Why Do People Like Free Markets?

We just learned about all the four main economic systems, so it's time to dive a little deeper with each of them one at a time, and we will start with free markets. Why do people like them? What are the advantages and disadvantages of free markets? Let's find out!

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[clrspirit]

Happy Teacher Appreciation Week Dave! We all appreciate what you do! I hope your week is awesome! 👏

[arnieofficial]

I like how this video is referred to as a tutorial. Ah yes, just the thing I needed for my nation-building side project.

[justkeepspinning]

I would like an explanation for why an economy has to perpetually grow. Why can’t it stay the same size at a point once it’s healthy?

[iwersonsch]

Pretty good overview. I'd like to add however that total economic growth/size/wealth is a dubious measure for the average or especially lower-end living standard of its citizens, and that a market economy tends to let the living standards of its citizens drift apart, leading utilitaristically to a higher loss in living standard for the lower end than it gains for the higher end of incomes.
Unfortunately, any economic system attempting to fix this will have to either stabilize or replace the mechanisms behind the raw economic power that capitalism provides.

[LeeAtkinson]

Another example of negative externalities: Not paying workers, utilities (necessary for life and all have a right to) as a commodity, slavery and indentured servitude. There is ALOT
The nice thing about a universal basic income system is you can have comparatively unregulated and system to gain maximum free market advantages, while supporting everyone's basic needs utilising the free markets own guiding hand.

[infinitemonkey]

Norway seems to have a good balance of free market and regulation / public goods.

[theonlylunarmage]

I feel bad for Dave having to deal with the people who see the word "Economics" and have extreme meltdowns.

[don_]

Another inherent advantage of free market economies over more regulated markets or command economies, that is often overlooked, is the lack of need for bureaucratic regulators. If you have people whose job is fixing prices or planning production quotas or the like, those people are not directly contributing to the value of the economy by producing anything of value, and in the absence of a profit motive to make efficient decisions, are at risk of self-serving corruption or simple neglect. One is left to wonder what the Soviets might have accomplished if they didn't have all those people pushing numbers around at Gosplan all day, and instead those people were able to go do other value-adding work instead.

[chrisangel]

I wish the field of economics is as proof based like that of mathematics.

[bazookallamaproductions]

the "freedom" to put others at risk is not a "freedom" worth protecting.

a radical sentiment in america, i know. 🙄

[ananon]

great and pretty unbiased video.

something else to mention that not many really fully understand (even myself) is that ideologies are abstractions of how systems actually work.
with the common sentiment of "communism sounds good on paper but.." being common, but it also applies to free markets too.
like take a fictional example of an economically liberal person comes into power due to overregulation and decides to cut regulation to promote competition, but he is them lobbied to keep some regulations and even if he cuts massive amounts, competition is still hindered cause what was kept ended up making start-up costs too high.
or how certain attempts to make services public have both made these services more or less accessible and/or high-quality depending on certain social and economic factors.


this thought is probably not original, but its a thought into the void i thought would be relevant.

[tooltroll]

Capitalists: We need a free market! We're too big to fail, and we can regulate ourselves just fine without any meddling from governments!
Also capitalists: Wait, what? We're LOSING money? WE NEED TARIFFS! WE NEED BAILOUTS!

What 'free' market?

[Nafets]

Nice clip. The disadvantages aren't true, though. 

1. Monopolies are a problem created by governments. Monopolies normally wouldn't exist if there were zero barriers to entry by governments (rules, regulations, taxes, licenses etc.). Antitrust laws are used by crony capitalists to attack more efficient competitors. 

2. Parks, schools, roads etc. can perfectly be provided by the free market and it can be controlled who uses them, especially with modern technology. What would be so horrible paying for a ticket to enter a park e.g.? You already pay for its maintenance by coercive taxation, why not by a voluntary fee?

3. Externalities can perfectly well be internalized when everything is privatized by using a tort system. If you pollute and cause damages on the property of somebody else, you can be sued, which internalizes the costs into the economic calculation of the producer.

4. This is just plain nonsense. Competition demonstrably leads to lower prices and higher quality, which is *the* reason why free markets create the most wealth. You can be sued for harmful products or harmful working conditions, which solves this problem as well.

[Praxe]

Read, economic calculation in the socialist commonwealth by Dr. Ludwig von Mises, Man Economy & State by Dr. Murray N. Rothbard & Hayeks, economic order. Also look into the Austrian refutation of the public goods fallacy, by Block & Hoppe, also Rothbard in the progressive era took on with many empirical examples and great theoretical work the externalities issue.

[lwo]

You missed a big BIG disadvantage of the free market being that it promotes inequality. For example, if landlords are unregulated in the rent they can charge, then they can siphon off the wealth of the poorer citizens that cannot afford bricks and mortar into the coffers of the richer property owners

[glennpearson]

Professor Dave, I think I've asked this question before on another of your insightful videos, but in a slightly different context. You didn't mention tariffs in your presentation. Tariffs aren't about imposing regulations, they are an "artificial" means of cost control and/or market adjustment. Can you think of any advantages to imposing tariffs in a free market system?

[alexalbuquerquerodriguesal]

3:42 David Ricardo wants to know your location.

Context: David Ricardo proposed the specialization of economies and free trade between countries to maximize overral welfare. It was based on the fact that England was more efficient on industrial goods rather than agricultural goods, so the industrialist proposed that trade was oppened (at the time the corn law was in effect, to maximize exports, the government stabilished the law so imports couldn't be imported and goods could only be exported) so indusrial goods could be exchanged for agriculturual ones and have more food in the country. The result would obviously destroy all agricultural production since they couldn't compete with with international market, but that's not bug, It's a feature, It's was intended to focus on what England was good at and that was industry.

Important note: the theory is entirely static and can't account for the change of specialization, in other words, South Korea and Taiwan shouldn't focus on microchips and semiconductors in some point of their history since they didn't even had the capital for It or know-how, therefore they should focus on other productions like textile. Putting like It really seens silly, but at XVIII-XIX century people didn't really knowed how technology develops, nowdays we know that It's mostly related to the number of process involved, so a semiconductor (with about, I believe, 100 steps if we counter from mining of natural resources until the final product) have a lot more "room" for a gain of productivity when compared to the extraction and export of copper (with, obviously, less steps when compared with semiconductor, specially considering that copper is an input), so we would have that the semiconductor industry have gains of profit thanks to their own gain of productivity but also thanks to gains of productivity from previous industries that goes to their inputs.

David Ricardo: do what you're good at, It's fine.
Raul Prebisch: get gud, bi***. The world is gonna eat all your raw materials thanks to their gains of productivity, your terms of exchange will deteriorate with time and technological development will leave your backwards economy behind.

[gingersperg]

The 4th disadvantage is irrelevant, because a free market economy necessarily implies trust in the consumer market to recognise these traits and choose to patron their competitors, therefore putting them out of business. In a true free market economy, businesses 'cutting corners' shouldn't be a concern, because the mere threat of free market forces limiting their business capabilities, acts as an insurance policy against said mispheasance.

[mixk]

Good to see you mention where the whole "invisible hand" metaphor came from.

[DH-zpbc]

There's no such thing as a free market economy. What we have is facsim in the so called west which is simply corporations working hand in hand with big government. Covid reflected this. Tax evading corporates survived, whilst many tax paying independents went out of business. Context is important. Regulation is important for safety. All goods and services should be safety tested relative to the risks they present before they go to market so people can make an informed decision. They should not be rushed through and used as blackmail for liberty.