Free Choices or Forced Choices?

The “nanny state” is one of the most irritating traits of statism affecting people’s daily lives directly, and one that has been growing ever more matronly over the past generation or so. In fact, if you think it is bad today, The Academy of Medical Royal Colleges (which, apparently, presents a "united front" of the medical profession) was complaining nearly ten years ago that doctors were seeing the consequences of unhealthy diets. Needless to say they recommended whole raft of interventionist measures to curb this apparent problem:

For the purposes of this article, we will ignore the question whether these medical mandarins have, in fact, managed to identify the “right” choices for people to make with their own bodies. (As we saw with COVID-19, our current, materialist society always seems to hold bodily preservation as the highest possible value; however, it is by no means obvious that a statistically longer life devoid of innocent pleasures should be preferable to a shorter life that is more enjoyable.)

Instead, the problem we wish to address here is rather more grievous: that whenever members of the public make supposedly “bad” choices there is the ever present assumption that, as these choices are made with apparent freedom, that it is the free market that has “failed” in preventing the emergence of the "undesired" outcomes. What is never discussed, or even raised, is the possibility that people's choices are influenced by existing state interferences into that market. If that should be the case, it is impossible to say that the same choices would be made in a genuine free market. Worse still, if the state itself is the ultimate cause of the undesirable choices, then any call for more state intervention is likely to either exacerbate the original problem or lead to the emergence of entirely new problems in the future.

The present author has examined in detail why socialising healthcare will lead to greater ill health in the long run. There is little need to repeat all of this here except to say that people tend to prefer doing that which comes at a lower cost, all else being equal. Lowering or removing the cost of becoming ill will tend to lead to more people leading lifestyles that will result in poorer health. As such, it is state control of healthcare that is causing people to do things that are likely to make them sicker. But the same ignorance of the state’s role can be seen in many other cases where the proximate cause of a problem is people's apparent free choices. Let's examine some of the most popular.

The allegation here is usually some variant of the rich world refusing to “share” its wealth with the poor world. Leaving aside the fallacious, zero-sum belief that if one person has wealth another person must have gone without it, just why is it that we have widespread poverty in the age of the smartphone?

The plight of poor nations has nothing to do with the absurd suggestion that they cannot “understand” technological development, nor, in most cases, are they unable access to raw materials. Rather it stems from the lack of capital investment per head of the population compared to the developed world. Richer nations have more machines and better tools that can churn out more and better goods per person than can be done in poor nations. So in one sense, it is true that investors and capitalists have not invested in poor countries. But the precise reason why the West has benefited from the wealth produced by capitalist investment is that it has long cherished institutions that have allowed the free market to flourish, in particular, strong legal rights to private property and relative political freedom. These are precisely the conditions that tend to be lacking in poorer nations, conditions that cause entrepreneurs to seek other havens for their investments.

To make matters worse, poorer nations began to model themselves on their Western counterparts just at the point that the latter started to turn away from a social order based on private property towards interventionism, welfare and redistribution. The result is that the wrong lessons are being implemented in poorer nations as they develop policies and institutions that can only retard rather than enable economic progress. This is in addition to direct interventionism, for their own benefit, of large and powerful nations in the affairs of foreign nations, stifling the domestic prosperity of the latter.

The persistence of poverty and hunger is therefore a failure of the state, not of the free market.

Let's go even farther than this complaint by adding to the list of depleting resources fish stocks, elephants, whales, and any other of the countless number of "endangered" species that you like. Yes, there is a tremendous problem, and yes, looking at the issue at face value, it appears that capitalists are running down these resources.

However, if the free market is responsible for having decimated all of these things, then it raises a pretty obvious question: why has the “greed” of capitalists not created similar shortages of other resources? The dairy industry, for instance, exploits cows for profit but we never hear of a shortage of cows, nor do we seem to be in short supply of chickens to supply us with eggs for our breakfast plates. So why is it only some resources that seem to be in danger of depletion? What is the difference between the endangered groups and all the others?

The reason is that people are not permitted to own the capital value of forests, parts of the sea, elephants, tigers, etc. If an entity is able to own the capital value of a resource then exploiting it for present revenue has to be balanced against the loss of capital value in doing so. For instance, extracting copper from a copper mine will reduce the amount of copper left available to be extracted in the future, thus reducing the mine’s capital value. The firm operating the copper mine has to ensure that this reduction is offset by sufficient revenue from selling the mined copper, otherwise it will make a loss. If the copper does not sell for a high enough price, then it indicates that too much copper has been extracted. Thus, a signal is sent to the owner of the mine to reduce its mining operations, conserving more for the future.

If, however, an entity does not own the capital value of a resource then its only concern will be for the present revenue it can extract; there is no cost incurred as a result of exploiting resources to their fullest now. In fact the only cost is that someone else might get to the resource before you can, taking it for himself. Thus, in the absence of any balancing mechanism, resources are depleted far quicker than they otherwise would be. So instead of instituting a myriad of state restrictions and regulations in order to "cure" alleged free market greed, all that is needed is to extend full private property rights to endangered resources, and they will be conserved in line with the present and future preferences of consumers. Once again the problem is not too much free choice but the fact that people have been prevented by the strong arm of the state from having a reason to make the "right" choices.

Finally, let us conclude with the most pertinent of all alleged market failures, the phenomenon of "boom and bust":

Once again, looking at only the proximate causes of boom and bust will reveal that entrepreneurs invested too heavily in a particular sector, inflated a bubble which, once it pops, leads to widespread misery and unemployment. In the 2007-8 financial crisis – the effects of which have still not been resolved – a summary of the charges is that greedy bankers lent money to people who could not afford to pay it back. End of story. But what is not told by peddlers of this narrative such as Paul Krugman is the moral hazard created by the so-called "Greenspan put" which had the effect of financial institutions expecting their profits to be retained while their losses to be borne by an influx of monetary liquidity during any risk of collapsing asset prices (i.e. paid for by inflation). If one can keep one's profits and socialise one's losses is it any wonder that people took wild risks? If there is only ever an upside then wouldn't you have done the same? This is before we consider the fact that credit expansion is the cause of the business cycle in the first place; by falsifying societal time preference rates, the result is a plethora of unsustainable investment projects that must be rendered wasteful as soon as the inflation stops.

Therefore, next time you read that the "free market" has caused this problem, that problem, or some other societal ill, stop and think as to precisely which options the free market participants were presented with. More often than not you will trace the source of a bad decision to some kind of state interference.