S&P short term cycle swings

[YoungQuixote]

The free market isn’t as efficient as all the brainiacs would like to think. Read on to learn more.

The effectiveness of cutting taxes to spur the economy is inarguable; it flat out works. There’s no doubt, in my lay opinion, that the fastest way to reestablish growth is through supply side economics; incentivize people to provide goods and services that are in demand. The only problem with that it doesn’t have any effect on what is in demand and that’s where things get uncomfortable in the good ole US of A.

The Achilles heel of the mythical free market is that while it is efficient at finding a solution, it is slow at defining/identifying the problem and it has no restraint. I call it mythical because the only true free market that exists is the black market and even the most hardcore yet still sane capitalist would agree that markets do need to be fettered to a certain extent. Anyway back to the heel, the free market only acts in two ways: either someone stumbles across a paradigm shift (Karl Benz invents the modern automobile; Henry Ford makes it affordable) or there is a monumental crisis (can’t think of an example perhaps because the free market has never solved a crisis).

I’ll look past the financial crisis in this discussion (caused by the free markets lack of restraint) and talk about energy in general and the automobile specifically. Energy has been a problem longer than I’ve been alive; first as a political problem (1973 oil embargo), then also an economic problem (1979 energy crisis), and now finally acknowledged as an environmental problem. The first two legs of the energy issue are less controversial but even if you don’t think climate change is anthropogenic, you must admit that its better to not dump pollution into the atmosphere. More than 1/3 of a century has passed since the energy problem was first posed and what has Pegasus given us on it own? Nothing.

In contrast we can see tangible effect on how regulatory requirements can define specific problems for the free market to solve as well as how the free market behaves when there is no regulatory demand for improvement. CAFÉ standards were first enacted in 1975 and the requirement grew from 18 mpg starting in 1978 to 27.5 mpg in 1985 and has basically stayed flat since then. The free market responded to CAFÉ by improving the fuel efficiency of automobiles by 46% in a 7 year period (18.8 - 28.8 mpg from 1978 -1985). When there was no economic incentive or regulatory requirement the market did nothing as one would expect (1985 - 2001). When there was only economic incentive the market drove a 5% improvement in performance versus a 66% increase in the price of gasoline (28.8 - 30.3 mpg from 2001 - 2006).

http://en.wikipedia.org/wiki/Corporate_Average_Fuel_Economy

The point of all that is that the free market lacks the vision necessary to solve the problems that the United States faces today. And that’s only on energy policy.