Does America Have a Free Market?

The rallying cry for so many politicians is to “let our free market economy” determine solutions and fix the economy. There’s just one catch: there hasn’t been a free market in the United States for well over a century. Special interests have managed to get preferential treatment from the government for so long that I wonder why this myth persists. The place where you can see this anomaly most clearly is in our federal tax code. Not only does the principal of a private equity investment fund make vastly more money than his executive assistant, he or she is also taxed on their income, for the most part, at a vastly lower tax rate. The tax code is filled with special treatments for those “big campaign contributors,” and as the battle for deficit reduction piles on, there is still resistance against removing these free market distorters from our federal laws.

For example, the May 17^th CBSNews.com reports the most recent failure to repeal such favoritism in an era of outrageous gasoline prices (“fueled” by speculators) and even more outrageous profits from the oil companies: “The Senate has blocked a bill to repeal about $2 billion a year in tax breaks for the five biggest oil companies, a Democratic measure meant to respond to huge industry profits and $4-a-gallon gas prices… The Democratic measure, the ‘Close Big Oil Tax Loopholes Act,’ is sponsored by Senators Robert Menendez, D-NJ, Claire McCaskill, D-MO, and Sherrod Brown, D-OH. It is not expected to get the 60 votes necessary to advance the bill in the Senate… Republicans oppose the bill because they say it does nothing to lower gas prices and is not a serious effort to address the problem.” Fact remains, the oil companies still get the tax break.

Homeowners have an edge tax-wise over renters; subject to caps, they get to deduct mortgage interest. Investors who buy and sell equities have an edge over those whose revenues are generated from labor: the former get vastly reduced capital gains taxes while workers pay taxes at often a multiple of those rates for earned income. U.S. corporations may be subject to the highest corporate taxes in the industrialized world, but it they just keep their earnings off-shore, they can avoid that tax… resulting in the reality that American corporations pay some of the lowest tax bills in the industrialized world. Oh, individuals are taxed on income no matter where it sits.

While agricultural subsidies are the subject of debate in this deficit-reduction-oriented time, as a January 20^th report from the Cato institute notes, we are still distorting this market as well: “The U.S. Department of Agriculture distributes between $10 billion and $30 billion in cash subsidies to farmers and owners of farmland each year. The particular amount depends on market prices for crops, the level of disaster payments, and other factors. More than 90 percent of agriculture subsidies go to farmers of five crops—wheat, corn, soybeans, rice, and cotton. More than 800,000 farmers and landowners receive subsidies, but the payments are heavily tilted toward the largest producers.” Congress men and women from farm states don’t look to kindly on cuts to these subsidies… or believe that the huge duty we apply to cheap Brazilian ethanol made from sugarcane should be removed so that our expensive American ethanol producers (who use expensive corn that drives up the cost of livestock feed) will be faced with real competition.

Had the government not bailed out on the “too big to fail” Wall Street players many special interests argue, the collapse of these mega financial institutions would have brought the entire country to its knees in a massive and more intense depression. Subsidies to encourage alternative energy installation, car purchases, new home buyers, etc. have been used in the past to stimulate expenditures in certain market sectors. NAFTA is a treaty that was supposed to level the playing field among signatory nations to reduce and then eliminate import duties, but if you listen to the indigenous American companies who cannot compete with much of that cheap Latin American labor, you know they oppose free markets.

Plain fact is we don’t have a free market and are never going to have a free market. The financial requirements to get elected almost mandate that the massive campaign contributors get their money’s worth or candidates won’t get funded. Further, as extrinsic forces, themselves often the product of non-free market government intervention operating overseas, distort and pressure our economy, the government responds with its retaliatory non-free market responses. Even without such obvious and biased pressures, the level of complexity in society necessitates governmental market regulation at some level. Think the free market would be a good replacement for the purity requirements of the FDA? Think cars would have catalytic converters without the EPA? Think the workplace would be safer if market forces and not OSHA set safety rules? Kids would go to school without public education and mandatory attendance rules? You get my point.

So for people who believe that the “free market” is the answer, to me and anyone who really looks behind the rhetoric knows, no such animal exists or will exist; we are just getting another “vote for me” buzzword without any real meaning in contemporary America. But it amazing to me how gullible so many Americans can be when it comes to relatively simple economic principles. We need to understand that an American “free market” has been a myth for a very long time. And even as we remove some distortions in this cynical “deficit reduction” trendy time, trust me, there will new ones passed to perpetuate the system.

I’m Peter Dekom, and I like keepin’ it real!