Free Market Failure?

Oliver Willis asked what my side of the blogosphere would think about this post. What initially caught his eye was the following passage from Reefer Madness.

We have been told for years to bow down before "the market". We have placed our faith in the laws of supply and demand. What has been forgotten, or ignored, is that the market awards only efficiency. Every other human value gets in its way. The market will drive wages down like water, until they reach the lowest possible level. [snip] No deity that men have ever worshipped is more ruthless and more hollow than the free market unchecked; there is no reason why shantytowns should not appear on the outskirts of every American city.

My initial reaction is that the market rewards much more than efficiency, it rewards innovation, aesthetics, safety, and lots of other things that may or may not be linked to efficiency. The most efficient things are not always the most profitable. For example, Fetzer vineyards are conscious of more than profit, yet are still financially sound. So what I would say is that Eric Scholsser is simply wrong.

The comments Oliver goes on to make, that unchecked capitalism can lead to collusion etc. is true. I have always said that I support government regulation when it is 1)needed to correct negative externalities or 2)indirect yet beneficial. An example of the latter would be if the government requires more disclosure of information, but doesn't impose any direct regulation on a company or industry. More information means better decision making and a more accurate market price.

What the left sometimes forgets (and the right too, when it comes to the vice industries) is that markets arise for things people want. If you don't want to support Microsoft, buy a Mac or use Linux. If you despise Wal-Mart's practices, don't shop there. That is capitalism and that is great. We usually associate capitalism with profit, but it doesn't have to be. Profit is just what most people choose to seek. It is totally legal and within the boundaries of capitalism to set up a company and pay your workers double the market wage. If you are the sole owner of a company, you can do whatever you want. But think about this – if a guy cuts your lawn and asks for $20, do you give him $40? Sure, a few people out there will, but most people won't – even most liberals. They won't do it on their own, yet they pity the plight of the lawnmower who lives on 20K a year and thus want to pass a law forcing everyone to pay $40 for lawn service. That just doesn't make sense to me.

Feel free to add your thoughts here, or over at the original post.