Success In The Free Market Requires Thinking And Planning

   Do not think about, write about or deal with  human behavior without determining the effects of incentives.

     Wherein we see that the academic and political understanding of real enterprise is so far from the truth that the opposite is correct.

Liberal Lie #1 About The Freemarket: Unpredictability

Written on Monday, November 25, 2013 by David L. Goetsch

Mack Jones thought he had done everything right.  He went to a good college and majored in a high-demand career field.  Then he went to work for a company that had been in business for more than 70 years. Mack is a good planner.  He likes to plan out his life and then do what is necessary to turn his plans into reality.  His career plan had him remaining with the same company all of his working life and rising steadily up through the corporate ranks.  For ten years, everything had been working just as planned.  That is until today.  Today Mack was given a pink slip.  In spite of his consistently high performance ratings and steady rise up the corporate ladder, he was let go this morning.  For the first time in his working life, something that he never would have predicted has happened.

Mack knew his company had been struggling for the past two years.  The competition his company faced had become intense and global in scope.  Sales had declined steadily over the past 24 months as other companies in the U.S. as well as overseas ate into his company’s heretofore stable and predictable market.  Mack knew his company had erred in taking its customers for granted.  As a result, the company had fallen behind in adopting new technologies and in continually improving the performance of its products, processes, and people.  But Mack was floored by the suddenness of his downfall.  For two years he had been telling himself, “Just wait until I am in charge.  I will turn this company around and get it moving in the right direction again.” Mack never thought he would become a victim of his company’s corporate lethargy.  As he cleaned out his desk, still stunned from the shock of being terminated, Mack thought that maybe his liberal brother-in-law was right after all.  Maybe the free market is too unstable and unpredictable.

Mack Brown’s brother-in-law, a government bureaucrat, has long tried to convince Mack that the free market is an unstable and unpredictable economic system, a charge often made by liberals.  Like most liberals, Mack’s brother-in-law views socialism as a more stable economic system—one that is absent of the constant ups and downs of the free market. Unfortunately, in his present circumstances Mack Jones is susceptible to believing this lie.  Rather than blame his company’s corporate lethargy for his unfortunate circumstances, Mack is ready to believe that it is the economic system—the free market system—that is at fault.

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    When you can confiscate wealth, it matters not how the real economy works. Once the Golden Goose is slain, the amount to be confiscated does tend to disappear.

Where Mack’s brother-in-law and other liberals err is in what they attribute the ups and downs of a free market to.  While it is true that in a free market there are always companies that are growing while others are failing, this is not a weakness of the free market.  It is a strength.  The key factor in a true free market is competition.  The failure of Mack’s company occurred not because of the unpredictability of the free market, but because its leaders allowed themselves to become smug and complacent.  Over time Mack’s company became just like the champion boxer who allows himself to become fat and out of condition.  The fact that he is going to take a fall is hardly unpredictable.  In fact, it is a sure bet.

What makes the free market unstable and unpredictable is government interference.  The free market operates on the laws of human nature.  One of those laws is that human beings respond to threats in one of two ways: 1) they take counsel of the fear engendered by the threats and give up, or 2) they do what is necessary to overcome the threats that are causing the fear. According to financial expert, Dan Celia, (afa Journal, October 2013) the fear of failure is a powerful motivator for corporate decision makers.  In a true free market corporate decision makers have the latitude to take the steps necessary to overcome on-going threats to their success.  They can do what is necessary to innovate, continually improve their products, processes, and people, and seek new markets.

On the other hand, government interference in the marketplace turns human nature upside down.   Stimulus programs and other government guarantees tend to reduce the fear of failure that is such a powerful motivator in the free market.  If companies know the government won’t let them fail, they lose the fear of failure that motivates them to stay lean, strong, and competitive.  They become like the champion boxer who has let himself go to fat but is confident the referee won’t let him lose.  Unfortunately, even the most biased referee can’t do much to prop up a champion who gets knocked out by the competition.

This tendency to become complacent when the fear of failure is removed is nothing more than the acting out of human nature.  When government-induced complacency sets in, the competition from other countries that embrace free-market principles will soon overwhelm companies that rely on government subsidies for their survival.  In other words, foreign competitors will knockout our lethargic companies and there will be nothing the government can do about it.  This is why the wealthiest, most productive countries in the world are those that come closest to adhering to free market principles.

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    Listen carefully, the Goose’s respiration sounds wheezy.

The free market is not unpredictable.  In fact, it is transparently predictable. Companies that stay innovative, competitive, and hungry tend to do well.  Those that become complacent and think they can depend on the government to protect them from their own incompetence tend to fail.  What is even worse, is that when the government allows companies to become complacent it risks not just the success of the individual company but the viability of our nation’s economy.  What is also predictable about the free market is that although Mack Jones lost his job because his company became complacent, he can quickly get a new job with one of his former competitors that is growing because it is lean, strong, and competitive.

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     The horror of the free market is having to think and plan. The horror of socialism is not having to think and plan. Hanging onto that coercively obtained money only requires public pretending and posturing. The free market is only unpredictable if one expects things to stay the same and does not pay attention.

Cheerio and ttfn,
Grant Coulson
Cui Bono–Cherchez les Contingencies

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