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October 28, 2008 • 15 mins

Prices in a free market are determined by the law of supply and demand, yet the US government has recently given billions of dollars to rescue large corporations. Check out this HowStuffWorks podcast to learn whether or not the US is still a free market.

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Speaker 1 (00:00):
Brought to you by the reinvented two thousand twelve camera.
It's ready. Are you welcome to stuff you should know
from house Stuff Works dot com? Hey, and welcome to
the podcast. Hi Chuck, Hi Josh. How are you doing?
I'm great, man, How are you? Okay? I'm all right. UM.
I know for a fact that you are fully aware

(00:21):
of the seven billion dollar bailout. So don't say you're
not the what the seven dollar bailout? The seventy dollar bailout?
If only? Yeah, yeah, here's you are aware. Sure, I'm
somewhat politically inclined. That's good. That's good. So, UM, I
was watching uh an unnamed TV cable news network which
is called CNN, an unnamed one, and um, basically, uh,

(00:45):
I was watching basically just coverage of this bailout what
it means all this. I'm hooked on the bailout. Okay,
if you haven't figured it out by now, I just
I eat information up right, you should get a T shirt.
I'm hooked on the bailout. I'm hooked on cash cary. Right. Yeah,
So I was this this one commentator, this one pundit
um was saying, so long free market, and I was thinking,

(01:08):
you're stupid, you're a stupid person because we don't have
a free market. Did you know that? Well, of course
I do. We never had a truly free market. Well
maybe and early on, yeah, in the early heady salad
days trading America. Yeah yeah, I'm whiskey right, or bracelets
and trinkets first for large tracts of land or hemp.
That was a big one early on s Yeah. So

(01:30):
um yeah, I'm I'm glad to hear you say that.
I find it refreshing most people when you say what
kind of economy does the United States have? They say
it's a free market economy. And that's just false. And
let's talk about why it's false. Let's do it. I
think we should. Um, so basically the one Well, how
about this. Let's describe a free market economy under the

(01:52):
capitalist system, and then we can say this is why
the US doesn't have one of those. Okay, all right,
so you know who the fought their capitalism was right? Yes,
Charles Darwin? Darwin, Yes, you know, terrible Adam Smith economist,
extraordinary and this guy was working from nothing, right, this

(02:13):
is all just out of this guy's head. He was good. Um,
he actually wrote The Wealth of Nations, uh in seventy
so it can't. Yeah, exactly. So the US is like,
what kind of economy we should we should we have?
What are they doing over in Scotland? They heard about
this Adam Smith fella. They bought hom over boughttom dinner

(02:33):
and he told them everything they needed to know. And
it's a great theory. Capitalism in theory is great, Okay.
So basically, when you have a bunch of people that
have a bunch of products that the there's the supply
outpaces demand, prices come down exactly. It protects just the

(02:53):
average consumer like that when you know, when when demand
is high and supplies kind of low, um, then companies
are protected. And it's this constant swing back and forth
between protection for consumers and protection for producing system checks
and balances, and ultimately whichever one is benefiting at any

(03:15):
given point in time, everybody benefits because if you have
if you have demand high, then you have companies who
are just working away at making stuff. Jobs are up.
Production is up exactly. And and another point I made
in this this article is that um, these companies pay
taxes so indirectly, even people who can't get employment are

(03:38):
being helped through government funded, taxpayer funded social programs. So
everybody is doing really well and capitalism employees are probably
paid even more to yeah when demand is high. Yeah,
now there's some there's some natural checks and balances that
are built into the capitalist system, like, for instance, um

(03:59):
capital the kind of demands that companies keep wages low.
You're trying to maximize profits because capitalism foster's competition. Right,
You've got a lot of people out there competing for
that consumer dollar that you you want to compete, and
you want to keep your business efficient and trimp. One
way to do that is to pay low wages as
low as you can get people to work for. Right.

(04:20):
But Smith pointed out that if you pay people slightly
higher wages, they're going to be able to and this
is so eighteenth century, They're going to be able to
feed themselves better, and thus they'll be sturdier and be
able to work harder, and all of a sudden, you're
you're more efficient. You can extrapolate that into other terms,
that a better paid employee should be theoretically a happier

(04:43):
employee who will work more, be pro be more productive.
That kind of right, I've seen that firsthand. Actually, as
a quick aside, I worked at a Stowe Mountain park
here in the great state of Georgia for many years.
We had a laser show still do, and I sold
as I think, you know, the glow in the dark necklaces.
I had no idea I did. I did that for
five summers. Man, and the guy it actually wasn't a

(05:04):
park employee job. It was a private contractor that did this,
and he paid us on commission. He paid the sixteen
seventeen year old kids on commission. And man, we made
I made more money than than I do. Now you're kidding, Well,
if you factor in bills and things, absolutely you must
have been quite a hustler. And yeah, but that's that's
the long story short as we all worked our butts

(05:26):
off to sell as many as these things we could
for this guy because we made more money. And in
the meantime, the park employees were schlepping popcorn and candy
and stuff. They're all sneaking behind the bushes and smoking
cigarettes and making out and Stuffy didn't care. They didn't
care exactly, which kind of brings us to our point
down the road, which actually we shouldn't get too quite yet,
because we're not done talking about capitalism. Let's put that

(05:49):
segway off and we'll pick it up later. Yeah, it
sounds good at me. Okay. So um, so this is
all bright shiny capitalism, right. Uh. The problem is is
when you factor in like the competition, uh, and the competitiveness,
you actually come up with a a survival of the

(06:10):
fittest scenario. Darwin told you he factored in exactly. He's
not the father of capitalism, but man, is he ever important.
So you get all these companies competing, and then there's
this thing called a correction. We know and love it
as the word recession, okay, and all the recession is
a decline in productivity. And the reason these declines happen

(06:32):
is because you got you have too many poorly managed companies,
You have too many bad investments so I don't know,
like a mortgage backed security or something like that. You
have all these things basically coming up the works, and
they actually drag the market down. When the market goes
into recession, these poorly managed companies and bad investments can't survive,

(06:55):
so they actually slough off. It's kind of like a
recession to capitalism is like a forest fire to the woods.
You've got these raging fire that burns out all the undergrowth.
It gets rid of the pests and diseases and pestilence
and all that, and then the only thing left standing
are these huge old trees that are allowed to flourish

(07:16):
and grow exactly and then eventually the cycle begins again.
The undergrowth comes back, and so the pest like what
we've seen with the Internet, actually the big Internet boom
that you know, everyone their brothers started a website, a
start up and the eight I'm sorry in the nineties,
and uh, same thing happened there. The giants like the
Amazon dot com, so they stuck around and all the
other ones fell away. So that was kind of a

(07:36):
self correcting thing to right, that's the same thing. The
reason that giants like Amazon dot Com stuck around is
because they proved their worth to the economy. They provided
a valuable service that the consumers judged, Hey, we like this,
we want this, We're gonna give it our money. So
Amazon survived. Other ones they were bad ideas, for better
or worse, they didn't appeal to people, so they fell away.

(07:57):
That's exactly what we're going through right now. The recession.
This makes me think of recession is actually kind of cool.
It is, it's a very natural component of capitalism. Here's
the thing capital capitalism in the United States, it's not
It doesn't have the full faith of the US government. Normally,
when we hit a recession, the government goes into socialist mode.

(08:19):
We start buying stakes and companies and start, you know,
flooding the market with with all sorts of money and
adjusting interest rates, that kind of thing. So here's where
we enter how the US is not a capitalist, free
market economy. I love the examples he used in this
article too, because I don't think many people ever think

(08:41):
of these is bucking capitalism and the free market, but
it's exactly what it's done. Yeah. Well, the obvious one
is the SEC security, the Securities Exchange Commission. Yeah, and
basically they watched the stock market. And the reason the
SEC exists and and I say in the article, the
only reason why, or the the very fact that the
SEC he exists. It shows that capitalism in America isn't

(09:03):
based on a free market economy. Um. But the reason
the SEC exist is because in the US, for a
hundred or two hundred years almost uh, this capitalist economy
eventually devolved into its worst form of itself. You had
like Robert Barons that were, you know, as Iron ran
the novelist. Capitalist novelists would argue, these titans of industry

(09:30):
helped build modern America and modern America's economy. But as
somebody who was maybe you know, happy with labor, on
the side of labor would say, yes, they did, but
they built it through the direction of the suffering working class,
on the backs of the working class exactly. So you
you've got two sides of the same coin. And ultimately,

(09:51):
if you look at the federal government's track record, they
usually side on, you know, the suffering, alleviating suffering of
the working class. They're like, thank you very much, Robert
Baron for endowing this entire city, but you know, we're
gonna have to step in. And they had the Securities
and Exchange Commission was a big one. What else is there?

(10:11):
Uh I know, another one was the UM. Well it's
the government getting involved in big companies like Carnegie Steel
and Standard Oil, and the railroad's union union, Pacific Railroad
and uh, big major corporations that all of a sudden,
the government was getting putting their finger in their pie
and saying, you guys got a little too much power.

(10:32):
We need to step in and kind of regulate you
a little bit. Yeah, because that competition from a hundred
plus years of unread unregulated capitalism led to some really
nefarious business practices like um, you know, corporations saying that
they had uh, saying to their investors that they'd made
you know, seventeen billion dollars or back then, seventeen million

(10:56):
dollars and profits, but turned around to the government and
called or you know, wrote off eleven million in losses.
Things like that, So you create the sec or monopolies.
Monopolies were the first one, Like you said, the railroads
and steel companies all that they had too much power
and they were all basically running the show in their
their industry. If you wanted steel, you had to go

(11:18):
to this one company. If you wanted oil, you had
to go to this one company, so they could set
whatever prices they want. And really the first appearance of
government regulation into the free market was the Sherman Antitrust
Act of eighteen what okay, good enough, but that was
that was hardly the end. You've got um food packagers, right,

(11:39):
the f d A in itself is sort of you know,
sort of the same thing, well big time. I mean, really,
under a free market system, somebody should be able to
put as as many you know, rat excrements as possible. Yeah,
you and I know that there's a very finite amount
that can be allowed in there. Um, So the f
d A regulates business, it interferes with the free market.

(12:03):
The same thing with the Federal Trade Commission there. They
were actually created to encourage competition among corporations and prevent monopolies.
Like that's pretty much their soul, their sole reason for existing,
even the very idea of setting a minimum wage is
the government getting involved in the business. Yeah, it really isn't.

(12:24):
I Mean, it took a lot of a lot of
labor strikes, a lot of violent clashes with police, the
anarchists were coming up and for a little while there,
um and and basically ultimately government fell on the side
of the people. If you really look at it again,
the federal government's track record over the last hundred or
so years, they've ultimately sided with the people. I encourage

(12:46):
you to look at the record, my friends. Yeah, the
records out there. I mean, it's it's in the faces
of the of the happy employees at the FTC and
the FDA and the SEC. You go look those people
in the eye, and you can think the government cares
about me. Yeah. So, so what do we have though?
If if it's not a free market, what would you
call it? I would call it a managed economy? And

(13:08):
I wouldn't be the only one to call it that.
You didn't come up with that term, I didn't. Um,
it's a managed economy is basically what it's what we have.
You have like a free market, but then there's some
government regulation and oversight and hopefully in all the right places. Yeah.
So the next time somebody asks you what kind of
economy does the United States have? Don't say free market?
Don't you say we have a managed economy? Right? And

(13:32):
if they want to know what you're talking about, tell
them to go type in is a free market free
if it's regulated? On how stuff works? Dot com? And
then punch him in the head exactly and stick around
to find out where Chuck got his current gambling problem.
But first, so Chuck, where's your gambling problem? Cover? I've
seen you. I made like a hundred and fifty bucks
off you during this podcast. How where's it from. Well,

(13:55):
as you know, Josh, I have the jimmy legs. I
have the jumpy legs I have I think the technical
term is uh r l S. Restless leg syndrome is
kicking you as we speak. It hurts, but it goes
a long way to write. Well, Josh, I have this
uh this uh malady, and I'm on some medication to

(14:17):
help control my my jimmy legs. And that medication is
a side effect, and one of them is a compulsive
activity like gambling. Yeah, so I had the jimmy legs
and next thing you know, I'm like heading out to
the Cherokee, North Carolina every weekend to gamble. That's great. Well,
you know, if I had a kid, I'd say, you're
putting it through college. What's what's this medication? Uh? Well,

(14:37):
I can't divulge the name on the air, but it's
cured my jimmy legs. But now I'm I'm way in
the hole. That's great. The casinos, Well, thank you, big Pharma.
I'm gonna go spend this hundred fifty bucks on scratch
off tickets. Right. And you can read actually about this
and at a very cool article called The Top ten
weirdest uh side effects of drugs that you can take

(14:57):
to make you feel better, also known as Top ten
weird prescription drug side effects. You can find that on
how stuff works dot com. For more on this and
thousands of other topics, visit how stuff works dot com.
Let us know what you think. Send an email to
podcast at how stuff works dot com. Brought to you

(15:19):
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