Danielle Dewey
ECON 2106
Microeconomics
Dr. Yassaman Saadatmand
Five Myths of the ‘Free’ Market: According to John Buell
1. When businesses are given the opportunity to decide for themselves what to produce and how and where to
produce it, and when consumers are given the freedom to purchase whatever they want, everything will be
better off. Government’s only legitimate function is to enforce property rights.1
2. In recent years, deficits and debts have grown astronomically. Therefore however necessary government
intervention was to escape the Depression, we are nowhere near that situation now. These days, the primary
need is to cut the deficit so that more money is available to the private sector to invest.2
3. The 1960s and 1970s proved that the United States cannot spend its way to prosperity. The Johnson
administration gave us the lowest unemployment of the postwar period through its domestic agenda, and it led
to rampant inflation and a slowing rate of corporate productivity growth. Sure, we may not be at literal full
employment, but doing anything more will only trigger rapid inflation and a return to the awful times of the
1970s.3
4. But we’ve heard all this before; this is merely the old social democratic refrain. And however well it may have
functioned in the past, social democracy has or will soon go the way of communism. Unemployment is way up
in Europe, growth has slowed, social tensions are mounting. Europeans now know they have to cut taxes,
reduce the government’s role in the economy (especially by privatizing major economic sectors), and free
management’s hand so that it can administer business more efficiently.4
5. This all sounds well and good but it simply amounts to government managing most of the economy and picking
the winners and losers. Individual incentive will diminish and new government boondoggles will ensue. Such
an agenda is clearly statist and does not square with U.S. Traditions.5
Five Market Myths Explained
1. John Buell believes that myth number one is a myth because he believes that unregulated
competition is not in society’s best interest. It causes extreme situations, losers and winners.
Take for example the wealth gap, if unregulated the market will only make big businesses
larger (and richer) but small consumers even smaller (and poorer). Also, as the wealthier
increase their holdings, they will eventually tire of buying and spending their monies. If
consumer spending is falling, there is no incentive for new products for production. With
no one buying, and no one producing, lay-offs are sure to follow. Buell backs up his
opinions with historical evidence from the progressive era. Mr. Buell states that political
leaders learned from this that when private investment lags, they must tax and borrow from
the rich to employ people for a range of needed projects, thereby keeping demand levels high
enough to stimulate continued high levels of investment and unemployment. `
2. John Buell believes that myth number two is a myth because an economy that is using all of
its resources can only grow if it cuts consumer and government spending, saves more, and
1
(Buell 1994)
ibid
3 ibid
4 ibid
5 ibid
2
invests more of that savings in the development of new plants and equipment. The problem
for myth number two believers, in the author’s opinion, is that the US economy in 1994
(when this article was penned) is nowhere near full employment of any of its resources,
neither human nor capital. Buell also counts the true unemployment against the myth,
stating that what is measured, while already low for postwar standards, is grossly inaccurate
in its measurement methods. The debt in 1994 is a much lower percentage of GNP than it
was following WWII. More important than the amount of debt, is the question of what the
government spends its money on and the policies which accompany those expenditures. The
author states these facts will become more evident as the remaining three myths are
explored.
3. John Buell believes that myth number three is a myth because the Johnson administration
ended up spending a lot, to use one of our classes first analogies, tried to give us both guns
and butter. According to the author, military spending does not modernize an economy. And
that compared to our foreign competitors we were falling behind spending too many
resources on the military and not public works. Also while the Johnson administration cared
about young school age citizens, it neglected the needs of thos in the workplace. This
widened the income gap further. The experience of most Europeans contradicts the
commonly thought and taught notion that an official unemployment rate below 6% would
lead to inflation. Europeans themselves prove this myth wrong.
4. John Buell believes that myth number four is a myth because the problems faced by Europe
in the 1990s isn’t from excess social democracy but from experimentation with so called
conservative economics. Europe’s true problems are twofold: how to extend social
democracy internationally and economically, and how to deepen the voice of workers in the
corporate and political arenas. Buell feels the answer is to require expanded trade to be
accompanied by effective labor guarantees, minimum wage standards pegged to the
productivity of each nation, and an international capital fund which will invest in
employment and infrastructure in regions of high unemployment throughout the trading
bloc. Mr. Buell further states that the great tragedy of our current era may be that the
conservative myopia about debt and free markets will allow worldwide unemployment to go
very high before domestic and international intervention is undertaken. Democracy itself
could increasingly become a casualty in such a scenario.
5. John Buell believes that myth number five is a myth because on the contrary, governments
have always provided the basic conditions for economic growth. Public works would be
underprovided because they benefit too many parties that cannot be charged for
consumption/use (free-riders). Because development is a process driven by public initiative
rather than by automatic market forces, there will always be hard choices; However,
denying the need or desirability of some form of public intervention paradoxically
discourages the broad public discussion that is needed.
Bibliography
Buell, John. "Market Myths." The Humanist, July/August 1994: 39-42.