Meeting Your Basic Needs and the Free Market System

Jason Blair is a new contributor for The Brenner Brief. His columns will post on Tuesdays.

Abraham Maslow’s theory on man’s hierarchy of needs makes the case that man must fulfill his basic needs, such as food and shelter, before he can focus on higher needs. Every country is faced with the dilemma of how to ensure its citizenry’s basic needs are met. Failing to do so on a large scale will ultimately lead to chaos and lawlessness.

The solutions are as numerous as the countries in the world. Many nations attempt to fulfill these needs at the expense of their population’s freedom. Others adopt a market based economy giving their citizens more freedom.

In America, we find liberals seeking more government intervention, while conservatives seek less. Which option is best? If we look at how the pure market system works, we can clearly see that no other system can match it when it comes to ensuring basic needs are met, leveraging the expertise of the people, and being responsive to change and innovation.

A market based system primarily relies on individual citizens producing goods and services. People attempt to create a good or service that others want, hoping they will be able to trade it for something of equal value such as money, or another good or service.

The value of the product has a direct correlation with the demand for the product. For example, if one orange is available and two people want it, the orange’s price will rise until there is only one person willing to buy it. This system applies beyond purchasing material goods.

As workers, we sell our labor to employers. The pay received is commensurate with the demand for the job, and the availability of qualified workers to perform the job. At any time, if one thinks they are being underpaid for the job they are doing, they can ask for a raise or quit and find someone else to hire them. In this system, education is valued, and skilled laborers tend to earn more money because they are typically in shorter supply.

Conversely, unskilled laborers are often paid less — they are in greater supply. This can change when one factors in job risk. When few people want to do a job that is inherently dangerous, regardless of the skills needed to perform the job, they may make a higher wage as there is a shortage of willing applicants.

There are several benefits to using the market system. For one, it leverages the ingenuity and resourcefulness of the country’s vast populous as opposed to using the few in government as centralized planners. This was clearly evident in the technological race between the US and the USSR during the Cold War. The USSR was constantly telling its people to sacrifice a little longer as they were just about to match the US in their technological capabilities. The problem was, when they got there, the US had already advanced to a higher level. Central planners were not intuitive or flexible enough to keep up with that of the US populace.

Liberals often decry the evil nature of capitalism, and make the false case that companies seek to cheat one another. However, competitive market systems actually contribute to the general good order of the nation. A famous experiment called “the prisoner’s dilemma” highlights this. In this test, people were teamed up to compete with other teams. Cheating was allowed, and was advantageous in most situations. However, it was found that cheating was only effective for a couple of rounds of play. When play was extended, teams would remember the slight, and refuse to work with the cheaters. The results of the prisoner’s dilemma exercise clearly explain why the vast majority of businesses win in the long run playing by the rules.

It is amazing to think about how many trillions of peaceful business transactions happen every year with limited government involvement. The laws of supply and demand work to effectively find a fair price for goods and services. Employers and employees form a symbiotic relationship where the employer pays the worker commensurately with their skill level, while the worker focuses their efforts to ensure the continuation of the business.

Clearly, the market based economic system initially adopted by the US is one of the most agile and efficient systems available. Its ability to innovate and meet the needs of society is directly linked to government’s purposeful decentralization of the economy. So when we look at Obamacare, Cap n’ Trade, Card Check, Dodd/Frank, and other legislation, see this for what it really is — stifling innovation, reducing supply, increasing costs, and ultimately reducing our ability to meet our needs.

 

Comments

  1. It strikes me that Obamacare is a sort of response to the medical industry defecting in their Prisoner’s Dilemma with the American people; unfortunately the American people cannot defect on the medical industry. Plus this isn’t a repeated game for the American people, once you are diagnosed with an ailment you are essentially blackballed by insurance companies, while insurance companies CAN repeat the game with the next person…what are you going to do, pay out-of-pocket? When a person’s choice is going bankrupt or dying than that is lose-lose. I’m all for the free market in most cases but the free market has failed too many people with health care. Wages for the lower class have stagnated while insurance costs have continued to increase. “Do no harm” is not the motto of business, their motto is “Profits” or more succinctly “Higher share price,” which is perfectly fine to me for a business, but seems to be a conflict of interest for the health care industry.

    Cap n’ Trade seems to be a good free market style solution to the externality of pollution. Businesses can still pollute but they must pay for it and not polluting is incentivized. I would be fined (and possibly (most likely) arrested) if I played loud music 24 hours a day and angered my neighbors, and rightly so, my actions are negatively affecting others. Pollution is no different; companies must be held accountable for the negative impact they are having on others.

  2. First off, thank you for your reply, and for coming to the site. I hope you come back!

    You make some good points, but your arguments fail to address the “whys” that are out there. Health care costs are rising, but WHY are they rising?

    1) Lack of tort reform forces doctors to order unecessary tests just to cover all bases in order to prevent them from getting sued for malpractice. As malpractice insurance rates got up, so do health care costs.
    2) The inability to sell insurance across state lines. As I am sure you are aware, insurance is a numbers game, and not being able to take full advantage of economies of scale increases the price for everyone.
    3) Reducing medicare/medicaid reimbursements (or threatening to). One way or another the hospital has to stay in the black, the costs get passed onto the insurace companies and private citizens.
    4) Doing little to stem the flow of illegal immigration also ads to the costs, as hospitals can’t (and I believe shouldn’t) turn them away. Nonetheless, someone will pay the price, guess who?
    5) The amount of doctors are not keeping up with the population growth. Simple supply and demand here.

    Does something need to be done with healthcare, YES. Is Obamacare the answer? NO

    Obamacare does nothing to addres any of the whys stated above, it is a poorly built band-aid at best. You can fault private insurance companies for dropping patients with expensive ailments, but at least the people have some recourse with our judicial system. Who will you appeal to when a faceless government bureaucracy decides you don’t qualify for treatment for XYZ reasons?

    Cap n’ trade is a free market solution, albeit a bad one for several reasons.
    1) The costs get passed onto the consumer. Power plants are some of the hardest hit from this. How many power plants do you have to chose from to get you energy? It isn’t like you’re going to easily shop for your utiities.
    2) It squeezes the little guy out. Big companies can afford to pay the fines OR green up their practices. Smaller companies have a hard time doing either. Look at what is going on in SW Ohio for evidence of small coal breaking under the strain.
    3) It promotes outsourcing. The more it costs to do business here, the more advantageous it is to go elsewhere.
    4) Our air and water today is cleaner than it has ever been in our lives.

    In all of these situations the poorest are the most affected.
    If you are looking to entice companies to go green, give tax rebates or credits to businesses willing to go green over penalties. At least then, the poor aren’t the ones bearing the brunt of the regulations.

    Again, thank you for your response to the column, you passion is palpable.

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