Free Market Caveats

I want to rant a bit on some of the edge cases of capitalism. Socialist politicians love this stuff, because they can say, "see, see - capitalism doesn't work here". But capitalism is still the best system I know of for the real world, and hopefully this will help you argue around the edge cases.

List of Problems:
Monopolies
- natural monopolies
- competition
Externalizations (tragedy of the commons)
Charity

Monopolies
Natural Monopolies
There are two main problems with monopolies: natural monopolies and competition. I define natural monopolies as: any industry that is impractical to reproduce. These are things like streets, gas, electric and water infrastructure, security (police, military). It's just silly to think that there should be at least two roads between every two destinations, two or more power lines going from an electric power plant to your home, etc. Imo, these rare industries need to be wholly owned by the government, but maintain a close parallel to a competitive market (no "free" electricity). I also think those industries should be owned at smallest appropriate level: town streets owned by the town, inter-city highways owned by the state, no roads owned by the national government (though interstate air travel should be run at the national level). The inefficiencies and corruption that occur in government run enterprises are offset by the impracticality of duplication, though border case industries might continually cross the line when managed by very inefficient or very corrupt governments.

Competition
Most goods and services do not fall under the above "natural monopoly" definition. Think clothing, cars, food; and yes, even medical services. The best way to serve the population here is through regulated competition. If you're in the market for a new car, you read up on several different models, take a few for test drives, figure out your cost/benefit estimations, and pick a car that fits your needs. Regulation is in place to keep the car companies honest: they don't display false advertising, they don't employ child or slave labor, they don't sabotage other companies, etc. If a company becomes very successful they may drive their competition out of business (think WalMart) - and this also becomes a problem for capitalism. Unfortunately, the government should also step in, in these situations, to re-introduce competition in the market. So long as there are at least two competing companies (who have not formed a cartel), the government should not intervene.

Externalizations (tragedy of the commons)
The tragedy of the commons, briefly, is the problem where, if no one owns a resource all will abuse and waste it until it is drained. Think global warming and air pollution. If you had to pay for the air you pollute when you drive your car you might drive less. This is the general goal of cap and trade: charge the polluters so they don't waste/abuse the resource. Unfortunately, the implementation of these tragedy of the commons solutions are prone to corruption, and even perfectly executed solutions usually have at least a short term negative impact on the economy. I don't have a better solution than fines/taxation for solving the tragedy of the commons problem, however, I do recommend using it sparingly and making sure the cost/benefit ratio is well on the benefit side of things. You probably won't see many complaints about cap and trade on this blog - even if it turns out to be a bad idea, there are bigger fish to fry.

Charity
Ah, the heartless capitalist. Liberals love this argument, and it gets them a lot of votes. Take hurricane Katrina. Everyone complained that GWB didn't do enough soon enough; or that he hates black people; or the poor; or Jazz music. BS. I don't want Washington involved in state matters. Those guys lived in a hurricane zone and had many warnings that their levy system was vulnerable: you reap what you sew. But, the American people are very forgiving and loving: I know people who went down there, people who volunteered their time and money. That's when America is at its best - not when we're guilted into something, not when the people of California have their taxes increased to pay for the sins of Louisiana, but when we volunteer and donate our labor and savings towards causes we believe in - that's when America shines. We can't do that, though, when our government steals our productive potential from us by interfering in the free market.