On the Money: Exploding the Myth of a Free Market
The market is a product of government policy, and it’s rigged to favor the rich
Democrats and progressives generally love to lose. What else can possibly explain their insistence on framing their economic policies in the worst possible way?
This point is continually pounded home when progressives adopt a framework where the right wing wants an unfettered market while progressives want the government to have more control. It’s logically wrong and politically horrible messaging. Most people like the market and distrust the government. It is absolutely crazy for Democrats and progressives to deliberately take the wrong side of this issue.
This unhelpful framing occurs all the time, but the immediate cause of my anger was a July 3 Washington Post column by E.J. Dionne—a good liberal—on the “abundance agenda” proposed by New York Times columnist Ezra Klein and Atlantic magazine staff writer Derek Thompson that they say would better manage the tradeoffs between government regulation and social advancement. As Dionne tells it:
“For decades, the broad left across the democracies have labored to find the right recipe for what is often called ‘the mixed economy.’ It’s the entirely sensible idea that prosperity depends on both smart, egalitarian action by a not-all-powerful government and a dynamic market operating within sensible limits.
“Too much state—and the dynamism disappears. Too much market—and both wealth and power get concentrated among the richest. When economic gain takes priority over all sorts of other competing goods, from clean air and clean water to the dignified treatment of every citizen, a lot gets lost. And excessive deregulation can lead to such calamities as the financial crisis of 2008.”
Just about everything about Dionne’s description of the problem is wrong, seriously wrong. Are banks that have government-issue deposit insurance part of the free market? Were the government bailouts that rescued the huge banks from their own greed and stupidity in the 2008 financial crisis part of the free market?
Government sets the rules for corporations and unions
The basic problem that Dionne—and just about everyone else who writes about the economy for major news media outlets—insists on obscuring is that there is no market apart from how the government has defined it. This fact should be obvious to anyone who has taken three minutes to think about the issue, but that is apparently too much to ask from such great minds.
Do corporations exist in a free market? That’s not a rhetorical question. You might say that in a free market, individuals can choose to work together and form partnerships, but to create a freestanding legal entity such as a corporation, you need a government.
And if government allows for corporations, it also sets the rules for corporate governance. U.S. rules tend to be far more pro-management than those of other countries, which is why U.S. CEOs and other top managers draw paychecks that are three or four times higher than in other countries.
If the United States had different rules, CEOs of major corporations might be pocketing $3 million or $4 million a year or instead of $30 million or $40 million. If the United States had rules of corporate governance that were less favorable to management, would that be more government or less? And yes, this matters a great deal for what income distribution in our country looks like.
The government also sets the rules for labor-management relations. There seems to be a prevailing view that the government protects workers and unions. There is some truth to that, but it also protects employers.
In the United States, secondary boycotts are illegal. That means, for example, if the Teamsters union decided to honor a picket line at a factory, hotel or restaurant, its union officers could be arrested and thrown in jail. (Let me save the nitpickers some trouble. They would not be arrested for telling workers to honor a picket line. They would be given a court order directing the union officers to say that they cannot tell workers to honor another union’s picket line. Then they would be arrested for defying the court order.)
Unions are far more powerful in a system of labor relations where secondary boycotts are legal. But our system of Big Government doesn’t allow them. Please tell me again who likes government and who likes the market.
Government authorizes patents and copyrights
Arguably the most important way in which the government shapes the market is by granting patent and copyright monopolies. It’s amazing how people who call themselves “liberal” or “progressive” can treat these government-granted monopolies as simply a natural part of the market. Patents and copyrights serve a purpose, promoting innovation and creative work, but they are clearly government policies. Even an elite intellectual should be able to recognize this.
And there is a huge amount of money to be made with monopoly control. For example, Americans annually spend more than $700 billion for prescription drugs that would likely cost about $100 billion if they were sold in a free market without patent monopolies. The difference of $600 billion amounts to around $4,500 a year for every U.S. household. In other words, real money.
When factoring in the additional cost that such monopolies add to the price of medical equipment, software, computers, smartphones, and a wide range of other products, it amounts to more than $1 trillion a year, which is in the same neighborhood as all U.S. corporate profits. But somehow Dionne and his fellow travelers argue that the right wing just wants an unfettered market and the government to stay out of it.
And, for what it’s worth, the abundance boys don’t seem to notice patent and copyright monopolies. If they want abundance, getting rid of these government-granted monopolies would be a great place to start. It would make many items that are currently very expensive cheap. Imagine the next breakthrough cancer drug selling for a few hundred dollars for a year’s treatment rather than tens or hundreds of thousands of dollars. Suppose all medical scans cost around $100 a piece and most software could be downloaded for free over the web.
These monopolies are also a huge factor in inequality. Bill Gates might still be working for a living if the government didn’t threaten to arrest people who made copies of Microsoft software without his permission. Poor people don’t get patent rents and copyright royalties.
And just to be clear, there are alternative mechanisms for supporting innovation and creative work. The government can pay people, like the National Institutes of Health used to do to the tune of $50 billion a year before Elon Musk and his DOGE boys broke in.
But there’s more, much more. Print and broadcast media face liability for third party content. But Section 230 of the Communications Act provides Elon Musk and Mark Zuckerberg’s social media platforms immunity from this liability. Is that somehow the unfettered market? Facebook, Instagram and X would be worth much less without this special protection.
Private equity firms, meanwhile, have made great fortunes by abusing bankruptcy laws. The last time I looked, the unfettered market didn’t create bankruptcy laws. Different bankruptcy rules would mean much less money for private equity tycoons like Blackstone CEO Stephen Schwarzman and former Apollo Global Management CEO Leon Black. Stricter rules also would mean fewer resources wasted in financial gaming, again a big thing for those of us interested in abundance.
What free market?
I could go on, but my point should be clear. There is no such thing as a free market. Government rules create the conditions under which the market operates. Different rules create different outcomes. Right wingers have been rigging the rules for the last half-century to redistribute a massive amount of income upward. It’s understandable why they would want to say that it’s just the free market.
It is difficult to understand why someone like E.J. Dionne, who ostensibly does not like this upward redistribution, would go along with this fiction. But one thing is clear: Since Dionne can publish these kinds of pieces in The Washington Post and other elite intellectual types can make the same lazy argument in other major media outlets, there is no incentive for any of them to do serious thinking on this fundamental issue. That’s unfortunate for those of us who actually want to see change and abundance.
Dean Baker is a senior economist at the Center for Economic and Policy Research and the author of the 2016 book “Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer.” A version of this column originally appeared on his Substack site.
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✅ This is the essential truth that dismantles the entire "free market" religion. You are absolutely right that the rules are rigged for upward redistribution. The key is to name the entity doing the rigging.
It isn't just "right wingers." The true architect is the Corporate State—a bipartisan entity that fuses the power of global corporations and government. This is the modern incarnation of the East India Company, a power that exists above national loyalties and political parties.
They create a "self-reinforcing feedback loop": wealth buys political power, which rewrites the rules to create more wealth. This isn't capitalism. It's a centrally planned economy, planned for the benefit of a tiny elite.
The conflict isn't Left vs. Right. It's The People vs. The New East India Companies. Your analysis is a critical piece of the puzzle.