the US Government (and elsewhere) buys back too many mortgages and other bad assets, it will only create greater deflationary pressures (the economy needs debt and increasing levels of debt and consumption for it to function properly in the current monetary system).

All we are going to see in the coming years is more promises from Government, promises backed by a printing press. Promises based on manipultating markets (through Central Banks and the Treasury). Now the promises will be more socialist and protectionist. Government nationalisation of banks and financial instititutions and protectionist policies for manufacturing and agriculture (in particular) will onyl distort free trade and create further inequity.

The Government has no mandate to increase its intervention and manipulation in the non-existent free market we currently have.

How many years will it take for the world leaders to wake up and redesign the world monetary system away from Keynesian and revert back towards the Austrian School? (The economic thought that advocates adherence to strict methodological individualism). I believe it will be many, many years before there will be any substantial progress to significantly change the world monetary system. After all, Government's are addicted to the printing press, and dishonest money. Government's want to make sexy-billion dollar promises to their constituents. Pollies find it hard to keep to their promises now, let alone what they would under a more honest monetary system.

We do not operate in a free market and the free market has not failed!