Hamstrung by a Partially Free Market

Focus: MARKETS

Free markets are great in concept, but unfortunately governments find a way to get involved and all the efficiencies go out the window, notes Terry Coxon of Casey Research.

Absent the state's involvement in the workings of the marketplace, an investor's central task would be to evaluate companies for their ability to efficiently produce and market what customers want. Shrewdness at that one task would lead to the profits investors are looking for.

And there would be other consequences. The stocks of companies that succeeded in convincing investors that they had the right stuff (primarily through good performance) would be bid up. Stocks of companies that failed to make their case to investors would tend to drift down, and any company whose stock drifted low enough would become a takeover target.

A takeover would replace underperforming management with a new team of officers and directors-individuals picked by the people who laid out their own money to buy enough shares to control the company.

That's how things work when the government isn't a player in the process. It's a marvel of efficiency and impartiality.

Managers who serve investors by serving customers are rewarded. Investors who identify such managers are rewarded. Unskilled managers eventually lose the corporate positions that enable them to make wasteful, money-losing decisions. And investors who are blind to management weakness or who forgive it too willingly lose their own money.

That's how it works when government is absent. But year by year, government has become less and less absent.