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Questions I have about a free market
    #11940628 -

Hello all.  I am not a usual poster in here, but there is something I have been thinking about and I'd like more economics-knowledgeable to help me through it.

I often hear the argument made that in a free market, if businesses were engaged in practices that were harmful to consumers' interests, consumers would exercise their freedom to choose a different business, thus ensuring that businesses meet certain ethical standards vis-a-vis what they are putting into their products, etc.

The scenario I have been wondering about is this:  There is a global free market economy.  Governments do not intervene in the private sector.  What if a corporation, let's say a pharmaceutical corporation in the United States, creates a product that has a wide variety of uses (as in it can be advertised to treat a variety of ailments), is both heavily addicting and has disastrous health effects whose onset is delayed by about 5-10 years after initial use. 

What force in the free market would exist to counteract this product?  Presumably the scientific community would eventually publish findings against it, but with no legislative power to outlaw it, and with the corporation having the power to overwhelm outcry against it with heavy advertisement, it would probably still find a large market.  I mean, if warnings by the scientific community were indicators of a product's success, there would be no new cigarette smokers and McDonald's would not have had a new customer since the 80s.

Theoretically, by the time the science community made the health issue widely-known for the consumers to exercise their freedom to choose alternate products, this product could already have a huge market of addicts.  How could the consumer have predicted addiction and delayed health effects?

And assuming the product found no market in the U.S., or that U.S. consumers eventually wised up and collectively went cold turkey, the corporation could easily and without legal restraint find markets in developing countries with low literacy rates and create dependents there.

Just some food for thought.  I know little about economics or about how free market thinkers envision the global economy functioning.  What do you think?


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“Strengthened by contemplation and study,
I will not fear my passions like a coward.
My body I will give to pleasures,
to diversions that I’ve dreamed of,
to the most daring erotic desires,
to the lustful impulses of my blood, without
any fear at all, for whenever I will—
and I will have the will, strengthened
as I’ll be with contemplation and study—
at the crucial moments I’ll recover
my spirit as was before: ascetic.”

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Re: Questions I have about a free market [Re: Lion]
    #11940677 -

well, that scenario is one of the main reasons we have the FDA and the bureau of alcohol, tobacco, and firearms in the united states. it's not a completely free market. substances in particular are controlled and regulated by the government.

let's take a substance like the one you described, such as caffeine. it has many medical and recreational uses and can be purchased over the counter without a prescription, so while it is not truly unregulated, its regulation is very limited.

in this scenario, it is quite possible for people to get addicted without realizing it. in fact, quite a few (possibly a majority) of the people in the united states could be classified as being addicted to caffeine. the corporations selling caffeine don't even need to market it to illiterate/3rd world consumers. despite numerous scientific studies about caffeine addiction and health problems, people still take it on a daily basis.

maybe this is a side effect of our classification and regulation system. because it is one of the few recreational substances that is unregulated, people assume it is harmless. maybe people would be more likely to heed drug warnings if there weren't regulations, because everything would be considered a possible threat. i don't think so though.

in my opinion, some people would take a drug if it helped them even if it would eventually kill them. most people, however, would use common sense and stay away.

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Re: Questions I have about a free market [Re: Lion]
    #11940851 -

It is widely accepted in economics that the role of government in the economy is to correct for market failures.

One of these market failures is the lack of perfect information available to either consumers or producers.  This can come in many cases, such as a used car dealer lying to a customer about the condition of a car or a customer lying to an insurance company about health conditions while applying for services.

By testing and publishing information about the drug in question, the government would at least lessen the gap of information between the two parties.  If the information is available and consumers are aware of it, yet choose to still use the drug, I believe this is outside the purview of the government.

Edited by Redstorm (02/01/10 11:34 AM)

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Re: Questions I have about a free market [Re: Redstorm]
    #11940871 -

:hi: Thanks for the answers, they make a lot of sense.

JT, just to clarify, I was not under the illusion that the U.S. is currently a free market, that was just part of my hypothetical scenario.


--------------------
“Strengthened by contemplation and study,
I will not fear my passions like a coward.
My body I will give to pleasures,
to diversions that I’ve dreamed of,
to the most daring erotic desires,
to the lustful impulses of my blood, without
any fear at all, for whenever I will—
and I will have the will, strengthened
as I’ll be with contemplation and study—
at the crucial moments I’ll recover
my spirit as was before: ascetic.”

Extras: Filter Print Post Top
Re: Questions I have about a free market [Re: Lion]
    #11940915 -

Lion, this is an interesting topic, I mentioned some of your points in a recent thread here. Some people have a tremendous faith in the free market.

It's one thing to say free markets are better at fostering competition and customer satisfaction, it's another thing to say free markets can regulate themselves. Clearly the past 20 years have shown that the "Greenspan Dogma" was horseshit. In fact this clip shows Greenspan admitting his mistake here at 3 min 35 sec:


Enron is the most classic example. The problem is that corporations are expected to earn the most amount of money possible for their shareholders. Each quarter a firm has to release their earnings, typically good earnings cause the stock to go up and vice versa. The executives are paid sometimes primarily in stock of the company, which gives them the incentive to boost the stock price. However, if things turn sour the executives will be the first ones to know which gives them the opportunity and the incentive to "cook the books" and announce good earnings even if they're bad. They're able to pull it off using various accounting tricks. GE recently paid a relatively small fine for overstating hundreds of millions of phony earnings back in 2003.

I'd argue that there is no evidence of any sort of self-regulating mechanism in the market. It's based purely on faith. Obviously having good regulations/regulators can't eliminate all the problems in the world, but it is psychotic to believe in deregulation. We're trying to run a civilization here, it's not jungle rules. I don't give a shit if its harder for Wall St. to make money when they're regulated.  :cryariver:


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Re: Questions I have about a free market [Re: Lion]
    #11940979 -

gotcha. redstorm did a good job explaining it :thumbup:

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Re: Questions I have about a free market [Re: ArmFromTheAbyss]
    #11941459 -

The United States does not have a free market.  Never has.


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Re: Questions I have about a free market [Re: zappaisgod]
    #11942751 -

Consumers don't exercise their choice to get bad products off the market and the fda is corrupt due to being bribed by the pharmaceutical industry. SO basically there are lots of unhealthy foods and stuff on the market as well as lots of drugs being prescribed that are dangerous.


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http://www.dlshq.org/teachings/brahmacharya.htm

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Re: Questions I have about a free market [Re: lines]
    #11942817 -

Can someone reply to him and ask him for a source for any of that? I would, but he's ignoring me.

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Re: Questions I have about a free market [Re: lines]
    #11942886 -

lines said:
Consumers don't exercise their choice to get bad products off the market and the fda is corrupt due to being bribed by the pharmaceutical industry. SO basically there are lots of unhealthy foods and stuff on the market as well as lots of drugs being prescribed that are dangerous.


Can you back any of that up?


--------------------
You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity. What one person receives without working for another person must work for without receiving. The government cannot give to anybody anything that the government does not first take from somebody else. When half of the people get the idea that they do not have to work because the other half is going to take care of them and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for that my dear friend is the beginning of the end of any nation. You cannot multiply wealth by dividing it. ~ Adrian Rogers

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Re: Questions I have about a free market [Re: Redstorm]
    #11943523 -

Redstorm said:
Can someone reply to him and ask him for a source for any of that? I would, but he's ignoring me.


I really don't give a shit but anybody who has you on ignore should just fuck off back to the pub.  He is too stupid for words.


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