The Instigator
jsmith36
Pro (for)
Losing
0 Points
The Contender
LaissezFaire
Con (against)
Winning
13 Points

A free market devoid of all government intervention would hurt the U.S. economy

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Post Voting Period
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after 3 votes the winner is...
LaissezFaire
Voting Style: Open Point System: 7 Point
Started: 6/10/2011 Category: Economics
Updated: 5 years ago Status: Post Voting Period
Viewed: 2,728 times Debate No: 16989
Debate Rounds (3)
Comments (2)
Votes (3)

 

jsmith36

Pro

The topic is: A free market devoid of all government intervention would hurt the U.S. economy. I started this same debate, but my opponent forfeited. I've literally cut and paste from my other debate. First round includes substantive arguments.

In order to win this debate, I must show at least one example of a government intervention into the free market that, if removed, would harm the economy. I will present three such examples: patents, insider trading, and market externalities,

1. Patents

Currently, the U.S. Constitution permits the federal government to issue patents and copyrights for a limited duration. This is an intervention into the free market, because it prevents competitors of the patent holder from engaging in a competing enterprise. However, in the absence of such grants, the economy would be harmed because there would be less of an incentive for companies to develop new pharmaceuticals.

Although invention occurred before the issuance of patents and copyrights, much of the innovation of the 20th century, particularly in the area of pharmaceuticals, occurred because patents permitted the holder to guarantee a period of economy prosperity, which in turn justified the development of new products. In the absence of patents, there would be a substantially reduced incentive to develop new drugs, which would harm the economy.

2. Insider Trading

Federal laws prohibit the use of "insider information" to make decisions about buying and selling shares on a market exchange. Although the set of rules surrounding insider trading is beyond the scope of this debate, it generally prohibits people who have non-public information from using that information to buy and sell stock (usually of a company that they work for or are affiliated with). This is an intervention into the free market, because a totally free market would permit people to buy and sell stock using whatever information they have available. However, if insider trading was permitted, many investors would not have sufficient confidence in the stock market to invest their funds.

Investing money into the stock market is always considered a risky venture because most companies have the potential to go bankrupt. However, most investors rely on publically available information to make their investment decisions, and feel confident that the market price accurately reflects all available information. If "insiders" such as corporate executives have access to secret information, such as the fact that a new product is likely to fail, or the company is about to be purchased by a competitor, they can use that information to make a large profit. The result is that "outsiders" stand to lose significant money in their investments. If this occurs often enough, investors will begin to lose trust in the system, and may choose not to invest their money in the stock market entirely. The stock market is the primary method of raising capital for corporations, and a lack of capital would hamper productivity, which harms the economy.

3. Market Externalities

A market externality is a cost placed on someone other than the person who receives the benefit. For example, a company which dumps toxic waste into a river gets a benefit (a cheap place to dispose of waste), which people downstream on the river get a cost (it damages their land). Currently, the federal government regulates interstate waterways to prevent the dumping of toxic waste. This is an intervention into the free market, because a truly free market would not prohibit a party from maximizing its profits. However, if market externalities are not regulated by the government, the country will actually lose productivity.

In a scenario where there are no controls on pollution, companies have an incentive to destroy common lands, such as rivers, public fields, and the atmosphere by disposing of their waste products. This is efficient for a company, because they don't bear the full cost of the waste disposal, yet receive all of the benefit. However, this leads them to pollute more than if they did have to pay the full costs. The result is that there is more pollution than optimal. If this reaches extreme levels, short sighted companies could permanently damage waterways and the atmosphere, which would significantly harm the economy.

Conclusion

Although most people would agree that there should be some government interventions into the free market, others take an absolutist view that there should be no such interventions. I believe I have demonstrated three reasons why, at the very least, there should be some interference with the free market.
LaissezFaire

Con

BOP: Pro claims that he only needs to find a single example of a beneficial government intervention to fulfill his burden of proof. This is absurd—he claims that “a free market devoid of all government intervention would hurt the U.S. economy”—to prove that, he needs to show that a free market would be harmful overall, not just in one specific case.

Definition:
Free market—a system of voluntary exchanges based on respect for private property rights. To the extent that there is respect for private property, there is a free market. [Source? As a market anarchist, I think I would know.]
Government intervention—for the purposes of this debate, any actions of the United States federal government

1. Patents
Contrary to popular belief, IP hinders innovation rather than encourages it. Patents can increase the amount of revenue an inventor would receive for a given idea, but this greater incentive does not necessarily translate into more ideas. Patents also discourage innovation by causing patent-holders to waste much of their time suing people who violate their monopoly rather than inventing. Patents also discourage innovation by restricting the ability of people to improve on existing ideas. Look at the invention of the steam engine. James Watt thought of the idea in 1768, but production didn't really start until 1775, when his monopoly was secured until 1800. Production was slow during those 25 years, and exploded afterwards, and when a superior steam engine was developed, Watt spent most of the 1790s suing its inventor. [1] Because of Watt's monopoly, innovation stalled during those years, with fuel efficiency, for example, stagnating during Watt's patent, but increasing by a factor of five by 1835. [2] This delay of innovation had serious consequences, as the industrial revolution only took off in England after Watt's patent expired and the industry could thrive. But would Watt have had the incentive to invent the steam engine if patents didn't exist? Yes. He actually made most of his money after his patent expired. He was forced to constantly innovate to keep up with the competition, and, as a result, his steam engines were recognized as the best ones and thus the best-selling.

What about pharmaceuticals? Don't we need patents for those? No. Historically, the pharmaceutical industry grew much faster in countries were patents were fewer and weaker. The unprotected German industry, for example, grew much faster than the protected British industry, which is the opposite of what you'd expect if IP laws actually encouraged innovation. [3] And when countries did introduce patents, they saw no significant increase in innovation. Switzerland and Italy both had thriving pharmaceutical industries without IP laws, until they were introduced in the late 1970s. [4] Contrary to what one would expect if IP laws actually worked, neither country saw an improvement in pharmaceutical innovation. [4]

2. Insider Trading
Having information that others don’t have and acting on it is how all money is made in the stock market. If everyone knew that a stock was going to go up, you wouldn’t be able to make money buying that stock—the only way you can make money with your information is if other people don’t know it. (If a stock was going from $10 to $100, and you knew it, you could make a profit buying now and selling later. But if everyone knew this was going to happen, no one would sell you their stocks at $10.)

And people acting on this information that others don’t have is a good thing. Everyone can’t have universal knowledge—knowledge is spread out over millions of people. The way this knowledge is communicated is through prices. Stock prices communicate knowledge about the health of firms. The more accurate these prices are, the better. Say Firm X is fundamentally insolvent, and is heading toward bankruptcy eventually. It’s better for the economy if this happens sooner rather than later, so resources stop being wasted by the inefficient firm. That’s where stock prices come in—if they’re low enough, some person or other firm could buy a controlling interest cheap and sell off the assets. So, it’s better for the economy if speculators drive Firm X’s price lower.

What’s the moral and economic difference between this and “insider trading”? Nothing. Inside traders act on information that others don’t have, which is no more unfair than anyone else in the stock market acting on information others don’t have. And their actions communicate vital information to the market, like the actions of any other successful traders. By acting on accurate information, inside traders make stock prices more accurately reflect a firm’s true value, and let capital be allocated more efficiently. They also lower the volatility of stock prices—they buy low, making the low price higher, and sell high, making the peak price lower.

Pro states that if insider trading happens too much, outsiders will “lose confidence in the system” and stop investing, lowering the amount of capital available for corporations. But he fails to provide any facts or evidence to support this assertion. Furthermore, the “outsiders” who trade with insider traders were going to trade anyway—the inside traders didn’t force outsiders to buy or sell their stocks, they just bought stocks people wanted to sell or sold stocks people wanted to buy anyway. And because of the inside traders extra demand or supply, the outsiders get a better deal than they would have—if I want to buy a bunch of Firm X’s shares, because they’re $9.75 now and are going up to $15 later, then I’m actually helping the sellers. They were going to sell anyway, but because of my extra demand, they got $10 per share instead of $9.75.

3. Externalities
Pro claims that “a truly free market would not prohibit a party from maximizing its profits.”—so firms would be allowed to hurt people by dumping dangerous waste, and such. Of course, this is a ridiculous description of the free market. In the free market, you can only do what you want with your own private property if you respect the property rights of others—this is why the government, which initiates force against person and their property, is not part of the market. Maximizing profits is only part of the market if you do it while respecting the property rights of others. Firms dumping waste on other people’s land are not part of the market.

Pro also claims that companies would dump waste in common lands. But the free market easily solves this problem—with private property. There are only common lands if the government intervenes and makes them so. In a free market, these lands would be someone’s private property, preventing corporations from dumping their waste on it if they didn’t own the land. While air couldn’t be owned, air pollution that damages the air someone breathes, or the property they use, would be a property rights violation, and thus impermissible in a market.

Other cases of removing government intervention:
War:
War spending is terrible for most Americans. Resources, labor, and money are diverted from creating more goods that consumers want to creating destruction and death halfway around the world. Imagine how much better off Americans would be if they had an extra few hundred billion dollars, because the money for war spending wasn’t stolen from them by the government.

Corporate Welfare:
As with war spending, billions is diverted from hard working Americans to special interests. Agribusiness alone gets around $180 billion annually from the government. [5]

[1] Carnegie, A. (1905), James Watt. Doubleday, Page & Co.

[2] Lord, J. (1923), Capital and Steam Power. London: P.S. King & Son.

[3] Michele Boldrin and David K. Levine, Against Intellectual Monopoly (New York: Cambridge University Press, 2008), 215.

[4] Scherer, F. M (2003), "Global Welfare in Pharmaceutical Patenting," mimeo Haverford College, December.

[5] http://bit.ly...
Debate Round No. 1
jsmith36

Pro

Burden of Proof:

The topic is "a free market devoid of ALL government intervention…" If I can show that not ALL government intervention is bad, then I win. If there is one form of government intervention is good, then not ALL government intervention is bad, and I would win.

Patents:

He says: Patent law causes inventors to waste time suing

Not even close. Maybe in the 1700's, but today, it's the lawyers that do the suing, not the inventors, especially not the scientists working for a multi-billion dollar pharmaceutical company.

He says: Watt's steam engine proves patents are bad

I don't have access to the sources he's citing, but note: I focused on pharmaceuticals, not machines. The idiosyncrasies surrounding a single invention during the Industrial Revolution is hardly a test case for the entire IP system.

He says: Pharmaceutical don't need patents

The patent system in America is the primary reason why America has the largest amount of capital invested in its pharmaceutical industry [1]. "For developed countries, it has often been pointed out that suppressing pharmaceutical patents would entail long-term, dynamic losses in terms of new medicines…" [2] "[P]atents are a fundamental incentive to innovative activities in pharmaceuticals and biotechnology." [3]

Insider Trading:

He says: That's how you make money

Contrary to what most people think, the stock market isn't about making money (and if you read my introductory argument, that's not what I care about either). The stock market is a mechanism for corporations to raise capital in order to continue or expand their business. So if insider trading hurts that ability, then it's bad for the economy.

He says: Stock prices reflect the health of the company

No – in fact, this is exactly my point. If the CEO knows that the company is insolvent, but is hiding it (like the Enron case and many others), they can manipulate the stock price while making large sums of money on the inside information. Eventually, the ruse will be detected; the stock price will plummet, but not before the CEO makes a huge amount of money. The resulting negative publicity will further erode confidence in the stock market. In a world where this is commonplace, there won't be enough confidence to operate a stock market, capital will become scarce, and that will be bad for the economy.

Even if your argument is that trading on inside information helps reflect a more accurate stock price, this becomes useless when the individuals doing the trading have the ability to manipulate the stock price to their own advantage.

He says: No effect of insider trading

Think again: "Our markets are a success precisely because they enjoy the world's highest level of confidence. Investors put their capital to work- and put their fortunes at risk - because they trust that the marketplace is honest. They know that our securities laws require free, fair, and open transactions. An essential part of our regulation of the securities market is the vigorous enforcement of our laws against insider trading…" [4].

They later continue: "But one of the main reasons that capital is available in such quantities in the U.S. markets is basically that the investor trusts the U.S. markets to be fair. Fairness is a major issue. Even though it sounds simplistic, it is a critical factor and one that is absent, really to a surprising degree in many of the sophisticated foreign markets.... The common belief in Europe that certain investors have access to confidential information and regularly profit from that information may be the major reason why comparatively few Europeans actually own stock. [This may] partially explain why the U.S. markets are so active and why so much money is available for those companies that seek to enter U.S. markets." [4].

He says: Outsiders were going to buy and sell anyway

This is non-responsive. I said that if insider trading is widespread, then people won't invest, and the economy will suffer. Even if they would buy and sell, they WON'T buy and sell if there is insider trading, and the economy goes down.

Externalities

I'll put the definition debate here.

He says: Free market means respect for private property rights

First, his warrant is ridiculous – he's a "market anarchist", so HE KNOWS…

How about some definitions:

"an economic market operating by free competition" – Merriam Webster (http://www.merriam-webster.com...)

"an economic system in which prices and wages are determined by unrestricted competition between businesses, without government regulation or fear of monopolies." – Collins English Dictionary (http://dictionary.reference.com...)

"A free market economy is one where scarcities are resolved through changes in relative prices rather than through regulation." – Organization for Economic Cooperation and Development (http://stats.oecd.org...)

Free markets are simply millions upon millions of individual decision-makers, engaged in peaceable, voluntary exchange pursuing what they see in their best interests. – Professor Walter Williams (http://econfaculty.gmu.edu...)

Please note that NONE of these definitions (or the dozens of others I saw) include anything about "respect for private property.

Furthermore, he says that in order to have a free market, you have to "respect the property rights of others." But – WHO WILL ENFORCE THOSE RIGHTS? The government. He tries to get around this basic necessity by defining "free market" as respect for property rights. But I'm sure he will admit that human nature may, from time to time, lead someone to display a lack of effect for the rights of others. The result is that we either have (1) the externalities like I described, or (2) some form of government intervention (i.e. laws, or a system of civil lawsuits, or some other "authority"). The only other possibility is conflict, which he says at the bottom of his argument is bad for the economy.

He says: Privatization of all lands prevents externalities

He still hasn't answered the fundamental question: who enforces property rights?

He also says that air pollution is "impermissible in a market" – but do we all have the "right" to clean air? Who enforces that right? How clean does our air need to be? These are all questions that cannot be answered by the "market", nor by a system of private property. The problem of the commons requires government intervention to solve.

Additionally, he says privatizing all lands will help prevent externalities. But take forests, for example. If the price of lumber increases, what will the result be? More and more private companies will buy forests, chop down the trees, and sell the lumber. Because lumber is limited by the amount of time it takes to re-grow trees, the price of lumber could rise considerably. In a pure free market, if the price goes high enough, companies might chop down most or all of the forests. But, if we remember from our fifth grade environmental science class, if there are no trees, we can't scrub out carbon dioxide and generate fresh oxygen. This is an externality, but there is no way for the market to prevent it.

Other Cases In Favor of Government Intervention

He talks about war and corporate welfare. I'm not going to defend either of those – but it still doesn't matter. I'll agree that there are lots of forms of government intervention which are bad. However, that doesn't mean that they are ALL bad – which was my original point.

Less government = good
No government = bad

[1] http://www.earthinstitute.columbia.edu...

[2] http://emmanuelcombe.org...

[3] http://innovation.org...

[4] http://info.worldbank.org...
LaissezFaire

Con

BOP:
The resolution is, ‘A free market devoid of all government intervention would hurt the U.S. economy.’ That means Pro is saying that removing all government interventions would hurt the U.S. economy. If there are 100 total government interventions, and 1 of them is slightly helpful, and the other 99 are incredibly harmful, removing ALL of them would help the U.S. economy overall. Obviously, if this were the case, it would negate the resolution. But under Pro’s interpretation, if that were true, the statement ‘a free market devoid of all government intervention would hurt the U.S. economy’ is true, because of the 1 good intervention. But this is ridiculous—removing all government interventions would help the U.S. economy overall in this scenario.

What Pro probably meant to say is that ‘not all government interventions are harmful to the U.S. economy’, or be Con on ‘all government interventions are harmful’, or something like that. But that isn’t what he said.

Patents:
Lawyers do handle the legal work for pharmaceutical companies, but this just helps prove my point. Pharmaceutical companies are wasting valuable resources hiring lawyers and suing, rather than investing that money in more innovation.

I wasn’t saying that the Watt example proved my point, it was an illustration of a general point, showing how patents hurt innovation. But if Pro would like examples more relevant to his main point, the pharmaceutical industry:
Patents cause waste, by forcing companies to reengineer a slightly different version of a drug to compete with it. (see: all the different erectile dysfunction drugs you see on TV). About 75% of current R&D spending is on copycats of existing drugs. [1] In addition to wasting resources that could be spent on useful things, patents prevent innovators from producing many potentially helpful drugs. For example, Peter Ringrose, the chief scientific officer of Bristol-Myers Squibb told the New York Times that, "There were more than 50 proteins possibly involved in cancer that the company was not working on because the patent holders either would not allow it or were demanding unreasonable royalties." [2]

Pro’s last argument is basically “look at these people who agree with me.” No data or facts, no arguments or logic explaining why patents work, just pro-IP people saying patents attract capital/increase innovation. This is not evidence. I’ve explained why patents hurt innovation, and provided empirical evidence showing the harmful effects of patents in the pharmaceutical industry.

Insider Trading:
Enron is not an example of insider trading—it was a case of fraud, which is completely different. Insider trading would be if I worked at, say, Microsoft, and I knew that the stock price was much higher than Microsoft was really worth. And so I shorted Microsoft, expecting it to go down to what Microsoft was worth, and made a lot of money.

As evidence that insider trading hurts capital accumulation, Pro provides a speech by the SEC. Obviously the SEC thinks it’s doing a good job—this is hardly evidence. It’s absurd to think this claim has any merit. People don’t invest in the stock market because of all the fairness—they invest their hoping to make money. They’ll invest as far as they think they’ll profit from their investments. Insider trading causes some people to profit less, but others, the insider traders to profit more. Even if the people who profit less invested less, the insider traders would invest more, so it would cancel out. And, since insider trading communicates more accurate information to the market, it would create a more profitable market overall, increasing incentives to invest overall.

Definitions:
Pro states that none of his definitions have the words “private property” in them, so I’m wrong. But even if they don’t, they still all say the same thing as mine.

“Free markets are simply millions upon millions of individual decision-makers, engaged in peaceable, voluntary exchange pursuing what they see in their best interests.”
How could this definition make any sense if it didn’t imply respect for private property? That’s what Williams means by peaceable and voluntary. If that didn’t include respect for private property rights, then what makes government not part of the free market? If I can pollute my neighbors land in a free market, then why can’t the government tax and regulate his land in a free market? A definition of a free market that doesn’t include property rights is absurd.

Furthermore, Pro didn’t define ‘free market’ in his R1, so I can define it as whatever I want.

Externalities:
Pro argues that without government, there would be no one to enforce property rights. This is false—private firms could compete to provide courts and police. It’s happened before—for hundreds of years, medieval Ireland had anarchic law that protected private property [3], as did the American West in the 19th century [4]. Comparisons between anarchic law and order in the early American West and government control in the same area show that private, competing protectors did a better job of protecting persons and their property than governments. [4] In fact, free competition, not government, is the origin of the English common law system, which our legal system was based on. [5] This market legal system focused on crimes against person and their private property—much more so than government legal systems, which emphasize crimes against the state, or victimless crimes like drug crimes. [5] It focused on forcing criminals to make restitution to their victims, until the kings took over, and changed the focus to punishment and payment to the state in the form of jail and fines. [5] Medieval Iceland also had a successful anarchic legal system. Victims and their families were given a legal right to pursue the criminals that wronged them and force the criminal to pay them restitution, or hire someone to do so. [6] If they couldn’t afford this, they could sell their right to someone who could afford to catch the criminal, so even crimes against the poorest people were punished. [6]

Contrary to Pro’s claims, the free market would not only not cause widespread deforestation; it’s the best way to prevent it. Imagine a forest with $1 million worth of wood in it. The property itself is worth $1.2 million (the wood + other stuff the land could be used for). If this forest is privately owned, the owner would, to maximize his profits, replant trees as quickly as he cut them down. If he just cut trees without replanting, he’d get the $1 million in revenue right away, but his land would be worth $1 million less—he’d lose money overall, because of the cost of cutting down the trees. He’d want to continuously replant trees to keep the value of the land high—either so he could sell it to someone else, or cut down more trees later. Now contrast this with government controlled forests. They either wouldn’t be cut down at all, wasting potential wood, or they’d be rented out to firms that cut them. Because the firms are renting the land, they have no incentive to replant trees—they don’t care about the land’s value, because it’s not their land. The government could require companies to replant trees, but they don’t have to, have no incentive to, and therefore often don’t.

Sources:
[1] Michele Boldrin and David K. Levine, Against Intellectual Monopoly (New York: Cambridge University Press, 2008), 226.

[2] Pollack, A. (2001), "Bristol-Myers and Athersys Make Deal on Gene Patents," New York Times, January 8.

[3] https://mises.org...

[4] https://mises.org...

[5] http://findarticles.com...

[6] http://www.daviddfriedman.com...
Debate Round No. 2
jsmith36

Pro

jsmith36 forfeited this round.
LaissezFaire

Con

Extend arguments.
Debate Round No. 3
2 comments have been posted on this debate. Showing 1 through 2 records.
Posted by jsmith36 5 years ago
jsmith36
@mcc1789

The problem is not that insider trading hurts companies - insider trading hurt confidence in the market, which in turn harms the economy. Furthermore, its hard to prevent insider trading by contract if it is the President and CEO doing the insider trading.
Posted by mcc1789 5 years ago
mcc1789
On Pro's insider trading argument: "Federal laws prohibit the use of "insider information" to make decisions about buying and selling shares on a market exchange. Although the set of rules surrounding insider trading is beyond the scope of this debate, it generally prohibits people who have non-public information from using that information to buy and sell stock (usually of a company that they work for or are affiliated with)."

If companies worry enough about their employees selling inside stock information, they could prohibit it by contract. However, the cost of enforcing this would be theirs alone. If they feel it would be worth that, fine.
3 votes have been placed for this debate. Showing 1 through 3 records.
Vote Placed by mcc1789 5 years ago
mcc1789
jsmith36LaissezFaireTied
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Total points awarded:05 
Reasons for voting decision: Con successfully showed that, in fact, government intervention in the economy actively hurts prosperity, effectively answering Pro's contentions.
Vote Placed by BennyW 5 years ago
BennyW
jsmith36LaissezFaireTied
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Reasons for voting decision: Forfeit and con had better arguments
Vote Placed by CiRrK 5 years ago
CiRrK
jsmith36LaissezFaireTied
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Reasons for voting decision: F