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The Irrationality of the Free-Market

Written By: - Date published: 12:29 pm, August 18th, 2010 - 68 comments
Categories: capitalism, Deep stuff, Economy - Tags:

The free-market is irrational. A number of reasons have been postulated as to why this is so (except by neo-liberal economists who think that the market is always rational) from behavioural patterns (habit), emotional decision making and other human fallibilities. A lot of the irrationality, though, comes from lack of information, asymmetric information and information overload.

As Lester Brown in his Plan B 4.0 (Page 16) puts it:

As economic decisionmakers—whether consumers, corporate planners, government policymakers, or investment bankers—we all depend on the market for information to guide us. In order for markets to work over the long term and for economic actors to make sound decisions, the markets must provide reliable information, including the full cost of products. But the market is giving us incomplete information, and as a result we are making bad decisions.

Lack of information is due to the market price not conveying the full data necessary to make a rational decision. The best example of this is the case for the train cars for Auckland to be made in NZ. The Berl Report has this to say about making the train cars in NZ:

Our research suggests that overseas manufacturers would need to produce the rolling stock at between 29 percent and 62 percent less than the price of manufacture in New Zealand to offset the benefits to New Zealand GDP of producing the trains here. The range is dependent on whether we consider only the direct benefits (29 percent) or total benefits (62 percent) to New Zealand GDP of building the rolling stock here.

The price doesn’t portray the added advantages of making the cars here. The report also notes that the price of building the cars in NZ would be competitive (i.e. about the same price) with importing them from the main manufacturers in Europe and America and that manufacturers in Asia may be able to build them at the needed discounts but this comes with the caution that the quality may not be as high which would result in higher full life costs (saving money to lose money). What this shows is that price alone cannot convey all needed information and yet it is on price (I haven’t seen a detailed report from Kiwirail saying that they can’t do it – only the non-researched quotes from the CEO and John Key) that the decision (and most decisions in the “market”) is being made.

Asymmetric information is when one party to a transaction knows more about the deal than the other. This opens the doors to corruption as the person with the greater knowledge can manipulate the person with lesser knowledge. An example of this type of corruption can be seen in the actions of the tobacco companies about the dangers of smoking. They knew that smoking was bad for the smoker but managed to obfuscate the evidence for decades. This was only possible because the majority of people just didn’t have all the facts to hand and so doubt could be created by the use of misinformation and misdirection. The same can be said for climate change deniers today.

Information overload is caused by competition. Lots of places to buy the same or similar products at similar prices. Which is the best? The cheapest? The most expensive? Who’s is the best to buy from and other questions all of which takes time to evaluate. Steve Keen put together a conservative estimate of how long it would take to go down to a corner dairy which stocked 50 items and buy a perfectly rational basket of goods it was a mere 80 billion years. Only six times longer than the age of the universe. There’s many more than 50 products available in real life so, how many spare eternities do you have to make a rational decision? The effect of this information overload is that when you do go to the shop you’re more likely to buy from habit and custom than from rational analysis.

There really isn’t any doubt about this any more, the free-market ideology put forward by the Chicago School of Economics (and the Austrian school) and slavishly followed by National, Act and Labour is irrational as individuals just don’t have enough knowledge to know what is best for themselves and they certainly don’t have enough to know what’s best for the community. This was proven in the 19th century, in the 1930s and again now as another bubble of irrationality collapses and yet we still look to the same paradigm that continues to prove that it doesn’t work. A decision made on less than full information is an irrational decision and this is the mode as most people just don’t have access to the full information which, of course, results in the market being irrational.

Draco T Bastard

68 comments on “The Irrationality of the Free-Market”

  1. bbfloyd 1

    so what is your position on commodity based economies? i have been told that we can produce everything we need here in NZ. is this true?
    some would assert that going back to a barter system that doesn’t involve the exchange of money would be a step back.
    it seems obvious to me that the global economic system we operate under now has a finite lifetime. when a large percentage of our so called wealth is no more than numbers printed on balance sheets, and has no relationship to assets or economic activity based on day to day realities all humans face every day, then what good is it to us?

    • John Elijah 1.1

      Bring back the Committee for Public Safety
      John

      • Bored 1.1.1

        Ah the delightful long line of rational materialsts that leads from Robespierre through to Marx, Stalin, Friedman, all related……..just bitching over the details.

    • Draco T Bastard 1.2

      i have been told that we can produce everything we need here in NZ. is this true?

      Yes. It would mean that we would have to look at what we produce, how much we produce, introduction of extensive recycling and limiting population so that we can exist within the real resource base but we could certainly do it.

      it seems obvious to me that the global economic system we operate under now has a finite lifetime. when a large percentage of our so called wealth is no more than numbers printed on balance sheets, and has no relationship to assets or economic activity based on day to day realities all humans face every day, then what good is it to us?

      Part of the problem with the Gold Standard was that there just wasn’t enough gold in the world to effectively represent all the real wealth. This conundrum led to fiat currency but with this came the banks ability to print infinite amounts of money (Not that they weren’t already doing that even under the Gold Standard with Fractional Reserve Banking) which pushed money from being an abstract tool to assist with trade to pure delusion. When we run out of resources, and we will under BAU, large numbers on balance sheets aren’t going to feed, clothe or house people.

      Basically, money is becoming useless.

      • comedy 1.2.1

        ‘We can produce everything we need in NZ’ – what fucking fantasy

        • Draco T Bastard 1.2.1.1

          Can we produce all the food we need? Yes.
          Can we produce all the clothing we need? Yes
          Can we produce Housing? Yes.
          We can also produce computers, trains, aircraft etc, etc. We have the knowledge, resources and skills.

          The delusion is that we can’t.

          • comedy 1.2.1.1.1

            Explain how we will provide the pharmaceuticals, medical and surgical devices and health supplies to maintain a functioning health system.

            I’d also suggest we probably can’t service a building industry without imports nor have we got the resources to manufacture trains or aircraft unless you expect us to maintain our current fleet ad infinitum which is also probably unrealistic.

            • bbfloyd 1.2.1.1.1.1

              you really need to take a breath and stop making half assed assumptions C. we have all the raw materials required to do anything we want to,within reason. how much of that raw material is being sold off to other countries? do you not have the wit to see the obvious? what do we need to build houses that we can’t provide for ourselves? it seems that we were doing that quite well before. do you have no faith in our technological abilities to produce medicines etc?
              are we then to believe that we are an inferior race of people, unfit to have control over our own destinies?

              • comedy

                Are you retarded ? Please explain how we will provide the pharmaceuticals, medical and surgical devices, vaccines etc and health supplies to maintain a functioning health system ?

                And nebulous bullshit such as “how much of that raw material is being sold off to other countries” doesn’t cut it – don’t you have the wit to see the obvious ? or are you just a complete fucking fantasist ?

                Have you got any fucking idea how to manufacture pharmaceutical actives ? how about hip and knee joints ?

                • Draco T Bastard

                  Are you retarded ?

                  That’s not the problem, the problem is that you, and others like you such as the National Party, are deluded.

                  Please explain how we will provide the pharmaceuticals, medical and surgical devices, vaccines etc and health supplies to maintain a functioning health system ?

                  How about we make them the same way as they make them overseas but using our resources instead.

                  Have you got any fucking idea how to manufacture pharmaceutical actives ?

                  I don’t, no, but that doesn’t mean that such skill isn’t available or that such skill and knowledge can’t be developed.

                  • comedy

                    Oh so we make them they same way they make them overseas ! of course brilliant !

                    So if we look at pharmaceuticals the fact we don’t have

                    1. The Manufacturing Plants
                    2. The expertise
                    3. The raw materials
                    4. The formulations

                    and we’d be breaking intellectual property laws in producing them despite the reality we wouldn’t be able to in the first place is merely a small matter that can be taken care of by the pixie living at the bottom of the garden

                    • mcflock

                      we can actually produce the expertise that will create the plants, research the formulations and produce the products. The only thing we possibly don’t have is some of the more rare elements.

                      Which we can either produce with nuclear reactors made from West Coast sands, or consider purchasing, or make rockets to mine asteroids.

                      Theoretically possible (but extremely long term), but the point being that we’re in an import mentality. 99% of what we need we can be self sufficient in within a year or two – food, clothes, housing, trains, buses. The only reason it’ll take that long is because many of our food and industrial production facilities have been shut down over the last 20 years.

                    • comedy

                      It’s also theoretically possible that you’ll win the Big Wednesday……. and that’s also probably more likely than the fantasy bullshit in this post

                    • Draco T Bastard

                      I agree comedy, your post is complete fantasy and BS.

                    • comedy

                      Oh noes Dracobot doesn’t know the difference between a post and a comment, your tutors must be so proud.

                    • Bored

                      Im sure the pixies who own the pharmaceuticals will be hungry enough to trade them at an ethical price for that other life saving thing that we will have plenty to trade…..food. Go the pixies I say.

                    • comedy

                      “Im sure the pixies who own the pharmaceuticals will be hungry enough to trade them at an ethical price for that other life saving thing that we will have plenty to trade ..food. Go the pixies I say”

                      .I agree bored – but that does not square with the supposition that

                      “i have been told that we can produce everything we need here in NZ. is this true?

                      Yes. It would mean that we would have to look at what we produce, how much we produce, introduction of extensive recycling and limiting population so that we can exist within the real resource base but we could certainly do it.”

                      Which for NZ and indeed the majority of countries in the world is pure fantasy.

                    • Draco T Bastard

                      All I have to do is provide this link here and your entire argument falls down. That’s just one pharmaceutical company. We’ve been manufacturing pharmaceuticals in NZ for quite some time already – decades that I know of.

                    • comedy

                      MSD is an American multinational and manufactures nothing in NZ apart from employees in pin stripe suits.

                      We manufacture less than 1% of the pharmaceuticals used in NZ

                    • Draco T Bastard

                      Which just bought out a NZ company. It used to be called colonialism and was done at the end of a gun but now it’s called free-market capitalism. Still not good for the local populace or economy.

                      We manufacture less than 1% of the pharmaceuticals used in NZ

                      And? That can change, in fact, if we had a viable economy it would change. As I point out down thread – it’s cheaper to produce for the local market in the local space using local resources rather than importing.

                    • comedy

                      “Which just bought out a NZ company.”

                      Um no they didn’t/haven’t.

                      “We manufacture less than 1% of the pharmaceuticals used in NZ

                      And? That can change, in fact, if we had a viable economy it would change. As I point out down thread it’s cheaper to produce for the local market in the local space using local resources rather than importing.”

                      Um no we can’t, we don’t have the facilities or expertise to produce the many hundreds of different vaccines, oral pharmaceuticals, cytotoxics etc etc let alone the multitude of other medical devices and hospital supplies but keep arguing the indefensible it’s quite amusing.

                • Deborah Kean

                  Comedy, I think that your swear-fest shows the weakness of your arguments! Would you need all that effing, blinding and abuse if you had confidence in the facts? Therefore I assume you don’t.
                  “Are you retarded ? Please explain how we will provide the pharmaceuticals, medical and surgical devices, vaccines etc and health supplies to maintain a functioning health system ?”
                  What makes you think we don’t have the raw materials or the expertise to produce these things? The knowledge is here.
                  The person you’re abusing doesn’t need to know how pharmaceutical actives, or hip and knee joints. But there are people in New Zealand who do know! We are not mediaeval ignoramuses!

                  • comedy

                    No Deborah you are clearly a post modern ignoramus.

                    The facts yet again

                    We don’t have the facilities or expertise to produce the many hundreds of different vaccines, oral pharmaceuticals, cytotoxics etc etc let alone the multitude of other medical devices and hospital supplies at present we have one facility in NZ which produces prescription pharmaceuticals (Douglas in West Auckland) from memory they make about ten different chemical entities with the actives sourced from overseas.

                    To produce manufacturing drug master files for all the products needed to keep the health system running would likely require all the science graduates in all the universities in NZ over the next several years along with a monumental investment in plant to then manufacture the various compounds – the investment requird would make Muldoon’s ‘thing big” look like coffee money.

            • Nick C 1.2.1.1.1.2

              We could mine all the minerals we need here in New Zealand. Oh wait…

              • felix

                Oh wait what?

                Did you suddenly realise we could mine the minerals that aren’t in National Parks? And then use them ourselves instead of giving them away?

                zOMG what madness! No wonder you stopped yourself short. Go have a lie down.

                • Nick C

                  So wait a moment; you are advocating that New Zealand stops all trade with the rest of the world, and you are accusing me of madness?

                  • loota

                    Uh actually advocating things like not selling bulk aluminium ingots overseas for a few dollars a kg, then buying it back as value added CD’s and DVD’s for thousands of dollars per kg.

                  • felix

                    Don’t recall advocating that, Nick C.

                    Just pointed out the falseness of your objection is all. And it’s very, very false.

  2. Peter Cresswell 2

    Draco, you say, “…the free-market ideology put forward by the … the Austrian school … and slavishly followed by National, Act and Labour is predicated on fully informed individuals making rational choices.”

    This is quite simply wrong on its face.

    1. Neither National, Act nor Labour follow, subscribe to, or promote the Austrian school of economics. More’s the pity.

    2. Austrian economics is not at all “predicated on fully informed individuals making rational choices.” It is predicated on individuals making choices on which they then act, but it makes no call at all on whether those choices are good, bad or indifferent. Simply that people act, from which consequences follow. “Only in the ivory-tower world of rational-expectations theory does one find perfectly rational humans making judgments using all available information to satisfy their subjective end… In Mises’s view, economics doesn’t deal with homo economicus at all, but with homo agens: man “as he really is, often weak, stupid, inconsiderate, and badly instructed…”

    3. Nor is the Austrian school predicated on anyone being “perfectly informed,” or have a problem with so-called “asymmetrical information.” In fact, it was them who first started talking about so-called imperfect-information economic analysis. that’s where Austrians begin talking about knowledge: about knowledge distributed so thoroughly through society that no-one — no central planner — can know all that everyone knows</a..

    So you're quite simply wrong right at your starting point, which is one reason you fail to understand just how important price signals are, and how much information is packed into them.

    • Draco T Bastard 2.1

      I almost left that bit about the Austrian School out. I know that they tend to have slightly better understanding of the fallibility of the free-market but they still subscribe to that meme and so I included them.

      Price signals are important for a free-market to function, unfortunately, the price invariably fails to contain all needed information.

      BTW, I’m not advocating central planning. I understand why that fails and do believe that the free-market is a better option over that but that doesn’t mean that we should stay with it when it’s so obviously a failure.

    • Bored 2.2

      So Peter, might I take you back to first principles. Consider this rational criticism of both Hayek and Keynes.

      Hayek cannot be held responsible for the ideological simplifications of his acolytes. Like Keynes, he regarded economics as an interpretive science, not amenable to prediction or precision. If planning was wrong for Hayek, this was because it was obliged to base itself on calculations and predictions which were essentially meaningless and thus irrational. Planning was not a moral misstep, much less undesirable on some general principle. It was simply unworkable – and, had he been consistent, Hayek would have acknowledged that much the same applied to ‘scientific’ theories of the market mechanism.

      The key criticism is that “market signals” are interpretive, not precise or able to have numbers wrapped around them as is done by economotricians. Do you think Hayek deliberately ignored this inconsistency in his market theory?

    • Ag 2.3

      Oh God… Not Austrian economics again, the internet’s favourite kook theory.

      Isn’t that the theoretical approach that proudly declares itself (a la Kant’s idealism) beyond the bounds of empirical verification? I seem to remember being told that by a cult member at some point (as if this were somehow a virtue of the theory).

      It’s the economic equivalent of Intelligent Design theories.

      • Bored 2.3.1

        The Austrians have got a hell of a lot to answer for, Mozart and Strauss (incessantly played by my music teacher: ruined my childhood sort of), Hitler, Arnie and Bruno (ascribed if not real). Then there are the economists. Sick nation to produce that lot.

        • Ag 2.3.1.1

          Unless it was Johann Strauss rather than Richard, I can’t see why you are complaining. Anything’s better than the flower power crap my music teacher foisted on us, the only benefit of which is that it made me understand where Johnny Rotten was coming from.

          • Bored 2.3.1.1.1

            In the words of Johnny, “You will always find us out to lunch”! I think they went with some Austrian economists.

  3. KJT 3

    Poor pricing signals that do not reflect the true cost.
    The greenhouse gas emissions effect on the environment is not reflected in oil costs.
    True costs of labour masked because some of it is passed off to the State. I.e Instantly available labour from AW only because they can live partially off a benefit.
    Costs of finance overinflated by artificial mechanisms such as the RBA.
    ratepayers paying for water treatment of supplies polluted by farmers.
    Industries moving to China relying on the firms that stay in NZ paying their workers enough to buy the products.

    NACT and Labour subscribe to the Friedmanite Chicago school if anything.
    Neo-liberalism.

    • djp 3.1

      If pricing signals do not reflect the true cost it is generally because of state intervention in the market and property generally:
      a) price controls
      b) monetary policy
      c) tragedy of the commons
      d) permits to pollute
      e) subsidies or taxes

      in fact states often try to hide information from the public (eg. the fed refusing to identify recipients of billion dollar bailouts)

      • KJT 3.1.1

        State intervention properly should be making business pay more of their true costs. like that of maintaining an educated labour force, infrastructure such as roads and ports, police to protect property and their real external effect. I.E. pollution taxes.
        At present State intervention is focused on making those with most of the capital avoid paying for their real impact. Like the fake ETS. Bank bailouts etc.

        • bbfloyd 3.1.1.1

          KJT… admirable sentiments.. would only be possible to develop a system that works like that once parties like national, act etc are consigned to the dustbin of history under “failed experiments”.

      • Draco T Bastard 3.1.2

        Factory A exists in China, it runs at 100% efficiency, requires 100 people, requires X amount of infrastructure and requires 100kW of power.
        Factory B is exactly the same as Factory A but exists in NZ.

        Which costs more to run, Factory A or B?
        Which factory would be cheapest to introduce their product to the NZ market?

        Considering these questions why are we shifting factories out of NZ?

        Please note: Due to engineering knowledge and ability, economies of scale no longer apply.

        • bbfloyd 3.1.2.1

          from what i hear the only rationale is that there are short term gains from reducing labour costs, and reductions in safety/health spending.
          so we get to pay less for products that don’t stack up in the quality stakes. which don’t last as long as the local product, and which generally don’t perform as well. which means having to replace said products more often.
          would this qualify as “false economy”?

          • Draco T Bastard 3.1.2.1.1

            Exactly – the only reason for moving factories out of NZ is apparent savings in labour, health and safety costs and costs associated with protecting the environment.

            • Nick C 3.1.2.1.1.1

              Draco why do you believe that the chinese sell us goods, unless we can sell them something of equal value in return? Do they just like to give stuff away?

              • loota

                Uh Nick C, we use legal tender (currency which can be exchanged for goods and services) to buy stuff from China.

                We don’t exchange (barter) “something of equal value” to close the deal.

                In doing so we send offshore capital which allows the Chinese to save and grow their capital markets, while we have shite on The Warehouse shelves and find it difficult to save and grow our capital markets.

              • KJT

                We borrow the money from China so we can buy their products. Then we have to pay it back plus interest from our exports. We then have to persuade the Chinese to buy our exports so we can pay back loans. However the Chinese not being as dumb as us will learn to produce things themselves so they do not need our exports. Like the UK and US when they were building up their economies China will protect their own manufacturers.

                Companies who make profits from Chinese imports depend on us still having enough wages, from the ones that do not, to pay for them.

                NZ coastal ship, Fishing boat, local factory. Company taxes, PAYE, ACC, Fuel taxes, stores, wages, profits stay in NZ. No exports required to pay costs. Complies with NZ safety/labour rules, product safety rules. Positive for invisible’s balance.
                Foreign ship, Overseas crewed fishing boat, factory in China/Mexico. Exempt from all NZ taxes, labour laws, safety requirements, dodgy product safety. Wages and profits normally go offshore.
                On the face of it cheaper, but requires exports to pay back borrowings plus interest as our trade balance is already negative.
                In an ideal world our dollar would drop to make up the trade imbalance, But!
                Excessive interest rates in NZ to fight the resulting inflation make the dollar artificially high. .

  4. Bill 4

    Seeing as how a few hundred years of market based decisions have brought us to the thresh hold of having a fried planet, I’d have thought the innate rationality or otherwise of markets would be a strange focus to have.

    A wee focus on the irrationality of the beasties that won’t stop using the market might be in order though, don’t you think?

    • bbfloyd 4.1

      the focus will be through a gunsight before too long if they don’t wake up soon.

    • Draco T Bastard 4.2

      I was showing how that few hundred years of irrationality came about. My next post, which will be a week or two away, will be an idea as to how to fix it.

      Then we can work on the revolution 😛

  5. bbfloyd 5

    VIVA!!!! LA RRRREVOLUTIONE!!!

  6. The irrationality of the capitalist market is that commodities are only produced if they can be sold at a profit.
    Today millions cannot afford the most elementary commodities to keep them alive. This does not see commodities devalued to the level that is affordable because this would be unprofitable,
    Hence there is overproduction, huge waste, speculation and impoverishment.
    In a socialist market the majority would decide what comodities were produced to meet basic needs.
    That rationality.

    • KJT 6.1

      So we get things like the EU dumping milk to keep the price high.

      Hard to see an alternative to markets on a micro level though.

      • dave brown 6.1.1

        You already have local markets in the form of producer markets. This would cover the essentials, and as far as mass produced commodities go, these could involve national plans which then dovetail into an international division of labour. The international division of labor would take advantage of skills and economies of scale which conserves labour power and is therefore efficient.
        The difference would be that a collectivised economy would be producer-owned (putting wage workers and farmers on the same footing) getting rid of the private owners and speculators (land would be collectivised as would banks).
        This would make possible the organising principle of socialism.
        From those according to their ability, to those according to their need.

  7. Bored 7

    The EU dumping is a classic example of why rational market theory is wrong in the real world….its why the likes of Fonterra and their equivalents offshore are so intent on distorting the market via politicians, cartels etc, anything to keep the price high. If milk was freely traded in a pure market sense our dairy farmers might go to the wall as the dumped milk floded the market. Unfortunately for “pure markets” they deal with impure humans. And that wont change, which is why market purists need to get a grip, get real and shut up.

  8. Lats 8

    With all due respect Draco, it would probably pay to take any figures coming out of BERL with a sizeable grain of salt. Some of their methods used to determine costs to society in the alcohol and smoking debates have been downright shonky. It seems they manipulate the figures quite considerably to arrive at very big numbers when requested, rather than reporting actual costs. So it wouldn’t surprise me if their figures for economic benefit are somewhat inaccurate too.

    Pop over to http://offsettingbehaviour.blogspot.com/ and search for posts about BERL and their methods.

  9. more_ben 9

    The free-market is irrational. A number of reasons have been postulated as to why this is so (except by neo-liberal economists who think that the market is always rational) from behavioural patterns (habit), emotional decision making and other human fallibilities. A lot of the irrationality, though, comes from lack of information, asymmetric information and information overload.

    This is a terrible opening paragraph. The free-market is irrational? What does that mean? Exhibit A: the higher living standards on just every single measure enjoyed by people living in market economies as compared with anything else. So not anything that much matters to people. Exhibit B: the pc you type this rubbish into, the shirt on your back, the car in your garage, the house you live in, the bus you caught to work, the office you work in, the street you drive on – all produced by people working to make a buck, much of that produced by one or more markets, acting in concert without you even knowing it. Irrational?

    All economists accept the proposition that people are imperfect, make mistakes, are imperfectly informed. So wrong there too. The case for markets does not depend on perfection in anything, least of all information or understanding. The case against government starts by noting that government officials suffer the very same problems you just listed: they, too, suffer severe asymmetric information problems. But, on top of that, they basically have no idea what the preferences of most people are, or how they change over time, and they are incapable of either detecting or responding to variations in preferences across the population. On top of that officials have very poor incentives to operate in the interests of the community. Officials generally face no competition, operate in ways people find hard to measure performance, are backed by the force of the state, and generally but not always the end users they deal with have no other place to turn.

    And then on top of that you can measure the relative performance of governments against market-based private operators, and guess what – nearly every single time the market operators come out on top, for all the reasons just listed.

    Other than that, I think you’re spot on.

    • Yes very rational. Capitalism produces productively but not sustainably. It wastes more than it consumes to reproduce itself. Both actively with planned obsolescence and passively by allowing billions in the surplus population to be relatively underemployed.
      The producers and surplus population grows and gets poorer while the richest 10% gets super rich.
      Workers actually create value, including the most advanced techniques. The productivity gains of capitalism are down to labour input. This is rational.
      What is irrational is the ownership and control of the process by the tiny class that accumulates surplus value as immense wealth while impoverishing the masses.
      Solution is simple. Remove the parasites and allow the productive working class to collectively own and control the economy.
      That way the principle of energy conservation, or reduced necessary labour time required to produce what we need is met, and the rewards from this are equitably distributed.
      Also the planet survives.
      The first to be retrained as productive workers would be the economists.

  10. more_ben 10

    Oh no. And I just noticed you cite BERL.

    Fail.

  11. loota 11

    Exhibit A: the higher living standards on just every single measure enjoyed by people living in market economies as compared with anything else. So not anything that much matters to people. Exhibit B: the pc you type this rubbish into, the shirt on your back, the car in your garage, the house you live in, the bus you caught to work, the office you work in, the street you drive on all produced by people working to make a buck, much of that produced by one or more markets, acting in concert without you even knowing it. Irrational?

    I think if you keep going you’re going to say – the people paid to maintain the pipes which give your house water, the big mac you eat, every ounce of petrol you use to get somewhere – all exhibits of the rationality of the free market.

    EXCEPT none of your examples shows any such thing.

    They merely demonstrate the motivating power of capital and of money. No more, no less.

    For instance your example of “the pc you type this rubbish into” -the gargantuan players of Microsoft and Intel did not operate in a ‘free market’ for years. They deliberately constrained and controlled the market for CPUs and for OS’s, generating virtual monopolies. That’s where the PC came from.

    Further to the motivating power of capital and of money – China does not have a free market economy. Money flows are heavily controlled, the exchange rate is nearly totally fixed, Govt ownership of major industries is significant, etc. yet because of huge washes of capital and money, China is a global hub of economic activity and enterprise.

    Free market rationality? Even though it does not have a free market, China has used ‘free market rationality’ to suck companies, manufacturing jobs, technology and even entire industries out of western economies to benefit itself and a traunch of corporate shareholders.

    Now that’s rational for China, irrational for everyone else. (Except the aforementioned shareholders of course).

  12. loota 12

    The case against government starts by noting that government officials suffer the very same problems you just listed: they, too, suffer severe asymmetric information problems. But, on top of that, they basically have no idea what the preferences of most people are, or how they change over time, and they are incapable of either detecting or responding to variations in preferences across the population. On top of that officials have very poor incentives to operate in the interests of the community. Officials generally face no competition, operate in ways people find hard to measure performance, are backed by the force of the state, and generally but not always the end users they deal with have no other place to turn.

    What, so a capable private sector manager who moves into a public sector management role suddenly becomes more dumb and more insensitive?

    No, you’ve skirted all around the issue which is about having the right values, competency and leadership in the public service. If it isn’t there it is a real problem, but one which can be resolved with appropriate political leadership and will power.

    Now, shall I begin listing the ways in which private ‘free market’ corporates have ****’d over consumers and citizens?

  13. clandestino 13

    The sad thing is I agree with the sentiment of the post but it is painfully clear the author doesn’t quite know what they are talking about. Nice try though.

    • Bill 13.1

      There’s an odd thing happens with the ebb and flow of two, apparently diametrically opposed ideologies that are contained within the one system.

      Whereas in their pure ideological state they might seem incompatible, as the ebbs and the flows of the encompassing system moves it’s components, the ideologies become less distinct as matters enter a ‘neither in/ neither out’ phase before separating out again.

      But we have had for the past few hundred years – always – on the one hand, state centred authoritarianism where a clique within the state controls the market directly or on the other corporatism, where the state acts an an enabler for private market interests. And washed around in between these two flows, and always the potential (and over the longer term inevitable) victim of one or the other, we have our ‘social democracies’.

      Time to stop hanging around between the bleak destinations of corporate totalitarianism and state totalitarianism. Both are no use.

  14. clandestino 14

    @Loota: “China does not have a free market economy.”

    Are you serious? Having been lucky enough to have been to a few places, I can inform you that ‘people’s republics’ are ironically where you can find the clearest examples of free markets in action.

    • loota 14.1

      You mean free market as being able to move capital in and out of the country at will? Or purchase land as a foreigner at will? Or an exchange rate which is set by the free market? Or freedom to set up a major industrial enterprise without part ownership by a Chinese or Chinese Govt firm? Or freedom from the practice of official bribery, corruption and nepotism? The list goes on…

      I guess if you ignore all those things you might get what you call Chinese “free markets in action”.

      • clandestino 14.1.1

        Don’t think we’re on the same page here. What I’m saying is that because these places are poor, with largely ineffective government, people have very little to do with them. And, minus an armed crackdown, the government is often powerless to enforce itself upon it’s citizens. Funnily enough, where people cannot rely on government to facilitate or foster or provide, they do it themselves. In this sense I would say they are more free than we are. That isn’t to say they have it better, far from it, my advocacy for prudent government only goes so far.

  15. bbfloyd 15

    @comedy… don’t quit your day job. your act isn’t funny. although i was impressed with the passion you brought to your expletive laden abuse. shame that’s all you got isn’t it.
    and to the “free market” proponents. do you not ever try to look past the cover to see the writing behind? there is no such thing as a “free market”. markets all over the world are manipulated in order to maximize corporate profits.
    what is presented to us as the result of natural forces at play, is just the end product of self interested manipulation.

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