"Unfree" markets refer to situations where buyers and sellers are prohibited, restricted, prevented, coerced, forced, fined or even imprisoned based on what they buy and sell.

Buyers can be

• required to buy things - for example, car insurance.
• prevented from buying things - for example, certain drugs
• forced to pay a certain price for things - for example, the "minimum" wage

Sellers can be

• required to sell things - for example, gun or auto "buybacks"
• prevented from selling things - for example, sex
• forced to sell things at a certain price - for example, rent "control"

Usually, governments use the "public interest" argument to explain why using force against buyers and sellers is "good" for society - this section is about the "private interest" reasons behind these political rules - rules which make some groups better off but make society worse off overall (remember Hazlitt, "The Lesson")

But first, let me briefly describe a free market - that is, a situation where the the market operates according to economic rules (supply and demand) not the rules of politics (government force).

A "free" market merely refers to a situation where buyers and sellers are free to choose what and how they buy or sell.

A freely operating market allows supply (producers) and demand (consumers) to change what they wish to buy and sell in response to changes in price. Price is an indicator of people's aggregate valuation of scarce resources - meaning, on average, how much does society value "x."

So, we know that people value the hard work of a heart surgeon more than the hard work of a waitress. Both work hard, but millions of people's values combined together is called "price" which shows that the labor of the surgeon is VALUED more.

That is one reason people are willing to pay the costs (time, money) of going to medical school - to acquire the assets that will increase their value to others. It's the reason why companies "reinvest" in themselves, why workers seek "professional development" and one reason why you are in school; to increase your value with new skills and knowledge. This is typical behavior in the world of economics - sellers attempt to make themselves better off by offering the things that the market values using "price" as the guide for decision making.

If this process is allowed to operate correctly, it leads to what economists call a "positive-sum" outcome - both buyers and sellers are made better off.

However, "reinvestment" "professional development," and "school" is costly and there is no guaranteed return for these substantial investments of time, money, and energy since sellers (businesses who sell goods and services and workers who sell their labor) face competition from others who 1) may offer a superior good, service, or skilled labor or 2) may offer a better price for that good, service, or skilled labor.

As a result, interest groups formed long ago because they discovered that they don't have to always make these investments in themselves (such as spending time and money to invent a new product, produce more efficiently, or learn a new skill) in order to make themselves better off.

What interest groups learned is that instead of using the rules of economics to determine what to buy, what to sell, who to hire, who to fire, what to study, or what to produce - they turn to government to create political rules that will force others to buy, sell, hire, fire, study, or produce things or at prices that benefit the interest group at the expense of others. Economists call this a "zero-sum" outcome - if one wins, the other must lose.

Typically, these political rules:

a) create economic advantages for organized interests such as tax breaks, tax subsidies, direct benefits, direct exemptions, targeted programs, discount loans, mortgages, 'free' health care, 'free' education, etc

and/or

b) create obstacles and barriers for their competitors such as permitting, licensing, sourcing, certification requirements, compliance mandates, entry fees, and a whole range of other obstacles and barriers interest groups call 'regulations.'

And so what happens when these advantages and barriers are created? Almost always, the outcomes are the same - supply of the good or service is choked off, prices rise, quality of goods and services declines, range of consumer choices decline, unemployment is higher, etc...

For example, in a free market, rising prices trigger new supply which then brings prices down thereby allowing society to get more of the highly valued item. IF prices do not decline, then something is preventing the market from operating correctly:

Example?

In a free market, high housing prices (which indicates high demand) trigger the construction of new homes (increased supply) which brings price down.

In a free market, the high price of health care (which indicates high demand) triggers new health care provision (increased supply) which brings the price of health care down

In a free market, poor quality schools, poor quality restaurants, poor quality transportation lose customers and disappear. The market "regulates" bad products by eliminating them. This decline in supply leads prices to rise which then encourages new supply - new schools, restaurants, and transportation options eventually come to take their place. The market has "corrected" itself - but only because buyers and sellers are "free" to choose which allows supply and demand to operate correctly.

So if housing prices are too high, if health care costs are "unaffordable," if bad schools never seem to be shut down, if transporation is bad - then the free market is not working - the political rules created by government prevent the economicsrule of supply and demand from operating correctly.

The result of these political rules?

• The interest group directly benefits from these rules which unfairly give them an advantage in the marketplace - more money, more jobs, more customers, more benefits!!!

• The politician who created these rules benefits because she now receives all the votes of the interest group - reelection!!!

• The new bureaucrats who were hired to enforce the new rules benefit because they now have jobs - guaranteed employment!!!

• But everyone else (society) loses because these political rules create waste, discourage innovation, increase prices, limit choices, raise taxes, raise unemployment, hurt smaller businesses and generally teach people that hiring lawyers, lobbying government, doing "favors" for influential people is an easier way to get rich than working hard to offer the goods and services that people value most.

Many folks throughout the world, including American college students, have come to mistakely regard this condition as something they call 'capitalism' - but many if not most economists describe such a condition as the absence of capitalism - something they call 'cronyism.'

In most of Latin America, Africa, and South Asia, and increasingly in the industrialized countries of Europe, North America and Japan, 'cronyism' has surged in the last few decades - so much so that many folks born after the 1980s have no experience with anything other than 'cronyism' which they mistakenly refer to and believe to be 'capitalism' - a mistaken belief that, in my experience, is propagated and perpetuated by many university 'professors.'

Please read the article by Coyne & Hall, "Cronyism."

I'm interested in your reading how the authors describe the 3 ways that cronyism manifests itself and all of which represent the absence of capitalism.

The article comes from an academic journal and so may be a bit difficult to fully understand. For that reason, rather than ask you to identify and explain how cronyism manifests itself, I'll do the identification part for you.

1. "Rent Seeking & Rent Extraction."

2. "The Revolving Door"

3. "Local vs National Politics."

I'm going to ask you to read these 3 sections thoroughly - several times if that will help you understand. Questions about each will appear on this weeks quiz.

However, for this discussion,

I would like you to focus on ONE of these items and explain it thoroughly and to the best of your ability. Fortunately EACH one has two main takeaways