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logo    Is a Market Economy Really an Efficient Way of Allocating Resources?


I have often argued that people, in general and regardless of their upbringings, acquire the moral values they practice, apart from those they claim to hold, from the economic system they labor under. And my opinion is that reality provides them with no other choice, which has been immortalize in the maxim, Good guys finish last. Although it is impossible to provide a solid proof of the claim, there is important anecdotal evidence for it.

It is rather apparent that free market capitalism institutionalizes immorality. Its engine is exploitation, deceit, greed, corruption, and fraud, which results in crime, poverty, and a host of other social ills. I suppose that the United States of America illustrates this best. But there is even more compelling evidence.

Israel was founded as a socialist country.  "The socialist bit--that's gone altogether. When Israel became America's little buddy, she also changed over--not coincidentally, during the Reagan years--to a hard-edged capitalist economy. You could call the operation a success . . . there's a lot more money in the economy, now; and its easier to do business. . . . But for the first time, there are also homeless people, and families who say they can't find work, or enough to eat. . . . [Cramer, Richard Ben, How Israel Lost, p. 26]" The BBC has recently reported that "in the last four years the Israeli police . . . have lost control of the country's organized criminals, who are making millions from gambling, prostitution and drugs." And the Israeli government is rife with corruption.

A similar situation has existed in Russia since the collapse of the USSR. Again, the BBC has recently reported that "Russian President Vladimir Putin has said that organized crime is still controlling large parts of the country's economy and not enough is being done to combat it. He said many businessmen still faced interference from both criminals and corrupt government . . .  And up to 7,000 murderers had not been brought to justice, partly because of 'feeble' law enforcement . . . Murders, kidnappings, criminal attacks and robberies have turned into something of a fact of life. . . ." And poverty is endemic: "prior to the dissolution of the Soviet Union in 1991, that country's economic and social system worked in a practical sense, meaning most people had a place to live and food to eat. Although standards of living were below those in the West, particularly in housing, daily life was predictable. The Soviet leadership was legitimately able to say that their form of socialism had succeeded in virtually eliminating the kind of poverty that existed in Czarist Russia. Russian citizens now live in different times. The country's transformation to a more open economic system has created . . . a large, new group of people in poverty." [see, http://www.census.gov/prod/3/98pubs/cenbr985.pdf]

I doubt that these events are mere coincidence, and in each nation, the costs of dealing with these social ills is huge. Just consider what Americans spend on police, courts, prisons, welfare, uninsured medical care, abused children, and the host of other American social ills. The cost is enormous and completely unproductive. It follows that if these social ills are caused directly by the economic system, then they have to be attributed to that system.

One of the claims economists make is that the free market system efficiently allocates economic resources, and they tout this as one of the systems greatest advantages. But if the social ills mentioned above are caused by the system, this claim cannot possibly be true.

Aside from this, the claim has never been verified. In fact, no one has ever attempted to verify it. I suppose the claim is derived from some other equally unverified beliefs held by economists. There is the belief, for instance, that profit oriented enterprises are more efficient than non-profit, especially governmental enterprises, and its corollary that efficient enterprises succeed while inefficient ones fail. But I am aware of no studies that have been done that even attempt to prove the validity of either of these claims. Anyone who has ever worked for a successful, for-profit company knows that these claims are not even close to being true. Inefficiency abounds in even the best of them.

So isn't it time someone put our economists on the spot? Are our social ills the direct consequence of our economic system? And if so, how can it be called an efficient allotter of economic resources? And if it isn't, isn't it time to think of making some fundamental alterations to it to prevent these unproductive social costs? (6/24/2007)