Common Criticisms of Free Markets

I’ll be the first to admit that I’m an enthusiastic cheerleader for free markets. In earlier posts, I addressed two common concerns that people have when it comes to advocating for free markets. Sure, markets might usually be great – but can’t they also corrupt our morals, or destroy cultures? My answer to both questions was a resounding “no”. There’s just one last category of common criticisms of markets: the economic concerns. 

The economic criticism de jour is that markets may create or exacerbate various types of inequalities. Maybe markets are only great for the richest among us, leaving the rest of us on the outside looking in. Alternatively, since markets are primarily merit-based systems, perhaps they’re disproportionately beneficial to people who have disproportionately high levels of natural abilities. 

Let’s look at the wealth and income inequality argument first. It is absolutely the case that the top 1% hold about 30% of the nation’s wealth. The top 1% also enjoy incomes about 20 times that of the average U.S. worker.  The top 20% take home just over 50% of total earnings  in the U.S. While these statistics certainly seem stark, they represent a static snapshot of wealth and income at a single point in time, and miss some really important changes that happen over time. 

Moving pictures allow us to see trends that static snapshots simply can’t capture. For one, over time as the rich have gotten richer, the poor have gotten richer, too. There’s a tendency to think of wealth as a fixed pie, but in fact we’ve grown dramatically wealthier as a nation over time – and as the old saying goes, “all boats rise in a rising tide.” Even people at the bottom of the wealth and income distribution have access to material goods never before possible in human history. 

Additionally, the people in the top 1% or 5% or 20% today aren’t the same people that occupied these portions of the income distribution in the past. We have strong and substantial economic mobility in the United States. Indeed, if you’re a current student or recent graduate, there’s a good chance that you’re in the lower portion of the wealth and income distributions. But, throughout the course of your career, your earnings and wealth will almost certainly rise, catapulting you into a higher portion of the distribution.  

Finally, it’s worth mentioning that the ranks of the upper income have actually swelled in recent years. You may have heard that we have a shrinking middle class – and that’s true. But it’s not because people are getting poorer. It’s because people are getting richer!   

The mobility argument also shoots holes in the second type of inequality argument; that is, the argument that markets reward people based on abilities, but leave behind people who lack these abilities. One truly wonderful thing about the modern world is just how many different things people can do to make a living. There have never been more opportunities for people to pursue the sorts of careers they’d actually like to do. 

One thing I sincerely love to do is to hear people describe their jobs to me – particularly when I was previously unaware their jobs even existed. Perhaps the best illustration of this phenomenon is looking at the (seemingly endless) credits that roll at the end of movies. While the stars and the producers receive the bulk of the praise when a movie or TV show is successful, there are literally hundreds and hundreds of people working behind the scenes to make this happen. Watch a movie from the 70s and see how much shorter the credits are, and you’ll see how many people are living fulfilling lives doing things like special effects, designing costumes, visual effects, etc. Sure, these aren’t jobs that will put you in the top 1% of the income distribution – but they’re also not low-paying jobs. And artistic professionals, who in previous generations would have been stuck in a low-paying or ill-fitted office job, are now able to pursue their passions. 

In a delightful little book called Stubborn Attachments, economist Tyler Cowen argues that for almost anything people care about, the best way to achieve that thing is by promoting economic growth. Do you care about the poor? Economic growth has helped more poor people than any social welfare program ever could. Do you care about the environment? As countries become richer, they tend to become cleaner as well. About people living longer, more fulfilling lives? You guessed it: the answer is economic growth. Free and open markets are what have allowed for this explosion in economic growth and unprecedented prosperity – so to criticize markets is to criticize the very valuable engine of human flourishing.