Debunking Free Market Fanboying

A funny thing about arguments that begin with "anybody who has taken macro or microeconomics would know..." is that anybody who has taken more than the introductory survey courses learns that the simple supply-and-demand graph is a model, not a law of nature.

"Free markets are regulated by supply and demand" is true in the same sense that physics problems begin with "assume a frictionless surface." It's a useful teaching tool. The trouble starts when someone looks around at the real U.S. economy and concludes they've found a frictionless surface.

The U.S. economy is full of barriers to entry. Patents, licensing requirements, zoning restrictions, immigration rules, noncompete agreements (where permitted), network effects, regulatory compliance costs, economies of scale, and large capital requirements all shape who can enter a market and compete. Labor markets are especially constrained. A software engineer in Seattle cannot instantly become a nurse in Dallas, nor can a machinist wake up tomorrow as a neurosurgeon. Workers have families, mortgages, licensing requirements, health insurance concerns, and geographic limits. "Just go somewhere else" sounds elegant on a whiteboard; it's considerably messier when actual humans are involved.

Likewise, modern economics has largely abandoned the assumption that goods are perfectly fungible. Most competition today is based on product differentiation. Coke and Pepsi. Ford and Chevy. Apple and Samsung. Nobody seriously thinks consumers view these as identical products and buy solely on price. Entire industries spend billions on branding precisely because products are not interchangeable.

The same goes for labor and capital. In many textbook models they can substitute for one another to some degree. In reality, they are complements as often as substitutes. Ten CNC machines without workers produce nothing. Ten workers without equipment produce very little. One worker and ten machine tools is not equivalent to ten workers and one machine tool. The real economy runs on combinations of labor, capital, knowledge, organization, and infrastructure.

And then there's the claim that government involvement inevitably creates corruption, poverty, and power games. That's a curious theory given that some of the world's richest and most prosperous countries have substantial government involvement in health care, infrastructure, education, labor regulation, and social insurance. Apparently the governments of Denmark, Norway, Finland, Germany, and the Netherlands forgot to read the memo explaining that they were supposed to be impoverished.

Capitalism has indeed generated extraordinary prosperity, technological innovation, and rising living standards. Few serious people dispute that. But that's not the same as proving that every labor market outcome is fair, efficient, or reflective of worth. If wages always equaled value, hedge fund managers would be saving lives. If wages always reflected value, we'd expect elementary school teachers to earn more than vultures who profit from foreclosures. Yet somehow the market keeps missing that memo.

The reality is more complicated than either side's slogans. Markets are powerful. Competition matters. Property rights matter. But introductory economics is the beginning of the conversation, not the end of it. Saying "supply and demand" settles every question about wages is a bit like saying "gravity" settles every question about aerospace engineering. Technically relevant, yes. Sufficient, no.

Response to Comments on "America First Global Health Strategy"

Friends,

Thank you for circulating this.

Having read the proposal and the accompanying comments, I find myself unconvinced on moral, legal, and practical grounds.

First, the moral question.

The central purpose of global health programs is to prevent disease, disability, and death. Programs such as PEPFAR earned bipartisan support over many years precisely because they achieved measurable results at extraordinary scale. When funding interruptions lead to treatment disruptions, vaccine shortages, or reduced disease prevention, the costs are not theoretical. They are borne by real people, often among the most vulnerable populations on Earth.

One can debate the structure of aid. One can debate oversight mechanisms. What should not be debatable is whether preventable suffering is preferable to promoting health care. A policy that reduces human survival in order to improve negotiating leverage strikes me as a strange definition of success.

Second, the legal question.

Congress appropriates foreign-aid funds for public purposes established in law. The traditional justification for these programs has been humanitarian assistance, public health, diplomacy, development, and national security. The proposal appears to replace those purposes with an explicitly transactional model in which assistance is conditioned on economic concessions or geopolitical alignment.

That is not merely a different administrative model. It is a different conception of what the aid is for.

If the objective is obtaining mineral rights, market access, or other economic consideration, we should be honest enough to call that a bargain rather than a gift.

Third, the practical question.

The proposal assumes that America's greatest comparative advantage is its ability to extract concessions. I would argue the opposite.

The United States became influential not merely because it was wealthy or powerful, but because other nations generally believed American commitments were connected to larger ideals and institutions. We gained influence by helping others, not by presenting every interaction as a property transaction.

The authors seem to imagine that replacing multilateral cooperation with dozens of bilateral agreements will somehow reduce bureaucracy. This is a fascinating theory. Most people who have ever tried to manage contracts would assume that one agreement is simpler than thirty-five agreements. Apparently the laws of administrative complexity have now been repealed alongside USAID.

Likewise, the suggestion that bilateral deals are inherently easier to audit than large established programs deserves some scrutiny. Creating a separate negotiation, compliance, reporting, and enforcement structure for each country is not obviously a recipe for simplicity. It sounds more like a recipe for additional paperwork, just distributed into smaller piles.

I am also skeptical of the claim that aid becomes more effective when recipients know assistance can be suspended for political reasons. Hospitals, vaccination campaigns, and HIV treatment programs tend to function best when they can plan more than one election cycle ahead.

Most importantly, this proposal misunderstands what made programs like PEPFAR valuable. Their purpose was not merely charity. They were instruments of soft power. They advanced humanitarian goals while simultaneously increasing American influence, goodwill, stability, and security.

To abandon a demonstrably successful soft-power strategy in favor of a system that resembles conditional commercial bargaining is an odd choice. It is rather like selling your house to finance the purchase of a lawnmower. At the end you will possess an excellent lawnmower and no house.

You have written that "only time will tell."

That is certainly true.

Time will tell whether countries prefer long-term partnerships or short-term transactions.

Time will tell whether influence is built through trust or leverage.

Time will tell whether America's reputation is strengthened by turning health assistance into a negotiation over benefits owed to the United States.

My own expectation is that nations will sign such agreements when they have no alternative, but will not mistake compulsion for friendship. History suggests that genuine allies are created by reliability, not by conditionality.

In the meantime, I remain persuaded that the older approach, though imperfect, saved lives, advanced American interests, and reflected values worth defending.

Regards,