As mentioned in the last post, free markets don’t necessarily stay free of their own accord. There are always incentives for producers to “game” the market to their advantage by distorting the price signals. The proper role of government in a free market economy is to police the market in ways which keep it as free as possible, with price signals as real as possible.
So, for example, enforcing antitrust laws is a proper role of government, to prevent producers from conspiring with one another to restrain competition and fix prices at an “unnaturally” high price point – eg. a price point that would not be competitively sustainable if there were real competitors.
Enforcing laws that require honest descriptions of goods and services for sale is a proper government function in a free market economy, and has been ever since ancient city-states had officials in the marketplace ensuring that the merchant’s scales were accurate. The FDA’s oversight of food products is a similar function wholly appropriate to government in a free market system.
Enforcing “antidumping” laws that prevent producers from selling goods at a loss to drive competitors out of business is also a proper role of government.
Government licensing laws are also a way to ensure that consumers are getting what they think they are getting. For example, medical licenses are the way I know my doctor has really been trained in his field, and hasn’t just hung up a shingle without adequate training.
So governments do have a critical role to play in free market economies. In fact, without them, free markets tend not to stay so free. But government’s proper role is to keep the market as free as possible, and the price signals as uncontaminated as possible. It is not, as is so often the case, the government’s role to contaminate the price signals for political or ideological purposes.
In that regard, governments ought properly to be very suspicious of unions, which are in effect labor “cartels” restricting competition for jobs in order to push the labor costs higher than the free market forces would have had them. Now it is true that unions came into being to oppose producers who used their positions unfairly to depress wages, and to that extent they have been a good thing. But as the decades have passed they have morphed into labor cartels that push wages higher than they “ought” to be under normal market forces, and along the way have driven companies and industries out of business, leaving their workers unemployed.
Of course, union members vote, and unions have accumulated huge amounts of money to buy elections, so naturally they have evolved disproportionate influence on the political system (though one might justifiably argue that this just offsets the influence large corporations have on politics – a valid point).
However, since the world as a whole is essentially one big free market, unions that push wages disproportionately high (or require hiring more labor than is really needed) simply drive companies and their jobs elsewhere, where wages are more competitive. Hence the steady flow of US jobs “outsourced” overseas.
The current government policy with regard to Boeing’s new aircraft plant in a “right to work” (eg: non-union) state (South Carolina) is a classic example of getting it wrong. Normal market forces are driving Boeing to build a new plant where it will not be as disrupted by union strikes, which have cost it money and lost it customers. The government opposes it (well, the National Labor Relations Board opposes it, and the administration isn’t interfering), yet if the NLRB prevails, it will simply drive other companies to build their first plants in non-union states, depriving even more union members of work.
Government policy in this regard then ought to be to keep the American economy, producers and labor both, as “free” and competitive as possible, so as to encourage US companies to stay in the US and foreign companies to move here, bringing jobs with them. This is not a policy that recent administrations in either political party seem to have understood.
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