or Why I Have Faith in the Free Market

by Harry Browne

(Published in Liberty, September, 1998)

When the computer 2000 (Y2K) problem caught the public's attention a year or so ago, it didn't seem to be a libertarian issue. I saw it as a mundane problem (like trash disposal) that many companies would need to deal with, but I believed it had been puffed up by a few people who make their living writing about the apocalypse du jour.

But it is shaping up as an issue that illustrates the free market's superiority over government in responding to problems. Despite that superiority, however, the issue may expand government's control over our lives and enhance its ability to suppress economic growth.

As you most likely know by now, in the 1960s and 1970s computer programs that dealt with date information conserved computer memory by treating years as two-digit numbers. The year 1965, for example, would be stored as "65." Of course, such programs can't distinguish the year 1965 from the year 2065 a distinction that becomes important as the millennium approaches.

The most dire expectations assume that there are too many large, old programs still in use for the problem to be solved in time and that a few outdated computer systems will be sufficient to infect the data of other computers and cause them to crash when 2000 dates are entered, bringing on general chaos. Banks will close, stock markets will collapse, airplanes will fall out of the sky, elevators will crash at midnight on December 31, 1999, and on and on.

In a recent issue of Liberty, a writer said:

Is Y2K somehow a failure of the market? Yes, I think so. The market is self-correcting, not all-seeing. . . . Harry Browne seems to have allowed his confidence in free markets to blind him to the facts about Y2K and he asks you to stick your head in the sand with him. Ignore the Y2K problem at your own peril.

The writer never really explained why Y2K was a failure of the market. And I won't try to read his mind. But let's look at what this problem might teach us about the market.

Voluntary & Coercive Acts

Individuals act in one of two ways: either voluntarily, choosing among the alternatives available to them or under compulsion.

The free market is the result of all voluntary actions of individuals pursuing their own interest whether that interest is, at the moment, the pursuit of money, ego-satisfaction, entertainment, charity, or something else.

Although government isn't the only agency of compulsion, it is the dominant player in that "industry." Government is big, and every government activity forces someone to do something he doesn't want to do, prevents him from doing something he does want to do, or forces him to pay for something he wouldn't buy on his own. Every government program is backed up finally by men with guns.

If I were to say the market has failed, what would I mean? I can think of only two possibilities:

  1. People acting voluntarily didn't use the limited resources available in the way I wanted them to. They made different choices from those I would have made with their resources.

  2. Coercion could have made more resources available or used them differently

Overruling Choice

Politicians use the first meaning frequently.

According to them, the Family Leave Act (requiring employers to provide time off for employees to cope with births and other family events) was necessary because the market failed to provide family leave as a universal fringe benefit. But why hadn't it? Because, however much employers can spend to compensate their employees, they want to spend it in ways they think will keep their employees happy to work there. And they believed their employees preferred such benefits as group health insurance, long vacations, or even higher take-home pay rather than family leave. By forcing family leave on companies, the politicians denied the employees what they wanted most.

The market hadn't failed the employees; it had failed only the politicians.

Today it's implied that the market is failing because health insurance companies aren't reimbursing customers for Viagra even though doing so would run up the cost of health insurance for those who don't use that drug. So it's probably only a matter of time until some level of government mandates that health insurance must cover Viagra because "the market failed" to do so.

In the same way, some people see the Y2K problem as a failure of the market because businessmen haven't responded voluntarily to the warnings of Armageddon in the way the Doomsayers think they should. To the Doomsayers, it is a failure of the market that companies with limited resources, high taxes to pay, regulators to ward off, employees to care for, customers to please, and problems climaxing in 1998 and 1999 didn't focus exclusively on Y2K the moment the issue surfaced.

Utopia on Earth

The second meaning of the phrase "the market has failed" is the assumption usually unstated that coercion could have made more resources available at any moment in time, or put them to better use. In other words, a utopian solution was possible, but the market was incapable of employing it. Coercion could have made the best of all possible worlds a reality.

Because this idea is so patently false, the assumption is usually implied in a vague way but it's there nonetheless.

By this line of reasoning, it is a failure of the market if the residents of a town aren't fully prepared at all times for hurricanes, tornadoes, earthquakes, thunderstorms, and every other conceivable natural disaster as though some government program could have provided such protection.

Or it was a failure of the market that Henry Ford's factories weren't air conditioned, and there were no vending machines, TV, and microwave in the employee lounge. Or that Indonesia's factories today don't provide the same luxurious comfort found in the Department of Labor headquarters in Washington.

Or that somehow it was a failure of the market that computer memory wasn't cheap and plentiful in the 1960s.

But do we really believe that government coercion can add to our resources or employ them more efficiently? Or increase technological knowledge at any point in history? Could government have mandated the invention of air conditioning? Could government have developed computers faster than the free market did? If so, I hope someone will explain how that process works.

(In fact, the government's World War II attempts to develop computers came to very little. It was only after IBM and other companies took over the work that the field began to take off.)

The phrase "failure of the market" implies that the Y2K problem is something government could fix if only Al Gore were in charge of it. But I haven't heard of any government policy that could head off the Doomsday problems. In fact, the one thing on which people on all sides of this argument seem to agree is that, whatever happens in private industry, there's virtually no chance the government will be prepared.

Even politicians who lie awake nights thinking up ways to run our lives have made no suggestions other than to demand that companies file reports on their progress in handling Y2K problems.

So what solution has the market failed to adopt? If the market were perfect or "all-seeing," what would it have done to solve the Y2K problem a long time ago? And since the market isn't perfect, what additional resources would be available if the government had taken charge of the situation?

I doubt that anyone can provide satisfactory answers to any of those questions.

Miracles Do Happen

What I've said so far accepts the Doomsayers' underlying assumption that disaster looms just ahead, whether or not the market should have been able to avoid it. But in fact that assumption is almost entirely wrong.

Even as the market's antithesis government with the Grand Guru of Technology, Al Gore, at its disposal stands immobilized and headed for real trouble, the market is solving the problem.

The reason some people expect certain disaster is that they have little faith in the market even if they claim to prefer freedom to government. And because they lack faith, they don't expect miracles.

Technically, the word miracle refers to an event that seems to violate natural law. But in everyday usage, it often describes events that contradict what one knows about the world. And that's the way I'm using it here.

The Y2K Doomsday folks don't believe something is possible unless they know how to do it unless they can imagine the process by which it will be accomplished. In this they unwittingly assume they're omniscient the possessor of all the world's knowledge.

But, of course, there is godzillions of times as much information in the world as you or I or anyone else possesses. People smarter than we are, people with more knowledge about a particular subject than we have, people whose incentive to get a particular thing done is greater than ours, people who are more ambitious than we are they are the people who will set to work to solve a particular problem. The solution doesn't depend upon your limited knowledge or mine.

Thus miracles happen every day as insolvable problems get solved, as impossible products come to market, as miraculous new ways to achieve what we want are discovered by the few individuals who are most astute in providing these particular miracles.

Why do these miracles happen? Because people with talents and skills different from ours put their minds to work making something happen in order to get something for themselves in the process. The secret of the market's success is the way it motivates and rewards those who can solve problems, those who can respond to unsatisfied needs and desires, those who can do what you or I can't imagine.

That's why influenza is no longer a killer disease and why the market produced a polio vaccine before the government did.

That's why your car is many times safer than cars of 50 years ago (thanks to much safer tires, tinted glass, safety glass, dual mirrors, power steering, disc brakes, computer monitoring, and a host of other improvements that were made because consumers wanted them, not because government compelled them), even as government roads are still as dangerous as they were a half-century ago.

That's why we have fax machines, cellular phones, satellite dishes, and cable TV. Forty years ago most people would have thought these devices were fantasies. Even people with technological knowledge could offer intelligent reasons that these devices couldn't be developed so soon if ever.

That's why computer programs perform miracles on your screen that couldn't be imagined 40 years ago, and why computing power costs less than 1% of what it did 15 years ago. Twenty years ago no one in computing could foresee the miracle that you can buy a $1,000 computer today that's comparable to the million-dollar super-computers of two decades ago.

Miracles Are Already Happening

If you heard about the Y2K problem a year or so ago, think back to what you were told at the time.

The Doomsayers said that no one will be ready in time, the cost is too great, the problem is too complicated to be solved, there aren't enough programmers, COBOL is archaic and indecipherable, and on and on.

And yet there are now hundreds of products on the market helping companies take care of the problem much faster and at a much lower cost than almost anyone thought possible a year ago. You probably haven't heard of ConveRT/2000, CA-Fix/2000, Revolve, Vantage YR 2000, Restore 2000, Milligration, or any of the other products companies are using to locate and fix all the date problems in their computer programs.

But why should you have heard of them? No one makes money telling you the market is solving the problem unless he's selling one of these solutions and sees you as a prospect. And, most likely, if you don't have a large business with old mainframe computers, you aren't a prospect because you never had a problem to begin with.

There's nothing spectacular in reporting how banks, Visa, MasterCard, and many insurance companies have already finished their conversions or are within a few months of doing so. Nor is there a reason for anyone to inform you that the conversion costs are actually a small fraction of the sensational estimates made a year ago.

The market has produced Y2K miracles already.

The Future

Okay, so some companies have managed to solve the problem. But we're told that time is running out for all the others.

Once again, the only realistic attitude is to expect more miracles. Why should we think that progress stopped at 9 o'clock this morning?

As we get closer to January 2000, the situation will become more urgent for those who still have a problem. Why should ambitious computer programmers and entrepreneurs ignore the opportunities offered by this urgency?

Big problems inspire big solutions because they generate big payoffs.

Who knows what product will hit the market this November or next January or April and make it possible for most of the unready companies to get ready in time? Who knows what temporary fix will be offered next summer just in time to help the laggards keep operating for another year or two while they switch over to new programs?

Everything I know about the world tells me to expect most Y2K problems outside of government to be solved in time. There is too much at stake for them not to be solved. Why should any business executive want his company to fail? And why should anyone with the talent and knowledge to solve the remaining problems miss the opportunity to benefit from them?

Of course, the Doomsayers tell us it doesn't matter how urgent the problem; there's no way it can be solved. But they mean that they don't know how to solve it.

The Government

For government, the chance of success is much slimmer for precisely the same reason the market's chance is so great.

People will try very hard to solve the problem only if they can profit personally and government employees don't have such an incentive. And if your computing firm discovered a solution, would you take your plan to General Motors where you might get an OK and a check in 3 days? Or would you take it to the government, where your plan could be bottled up in committee for two years and even after approval would be implemented not by you but by a company in China that helped Bill Clinton's 1996 campaign?

Miracles don't come to the government, only to those in the marketplace.

But what about companies that rely on the government such as banks whose checks are cleared by the Federal Reserve System or airlines that rely on the FAA to coordinate takeoffs, landings, and flight patterns?

If in mid-1999 it seems likely that these government agencies won't be able to function in January 2000, will company managers say, "Oh well, I guess we'll have to go out of business"? I doubt it.

There already are private check-clearing agencies, and we can expect banks to use them or develop a better system if they have to. The airlines will find someone with up-to-date computers to handle their flight patterns. And companies in other government-dependent industries will react in a similar way, as necessary.

(Most of the other disaster forecasts, such as elevators or medical devices failing, are based on misunderstandings of how these things work. These products either don't depend on knowing the right date to function as usual or they don't crash if the date is wrong.)

Do I know for sure that everything is going to turn out perfectly?

Of course not. I don't know that the stock market won't crash tomorrow or rise 500 points. I don't know that a large, well-respected company won't suddenly fail for reasons I couldn't have guessed. I can't even guarantee that some politician won't suddenly go straight tomorrow.

But everything I know about the world tells me that the vast majority of Y2K problems outside government will be solved in time. Too many people possessing too much talent and knowledge want it to be solved. No business executive is going to go down without a fight, and no one who could save him is going to miss the chance to profit.


One of the foremost Y2K Doomsayers has written about me:

He does admit that banks may have a problem. Exactly what kind of problem, he doesn't say. "And as 1999 proceeds, if it appears that private companies (such as banks) are vulnerable to the government's inability to fix its own computers, I expect the companies to find ways of insulating themselves from the government's inefficiency."

I see. There are "ways of insulating a company from the government's inefficiency," i.e., the possible bankruptcy of all banks, worldwide. What these techniques are, no one is saying. He offers no evidence of their existence. But he assures us that they exist today or will be discovered in the nick of time. This is his statement of faith. Harry Browne is a deeply religious man.

He is a devotee of the religion of libertarianism. Its call to worship begins with these words: "Here, O Israel, the Lord thy god is one god, and this god is the unhampered free market."

If you strip out the purple prose, he actually has described my thinking quite accurately.

Do I have faith in the unhampered free market? Of course I do. Why shouldn't I? All my life I've seen the free market solve problems, create wondrous new products, produce miracles I never could have imagined. Why shouldn't I have faith that there are more miraculous products, events, and phenomena ahead even if I don't know how to produce them.

What's at Stake

Ideally, Y2K will demonstrate the stark difference between the ability of the market and the impotence of the government in solving problems. If it does, it will provide an important case history that can be presented whenever anyone dares to suggest the government can do something better than the market.

But that may not be the way this story ends. Instead, grandstanding politicians may impose their own "solutions" on private companies. If the companies survive in spite of that, the politicians will take the credit. If the interference causes the companies to fail, the market will take the blame.

A second danger is that government will use this "crisis" to begin regulating the computer industry. One reason the Y2K problem is solvable is that the computer industry is the freest in America allowing the market to work its miracles. For the politicians, the Y2K affair may succeed where the Microsoft investigation could fail in giving government the power to prevent new hardware and software from coming to market until a Federal Computing Agency certifies that a product is safe, effective, beneficial, and non-monopolistic.

And a third danger is that the Doomsayers may provoke panic runs on banks even if the banks have fixed their computer problems. Such a panic could be used to justify another great leap forward in government control of our lives just as the panics of the early 1930s fed the growth of government. This is not a high probability, however, because most likely the solutions will be obvious by the time most people hear about the problems.

But all three dangers are truly unpredictable. We can only hope the Y2K affair doesn't become the impetus for the next radical increase in government power.

The Market Can Do it Whatever it Is

The failure to appreciate that the free market produces miracles extends beyond the Y2K problem.

It's the same failure that keeps people from believing roads could be privately owned and be just as convenient and easy to pay for as they are now. (Of course they would be more so, and they would be clean without relying on "Adopt-a-Highway" volunteer programs.) Or that makes them believe that children with poor parents would get no education without government schools. (They already attend private schools in large numbers.)

Or that keeps them from realizing we don't need a government Postal Service for everyone to be able to send and receive mail. (Years ago people said government had to deliver the mail because private companies would lose money delivering to remote addresses; today Federal Express and UPS deliver to every address in America, but the Postal Service doesn't.)

But we may yet be able to inspire people to believe in miracles.

I have become involved in politics because I think most people now recognize, to one extent or another, that government doesn't work. To convert them to our way of thinking we now need only to find simple, direct ways of showing them the vast improvements they will reap in their own lives when the free market is allowed to produce its miracles.

If we can succeed in that endeavor, government will no longer be destroying our health-care and education systems, forcing up the prices of everything you buy, holding down the wages you earn, reducing the choices available to you, interfering with the ability of you and your community to defend against predators, keeping life-saving medicines out of your reach, and destroying your community with the insane War on Drugs.

The unhampered free market will be able to extend dramatically its ability to perform the kind of miracles we've already seen in the computer industry.

Yes, I believe in miracles. Yes, I have faith in the unhampered free market.

Why shouldn't I when the evidence is everywhere to be seen?