A free market and democracy are pretty much the same thing, we are told, because markets enfranchise consumers in ways the ballot box cannot. Milton Friedman – the Libertarian Jesus – explained this theoretical phenomenon in his 1962 book Price Theory, describing it as “proportional representation that permits every group in the society to express its wishes to the extent of its dollar votes.”
But just how valid is this theory and should a man who counted Chilean dictator Augusto Pinochet amongst friends really be considered an adequate spokesperson for democracy? While it might apply to a main-street model of free market economics, it certainly doesn’t apply to Wall Street’s version. In a highly liberalized economy, consumers can’t make informed decisions; some corporations thrive on deception, tricking consumers into thinking that they’re upstanding citizens when the opposite is true, and others profit from “dollar votes” even though their involvement in markets remains hidden from the public.
For example, consider the role that information and choice – two key tenets of democracy – play when deciding how Friedman’s “dollar vote” theory might apply to social justice warriors Goldman Sachs. Although the PR firm YouGov indicated that the public took a more negative view of Goldman than BP even after the Deepwater Horizon catastrophe, organizing a consumer-level boycott of Goldman, or any Wall Street investment firm would be impossible. Consumers simply have no way of knowing which pies they have their thumbs in.
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The unsuspecting shopper could, theoretically, be supporting Goldman by buying Coca-Cola one week; the next he or she could be contributing to their billions in profit by purchasing Pepsi. Realistically, the firm could own a stake in both brands, the extraction of the raw materials used in the product’s making, the shipping company that brings it to the market, the retailer that sold the drink and the commercial real estate developer who leased the property to the retailer. Even if “dollar voters” would prefer that they weren’t “electing” enterprises that they find repulsive, they have little say in the matter. “Simply by your regular shopping, you are gong to be connected to Goldman (and other large investment banks) in one way or another,” Arthur MacEwan, Professor Emeritus of Economics at U-Mass Boston and co-founder of the blog Dollars and Sense said.
“Moreover, there is no way that the individual consumer in her or his normal operations can boycott Goldman,” he added. If consumers were to obtain a list of Goldman’s assets, it would be constantly changing. Even in the one market that Goldman has arguably had the most impact on Joe Schmoe – the mortgage market – its not as if Mr and Mrs Schmoe chose to put on their best clothing and head down to their local (non-existent) Goldman branch.
“In these indirect connections to Goldman Sachs,” MacEwan said, “the individuals who have taken on the mortgage have no say in establishing this connection.”
Thus consumers can do little to avoid “dollar voting” for banks like Goldman, even after discounting the billions that the firm received courtesy of the American taxpayer in the rigged economic election that was the AIG bailout .
To counter that message of resistance-as-futility, enough concerned citizens could conceivably appeal to the Goldman’s corporate and government customers to stop doing business with it; if they could ascertain who all those customers were.
On the other hand, one of Goldman’s slightly-less-evil competitors would most likely fill the void. Under the current set of rules governing finance, a shadowy Wall Street will continue to earn money off of mostly unwitting (sometimes unwilling) Americans. Not even those amongst us who keep their money in credit unions and shop at farmer’s markets can be sure that they aren’t contributing to Lloyd Blankfein’s bonus. Unless significant comprehensive financial reform includes transparency measures (McEwan described the most recent bill as “tame” but expressed hope that it represented a watershed moment) financial firms will continue to earn “dollar votes” through means that do not come close to resembling proportional representation.
If this is democracy, then perhaps the best argument against the system isn’t’ a five minute conversation with your average voter, as Winston Churchill once said, but rather a stop-and-chat with your average orthodox economist. Even unapologetic capitalists and libertarians who consider criticism of Goldman to be unjustified for whatever half-baked reason should feel uncomfortable that consumers lack the information required to boycott financial firms.
Aren’t free markets supposed to be based upon the idea that the consumer is the kingmaker? How can there be an “election” in which “voters” don’t even know for whom they are voting? Whatever you call our economic system, it isn’t democratic. Not even by Friedman’s low standards.
This piece was originally posted on urbanpolitico.com. Follow Urban Politico on Twitter: @anurbanpolitico .