Is a free market "free" if it's regulated?


Announcer: Welcome to Stuff You Should Know from howstuffworks.com.

Josh Clark: Hey, and welcome to the Podcast. Hi, Chuck.

Chuck Bryant: Hi, Josh.

Josh Clark: How are you doing?

Chuck Bryant: I'm great, man. How are you?

Josh Clark: I'm okay. I'm all right. I know for a fact, that you are fully aware of the $700 billion bailout so don't say you're not.

Chuck Bryant: The what? The $7 bailout?

Josh Clark: The $70 bailout.

Chuck Bryant: If only.

Josh Clark: Yeah.

Chuck Bryant: Yeah, of course I am.

Josh Clark: Okay.

Chuck Bryant: I'm somewhat politically inclined.

Josh Clark: That's good. That's good. So, I was watching an unnamed TV cable news network which is called CNN, an unnamed one. And basically I was watching coverage of this bailout, what it means, all this. I'm hooked on the bailout. Okay. If you haven't figured it out by now, I eat information up.

Chuck Bryant: Right. You should get a tee-shirt; I'm hooked on the bailout.

Josh Clark: I'm hooked on Kasha Karry. Yeah. So, I was - there's this one commentator, this one pun that was saying so long free market and I was thinking you're stupid, you're a stupid person because we don't have a free market. Did you know that?

Chuck Bryant: Of course I do. We never had a truly free market. Well, maybe in early on.

Josh Clark: Yeah, in the early [inaudible] days -

Chuck Bryant: Yeah, we were trading corn.

Josh Clark: - in America. Yeah, yeah! And whiskey!

Chuck Bryant: Right, or bracelets and trinkets for large tracks of land.

Josh Clark: Or hemp.

Chuck Bryant: Hemp.

Josh Clark: That was a big one early on.

Chuck Bryant: Sure.

Josh Clark: Yeah, so I'm glad to hear you say that. I find it refreshing. Most people when you say what kind of economy does the United States have; they say it's a free market economy and that's just false and let's talk about why it's false.

Chuck Bryant: Let's do it.

Josh Clark: I think we should. So, basically, the one - well, how about this! Let's describe a free market economy under the capitalist system and then we can say this is why the U.S. doesn't have one of those.

Chuck Bryant: Okay.

Josh Clark: All right. So, you know who the father of capitalism is, right?

Chuck Bryant: Yes, Charles Darwin.

Josh Clark: Darwin, yes. He - no!

Chuck Bryant: No. Sorry.

Josh Clark: Terrible. Adam Smith.

Chuck Bryant: Right.

Josh Clark: Economist extraordinaire and this guy was working from nothing. This was all just out of this guy's head. He was good.

Chuck Bryant: Right. What year was this?

Josh Clark: He actually wrote -

Chuck Bryant: Ballpark.

Josh Clark: - the Wealth of Nations in 1776.

Chuck Bryant: Yeah, that's some [inaudible].

Josh Clark: Yeah, exactly. So, the U.S. is like what kind of economy should we have and what are they doing over in Scotland. They heard about this Adam Smith fellow, they brought him over, bought him dinner and he told them everything they needed to know and it's a great theory, capitalism in theory is great. Okay. So, basically when you have a bunch of people that have a bunch of products, the supply out paces demand, prices come down. It protects just the average consumer like that. When demand is high and supply is kind of low, then companies are protected and it's this constant swing back and forth between protection for consumers and protection for producers.

Chuck Bryant: Right. It's a system of checks and balances really.

Josh Clark: It is, and ultimately, whichever one is benefiting at any given point in time, everybody benefits because if you have demand high then you have companies who are just working away at making new stuff.

Chuck Bryant: Right, jobs are up, production is up.

Josh Clark: And another point I made in this article is that these companies pay taxes, so, indirectly, even people who can't get employment are being helped through government-funded, taxpayer-funded social programs. So, everybody is doing really well under capitalism.

Chuck Bryant: Right. Employees are probably paid even more, too, when demand is high.

Josh Clark: Yeah, now, there's some natural checks and balances that are built into the capitalist system, like, for instance, capitalism kind of demands that companies keep wages low. You're trying to maximize profits because capitalism fosters competition, right. You got a lot of people out there competing for that consumer dollar that you want to compete and you want to keep your business efficient and trim. One way to do that is to pay low wages.

Chuck Bryant: As low as you can get p eople to work for.

Josh Clark: Right, but Smith pointed out that if you pay people slightly higher wages, they're going to be able to - and this is 18th Century, they're going to be able to feed themselves better and thus they'll be sturdier and be able to work harder and all of a sudden you're more efficient. You can extrapolate that into other terms; a better paid employee should be, theoretically, a happier employee who will work more, be more productive, that kind of thing.

Chuck Bryant: Right. I've seen that firsthand actually as a quick side. I worked at Stone Mountain Park here in the great state of Georgia for many years. We had a laser show, still do, and I sold, as I think you know, the glow in the dark necklaces.

Josh Clark: I had no idea.

Chuck Bryant: I did. I did that for five summer's man and the guy - it actually wasn't a park employee job; it was a private contractor that did this and he paid us on commission. He paid these 16, 17 year old kids on commission and man we made - I made more money than I do now.

Josh Clark: You're kidding?

Chuck Bryant: Well, if you factor in bills and things, absolutely.

Josh Clark: You must have been quite a hustler.

Chuck Bryant: Yeah, but that's the - long story short is, we all worked our butts off to sell as many of these things we could for this guy because we made more money. And, in the meantime, the park employees were schlepping popcorn and candy and stuff, they were all sneaking behind the bushes and smoking cigarettes and making out and stuff -

Josh Clark: Yeah, they didn't care.

Chuck Bryant: Nah, they didn't care because they were getting paid minimum wage.

Josh Clark: That's like a government employee. Which kind of brings us to our point down the road, which, actually we should get to quite yet because we're not done talking about capitalism?

Chuck Bryant: Okay. Back to capitalism!

Josh Clark: Let's put that segway off and we'll pick it up later.

Chuck Bryant: Sounds good to me.

Josh Clark: Okay. So, this is all bright, shiny capitalism. All right. The problem is when you factor in the competition and the competitiveness; you actually come up with a survival of the fittest scenario.

Chuck Bryant: Darwin, I told you he factored in.

Josh Clark: Exactly. He's not the father of capitalism but, man, is he ever important.

Chuck Bryant: Yeah.

Josh Clark: So, you get all these companies competing and then there's this thing called a correction. We know and love it as the word recession. And all a recession is a decline in productivity and the reason these declines happen is because you've got - you have too many poorly managed companies; you have too many bad investments, oh, I don't know, like, a mortgage back security or something like that. You have all these things basically gumming up the works and they actually drag the market down. When the market goes into recession, these poorly managed companies and bad investments can't survive so they actually sloth off. It's kind of like a recession to capitalism, is like a forest fire to the woods. You've got this raging fire that burns out all the undergrowth, it gets rid of pests and diseases and pestilent and all that and then the only thing left standing are these huge old trees that are allowed to flourish and grow and then eventually the cycle begins again, the undergrowth come back and so does the pests and disease.

Chuck Bryant: Right. Sort of like what we've seen with the internet actually, the big internet boom that everyone and their brother started a website, a start up in the 90s and same thing happened there. The giants, like, the Amazon.com, they stuck around and all the other ones fell away so that was kind of a self-correcting thing, too.

Josh Clark: Right. That's the same thing. The reason that giants, like, Amazon.com stuck around is because they proved their worth to the economy. They provided a valuable service -

Chuck Bryant: A good business model.

Josh Clark: - so the consumers judged, hey, we like this, we want this, we're going to give it our money to Amazon survived. Other ones, they were bad ideas, for better or worse, they didn't appeal to people so they feel away. It's exactly what we're going through right now is a recession.

Chuck Bryant: This makes me think a recession is actually kind of cool.

Josh Clark: It is. It's a very natural component of capitalism. Here's the thing. Capitalism in the United States, it doesn't have the full faith of the U.S. Government. Normally, when we hit a recession, the government goes into socialist mode. We start buying stakes in companies and start flooding the market with all sorts of money and adjusting interest rates, that kind of thing. So, here's where we enter how the U.S. is not a capitalist free market economy.

Chuck Bryant: Right. I love the examples you used in this article, too, because I don't think many people would ever think of these as bucking capitalism in the free market but it's exactly what it's done.

Josh Clark: Well, yeah, the obvious one is the SEC.

Chuck Bryant: Yeah, the securities and exchange commission!.

Josh Clark: Yeah, and basically they watch the stock market and the reason the SEC exists and I say in the article, the only reason why or the very fact that the SEC exists shows that capitalism in America isn't based on a free market economy. But the reason the SEC exists is because, in the U.S., for a 100 or 200 years almost, this capitalistic economy eventually devolved into its worst form of itself. You had, like, Robert Barren's that were [inaudible] capitalist novelist would argue, these titans of industry helped build modern America and modern America's economy but as somebody who is maybe happy with labor - on the side of labor, would say yes, they did but they built it through the direction of the suffering working class.

Chuck Bryant: Right. On the backs of the working class!

Josh Clark: Exactly. So, you've got two sides of the same coin, and ultimately, if you look at the federal governments track record, they usually side on the suffering - alleviating suffering of the working class because they're, like, thank you very much Robert Barren for endowing this entire city, but we're going to have to step in and they have. The securities and exchange commission was a big one. What else is there?

Chuck Bryant: I know another one was the - well, the government getting involved in big companies like Carnegie Steel and Standard Oil and the railroads, Union Pacific Railroad and big major corporations that all of a sudden the government was getting - putting their finger in their pie and saying, you guys got a little too much power, we need to step in and kind of regulate you a little bit.

Josh Clark: Yeah, because that competition from a 100 plus years of unregulated capitalism lead to some really nefarious business practices like corporations saying to their investors that they'd made $17 billion or, back then, $17 million in profits but turned around to the government and called for - wrote off $11 million in losses. Things like that. So, you create the SEC.

Chuck Bryant: Or monopolies.

Josh Clark: Monopolies were the first one. Like you said, the railroads and steel companies and all that, they had too much power and they were all basically running the show in their industry. If you wanted steel, you had to go to this one company; if you wanted oil, you had to go to this company, so they could set whatever prices they want and really, the first appearance of government regulation into the free market was the Sherman Antitrust Act of 1890.

Chuck Bryant: 90, yeah.

Josh Clark: 1890?

Chuck Bryant: Uh huh.

Josh Clark: Okay. Good enough, but that was hardly the end. You've got food packagers.

Chuck Bryant: Right, the FDA in itself is sort of the same thing.

Josh Clark: Well, big time. I mean, really, under a free market system, somebody should be able to put as many rats excrements as possible -

Chuck Bryant: Right, a million excretions.

Josh Clark: Yeah, you and I know that there's a very finite amount that can be allowed in there. So, the FDA regulates business. It interferes with the free market.

Chuck Bryant: Right.

Josh Clark: The same thing with the federal trade commission. They were actually created to encourage competition among corporations and prevent monopolies. Like, that's pretty much their sole reason for existing.

Chuck Bryant: Right, even the very idea of setting a minimum wage is the government getting involved in the business.

Josh Clark: Yeah, it really is. It took a lot of labor strikes; a lot of violent classes with police, the anarchists are coming up for a little while there and basically, ultimately, government fell on the side of the people. If you really look at, again, the federal government's track record over the last 100 or so years, they've ultimately sided with the people.

Chuck Bryant: Right. I encourage you to look at the record my friends.

Josh Clark: Yeah. The records out there! It's in the faces of the happy employees at the FTC and the FDA and the SEC. You go look those people in the eye and you can think, the government cares about me.

Chuck Bryant: Right.

Josh Clark: Yeah, so that's -

Chuck Bryant: So, what do we have though if it's not a free market, what would you call it?

Josh Clark: I would call it a managed economy and I wouldn't be the only one to call it that.

Chuck Bryant: Okay. You didn't come up with that term?

Josh Clark: I didn't. A managed economy is basically what we have. You have a free market but then there's some government regulation and oversight and -

Chuck Bryant: Hopefully in all the right places.

Josh Clark: Yeah, so, the next time somebody asks you what kind of economy does the United States have, don't say free market -

Chuck Bryant: Don't say cruddy.

Josh Clark: You say we have a managed economy and if they want to know what you're talking about, tell them to go type in, "Is a free market free if it's regulated," on howstuffworks.com.

Chuck Bryant: And then punch them in the head.

Josh Clark: Exactly. And stick around to find out where Chuck got his current gambling problem. So, Chuck, where did your gambling problem come from? See, I've made like a $150 off you during this podcast.

Chuck Bryant: Right.

Josh Clark: Where's it from?

Chuck Bryant: Well, as you know, Josh, I have the jimmy legs, I have the jumpy legs, I think the technical term is RLS, restless leg syndrome.

Josh Clark: That is the technical term.

Chuck Bryant: I'm kicking you as we speak during the podcast.

Josh Clark: I know. It hurts but that $150 it goes a long way to easing the pain.

Chuck Bryant: Well, Josh, I have this maliti and I'm on some medication to help control my jimmy legs and that medication has a side effect and one of them is compulsive activity like gambling so I have the jimmy legs and the next thing you know, I'm, like, heading out to the Cherokee and North Carolina every weekend to gamble.

Josh Clark: That's great. Well, you know, if I had a kid, I'd say you were putting it through college. What's this medication?

Chuck Bryant: Well, I can't divulge the name on the air but it's cured my jimmy legs but now I'm way in the hole at the casinos.

Josh Clark: That's great. Well, thank you big pharma. I'm gonna go spend this $150 on scratch off tickets.

Chuck Bryant: Right. And you can read about this in a very cool article called, The top 10 weirdest side effects of drugs that you can take to make you feel better."

Josh Clark: Also known as, "Top 10 weird prescription drug side effects." You can find that on howstuffworks.com.

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