Why the Free Market Doesn't Work: Consumption vs. Conservation

Thursday, April 23, 2009 by Mike Adams, the Health Ranger Editor of NaturalNews.com (See all articles...) Tags: free market, health news, Natural News

(NaturalNews) I'm a big free market proponent. I love the "freedom" in it... the individual decisions of hundreds of millions of people coalescing into an "invisible hand" of efficiency improvements, quality of life enhancements and unlimited abundance. That's the Alice-in-Wonderland version of the free market economy, anyway. In reality, the free market is broken. It doesn't work (at least not as we once hoped it would), and it can't last. In fact, unless some important changes are made to the way in which it works, the free market will lead us to the destruction of human civilization.

How, you ask? Let's answer that question by looking at free market theory, which says that individual consumers will intelligently evaluate their production and consumption options, then make an intelligent decision to produce those things that provide the greatest profits (by indirectly providing the greatest benefits to others) while purchasing / consuming those things that provide the greatest benefits to themselves. In theory, it sounds downright elegant, but in practice, there's a huge problem with all this: Consumers are not rational!

Why consumers cannot (and will not) make rational decisions

Examine the interaction between Big Pharma and consumers, for example: Drug companies use campaigns of disinformation, deception, exaggeration and scientific fraud to convince consumers they suffer from various "diseases" requiring chemical intervention. Believing this mythology, consumers then trade their hard-earned money for these chemicals that actually harm them! Spending on pharmaceuticals and "sick care" services accounts for over twenty percent of the U.S. economy. So how is this consumer behavior accounted for in the free market?

It isn't. There's no modeling for massive corporate deception in free market theory. Free market theorists merely assume that consumers are rational, that companies are honest and that people have a reasonable capacity to intelligently evaluate the products and services they choose to purchase. All those assumptions, however, quickly fall apart in the real world. Consumers are irrational, companies are dishonest and the people have virtually no evaluative skills necessary for making informed purchasing decisions.

The consumption of pharmaceuticals makes all this as plain as day, and yet pharmaceuticals are just the beginning of this story.

Buy more crap you don't need!

Consumers in America have also been convinced to purchase useless (but highly profitable) home cleaning products like Swiffer devices, which are branded, disposable home cleaning products that have no real purpose for existing other than being sold to people. A regular old sponge mop does everything that Swiffer does, without the repeated expenditures on disposable sheets, without all the brand-name advertising and without all the wasted packaging and shelf space in retail stores.

And yet consumers keep buying Swiffer products (and throwing them away). Why? Because consumers are irrational, of course, and Swiffer advertisements are quite good at compelling people to make purchasing decisions that are not in their own long-term interests.

The list goes on: Paper clips that slip off papers and are easily lost, light bulbs that burn out and need replacement, showers soaps that dissolve away at the merest touch of water... these are all examples of products that succeed in the free marketplace even though they are inferior, wasteful products.

After observing enough of these examples, the pattern becomes quite clear:

The free market encourages the production, consumption and disposal of inferior, wasteful products.

Why the free market encourages waste

Light bulbs that last ten years can easily be manufactured today. They aren't sold in stores because free market economics rewards greater profits to products that break quickly and need regular replacement. Shelf space, after all, is more valuable when the inventory doesn't sit around for very long.

U.S. auto companies figured this out decades ago. They even had a name for it: "Planned obsolescence," which simply means they designed their cars to fail right from the drawing board! Broken cars meant more repeat sales, so inferior engineering resulted in free market profits! (It's almost hilarious, isn't it, that in the face of real competition from Japanese and European auto makers, the U.S. auto industry now finds itself virtually obsolete? If they had actually tried to make quality cars that lasted instead of disposable cars that broke down, maybe they would have a future...)

The free market offers no processes by which superior, long-lasting products can be economically successful. Unless, of course, consumers recognize those qualities. But consumers don't. That's because human beings are, for the most part, short-term thinkers. They'll buy a one-year light bulb today for a dollar rather than spend three dollars on a ten-year light bulb. Part of the problem, of course, is that people can't do math anymore, so they can't calculate the total cost of ownership for anything they buy. All they recognize is the up-front price, and that's it.

HP, of course, turned this into a free market windfall by selling $49 inkjet printers that run on $30 ink cartridges. The printers themselves might as well be given away -- it's the repeated purchasing of ink that really drives the HP economy!

Lacking accurate information, consumers just guess

The free market doesn't even work at the grocery store. A consumer faced with a decision between two bins of apples, for example, has no way to consider the "total cost of ownership" of those apples once the carbon footprint, sociological impact and environmental impacts of the apples are taken into consideration.

One bin of apples might contain organic Fuji apples flown in from Japan while a second bin might offer conventionally-grown (pesticide-sprayed) apples grown in Mexico, but harvested with child labor. The point of purchase at the grocery store is not a place where consumers can make informed, rational decisions about what they're buying.

Now, I hear the more astute among you reaching the same inevitable conclusion: The free market can work if -- and only if -- purchasers combine reasoned thinking with perfect access to the complete information about what they're purchasing.

Thus, in an ideal free market fantasy land, if intelligent, reasoned consumers actually had access to the complete history (and future) of the items they were purchasing -- and if they were able to take into account the details of how products were grown, harvested, manufactured, packaged, transported, used, disposed and discarded -- then we might actually see the free market function in a successful way.

But it's obvious that virtually none of this information is available to purchasers today. Virtually all consumers have little more information than the price and the brand name of whatever they're purchasing, and that "price" in no way represent the actual cost of production, ownership or eventual disposal of the products being purchased and consumed.

Thus, the free market does not work in a complex society where product origins are also complex.

Free markets work better in local economies

On the other hand, the free market can, indeed, work better in a local economy where products are made or grown locally, usually by simple people whose reputations are also known locally. In other words, if you lived in a town of 1,000 people in the 1920's, most of your food and products were derived from local sources, and probably from people you knew. You bought bread from Bob the bread maker, horse shoes from Burt the blacksmith, got your clothes mended from the local tailor, etc.

But as societies became highly specialized, complex and intertwined, the ability of consumers to track the origins of the products they purchase was quickly lost. Today, even a product as simple as a ball-point pen may involve manufacturing expertise from a dozen different corporations spanning the globe. And I'm willing to be there's hardly a single person in the city where you live now who can make a ballpoint pen on their own, using nothing but local materials. Thus, the ability to make even simple instruments has been lost in our complex society, and at the same time, the theoretical advantages of the free market have been utterly lost to a system of such complexity that no consumer has the ability to make accurate, informed decisions about the true costs of the things they're buying.

In other words, to say it again, the free market does not work in a complex society where product origins are also complex.

The free market is running blind

Neither can the free market look ahead beyond one fiscal quarter. The entire system of free market economics greatly discounts the future while placing high value on the present. In other words, it emphasizes profits NOW at the risk of disaster in the future.

This is evidenced in the runaway mining of precious metals that are now close to running out (like many rare metals used in electronics). It's evidenced in the rampant overfishing of the world's oceans; in the pharmaceutical pollution of waterways; and in the construction of energy-inefficient homes that burn fossil fuels just to stay warm or cool. As a rule, corporations are by design incapable of seeing beyond the next fiscal quarter. They are blind to the future of human civilization, and they consistently act in ways that compromise that future.

In other words, if we let the free market and corporations continue to run things in our world, we will soon have no world left to live in. As long as there is one more tree to cut, one more fishing zone to exploit, one more consumer to medicate and one more barrel of oil to turn into plastic whatnots, corporations will grind away every last remaining resource in their quest for profits. Failing to do so, in fact, would result in a corporation being out-competed by another one willing to push the boundaries of exploitation one step further.

Sure, free market economics have brought us cheap automobiles, low-cost food, affordable clothing and big-screen television sets. But what has the free market provided that really matters? Nothing! It has not provided happiness, nor security, nor closeness with nature. It hasn't brought families together, nor enhanced anyone's wisdom of life, nor taught our children any real truths. The free market looks good on the accounting books, but in the real world, it has done far too little to benefit humankind in the ways that really matter. And alarmingly, it has now placed us in a global consumption and pollution cycle from which the future of human civilization may never escape.

So what's the answer, then, to our free market mess?

Solutions that enhance the free market

Centralized economic planning is a disaster. Forget about that.

No, a much better solution is to reveal the true costs of production, ownership and disposal at the point of purchase so that consumers are forced to assess the true costs of choosing a product.

On a more practical note, what I'm suggesting here is quite simple:

1) The true costs to nature from the production, manufacturing, transportation and packaging of products be displayed on the package and added into the product's retail price.

2) The true costs of disposing of the product (recycling, etc.) also be displayed on the package and added into the retail price.

For example, let's say you're about to buy an iPod. Today, a typical iPod price might look like this:

iPod: $249

And that's it. You don't know where it came from, how it was made, what the ecological impact was and what the environmental cost might be for the eventual disposal of the device. But with my suggestions here, the new iPod price might look like this:

iPod: $249
Manufacturing and delivery impact on nature: $25
Disposal cost: $25
-----------------------
Total price: $299

These are just example numbers, of course, but you get the idea: Under such a system, consumers become aware of the additional costs of manufacturing and disposal of products -- and they have to pay those costs!

So an iPod might actually cost $299 instead of $249. Where does the extra $50 go? The first $25 goes to protect nature. The second $25 goes to recycling centers, metal reclamation centers, and other intelligent disposal programs.

The retail price tag is the only place where consumers can be reached with the true costs of ownership of products, and when these numbers are calculated in, nobody will be buying disposable Swiffer products anymore because the disposal and manufacturing costs might triple or quadruple the product price tag. A simple sponge mop suddenly makes a lot more economic sense, which is of course the whole point of this exercise: Give consumers MORE information while preserving the free choice of the free market.

This all comes down to point-of-purchase taxes on products: A "Nature tax" and a "disposal tax." While people may balk at the idea of paying additional taxes (I don't like the sound of it either), the truth is that until the true total cost of ownership of products is reflected in their retail prices, consumers will never make the "right" decisions about what to buy and what to throw away.

The impact of consumption on our planet must become part of the purchase equation.

The economics of Mother Nature

Some of these ideas are being explored in European countries, I've heard, where some computers are sold with "disposal taxes" that are essentially pre-payment for the future disposal processing of the computer. That's a great step in the right direction.

Another way to tackle this issue without added the complexity of additional retail taxes is to tax manufacturers or raw material providers instead. This is simpler than tracking additional retail taxes, and it still results in such costs being reflected at the point of purchase anyway.

The simplest solution of all, of course, would be to grant Mother Nature legal standing as its own economic entity, and require every user of nature to pay user fees for the extraction of minerals, carbon emissions, rainfall, water from rivers, etc. If Mother Nature charged for all the services she provides to the world, everything you buy would suddenly seem extremely expensive, and people would make far wiser decisions about what to buy and what to throw away.

The real problem in the free market, then, is that Mother Nature's products and services aren't priced into the equation (or, technically, they're priced in at zero). Thus, the pollution of the planet costs nothing, and this tends to encourage the behavior.

That's why I say that the free market, as configured today, will only lead us to planetary disaster. It is an incomplete economic system that encourages exploitation, consumption and pollution. It even enriches those who teach others to consume the most!

Replace the free market with something more evolved

If we truly wish to live sustainable lives on our planet, we must abandon the free market system we know today and replace it with something that rewards thriftiness and conservation.

Conservation, of course, is the opposite of consumption. And it is consumption that's destroying our planet and that's promoted by free market greed. Conservation is what we need for sustainable living, but conservation never made money for anyone. (Who ever got rich telling people to buy LESS?)

The free market experiment has been a fun one, no doubt. Disposable film cameras and diet coke bottles will never be forgotten (mostly because they will never decompose). Yet it's time we awakened to the realization that commercially-invoked mass consumption is flatly incompatible with sustainable life on our planet.

The whole system of manufacturing, advertising, branding, consuming, throwing away and buying it again just doesn't work!

Sure, corporations and shareholders can seem like they're getting rich in the short term, but in the long term we all lose. We lose our wealth, our planet and our future. And that's no bargain, even in exchange for obscene monetary profits.

The missing piece of the Libertarian puzzle

You may find this article a bit odd coming from someone who tends to support Libertarian philosophy. I've studied Austrian economics and Libertarian free market theory, and I have yet to find any explanation in any of those texts of how the free market is supposed to protect the environment or encourage sustainable living. Libertarian economists, in my opinion, tend to miss this hugely important piece of the puzzle, believing that somehow the free market will protect the environment and conserve resources, too.

Even the precious Rearden metal alloys of Rand's Atlas Shrugged novel could not generate profits for anyone unless they were mined out of the Earth at a great environmental cost that's never really considered in the novel. Ayn Rand's "Rational Selfishness" falls apart once the scope of consideration expands to encompass multiple generations of human beings. We cannot "greed" our way to sustainable life on Earth. The very idea is absurd.

Laissez-faire capitalism is blind to the true environmental costs of economic activity. It routinely assigns a value of zero to exchanges with nature (taking things from nature, dumping things on nature, etc.), thereby utterly devaluing the root source of all wealth and abundance in our world. Yes, I deliberately use the word "ALL." There is nothing of value in this world that was not created with the help of Mother Nature. Even human-borne ideas could not have been dreamed up without the warmth of the sun, the presence of water on our planet and the energy provided by plant-sourced foods.

The great delusion of laissez-faire capitalism is that all value is created by Man, not by Mother Nature. This is a huge gap in the philosophy of Libertarian economics (which I mostly support, by the way). It's time we expanded the ideas of economics to include the true, total cost of ownership of the products we choose to consume and discard. Only then will consumers make better choices that are aligned with the conservation of resources and sustainable life on planet Earth.