Is a free market "free" if it's regulated?

somewhat politically inclined. That's good. That's good. So, UM, I was watching uh an unnamed TV cable news network which is called CNN, an unnamed one, and um, basically, uh, I was watching basically just coverage of this bailout what it means all this. I'm hooked on the bailout. Okay, if you haven't figured it out by now, I just I eat information up right, you should get a T shirt.

I'm hooked on the bailout. I'm hooked on cash cary. Right. Yeah, So I was this this one commentator, this one pundit um was saying, so long free market, and I was thinking, you're stupid, you're a stupid person because we don't have a free market. Did you know that? Well, of course I do. We never had a truly free market. Well maybe and early on, yeah, in the early heady salad days trading America. Yeah yeah, I'm whiskey right, or bracelets and trinkets first for large tracts of land or hemp.

That was a big one early on s Yeah. So um yeah, I'm I'm glad to hear you say that. I find it refreshing most people when you say what kind of economy does the United States have? They say it's a free market economy. And that's just false. And let's talk about why it's false. Let's do it. I think we should. Um, so basically the one Well, how about this. Let's describe a free market economy under the capitalist system, and then we can say this is why

the US doesn't have one of those. Okay, all right, so you know who the fought their capitalism was right? Yes, Charles Darwin? Darwin, Yes, you know, terrible Adam Smith economist, extraordinary and this guy was working from nothing, right, this is all just out of this guy's head. He was good. Um, he actually wrote The Wealth of Nations, uh in seventy so it can't. Yeah, exactly. So the US is like, what kind of economy we should we should we have?

What are they doing over in Scotland? They heard about this Adam Smith fella. They bought hom over boughttom dinner and he told them everything they needed to know. And it's a great theory. Capitalism in theory is great, Okay. So basically, when you have a bunch of people that have a bunch of products that the there's the supply

outpaces demand, prices come down exactly. It protects just the average consumer like that when you know, when when demand is high and supplies kind of low, um, then companies are protected. And it's this constant swing back and forth between protection for consumers and protection for producing system checks and balances, and ultimately whichever one is benefiting at any given point in time, everybody benefits because if you have if you have demand high, then you have companies who

are just working away at making stuff. Jobs are up. Production is up exactly. And and another point I made in this this article is that um, these companies pay taxes so indirectly, even people who can't get employment are being helped through government funded, taxpayer funded social programs. So everybody is doing really well and capitalism employees are probably

paid even more to yeah when demand is high. Yeah, now there's some there's some natural checks and balances that are built into the capitalist system, like, for instance, um capital the kind of demands that companies keep wages low. You're trying to maximize profits because capitalism foster's competition. Right, You've got a lot of people out there competing for that consumer dollar that you you want to compete, and

you want to keep your business efficient and trimp. One way to do that is to pay low wages as low as you can get people to work for. Right. But Smith pointed out that if you pay people slightly higher wages, they're going to be able to and this is so eighteenth century, They're going to be able to feed themselves better, and thus they'll be sturdier and be able to work harder, and all of a sudden, you're

you're more efficient. You can extrapolate that into other terms, that a better paid employee should be theoretically a happier employee who will work more, be pro be more productive. That kind of right, I've seen that firsthand. Actually, as a quick aside, I worked at a Stowe Mountain park here in the great state of Georgia for many years. We had a laser show still do, and I sold as I think, you know, the glow in the dark necklaces. I had no idea I did. I did that for

five summers. Man, and the guy it actually wasn't a park employee job. It was a private contractor that did this, and he paid us on commission. He paid the sixteen seventeen year old kids on commission. And man, we made I made more money than than I do. Now you're kidding, Well, if you factor in bills and things, absolutely you must have been quite a hustler. And yeah, but that's that's the long story short as we all worked our butts off to sell as many as these things we could

for this guy because we made more money. And in the meantime, the park employees were schlepping popcorn and candy and stuff. They're all sneaking behind the bushes and smoking cigarettes and making out and Stuffy didn't care. They didn't care exactly, which kind of brings us to our point down the road, which actually we shouldn't get too quite yet, because we're not done talking about capitalism. Let's put that segway off and we'll pick it up later. Yeah, it

sounds good at me. Okay. So um, so this is all bright shiny capitalism, right. Uh. The problem is is when you factor in like the competition, uh, and the competitiveness, you actually come up with a a survival of the fittest scenario. Darwin told you he factored in exactly. He's not the father of capitalism, but man, is he ever important. So you get all these companies competing, and then there's

this thing called a correction. We know and love it as the word recession, okay, and all the recession is a decline in productivity. And the reason these declines happen is because you got you have too many poorly managed companies, You have too many bad investments so I don't know, like a mortgage backed security or something like that. You have all these things basically coming up the works, and

they actually drag the market down. When the market goes into recession, these poorly managed companies and bad investments can't survive, so they actually slough off. It's kind of like a recession to capitalism is like a forest fire to the woods. You've got these raging fire that burns out all the undergrowth.

It gets rid of the pests and diseases and pestilence and all that, and then the only thing left standing are these huge old trees that are allowed to flourish and grow exactly and then eventually the cycle begins again. The undergrowth comes back, and so the pest like what we've seen with the Internet, actually the big Internet boom that you know, everyone their brothers started a website, a start up and the eight I'm sorry in the nineties,

and uh, same thing happened there. The giants like the Amazon dot com, so they stuck around and all the other ones fell away. So that was kind of a self correcting thing to right, that's the same thing. The reason that giants like Amazon dot Com stuck around is because they proved their worth to the economy. They provided a valuable service that the consumers judged, Hey, we like this, we want this, We're gonna give it our money. So

Amazon survived. Other ones they were bad ideas, for better or worse, they didn't appeal to people, so they fell away. That's exactly what we're going through right now. The recession. This makes me think of recession is actually kind of cool. It is, it's a very natural component of capitalism. Here's the thing capital capitalism in the United States, it's not It doesn't have the full faith of the US government. Normally, when we hit a recession, the government goes into socialist mode.

We start buying stakes and companies and start, you know, flooding the market with with all sorts of money and adjusting interest rates, that kind of thing. So here's where we enter how the US is not a capitalist, free market economy. I love the examples he used in this article too, because I don't think many people ever think of these is bucking capitalism and the free market, but it's exactly what it's done. Yeah. Well, the obvious one

is the SEC security, the Securities Exchange Commission. Yeah, and basically they watched the stock market. And the reason the SEC exists and and I say in the article, the only reason why, or the the very fact that the SEC he exists. It shows that capitalism in America isn't based on a free market economy. Um. But the reason the SEC exist is because in the US, for a hundred or two hundred years almost uh, this capitalist economy

eventually devolved into its worst form of itself. You had like Robert Barons that were, you know, as Iron ran the novelist. Capitalist novelists would argue, these titans of industry helped build modern America and modern America's economy. But as somebody who was maybe you know, happy with labor, on the side of labor would say, yes, they did, but they built it through the direction of the suffering working class, on the backs of the working class exactly. So you

you've got two sides of the same coin. And ultimately, if you look at the federal government's track record, they usually side on, you know, the suffering, alleviating suffering of the working class. They're like, thank you very much, Robert Baron for endowing this entire city, but you know, we're gonna have to step in. And they had the Securities and Exchange Commission was a big one. What else is there?

Uh I know, another one was the UM. Well it's the government getting involved in big companies like Carnegie Steel and Standard Oil, and the railroad's union union, Pacific Railroad and uh, big major corporations that all of a sudden, the government was getting putting their finger in their pie and saying, you guys got a little too much power. We need to step in and kind of regulate you

a little bit. Yeah, because that competition from a hundred plus years of unread unregulated capitalism led to some really nefarious business practices like um, you know, corporations saying that they had uh, saying to their investors that they'd made you know, seventeen billion dollars or back then, seventeen million dollars and profits, but turned around to the government and called or you know, wrote off eleven million in losses. Things like that, So you create the sec or monopolies.

Monopolies were the first one, Like you said, the railroads and steel companies all that they had too much power and they were all basically running the show in their their industry. If you wanted steel, you had to go to this one company. If you wanted oil, you had to go to this one company, so they could set whatever prices they want. And really the first appearance of government regulation into the free market was the Sherman Antitrust Act of eighteen what okay, good enough, but that was

that was hardly the end. You've got um food packagers, right, the f d A in itself is sort of you know, sort of the same thing, well big time. I mean, really, under a free market system, somebody should be able to put as as many you know, rat excrements as possible. Yeah, you and I know that there's a very finite amount that can be allowed in there. Um, So the f d A regulates business, it interferes with the free market.

The same thing with the Federal Trade Commission there. They were actually created to encourage competition among corporations and prevent monopolies. Like that's pretty much their soul, their sole reason for existing, even the very idea of setting a minimum wage is the government getting involved in the business. Yeah, it really isn't.

I Mean, it took a lot of a lot of labor strikes, a lot of violent clashes with police, the anarchists were coming up and for a little while there, um and and basically ultimately government fell on the side of the people. If you really look at it again, the federal government's track record over the last hundred or so years, they've ultimately sided with the people. I encourage you to look at the record, my friends. Yeah, the

records out there. I mean, it's it's in the faces of the of the happy employees at the FTC and the FDA and the SEC. You go look those people in the eye, and you can think the government cares about me. Yeah. So, so what do we have though? If if it's not a free market, what would you call it? I would call it a managed economy? And I wouldn't be the only one to call it that. You didn't come up with that term, I didn't. Um, it's a managed economy is basically what it's what we have.

You have like a free market, but then there's some government regulation and oversight and hopefully in all the right places. Yeah. So the next time somebody asks you what kind of economy does the United States have? Don't say free market? Don't you say we have a managed economy? Right? And if they want to know what you're talking about, tell them to go type in is a free market free

if it's regulated? On how stuff works? Dot com? And then punch him in the head exactly and stick around to find out where Chuck got his current gambling problem. But first, so Chuck, where's your gambling problem? Cover? I've seen you. I made like a hundred and fifty bucks off you during this podcast. How where's it from. Well, as you know, Josh, I have the jimmy legs. I have the jumpy legs I have I think the technical term is uh r l S. Restless leg syndrome is

kicking you as we speak. It hurts, but it goes a long way to write. Well, Josh, I have this uh this uh malady, and I'm on some medication to help control my my jimmy legs. And that medication is a side effect, and one of them is a compulsive activity like gambling. Yeah, so I had the jimmy legs and next thing you know, I'm like heading out to the Cherokee, North Carolina every weekend to gamble. That's great. Well, you know, if I had a kid, I'd say, you're

putting it through college. What's what's this medication? Uh? Well, I can't divulge the name on the air, but it's cured my jimmy legs. But now I'm I'm way in the hole. That's great. The casinos, Well, thank you, big Pharma. I'm gonna go spend this hundred fifty bucks on scratch off tickets. Right. And you can read actually about this and at a very cool article called The Top ten weirdest uh side effects of drugs that you can take to make you feel better, also known as Top ten

weird prescription drug side effects. You can find that on how stuff works dot com. For more on this and thousands of other topics, visit how stuff works dot com. Let us know what you think. Send an email to podcast at how stuff works dot com. Brought to you by the reinvented two thousand twelve camera. It's ready, are you