Click here for part one.
The black SUV was slowly making its way through the worst winter storm on record.
“Anatoly, at your service,” said the driver as he reached out to shake Max’s hand. “But my friends call me Stoly. You know… like the vodka.”
“Pleased to meet you, Anatoly,” said Max. “Thanks for taking me to my presentation in this blizzard. I really appreciated it. One question, though: are you sure this is legal? I mean, don’t you need some sort of permit to drive people around like this?”
“What do you mean, permit?” replied Stoly. He sounded a bit agitated. “This is the Land of the Free and the Home of the Brave. Right now, I’m the only one brave enough to take you to your presentation in this snow storm. Do I need a permit? Give me a break! My parents didn’t leave the Red Square in order to deal with more red tape. All those rules and regulations are in place just so some pencil pusher can stick his nose into my business.”
Max had clearly hit a nerve. Anatoly went on with his rant:
“If there’s one thing responsible for the American Dream, it is the free market. We have a government for the people, by the people. I think it’s time for big government to start trusting those people to make the right decisions and not interfere in our lives. The entrepreneur is the backbone of the American economy. If we’d need a permit for every single thing we wanted to do, we’d never get anything done.”
Max remembered discussing the concept of a free market with his startup coach. The man was a genius. He could explain complicated concepts in simple terms.
“Before we come to any conclusions,” said his mentor, “we really should identify what kind of market we are talking about, and what we mean by free. It’s so easy to speak in generalizations and pretend we understand one another. When we do, we usually don’t.
First of all, there is no such thing as a single market. Rather, it is made up of a great number of small markets, serving different segments of our economy.
Secondly, people talk about these markets all the time, as if they were solid, static entities we could take home and put on a shelf. In reality, these so-called markets are more like our health. They are the fluid result of many factors and influences, and they adapt and change constantly. They’re like living organisms. We are all part of those organisms, sometimes as buyers, and sometimes as sellers.
The cumulative result of millions of individual decisions is what makes these many markets move. Even one small decision has the potential to impact the whole.
Now, some of these markets have become so complicated that humans alone can’t handle them anymore. Take the stock exchange. Most of today’s trading is no longer handled by shouting overachievers in weird blazers, but by computers. Does that make Wall street freer, or more dependent on whiz kids, software, and algorithms?”
Max said he had no idea.
“Let me ask you another question, Max.
Do you remember what happened on May 6, 2010 at 2:45 PM?”
Max shook his head.
“I’ll tell you!
The United States stock market crashed when the Dow Jones Industrial Average plunged about 900 points in the biggest one-day point decline in history. It was called the Flash Crash, and the Securities and Exchange Commission (SEC) blamed it on a computer algorithm used by a trader to determine how to execute a trade.
Within 13 minutes, some $40 stocks were selling for a penny a share, until a market circuit-breaker paused trading. Regulators later undid those bizarre trades, calling them ‘erroneous.’
On June 10th, 2010, the SEC approved rules that require the exchanges to pause trading in certain individual stocks if the price moves 10 percent or more in a five-minute period.
Let me ask you, Max: is that still a free and independent market, or are we talking about intervention in order to prevent shares from becoming worthless, courtesy of a computer glitch?”
Once again, Max was silent, as his mentor went on.
“Now, think about what fuels our economy: crude oil. An important benchmark for crude oil prices is a weighted average of prices for petroleum blends produced by the OPEC countries. OPEC constantly tries to influence that price by increasing and decreasing production. We all know what happened in 1973 when oil ministers agreed to an embargo.
Again I ask you: is this the famous free market people are always touting, or are prices kept at an artificial level and used as weapons in an effort to influence political decisions and certain economies? Think about what’s happening right now.
Led by Saudi Arabia, OPEC decided in 2014 to wage a price war with low-cost producers in the U.S. and elsewhere in a bid to defend market share. Since oil prices began collapsing, oil companies have sacked hundreds of thousands of workers, and slashed investment budgets.
But there are other factors that influence how much or how little we pay at the pump.
The yearly maintenance of refineries influences gas prices. A blast caused by a few individuals at a pipeline in Nigeria can cause the price of petrol to explode at your local gas station. We might long for energy independence all we want, but for now we’re as interdependent as never before.
I guess what I am trying to say is this: because we’re so connected, markets are never completely free. Contrary to what some republican presidential candidates want us to believe, we’re not living on an island.”
“I understand all of that,” said Max. “But when people talk about the free market, don’t they typically refer to a market free from government intervention?”
“Here’s my take on government intervention, Max:
Too much of it is called dictatorship, and not enough of it leads to anarchy. You pick.”
“I can’t tell you how many times the argument it’s a free market has been used to defend or excuse the most appalling working conditions and low wages on this planet. Just because humans were born with free will and have the power to exploit one another, doesn’t mean they should. Sometimes the administration has to step in to prevent the greedy from taking advantage of the needy. Is that big government overstepping its boundaries, or a matter of society upholding basic human rights?
One could argue that the institution of federal minimum wage is a form of intervention in the labor market. It started when government tried to control the explosion of sweat shops in manufacturing industries. The sweatshop owners were thought to have unfair bargaining power over their workers, and a minimum wage was proposed as a means to make them pay fairly.
Some might say that sweatshops are a thing of the past. Well, on a different but related note, tell me: What’s one of America’s favorite non-alcoholic beverages?”
“It must be coffee,” answered Max.
“Correct,” said his coach. “A few years ago, Starbucks finally started selling Fair Trade coffee, and for a good reason. We don’t always realize that agriculture workers in the coffee industry often toil in what has been described as ‘sweatshops in the fields.’ Many small coffee farmers in Africa and South America receive prices for their coffee that are less than the costs of production, forcing them into poverty and debt. To become Fair Trade certified, an importer must pay a minimum price per pound, allowing farmers and their families to make a living wage.
Laissez-faire economists might frown upon fair trade, but here’s the underlying question: whom is the market supposed to serve? Is this market some amoral, illusive, impersonal entity that cannot be influenced, or could the players in that market actually have an effect on how decent business is conducted?
Are people to serve the market (at any rate and at any cost), or do we want to have a market that serves the people? Should we intervene in that market by setting certain levels that are considered to be fair, humane, and reasonable, or should we leave the market alone?
Our economy is still recovering from the subprime mortgage crisis that was -in part- the result of an unregulated, greed-driven market that left so many homeless. Just because people were able to get a mortgage with no money down, doesn’t mean they should have.
Cars used to have no seat belts and smoking was allowed everywhere. Then the government stepped in to prevent intelligent people from doing stupid things. Yes it’s intervention, but for a good reason.
My belief is that the ideal market -if we can even speak of such a thing- should serve the people. If a market leads to desperation exploitation, it becomes an issue of ethics, and adjustments should be made.
I realize that I’m painting a picture with broad strokes, Max, and you’re free to disagree. So, why don’t we bring this discussion back to rates? After all, that was what we were talking about. Here’s my question:
Would you rather be paid a fair rate, or a market price?”
* * * * *
As Stoly skillfully maneuvered his car through the snow storm, Max noticed something disturbing. In some boroughs the streets were much more accessible than in others. How could that be?
Suddenly, bright headlights appeared out of nowhere, and they moved straight toward their SUV.
“What the heck is that?” screamed Stoly as he quickly turned the wheel.
“That, my friend, is government intervention,” said Max, as a huge snow plow drove right past them. “Why aren’t they out in full force in every neighborhood?”
“It’s been a long winter,” replied Stoly. “Some municipalities started running out of funds, especially those that paid the drivers by the hour. They found out that if they paid the snow crews per amount of snow removed, a lot more got done in less time. The folks that got paid per hour took their time. It’s human nature. Plus, some of the lowest bidders turned out to have the worst equipment, and it took them forever to get the streets plowed. You get what you pay for.”
“When I was young, the whole neighborhood came together to clear the streets and sidewalks,” said Max. “It was actually fun, and we got to know one another. Senior citizens and others who were too weak to plow didn’t have to worry about a thing.”
“How about now?” Stoly asked.
“I’m afraid it’s every man for himself,” said Max. “People clear their own little bit of sidewalk and make sure others don’t park in their spot. There’s an eighty-year old woman on our block who can hardly leave her house, let alone clear her walkway. One day, two teenagers knocked on her door, offering to take care of the snow for her.
She was so happy that these young gentlemen were ready to do a good deed. That was before they told her that it would cost her ten bucks. She said to me that she could barely afford her medication, let alone ten dollars every time there was snow on the ground. But hey, it’s a free market!
Meanwhile, her next door neighbor has one of those gas snow blowers. He was clearing his own sidewalk when she asked him if he’d be willing to lend a hand. He said that he’d get to it, once he had taken his wife to the nail salon. Then he forgot all about his neighbor’s sidewalk, so I took care of it.”
Stoly’s SUV slowly made its way through town, until it stopped in front of an office building.
“This should be it,” said Max as he gathered his stuff. “Will you wait for me? I do need to get back to the airport.”
“If you insist,” said Stoly.
“Great,” said Max. “Would it be okay if I pay you on the way back?”
“What do you think?” asked Stoly with a big grin on his face. “You pay me now, my friend . This is the US of A…
There are no free rides.”
Paul Strikwerda ©nethervoice
PS Next week I’ll bring you the final installment. Click here for part 3.