The Croupiers of Libertarian Free Market Thought

Individualism and self-interests have their place in society but do we really want this to serve as the predominant form of thought in a collective society?


There is a basic need for us all to understand our world as best we can.  We can only do so much by ourselves.  “No man is an island” John Donne wrote in his 17th century works, The Meditations, and that comment reflects that how we understand our world relies on how others see it to some degree and how we are linked to the other parts of our enclosed ecosystem.  We are all connected in such a fashion that what one person does or says on the other side of the world can ultimately impact others on the opposite side.  Time can also separate us from the actions or comments of someone who came years, even centuries before us.

There are times in the history of mankind that this is more apparent than at others.  Perhaps one of the most recent times was the economic crash we all went through back in 2008.  The ramifications that resulted from the actions of a few in the financial markets led to serious problems for millions of Americans and ultimately people around the globe that were both associated with that market and millions more separated from it by only a few degrees.

The damage can in large part be blamed on a sense of greed when some within the financial institutions deceitfully invested billions of investor dollars and family savings in toxic assets.  But there were many pieces to this puzzle.   The real culprit I think though lies within the view many hold about the so-called free markets.  To them, that world is a natural extension of the universe that says there is an invisible hand that will guide our lives by allowing people to pursue their own self-interests, a self-interests that is supposed to contain limits to prevent excesses that will hurt more people than it will help.  Robert Nielson laid this out beautifully in his recent blog post, Why the Austrian Business Cycle Theory is Wrong.

This belief was initially fostered with Adam Smith’s publication of the Wealth of Nations back in the 18th century and has been refined and expanded over time through the aid of people like Herbert Spencer.  In the mid to late 19th century Spencer used Darwin’s concept of survival of the fittest to defend mass accumulations of wealth by those who aggressively pursued their own self-interests back in the days of robber barons like Carnegie, Rockefeller and JP Morgan.  More contemporary devotees of the free market ideal have been the Russian emigre Ayn Rand of Atlas Shrugged renown, Chicago economist Milton Friedman and Austrian economist Friedrich A. Hayek, to name a few.

Inherent in this view is that left unfettered by government intervention, so-called free markets will provide efficiently for the needs of the world.  The fact that this belief has yet to be found full-proof has often been argued by free-market purist that no economy has ever had the opportunity to exist without some kind of government control.  But this admonition by such purist is not a condition of the theoretical view espoused by such people like Friedman, and even Hayek who felt there should be at least a “comprehensive system of social insurance” including mandatory universal health care and unemployment insurance.

The current mantra today by the crowds who claim to oppose all forms of government social services for the indigent and elderly as a condition of free markets falls into a narrower idealistic view held by Libertarians.  Scratch a free-marketer today and underneath you’ll find those who claim people like Ron Paul, Judge Jim Gray and the junior U.S. senator from Texas, Ted Cruz, are the true free marketers.  Such people and those who align themselves with them are and have always been libertarians.  Among their kind are wealthy entrepreneurs who have used their wealth to further foster the notion that all government is good only in how it promotes the self-interests of capitalist markets.  Everything else is to be rejected essentially.

libertarian free markets

Most notable amongst these so-called neo-free marketers are the billionaire brothers, Charles and David Koch.  Their astro-turf funded organizations Freedom Works and Americans for Prosperity have spread the false anti-government gospels to their membership as well as backing legislation and politicians that support eliminating labor unions.  Their handiwork today can be seen in how their protegé in Wisconsin, Governor Scott Walker, has pushed for and passed legislation to limit the power of that state’s unions.  The goal of people like the Kochs is to convince enough people that the government needs to be shrunk to the size where it can be drowned in a bath tub and then simply sit back and allow that invisible hand to works its magic. (Read John Paul Rollert’s discussion on the invisible hand of capitalism concept here)

Thank the gods however that their exist honest free-marketers who not only haven’t deluded themselves about such weak principles but teach their protegé the error of such thinking.  In an excellent essay by one such free marketer the wisdom of the market is cogently debunked.   The writer, a professed investment banker, M&A guru and economic and financial commentator, chooses to remain anonymous.  He (or she, I suppose) posts at his blog called the Epicurean Dealmaker, so we’ll just call him ED.

What caught my eye was how easily ED laid to rest the notion that many TeaParty types  hold about some divine design of free market mechanics.  One of Robert Nielson’s critics put it in its simplest form in a previous post of Nielson’s   by stating that Markets work best when mostly left alone.”  Contained within this shallow ideal is the vague notion that “markets” are separate to some degree from the human component and will always correct negative consequences “naturally”.  Libertarian free marketers are also notorious for asserting that if all people just work hard and put some of their earnings aside routinely, life will be secure for them and meet all their needs.  We alone are totally responsible for our fates. Tinker Bell could get rich off of the fairy dust generated from this archaic view in today’s complex global economy.

ED’s world of investment banking revolves around the free market that is worshipped among its staunch defenders so when one of their own says that “most of what happens to individual investment bankers can be boiled down to being in the right (or wrong) place at the right (or wrong) time”, chaos, not measured control is seen as the ultimate arbiter of free markets.

There is a mythos in investment banking, consciously cultivated by investment banks and believed in no more fervently than by its recent recruits, that my business is a purely meritocratic one. It is how we attract so many of the “best and brightest” to the industry in the first place. It is the mantra we drum into their heads in every recruiting interview, performance review, and compensation discussion: Be smart, aggressive, hardworking, and a team player, and you will succeed beyond the dreams of avarice.

But stated this way, this is bullshit. These traits may arguably be necessary, but they sure as hell aren’t sufficient.

Luck—good, bad, indifferent—plays a huge role in anyone’s success in my business. So much of what affects what investment bankers do is beyond our ability to control: the state of the markets, the path of the economy, the success or failure of our clients’ firms compared to their competitors, changes in the regulatory environment, the hiring or firing of personal friends or enemies in decision making roles at clients and potential clients. These are just a few of the boons or impediments which can deliver success far beyond our deserts, or scuttle years worth of unpaid work and preparation in a single afternoon. And this is just business as usual. Forget huge secular tail or headwinds like the Great Moderation and the Housing Bubble or the Panic of 2008 and the Great Regulatory Unwind we are living through today.

In both cases, the good and the bad, most of what happens to individual investment bankers can be boiled down to being in the right (or wrong) place at the right (or wrong) time.

Robert E.A. Farmer, Distinguished Professor and Chair of the Economics Department, UCLA, expands on this view as he explains why “financial markets cannot work well in the real world except by chance.”

Markets are creations of human activity and the notion that they work independently well is simply not grounded in reality.   Greg Smith a former executive director at Goldman Sachs illustrated this in his NY Times Op-ed piece stating why he resigned that position when he realized that the toxic culture at Goldman and other financial institutions had become as “destructive as I have ever seen it” from their greedy pursuit of making money for themselves rather than putting the interests of their clients above everything else.

 StockMarketTheRideAnyone who has money tied up, as I have, in an IRA or money market fund, has seen the roller coaster ride their investment has gone through.  Losses and gains are now based on what computerized models surmise about the global economy and as a result swings occur wildly day to day, and often hour to hour.  Losses come more often and gains rebound more slowly.  For wealthy investors who have plenty to lose under such conditions, this doesn’t pose a threat to their security, as long as they are not reckless.  Such people often have developed marketing skills that anticipate when and where to put their money so that losses are minimized.  The average American however relies on brokers in their 401k and individual IRAs, who themselves are often victims of a volatile market that as ED notes, relies on luck, not skill.

This imagery is not unlike that of the card dealer or croupier who takes our money in gambling casinos.  We are enchanted with the prospect of making big bucks if we play our cards right or the role of the dice falls in our favor.  The sights and sounds of the casino are exhilarating and similar to what many brokers on the NYSE floor experience.  Their enthusiasm is contagious and we are drawn into their world of quick riches with only a hint of risk.

Concealing the fact that the deck is actually stacked against not only the gambler, but the unexperienced investor, those who get caught up in the fantasy only really see what they want to see and hear what their ideological heroes at the libertarian think tanks tell them.  It is too late when they come to realize that that which diminishes their value as humans and deprives them of their financial security is not the crushing hand of government as Mitt Romney assured voters during his presidential campaign last year, but is in fact that imaginary invisible hand of the markets that men like him have been able to manipulate for their own self-interests.


Is this how you want to risk your retirement security?

15 responses to “The Croupiers of Libertarian Free Market Thought

  1. The “free markets work best” claim is a smoke screen. What they actually believe is that “what is good for me is good for the country.” If they really believed that free markets work best when allowed to run free, why do they oppose labor unions? If things were working “best” there would be no need for them, if there were no need for them they would die off naturally. Instead, these assholes use “government interference in the labor market” to pass laws disadvantaging labor unions (a la Scott Walker) which they claim has no place in a free market system. Could they be more hypocritical? I think not.

    • What they actually believe is that “what is good for me is good for the country.”

      Yes, and when it works against them personally, it’s the gubbermint’s fault.

  2. “but is in fact that imaginary invisible hand of the markets that men like him have been able to manipulate for their own self-interests.” There will never ever exist a “free” market. Those who operate solely from greed and self-interest will manipulate the markets to allow only a few to benefit from whatever this “free” market would offer. We can’t restate that enough. Greed. It’s the fundamental flaw in this ridiculous notion that we don’t need government regulation of Wall Street, banks and other financial institutions. The Libertarian view of anything is a plague on our society. I pray that this lunatic, greedy small fringe becomes so marginalized that we can all laugh heartily at cartoons about them.

    Well done, Larry.

    • “I pray that this lunatic, greedy small fringe becomes so marginalized that we can all laugh heartily at cartoons about them.”

      Yeh! Do a reverse Norquist number on them and shrink THEM small enough so we can drown them in a bath tub. 🙂 I like it.

  3. Awesome post, Larry. I recently translated a BBC video series (for dissemination here in Brazil) detailing how Hayek’s ideas are gaining more and more attention today in Europe and the US. It made me shudder.

  4. Now, if only you can cram that excellent piece into 140 characters, you might reach the younger generations hooked on short, simplistic, statements like “free markuts is majic!”

    I can’t even express how much I hate economic Libertarians.

    One segment are the true believers. They’re the ones that have fallen in love -a blind love- with this philosophy they really do believe is the answer to everything. They live in a parallel universe where everyone is rational, where there are no power imbalances and everyone operates above board, where there is more than enough money and natural resources for everyone willing to earn it to live like kings…and that unicorns fly out from between the ass cheeks of newborn babies.

    Then there’s the stone cold fuckers who want to practice Economic Darwinism, to have moral cover for taking everything and letting the weak & stupid die off. What they don’t realize is that the weak & stupid don’t die off, they multiply far faster than they die off.

    • “What they don’t realize is that the weak & stupid don’t die off, they multiply far faster than they die off.”

      You know SM, these type of people have been around for some time now but always as minority. In the ’50’s we called them John Bircher’s. What they have today that they didn’t so much back then is wealthy billionaires with global corporate interests funding them to some degree to keep progressives and their support for sensible regulations off balance. They also have a corporate media that is more than willing to see give them air time as a false equivalent to the realistic and factual side of issues.

      • Birchers does ring a bell. I must look it up.

        It’s all so cruelly insane. We have the 1%, Bircher, types unconsciously (or consciously) promoting what amounts to extermination of the lower orders with moral cover & assistance from their top 10% allies.

        The joke is that, without death camps, it is an unattainable goal. Since these weak & stupid people breed like bunnies from lack of self control, earlier death or not, they slowly make up an increasingly bigger percent of the population. What’s ironic is that this goal is a goal the 1% themselves are sabotaging and a goal that they’d ultimately do themselves in with.

        These days, so much of the economy is driven by stupidity and weakness. The upper classes need masses of stupid, consumerist robots to buy themselves into crushing debt. That drives 2 income streams for the 1%: product sales and debt related income. As such, they do their best to make the entire public as weak & stupid as possible with a culture that promotes stupidity: attacks on public education, producing mind destroying entertainment, criticism of intellectual “elites” and an overall celebration of the stupid.

        In short, they create and depend upon the very people they seek to eliminate. And they’re supposedly the “smart ones”.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s