The Instigator
roark555
Pro (for)
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The Contender
Genghis_Khan
Con (against)
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Free Market Capitalism

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Voting Style: Open Point System: 7 Point
Started: 4/20/2015 Category: Economics
Updated: 1 year ago Status: Post Voting Period
Viewed: 466 times Debate No: 73811
Debate Rounds (5)
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roark555

Pro

Round 1 acceptance, round 2 opening arguments, rounds 3-4 arguments and rebuttals, 5 final thoughts.
Genghis_Khan

Con

Accepted.

I'll be arguing against the notion that the government should not have any intervention in a country's economy.
Debate Round No. 1
roark555

Pro

Thank you for accepting this debate.

So, what is the free market and why do I support it? Well in short, the free market is a system based on private property, and where goods and services are distributed according to the voluntary interactions made by individuals. So for example, barter would be part of the free market, as would purchase, gifts, gambling, charity etc. Whether I buy a burger from McDonald's, donate to habitat for humanity, buy my little sister a doll or trade you my dishwasher for your fridge i'm participating in the free market. But stealing, committing fraud or assaulting others is not part of the free market.

So that's what the free market is. Now, why do I support it? Well, for one thing it's voluntary. Now why does it matter if it's voluntary? It's important in part because lets say I have a pen and you have a pair of sunglasses. I want the sunglasses more than the pen, you want the pen more than the sunglasses, so we trade. Who loses in that exchange? Nobody. Now ex post you might regret trading for the pen, but the principle remains the same. Trade is win-win by definition. Lets take this in the context of an employer-employee contract. Lets say that I'm a lazy bastard and I want somebody to mow my lawn. So I offer to hire you for $5.00 every hour you mow. You agree. What can be deduced from this? Did I exploit you? Did you exploit me? Did we exploit each other? Well the fact is, that if I didn't think my $5.00 was worth you mowing my lawn, and you valued your free time more than the $5.00 you received from mowing my lawn, then this interaction would not have taken place. So the basic principle of trade is that it is win win, and this is essential for the free market.

So if trade is win win, what is the opposite of trade? The opposite of trade is force. Force is win-lose. Force is when a mugger comes up to an old lady and grabs her purse, or when somebody shoots another person etc. Another example of force is when the government enforces certain laws and regulations. Now catching murderers is one thing, in that scenario the use of force is justified. However, in a case where an individual is being payed below the federal minimum wage force is not justified because the contract was between consenting adults.

Lets expand on that example I gave earlier involving you mowing my lawn. Suppose in that case there was a man named Fred who was listening in on our conversation about our contract. Fred, either out of malice for me or a sense of caring about you feels that I should be paying you $9.00/hr rather than 5. So, one day he decides to break into my house, beats me up and threaten to lock me in a cage if I don't pay you more. I think the general response would be outrage. People would think that Fred was just another thug. But let's say that instead of Fred, it was the state. Let's suppose The government passes a law stating that employees must be payed a minimum of $9.00/hr. Since me and you are adults relatively speaking, we decide to disregard the law and continue doing business as we see fit. The government finds out, and they issue a penalty of some sort, be it a fine ( a fancy word for taking your money for doing something they dislike) or perhaps even jail time. And in this situation what's the general response by your average person? They don't have an issue with this. They think that I was simply exploiting you. They think that it was just that the state did what it did, when all I did was replace Fred with the state.

This is simply some initial thoughts, I hope to expand more in the succeeding rounds. Good luck sir.
Genghis_Khan

Con

Thanks, Pro.
I'll hold off on rebuttals for now.
Here's my case against having an economy without any government intervention.


1. People are not rational actors

Free market capitalism relies first and foremost on the idea that market actors are perfectly rational. "Individual decision-making forms the basis for nearly all of microeconomic analysis. In the standard view, rational choice is defined to mean the process of determining what options are available and then choosing the most preferred one according to some consistent criterion...rational choice can be represented as one of maximizing a real-valued utility function." [1]. However, the idea of the rational bargainer, which is so central to free market capitalism, is a myth -- people rarely have complete information about the consequences of their actions, and they often tend to value their short-term interests over their long-term interests (which are often more important to their well-being). For example, right now it would be in my best interest to be studying for my AP exams because scoring a 4 or 5 on them increases my chance of getting into a good college, and it could also save me thousands of dollars in tuition; instead, I have chosen to spend my time on DDO because I am not a rational decision-maker: I subconsciously value my short-term enjoyment over my long-term prosperity. A more widely applicable example is that of drug-abusers; almost all scientific evidence goes to show that drug usage harms overall health, yet thousands, if not millions, of people choose to do drugs anyways because they (1) don't know about how harmful drugs can be, and/or (2) place greater value on the short term pleasure they derive from drug use. Any system which relies on the blatantly false assumption that the vast majority of people will act rationally is fundamentally flawed.


2. Prices and Wages are sticky

Another problem with free market capitalism is that it rests on the premise that prices and wages can freely change to meet the criterion set by supply and demand. This is simply not true. Keynesian economic theory states that, in the short-term, prices and wages are sticky, thus disallowing a "free market" system from being flexible enough to adapt to fluctuations in supply and demand. "To understand why prices adjust slowly, one must acknowledge that changes in prices have externalities -- that is, effects that go beyond the firm and its customers... New Keynesian explanations of sticky prices often emphasize that not everyone in the economy sets prices at the same time. Instead, the adjustment of prices throughout the economy is staggered. Staggering complicates the setting of prices because firms care about their prices relative to those charged by other firms. Staggering can make the overall level of prices adjust slowly, even when individual prices change frequently. Consider the following example. Suppose, first, that price setting is synchronized: every firm adjusts its price on the first of every month. If the money supply and aggregate demand rise on May 10, output will be higher from May 10 to June 1 because prices are fixed during this interval. But on June 1 all firms will raise their prices in response to the higher demand, ending the three-week boom.

Now suppose that price setting is staggered: half the firms set prices on the first of each month and half on the fifteenth. If the money supply rises on May 10, then half of the firms can raise their prices on May 15. Yet because half of the firms will not be changing their prices on the fifteenth, a price increase by any firm will raise that firm’s relative price, which will cause it to lose customers. Therefore, these firms will probably not raise their prices very much. (In contrast, if all firms are synchronized, all firms can raise prices together, leaving relative prices unaffected.) If the May 15 price setters make little adjustment in their prices, then the other firms will make little adjustment when their turn comes on June 1, because they also want to avoid relative price changes. And so on. The price level rises slowly as the result of small price increases on the first and the fifteenth of each month. Hence, staggering makes the price level sluggish, because no firm wishes to be the first to post a substantial price increase." [2]. Thus, we can knock out yet another important prerequisite for a laissez-faire economy to be functional -- the flexibility of the market.


== Conclusion ==

Two of the most fundamental assumptions of laissez faire capitalism have been debunked. In practice, a free market economy would not run as smoothly as it does in neo-classical theory. Some level of government intervention is necessary to regulate the actions of market actors for the greater good of the economy. The resolution is negated.


[1] http://web.stanford.edu...
[2] http://www.econlib.org...
Debate Round No. 2
roark555

Pro

To begin this round, I will attempt to refute or at least examen the claims made by con in his paragraph entitled "people are not rational actors".
One of the first errors made in this argument is that con asserts that free market capitalism assumes that people are perfectly rational. Quite simply, this is a straw man argument, because no proponent of the free enterprise system says this. We, like con recognize that the decision making process that people go through is often whim-based, and focuses more on short term gratification rather than long term achievement. It's always easier in the moment to eat that hamburger than go to the gym, even though long term we'd be better off going to the gym.
But my fundamental question is this: if con believes, as I do that people are not inherently perfectly rational creatures, then why on earth does he think that government regulation of the economy is a good idea? Did I miss the memo that said The state was now comprised of kryptonians? Are the individuals that compris government not human beings? Are they not the same flawed, narrowly focused on short term self interest, sometimes irrational people that con describes in his argument? Do the rules of human nature not apply to them the same as everyone else?
So as I understand the position, it is: people are irresponsible, so we need to give PEOPLE in positions of massive power control over large sections of the economy. Am I missing something?
To expand more on this point, here is how I view it.
People have the right to act irresponsibly, provided they don't aggress against others. So as per the earlier example given about the hamburger versus the gym, a person who is overweight may be wiser in choosing to exercise and eat better rather than go to McDonald's, but nevertheless as he is the owner of his body and thus the sole controller of what is done with it, if he chooses to eat poorly it is his choice. However, this does not mean that someone who eats well and goes jogging every morning is responsible for the man Who chose McDonald's. He should not be forced to pay for the unhealthy man's McDonald's, or extra large clothing, or his health care. By the same token, someone who is financially responsible and saves for retirement while staying out of debt should not be responsible for someone who makes the choice to be reckless with his money and blow it all on cocaine and prostitutes, and ends up broke.
If you deny that people have the right to act stupidly, then you have to argue that the government should dictate what foods an individual can eat, you should install video cameras in every room to ensure that people are acting "responsibly".

The wage and price issue.
In a free market system, prices are generally determined by supply and demand. They are in a sense a measuring stick of scarcity. When you have a high supply of a certain commodity, the price tends to decrease. When something is more scarce, the price tends to increase. Let's take an extreme example of a natural disaster. Let's say that. Hurricane strikes the coast of Florida. What will initially happen to the price of thins such as generators? They will increase. Why? Because the supply has decreased, and yet the demand for them is higher than ever because people are in need of electricity. So what would happen is as the price rises, it acts as a signal which says basically " generators needed in this area" more generators will be brought in from outside cities and states by people looking to make a profit. As this occurs, the price will begin to go Down because of the increase in supply and competition.

Now this seems logical. Why is it not always the case? The usual answer is when the government subsidizes certain industries, or enacts price controls. To understand this, let's go back to my Floridian hurricane example. In many states, what is referred to price gouging is illegal. It's illegal to increase the price of goods and services in disaster scenarios. Let's illustrate this with the example of Kathy. Kathy, upon hearing about the hurricane in Florida bought 12 generators and headed to the disaster area with the intention of selling them for profit. She intends to sell each for $200. However, as the original price was $100, and price gouging is illegal, Kathy is not allowed to do so. She decides to turn around after hearing about this. In this situation, supply and demand was unable to work because of government intervention. Instead of the price of generators going down, and those 12 generators being in the homes of the victims of the hurricane everybody is worse off.
In conclusion of this argument, I would like to state that there are two ways one can accumulate goods and services. The first is voluntarily through production or trade, and the second is through coercion. Robbery, fraud, threats, forced association.
By interfering with people's voluntary, non/coercive interactions on the market, you claim the right to dictate what they do with their lives, and you deny their right to run their lives the way they see fit with their justly acquired property.

https://mises.org...
https://mises.org...
Genghis_Khan

Con

Genghis_Khan forfeited this round.
Debate Round No. 3
roark555

Pro

roark555 forfeited this round.
Genghis_Khan

Con

Genghis_Khan forfeited this round.
Debate Round No. 4
roark555

Pro

roark555 forfeited this round.
Genghis_Khan

Con

Genghis_Khan forfeited this round.
Debate Round No. 5
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