Can't Republicans just defend free markets?

This past week, C-SPAN aired live coverage of a Democratic strategy session in which campaign consultants set out their plans for defeating Republican congressional candidates this November. Speaker after speaker spoke of the need to configure the debate on domestic issues as a struggle between corporate interests and American workers. There is a reason for this strategy—Marxism sells. Oh sure, no Democrat would ever use the terms “Marxism,” “communism,” or “socialism” to describe his agenda. After all, these words do not score well in focus group testing. But the underlying strategy is one in the same—demonize businessmen by portraying them as scapegoats for social ills and regulate private enterprise out of existence.

On the C-SPAN show, Democratic strategists spoke of using this technique when debating prescription drugs for seniors (“The Republican plan is being written by big pharmaceutical companies and will force seniors to take Flintstone vitamins for epilepsy!”), domestic oil drilling (“The Big Oil companies are going to drill caribou to line their pockets!), and the repeal of the death tax (“This tax cut will give 579% of the benefits to the top .0000001% of income earners and cause middle income workers to hang themselves from ceiling fans!”).

The Republican response to these Marxist arguments is generally twofold. First, they partially concede the arguments and liberalize their positions. For example, the House Republican prescription drug plan has grown enormously in scope, President Bush has opposed offshore drilling in Florida, and Senate Republicans are attempting to moderate the estate tax cut. This tactic is annoying because it sacrifices conservative principles at the altar of Washington’s (Liberal) New Tone.

Second, Republicans accuse Democrats of engaging in “class warfare.” This is certainly true—class warfare is the heart of Marxism. But there is a deeper question here: Is it inherently wrong for a politician to pit American against American in an election campaign? Of course not. That’s what political campaigns are all about.

Richard Nixon—one of the most successful Republican candidates in the 20th century—made his political career out of pitting Americans against each another. In his 1946 congressional campaign, 1950 Senatorial campaign, and 1960 presidential campaign Nixon drew sharp distinctions between his humble upbringings and the privileged backgrounds of his opponents (Jerry Voorhis, Helen Gahagan Douglas, and John Kennedy, respectively).

Nixon’s first term as president was marked by his drawing sharp distinctions between the “silent majority” of Americans that supported the Vietnam War and the “bums on the college campuses” that opposed it. Nixon skillfully exploited these divisions to score one of the greatest election landslides in American history in 1972, becoming the first Republican since Calvin Coolidge to carry New York City.

Dividing Americans is not bad unless the intent is to get a majority of congressmen elected to legally confiscate property from one group of people to give to another group of people. And this is precisely what the Democrats want to do.

But when Republicans whine about liberals engaging in class warfare and pitting American against American, the charge rings hollow to most voters. Voters view the political system as warfare and division anyway.

So what should the Republicans do? How about the truth? Why not defend the principles of free market capitalism? The arguments are really compelling since they are based in logic and reason.

Let's go through one issue in depth. The Democrats scream about prescription drug prices being too high. But in a competitive market, there is no such thing as a “high price”. The price for a drug is reflects the cost to firms of producing the drug (supply) and the willingness of consumers to pay for the drug (demand).

Say we have a drug called Sabiatrophin and it costs $10 to produce 500 mg. Say that a consumer is willing to pay $50 for that 500 mg. It does not take an economist to see that there are gains from trade here. For any price between $10 and $50, the consumer can buy Sabiatrophin and both the firm and the consumer will be better off.

“Wait a minute, Sabia. I gotcha! The firm is just going to rape the consumer and charge him 50 bucks for 10-dollar medicine. That’s cheating. We need the Justice Department.”

Wrong. In a competitive market, there are multiple firms competing for consumers. If Firm A sets a price of $50 for 500 mg of Sabiatrophin, Firm B can offer a lower price—say $45—and steal all of Firm A’s customers and still earn a $35 profit. It gets even better. In a competitive market, the price is eventually bid down to the cost of production.

Pharmacuetical companies cannot just charge whatever price they want for their drugs. Companies are constrained by (1) consumers’ willingness to pay for drugs and (2) competing firms’ desire to steal consumers by charging lower prices.

This is the beauty of the free market, the invisible hand. Resources are efficiently allocated without any government coordination. Pharmaceutical companies maximize profits and consumers maximize satisfaction and—voila!—we get a first-best solution.

When do we get problems? When the government intervenes in a competitive market. Imagine that Senator Daschle goes to the Senate Floor and announces:

My friends, the mean-spirited pharmaceutical companies would charge outrageously high prices for Sabiatrophin. They would force wrinkled seniors to choose between medicine and food each month. The Democratic plan would mandate that Big Pharmaceuticals charge only $8 for 500 mg of Sabiatrophin. That is a fair price. And it puts people ahead of corporations.

There is one problem. Sabiatrophin costs $10 to produce. So, firms would stop producing this drug because it would be more profitable for them to invest in other drugs. Instead, they might produce an inferior, less effective medicine like McCainicillin.

Daschle’s socialist approach means equality of course—equal misery for everyone. The market approach allows firms and consumers to engage in voluntary exchange and for drugs to be allocated optimally. Would the market outcome mean that some people would not be able to afford drugs? Sure. But many government solutions result in no one getting any drugs. Is that more humane and caring?

The only role for the federal government is to make the pharmaceutical industry more competitive by removing barriers to entry—Food and Drug Administration (FDA) regulations, federal licensing, and price controls.

So why can’t Republicans respond with arguments like this when the Democrats try to sell Marxism to voters? Do Republicans not understand how the free market works? Are the voters too stupid to understand? Or are politicians just afraid to explain why “profit” is not a four-letter word?

Free market capitalism has resulted in America being the wealthiest nation in the history of the world. If this concept is too politically sensitive or too difficult to discuss with voters, we are in deep trouble.

problem is, lumber, steel, farming tariffs put in place by this gov't in the last 6 months. Exactly coinciding with the fall in the u.s. dollar. Geo. Bush doesn't really have free market principles when there is an election withing the year. somebody tell me i'm wrong.

Voters understand why they need profit. Voters don't understand why corporations need profit. The voters are too stupid to realize that if the corporation THEY worked for didnt profit, THEY would be out of a job. The end.

My answer is that the Republicans aren't all that much better at protecting the free markets than the Democrats. Think of Bush signing on the bill designed to shovel billions of dollars to farm companies, or the tariffs on steel and lumber.

Hmmmmmm.... Maybe the government should stop issueing patents as well.

Win the game and your complete registration fees are covered for FRiva Las Vegas.

demonize businessmen...don't have to, they've done a good enough job of it themselves, right Martha?

There is no free market, the farm bill proved that.

Nope it is real.

So why can’t Republicans respond with arguments like this when the Democrats try to sell Marxism to voters? Do Republicans not understand how the free market works? Are the voters too stupid to understand? Or are politicians just afraid to explain why “profit” is not a four-letter word?

As was shown in a recent series of studies, and in defiance of most models of rational economic actors, people are willing to sacrifice their own wealth in order to reduce the wealth of others. There are two primary motivations: rank egalitarianism, and whether deserts are deemed just or deserved. The overall percentage of people willing to sacrifice their own wealth to reduce others' is about 62%.

Likely some do not understand the free market argument. Most understand and do not care, because they adhere to a different value or ethical system, one not compatible with free markets.

As was shown in a recent series of studies, and in defiance of most models of rational economic actors, people are willing to sacrifice their own wealth in order to reduce the wealth of others.

This kinda crap is the reason Im a monarchist.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.