Both physics and economics begin with vast oversimplifications.
In physics, if an old lady gets run over by a bus, one begins by modeling both the bus and the old lady as if they were billiard balls.
Physicists begin this way because the math is simpler. And once the essence of the bus/lady interaction is thus understood in simple terms, additional complexity can be added to the model. The billiard ball representing the bus is assigned an appropriately large mass and high velocity. The billiard ball representing the old lady is assigned a low density and a high coefficient of elasticity. And so on.
Thus are physicists ultimately able to account precisely for things like gravity, friction, wind resistance, etc., ultimately producing a complex set of equations properly describing the entire bus/lady interaction. Even the margin of error is known and explicitly stated.
Of course, the initial model bears little resemblance to the real event it describes. It’s just a useful introductory mathematical construct. That’s all.
Economics begins its problem-solving in a similar fashion: If a neighborhood vintage clothing store (the old lady) is forced to compete with a new big box Gigondo-Mart (the bus), one begins by modeling both stores as existing in a perfectly free market. This is just an introductory analysis, however. A good economist will also attempt to account for things like economies of scale, brand loyalty, and the ability of a larger business to operate at a short-term loss in order to gain market share. An honest economist will also admit that models rarely account for the larger store’s influence over politicians, its preferential treatment from vendors, the ability of the larger store to subtly compel its employees not to patronize competitors, and the advantage of having financial resources large enough to discourage any potential legal action. And so on.
Consider in addition that virtually all large corporate operations are influenced by concerns not remotely related to any free market — the availability of public roads and airports, power and water, and other public utilities; tax advantages, abatements, loopholes, and concessions; the use of natural resources via government grant or subsidy; foreign labor and export markets opened or expanded through government intervention, either diplomatic, military, or both; etc — and the hypothetical nature of the free market becomes apparent.
Does the tobacco industry — or indeed agribusiness in general — exist in a free market? No. The mining and forestry industries? Of course not. The aerospace and defense industries? No. Oil? No. Transportation? No. And therefore, do any other business reliant on these fundamental industries operate in a truly free-market environment? No.
A single moment’s thought leads any reasonable individual to an obvious, if sometimes surprising, conclusion: that the Fortune 500 does not exist in a free market, never has, and never will. Neither does the US at large. In truth, the economy is a big, confusing, not terribly well-understood mixture of government and private influences which resembles the fictional free market about as closely as an old lady and a bus resemble two billiard balls.
Not that you’d ever find that out from mainstream business reporting, where the joys of this free market are extolled unquestioningly, as in recent reports concerning the current Seattle meetings of the World Trade Organization.
Established in 1995, the WTO is the international organization which enforces a whole big pile of existing rules regarding trade between its 135 member countries.
When you think of international trade, you probably think of boring school -book stuff like tariffs and quotas and whatnot, issues that rarely hit close to home.
That situation has changed.
Since the WTO was created, the rules also cover domestic issues like food and consumer product safety laws, environmental standards, and other things which previously were entirely the internal business of each member country.
If you like drinking clean water, breathing clean air, eating pure food, and using safe products, you should be interested in the WTO.
WTO rules allow countries to challenge each others’ laws. Suppose some French scientists decide that a chemical in German cheese is carcinogenic. As things currently stand, France can pass a law and ban the chemical, but Germany can then appeal to the WTO’s unelected, secret tribunal of three unaccountable trade bureaucrats, demanding to have France’s law declared an illegal barrier to trade.
The losing country has three choices: change the law, pay big money to the winning country, or face sanctions. In most cases, the losing country simply changes the law.
And now the bad news: Since the WTO’s inception, every single environmental or public-health law which has been thus challenged has been ruled illegal. Every one.
In its current form, the WTO merely functions as a mechanism by which multinational corporations can avoid and even abolish laws created by democratically-elected governments to protect their environments and citizens.
And even this is often called free trade.
Which is why leaders of the AFL-CIO and the International Confederation of Free Trade Unions are demanding that WTO ministers incorporate fair labor standards into the agenda. Tens of thousands of protesters from all over the world have assembled in Seattle, hoping either to pressure the WTO to incorporate human needs into its process or to disrupt the WTO altogether.
The streets of Seattle will likely be blocked on Tuesday in protest, and labor leaders are warning of a backlash around the world.
However, mainstream news reporting, which treats the free market (and its equally imaginary component, free trade) as sacred, seems unable to grasp why anyone would protest such a marvelous mechanism for human advancement.
Many of TV network news descriptions of the Seattle meetings could have been pulled directly from WTO literature. And the top WTO story on the AP wire as of this writing is focused not on the WTO at all — but on how the dispute might mar Seattle’s public image as a desirable tourist destination. The concerns of protesters are flatly labeled “far-fetched,” but “for every campaigner lying down on a sidewalk this week to protest the WTO’s efforts to reduce trade barriers, there is a happily employed Seattleite whose job depends on free commerce.”
In physics, vast oversimplifications are just a beginning; in economics, they’re the evening news.
Bob Harris is a radio commentator, political writer, and humorist who has spoken at almost 300 colleges nationwide. His new book, Steal This Book And Get Life Without Parole, is now available at Common Courage Press.