Libertarian Market Policy Would Not Allocate Resources Effectively

Following the debate structure outline in Round 1, I won’t respond to Pro’s arguments against free markets, but will focus on a defense of free markets in general, and in particular the cricisms Pro makes of them in the argument we had in the forums.How the market allocates resources: In a market economy, the price system organizes production and exchange—it puts everything in its right place. Prices signal to businesses whether or not something should be produced—if the price goes up, and production of something becomes more profitable, the price signals that businesses should invest more there. Prices going down signal the opposite. High prices signal to consumers that something is scarce, and they should buy less—low prices signal the opposite. Same thing with wages—the price of labor. Low and high wages tell people which professions to leave and enter. The price of time—interest—tells businesses how much to borrow and savers how much to save. Prices also help move resources across space and time. What happens if apples cost more in Canada than in the U.S.? This signals to the market that there’s a higher demand for apples in Canada than here. So there’s a profit opportunity for anyone who can buy them here and move them to Canada—moving the supply where it’s more needed. Speculators serve a similar function—but across time, rather than space. If speculators expect the price of oil to be higher in the future—because there’s more demand or less supply, or whatever—then they’ll buy oil now and sell it in the future. Thus, they reduce the supply of oil now and increase it in the future, when it’s needed more.Prices are the only way a business can have any idea what to do. What’s a more efficient production process—50 hours of labor, 1 ton of coal and 1 ton of steel, or 20 hours of labor, 2 tons of coal, and 2 tons of steel? It’s impossible to say with just that information. But prices let us compare apples and oranges—we can see which is more costly by looking at the prices of each product. The only way to have real prices is laissez-faire. The subjective desires of consumers create the different demands for different products. The demand for those products creates demand for the different factors of production—raw materials, labor, etc. Competition among entrepreneurs to find the cheapest way to produce the stuff consumers want (50 hours of labor, 1 ton of coal and 1 ton of steel, or 20 hours of labor, 2 tons of coal, and 2 tons of steel?) determines the prices of those factors of production.Resources are getting more abundant:How can resources get more abundant? We have a fixed amount, and then use them up—surely that would mean resources should get more scarce over time, not more abundant. This may be true in a trivial sense—but not in an economic sense. The exact physical quantity of copper atoms on Earth is certainly finite—but that isn’t what’s relevant for human welfare. What matters is the available quantity of the resources we use. If we can find new resources faster than we use up resources, then our supply of those resources is effectively infinite. For example, look at the long-term trend in oil prices. We keep using more and more oil, and our demand for oil keeps increasing. But this doesn’t mean prices have gone up—they have in the short term, temporarily, but the long term trend is mostly stable prices. [1] How can this happen, if demand keeps increasing and the world’s supply keeps getting used up? It’s because we keep finding new sources of oil faster than we can use the old ones up. Same with copper, [2] and nearly all other natural resources. [3] The profit and loss system of the market ensures this. If, say, energy were to start to become more scarce, the price would rise, and selling energy would be more profitable. This gives people an incentive to find more of the fuels we currently use, or new sources of energy. For example, if the price of oil rose, we might start using more solar energy, if the price of oil rose enough to make it more expensive than solar power. Or someone could invent something completely different that we can’t even conceive of now. The limiting factor of growth is not the physical amount of natural resources, but our supply of the ultimate resource—the human minds to think up new ways to use the resources we have.The rich get richer, and the poor get . . . richer:Life expectancy in developing countries increased from 30 to 65 during the 20th century. [4] Infant mortality declined from 18% to 6% during the 2nd half of the 20th century. [4] Hunger in developing countries declined from 37% to 12% since 1970. [5] Even the cleanliness of the environment has improved over the long term. [6] But these trends are not the same everywhere—they’ve happened to the extent that countries were economically free, to the extent that markets were allowed to work. [7] Sub-Saharan Africa stagnates while the Asian Tigers get rich.[1] http://datamarket.com... [2] http://datamarket.com...[3] Baumol, William, “On the Possibility of Continuing Expansion of Finite Resources”, Kyklos, Vol. 39, Fasc. 2, 1986, pp. 167- 179.[4] UNDP, Human Development Report 1997 (New York: Oxford University Press for the United Nations Development Program, 1997).[5] Food and Agriculture Organization of the United Nations, “The State of Food and Agriculture,” Document C99/2 to FAO conference, 30th Session, Rome, Nov. 12-13, 1998. [6] Baumol, William J., and Wallace E. Oates, “Long-Run Trends in Environmental Quality,” in The Resourceful Earth, Julian L. Simon and Herman Kahn, eds., 1984, pp. 439-475.[7] http://www.freetheworld.com...