Hi guys just wanted to write this article to dispel the misinformation that Free Market and Laissez Faire Capitalism are similar or the same.
It has come to my attention that certain American (esp. finance & crypto focused) Youtubers are openly promoting this myth usually by starting off complaining that the US economy has became what it is today where financial magnates, powerful corporations and influential politicians are leeching off the energy and capital off the backs of the innovative, hardworking individuals and that less regulation is needed NOT more in order for the economy to return back to normalcy. However, what I'm about to write cannot be further from the truth. In the book titled "America's Free Market Myths --- Debunking Market Fundamentalism" written by Joseph Shannon explains the true meaning of free market capitalism.
Under "Myth 10: Free Market and Laissez Faire Are the Same",
"A free market’s distinguishing characteristic is the lack of government intervention. Government involvement destroys free markets. Bans on various types of economic behavior, including those intended to protect competition, go against free market principles. Government is easily corrupted and works on behalf of powerful interest groups therefore is not the most suitable institution to safeguard competition." -J. Shannon(2017)
Whereas the reality is as such:
"Competitive free markets and laissez faire are not interchangeable. Proponents of laissez faire oppose government intervention even to protect a market. Therefore, their concern is not the preservation of markets but the prevention of government involvement; two different concepts. It is not coercion that concerns them because they have no objection to coercion imposed by private parties even if it leads to the destruction of a market."
-J. Shannon(2017)
Sounds familiar? I do not wish to name names but it seems to me that
certain crypto YouTubers and influencers like Crypto Tips, Altcoin Daily etc... are promoting their Laissez Faire style economic ideology under the guise of "preserving the crypto free market". And the same influencers are left wondering:
"why Bitcoin and crypto are no longer in the bull market?"
"why Cefi companies like Coinbase, Celsius, 3AC, Voyager, Hodlnaut are pushing for privacy invasive KYC, misallocating users' funds for shady business practices(eg. unsustainably high yields, paying off their employees)?"
and many other kinda obvious questions
Guess what? They didnt know that these are the symptoms of the current Laissez Faire style crypto industry. And their solution to this is more of the same. Are you kidding me?
Its like saying to a hungover person that the solution to getting rid of that hangover is to drink more alcohol.
Though I understand that US crypto regulations are as punitive as their national legal code(as can be clearly seen by the actions of the SEC), however the solution to this problem should not be less or no regulations. But rather, better researched & more well guided regulations like Germany's recent abolishment of their infamous 10 year "staking law" and regulations allowing companies and institutions to invest into crypto.
Shockingly, these same influencers are also spreading myths like "Deregulation always improves industries esp. when it comes to the crypto industry"
Again as J. Shannon points out in Myth 4: Deregulation Always Improves the Economy
"Myth: Deregulation always improves the economy’s efficiency. Industries protected from competition, from the need to innovate and reduce costs would have to deal with the uncompromising realities of the market – the true test of efficiency. Deregulation represents a move toward free markets. It spurs the economy and raises productivity and eventually living standards.
Reality: Deregulation does not necessarily improve the economy. Often the motive behind deregulation is greater profitability yet not from reduced costs, innovation or more competition but rather from market power or rent seeking activities. Economic deregulation did not lead to an economic boom; it worked in some industries(eg. traditional financial industry) but in others a competitive outcome did not materialize. Financial deregulation turned out to be a disaster."
-J. Shannon(2017)
What we clearly noticed since 2017 was apart from the dominant cryptos like Bitcoin(Lightning Network in 2018/2019) and Ethereum(The Merge in Sept. 2022), there hasnt been much improvements in terms of innovation or more competition but rather crypto corporations profiting massively from market power or rent seeking activities, leaving the retail investors like you and I dumbfounded. Sure there is some form of reduced costs but that usually involves creating more (useless or underutilized) altcoins just to fill in this gap and not whole hearted reform with the exception of Ethereum 2.0
The very reason why the US is currently trapped in this massive conundrum is due to large corporations through lobbying and donations have gained control over politics. When the economic sector influences the selection of political candidates, their election, the issues voted on, and the information presented to the public, one has to wonder about the label democracy. Political influence and the ensuing rewards are neither democratic nor efficient because the loss to the nation often exceeds the gains to corporations.
Therefore, what I'm proposing is rather a well-informed, guided approach when it comes to regulation. Not to the extent of Mainland China or N. Korea where the governments exercise huge influence and control over businesses.
Rather, the European style (not the EU) approach to regulation whereby rational, calibrated approaches by the individual nation's legislature helps to foster innovation, lower costs and flourishing of a crypto sector in the economies while simultaneously reducing shady business activity, scams that have long plagued the industry. Portugal, Germany even Russia and Ukraine are following this route.
Which is why many Laissez Faire promoters dont usually like European nations(except for "shitholes in the Balkans or Baltics"). They rather like to visit countries where it more or less are in line with the ideologies and/or the relative "ease to do business" in those countries. Nothing wrong with their personal decisions but I suggest not to promote it as "Gospel truth" to their not so informed audience.
Thanks for taking some time to read my latest blog post.
Next week, I shall be writing about Constitutional Monarchy and how its one of the best and stable forms of government. This article is in response to republican(not in the US political context) sentiment against the monarchy in the wake of Queen Elizabeth II's recent passing.
Stay tuned...
Source: America's Free Market Myths
Debunking Market Fundamentalism by Joseph Shannon (2017)
for more infomation, pls visit: https://link.springer.com/book/10.1007/978-3-319-50636-4