Like any fundamentalism, Free Market Fundamentalism is necessarily involved in a profound denial of many aspects of reality. What is worse for us all, is that since around 1980 we have been all involved in a massive experiment to see if Free Market Fundamentalism is a good way to run an economy. And in 2008 we found out, that it is an appalling way to run an economy. So I thought it might be good to list the Top Ten Failings of Free Market Fundamentalism, at least as I see them.
- The economy of any advanced industrial state is a complex adaptive system and not an equilibrium seeking system as portrayed by Free Market Economics
- Extreme movements in market prices are more common than Free Market Economics predicts and bouts of irrational exuberance and irrational gloom are massively destructive of real wealth creation
- Individual consumers are not all knowing, rational decision makers, but are subject to biases and heuristics that mean they often act against their own interests. Information is not free and individual consumer and producer errors do not cancel each other out.
- Governments as Adam Smith feared are often taken over by corporate interests so that state measures to counter the irrationality of Free Market Fundamentalism are often compromised by the narrow self interest of the corporations and the rich.
- Free Market Fundamentalism internationally discounts the possibility that countries like China and Japan will deliberately manage their exchange rates and distort the international comparative advantage playing field in order to achieve economic development.
- Free Market Fundamentalism’s foundational belief in market equilibrium is never tested against empirical reality, because fundamentalisms never allow their beliefs to be tested against reality
- Unemployment is not and cannot be dramatically reduced by reductions in wage rates, as these feed into reduced demand and economic deflation. Similarly, minimum wage laws do not in practice at the levels actually set, reduce employment, contrary to the tenets of Free Market Fundamentalism.
- Free Market Fundamentalism discounts as insignificant, externalities or failings in the market system where a producer can dump costs onto the wider world via pollution without cost to themselves. In consequence, it is generally in denial about environmental problems which threaten the very ecosystem in which free markets operate. Indeed Free Market Fundamentalism floats free of the real physical world like most religious fundamentalisms. The Laws of Thermodynamics do not apply to it and it is possible to mine a finite source of minerals infinitely.
- Free Market Fundamentalism has no real insight into the causes or consequences of growing economic inequality, which it sees as a sort of Karma. It sees no threat to societal foundations from this source. In consequence, it has no real solutions to this problem and isn’t even looking for them
- Ultimately, free market Fundamentalism is evidence-proofed and will not actually wilt under the massive dis-confirmation that the recent financial crisis represents to its belief system. Free Market Fundamentalists then are not Popperians trying to disprove their beliefs, or even Bayesian observers asking: ‘what would it take to change our minds?’
The deeply flawed High Priest of Free Market Fundamentalism, Alan Greenspan, past Chairman of the US Federal Reserve, who did more trillions of $ damage to the world economy than Stalin or Hitler: