Fortsätt till huvudinnehåll

Trust the market


たまご屋／egg store2
Originally uploaded by motocchio.

Markets are a good thing. Whether you are buying or selling, you can be sure that you will get a good price for what you are selling and will not pay too much for what you want. And producers quickly get to know what people want to buy, and the right goods become available to those who want them.

It is a much better system than having bureaucrats in offices decide what people want. Usually, they haven't a clue, and then they have to force people to produce what is not wanted, and you end up with Gulags, concentration camps, secret police, corruption and all the other apparatus of a totalitarian state.

Post-1945 economists especially, recognised this and became advocates of the free market, in preference to the directed economics that was favoured in both communist and social democratic countries.

But the concept is flawed. Free markets assume prior equities, and when not everyone has equal access to land, those who do are in a privileged position, since the two sides to many transactions are not entering into the deal on equal terms. For instance, if the choice is "work or starve", employers can drive down wages.

Taking the notion of markets beyond where it is appropriate has also had strange results. Economists like to borrow concepts from other disciplines, especially the physical sciences. One such, promoted by the late Milton Friedman, amongst others, was that markets are a "signalling system", informing entrepreneurs where to direct their energies. It is a nice idea and a good way of describing what is happening in the Barcelona market in the picture. Unfortunately it has come to dominate economic policy almost world wide. This is the model on which reforms of services like the NHS and the railways have been predicated. After nearly 25 years of this kind of thing, it is obvious that it is not working.

First, it assumes perfect knowledge and intelligence on the part of the entrepreneurs - again, it works if you are keeping a few chickens and selling the eggs. But in complex enterprises, people tend to get things wrong. The main way to stop this from happening is to have a means of allowing a variety of inputs. Where the provision of services falls into monopolies or oligopolies, there is no room for proper questioning, and they all follow each other over the cliff together.

As for the economic signals that come from the market - these have no intrinsic meaning, as they are shaped by market circumstances some of which are natural and changing, others of which are cultural and others of which are an artificial construction, such as the fiscal and legal framework in which transactions take place. There is nothing "natural" about them, so that following market signals is not automatically going to produce the optimum outputs.

One consequence is that it is not possible to argue that any tax modifies the economic signals more than any other does - they are all modifiers. What matters is whether they modify in the direction of causing people to things that are desirable or whether they discourage desirable activity. This is an important function of government and one they are not getting right.

Etiketter:

Kommentarer

Skicka en kommentar

Populära inlägg i den här bloggen

Importing people to sustain demand

I got involved in a discussion with a Youtuber called “Philosophy all along”. This was in connection with criticism of Trump’s policy of deporting illegal migrants, which he argued would be bad for the economy as it would reduce demand. This implies that there is a need to import people to sustain demand. There is no obvious reason why a population should not be able to consume everything that the same population produces. If it can not, then something else is going on. It is a basic principle that wages are the least that workers will accept to do a job. Wages are a share of the value added by workers through their wages. The remainder is distributed as economic rent, after government has taken its cut in taxes. Monopoly profit is a temporary surplus that after a delay gets absorbed into economic rent. Land values in Silicon Valley are an example of this; it's like a gold rush. The miners get little out of it. Rent and tax syphon purchasing power away from those who produce the g...
Skicka en kommentar
Läs mer

The Zombie Train that refuses to die

The Guardian has published a couple more articles against HS2, one by specialist rail commentator Christian Wolmar, and another today by journalist Simon Jenkins. The main arguments in favour will doubtless be wheeled out by the commentators: the need for capacity and the disruption caused by upgrading existing routes. HST itself will severely disrupt services to Euston during the construction period. Capacity can be increased at a fraction of the cost by a variety of measures, provided that it is accepted that the additional traffic will run at existing speeds. It is not generally known that the Midland main line is, or was, four track all the way from London to Trent Junction, between Nottingham and Derby. This is because the additional tracks are separate, having been added for coal trains which trundled down to Brent sidings, on the edge of London, from a collection point at Toton in Nottinghamshire, where the Midland Railway build a huge marshalling yard. Beyond Derby, the main l...
Skicka en kommentar
Läs mer

How much more will the British tolerate?

The British are phlegmatic, tolerant and slow to rouse. Thus there was no great reaction after the terrorist attack in July 2005. The murder of Lee Rigby created a sense of outrage, but nothing more, since it appeared to be an isolated incident. Two serious incidents within a fortnight are another matter. Since the first major terrorist incident in 2001, authority has tried to persuade the public that Islam is a religion of peace, that these were isolated events, or the actions of deranged "lone wolves", having nothing to do with Islam, or to reassure that the chances of being killed in a terrorist attack were infinitesimally small. These assurances are are beginning to wear thin. They no longer convince. If government does not act effectively, people will take the law into their own hands. What, however, would effective action look like? What sort of effective action would not amount to rough justice for a lot of innocent people? Given the difficulties of keeping large n...
Skicka en kommentar
Läs mer