Free markets and democracy seem to naturally go together. Both allow individuals to express their freedom and provide outcomes with legitimacy. But there becomes a point when democracy turns into populism, and free markets turn into a scapegoat. This is when people feel the need to have a vote on other people’s exercise of freedom despite that freedom posing no harm to others. While there are instances where democracy serves to support capitalist institutions, we also need to be aware of when democracy puts undue burdens on free markets.
The West has made massive strides in removing the democratic restraints on the social order. Ideals of personal freedom and equality were the bases for advancements in racial equality, women’s rights, and LGBTQ+ equality. The expansion of these human freedoms was led by activists who pushed their ideals against centuries of restraining tradition. However, while social fascism was addressed, economic fascism remains. The same liberals who say “it’s none of my business what two consenting adults do” in regards to gay marriage also want to maintain unnecessary licensing, government monopolies, restrictions on technology, zoning laws, the minimum wage, and other restrictions of freedom that they see as harming only “the rich.”
Businesses like Airbnb, Uber, and Amazon showcase the Left’s attitude on “disruptive” enterprises. You would hope that a service that would allow anyone with a car or apartment to make a living to provide an affordable service would be praised by the Left. Low-income and working-class people now have expanded and flexible employment opportunities along with access to cheaper goods and services.
However, the Left has been the most critical of these entities. Whether it’s because of employment laws or entrepreneurs competing with more established workers, the left has been all the more supportive of restricting these companies. The same liberals who push for marijuana legalization and open borders have no problem demanding companies obey equally unjust economic restrictions. If an illegal immigrant competes with an American worker, good for him. But if Uber competes with a government monopoly or if Amazon competes with local business, the cops are called.
The same applies to many issues where the left is uninformed but showcase their callousness towards the “privileged.” From the TSA to anti-bias trainings, the popular will create measures whose effectiveness they care little for, since their purpose would be to signal virtue and create a warm glow inside. People just like that there are certain rules and procedures in place, never mind the cost they impose on others.
However, libertarians are also unclear about what explains the expansion of the state. In their opinion, the state is too inept at performing most (or all) of its functions better than private individuals. Yet it is also so competent that it has been able to expand to so much of our economic lives. If private actors are as capable as they say, democracy should have stifled the state long ago.
It’s not the government but the people who are at fault. It’s an open secret that democracy does not create a public mass of informed voters with well-thought out preferences (see here and here). Rather, voters are rationally ignorant, since being better informed on the policy doesn’t change the probability of the policy being enacted. Their votes are motivated from social signaling and group identities.
Not only are voters uninformed, but they are biased in the direction for greater government control over the economy. They support zoning regulations without knowing that more housing supply reduces housing prices. They are far more likely than economists to blame economic woes against technology, offshoring, and immigrants. Business profits and executive compensation are too high for their tastes and are also blamed for economic decline, rather than a low savings rate or productivity declines.
People are of course free to choose not to become economically literate. But it becomes an issue when this turns into policies that restrict freedom, which is what democracy allows. We can no longer use social pressures to discourage female labor participation or pursuit of a homosexual lifestyle. But we can still vote to restrict building affordable housing near our property. People support policies without understanding or caring about their actual effects. Instead of stopping to think about the impact of their actions, they say that others have a civic duty to force their wills on others
If voters are uninformed and have a bias against market freedom, then maybe, as Rosseau controversially stated, people must be forced to be free. This isn’t a claim for anything new. Rather, it’s a call to continue the trend that has been ongoing since the latter half of the 20th century. A handful of economists, not the popular will, were responsible for our more liberalized economy.
Milton Friedman successfully pushed for a voluntary army. Ronald Coase and Paul Milgrom are to thank for the spectrum auction. Alfred Kahn was the spearhead in airline deregulations. And markets in organ donations owe their existence to Alvin Roth. Markets were a top-down innovation. Further market economics, like creating a voting market to solve this very issue with democracy (see quadratic voting) would require a reformer that would have to go against public support.
We already give experts a significant amount of control. It’s not as if we hold a referendum on whether we would like the Federal Reserve to raise or lower interest rates. Many important decisions are left in the hands of the administrative state, with the public having a deservedly limited role.
Some figures have pushed for tighter government regulation, notably Ralph Nader. But part of his effectiveness came from his anti-market stance against large corporations. Nader had a broad following that no liberalizer of organ sales, cap and trade developer, or proponent of quadratic voting could ever hope to achieve. Intellectual advocates for antitrust enforcement and reducing inequality can often rely on popular support, unlike the neoliberal who rallies against occupational licensure. The fate of the Policy Analyst Market is a case in point of public hostility towards market.
There are countless examples throughout history and worldwide where governments and intellectuals justified a “democratic” take over. But in our current age, freer markers will have to be designed by experts. As Karl Polanyi stated: “laissez-faire was planned, planning was not.” Until there is mass economic literacy, freedom needs to be planned.