Friday, March 5, 2010

Free market, perfect market

“So contrast that to the crash of ’29, when, suddenly, the US got involved in a lot of programs, like Barrack Obama’s getting involved in a lot of programs now ... and so ... the recession/depression we can look forward to lasting a lot longer in America, than if Obama just sat back and let the market, you know, be a market.” Max Keiser

Max Keiser, that very entertaining online econo-show host and ex trader, is advocating here the kind of laissez faire, non-interventionist economics that quickly turned the 1920-21 stock market crash into the roaring twenties. I enjoy much of what Max Keiser says and support his efforts to bring important information to the attention of as many people as possible, but this is an argument I do not agree with. However, because it is a good example of the circular “freedom = free markets = democracy” meme so virally ensconced in the public’s imagination, and spreading worldwide since the collapse of “communism,” it presents me with an opportunity too nice to ignore.

The roaring twenties was a speculation-led bubble that directly created the 1929 crash, which itself gave us the Great Depression, so to see that period as somehow economically healthy is somewhat specious. Furthermore, there is a lot of debate about whether intervention or non-intervention turned what might otherwise have been merely a mini-recession into a multi-year depression, but neither of these objections is what I want to tackle here. What troubles me is this idea of the free market. What does that actually mean, in detail?

To my mind it would mean, in pure form at least, no rules whatsoever, which would mean all synthetic derivatives and any trading of anything — including kiddy-porn, snuff movies, cocaine, heroin — would be okay, as would Wild West style gangsterism and true, hard-man, survival of the fittest punch-ups by any means imaginable. If only the fittest survive, in terms of ruthlessness, brawn, intelligence, cunning etc., that can only be good, right? Children working in factories, slavery, genocide of unneeded human excess, the whole nine yards. Those who survive that kind of a market place really would be deserving of their precious existence. But no one in their right mind advocates such a world. So what are free markets?

A free market is one in which the settled rule of law operates in the interest of effective and honest trading. So free markets need laws, which are tricky, complex things full of devilish details and convenient loopholes at the best of times, and subject to revision and interpretation — change is the only constant. The Market therefore needs the help of a legislature and executive that properly understand it (very problematic because politicians don’t work in the markets), the legislature and executive themselves needing money to operate at all. This money must of course come from the business activity of the market via taxation and donation.

So we necessarily have a State-Market partnership which exists in a system whose principal quality is the pursual of success as denoted by material acquisition and wealth. Ever-present in this system as an ongoing pressure towards corruption is money, and, by definition, that being rich is better than being poor. Out of this bizarrely supposed separation of Market and State there is, to my mind, simply no way a free market can exist. There has never been one, and will never be one; intervention is essential, corruption inevitable.

As I have argued before, markets are monopoly/oligopoly/cartel creating processes. They are predicated on competition, which means winners and losers, and the winners slowly gain sufficient power to control the market to their advantage. Nice guys finish last. Greed is good. Greed cuts through. Being rich is better than being poor. The system is stimulated by its very nature to render perfect competition impossible, regardless of its intrinsic theoretical failings. Only perfect competition could produce a free market. A perfectly competitive market is composed of perfectly informed and rational market actors, both as buyers and sellers. This is not possible. If it were, markets probably wouldn’t need any laws.

Perfect competition and free markets are economics’ Utopia condition that can never be reached. Until they occur (and they never do), distribution of goods and services will not be efficient (i.e. built-in obsolescence), will be unfair, and we will get poverty, war, and the many other unsavoury aspects of all monetary socioeconomic models. Even Adam Smith, a passionate advocate of free markets, recognised this:

“To expect, indeed, that the freedom of trade should ever be entirely restored in Great Britain, is as absurd as to expect that an Oceana or Utopia should ever be established in it. Not only the prejudices of the public, but, what is much more unconquerable, the private interests of many individuals, irresistibly oppose it.”


“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

There is no way to prevent conspiracy, fraud, or any other type of corruption that the human imagination can conceive of, except through intervention by the State in the Market, such intervention always being, of course, very imperfect. And because the State must intervene, there is necessarily a close relationship between it and the Market (to my mind they are two sides of the same coin and share many characteristics). It is in the Market’s interest — because the name of the game is to acquire wealth — to pressure government to enact law in its favour. This dynamic is inescapable.

Unless we pursue true abundance globally and establish an economics without price. In the same way that Open Source Software and Wikipedia are self-organising and non-monetary in their internal operations, so resource distribution can be too. Now that we can technically produce abundance, the only way to distribute goods and services fairly is by transcending the price system. We just have to learn how to want this, culturally, voluntarily, and then go for it.


Martin said...

I'm with you of course. The way things are now is like a bad case of morning ashtray mouth after a night of session drinking that almost never ended.

But what's in the details of abundance? How will technology serve it? What amount of technology will have to be abandoned because of the detrimental effects on the ecosystem, such as making water impotable, and scarce. In fact, what amount of current technology has been produced in the name of efficiency at the cost of human self-worth and at the cost of the environment?

Efficiency. It's one of the technological battlecrys of the old school of scarcity. All efficiency is certainly not good. In fact I often wonder how little of it seems actually worthwhile and how much of it is the product of technological noodling. How many of our scientists are just very smart fiddle-farts?

Toby said...

Abundance simply means more than enough for everyone. The technology (which includes farming, permaculture, hydroponics, city design, delivery systems etc.) to supply it needs to be harnessed in a manner never before accomplished in human history. Right now technological development is motivated almost exclusively by profit, or monetary survival/success (though the Internet and IT generally is chipping away at this), which has profound and cumulative consequences as money has top priority in almost all societal decision making. To need neither profit nor monetary success systemically, to see clearly the importance of the ecosystem, of society, of a sustainable manner of living, puts a completely different incentive on humanity's technological endeavours.

The devil, however, is surely in the detail, so the ride towards abundance will not be smooth and may well fail for any number of reasons, but I don't believe there is any alternative to taking on that challenge. In a sense we are struggling with it already. So much change is taking place we hardly know what to do with ourselves. We need human labour less and less; the monetary incentive is terribly corrupting; humanity's powers of consumption and production, in a system which must have perpetual growth, are too reckless and rapacious when fueled by an assumption of scarcity. Abundance would change all that, it would eradicate greed (which is hoarding by another name) and foster a completely different set of human behaviours.

As to efficiency, that is a complex topic. Trees are very efficient in and of themselves, but nature as a system seems to love redundancy while hating waste. There is no waste in nature. Our current system enshrines built-in and perceived obsolescence, produces uncountable amounts of waste, siphons money constantly towards the rich while simultaneously increasing debt loads on the poor, and is grossly unbalanced. It does not seem even remotely efficient to me. Scientists are educated then operate within this system. Until the system changes, their output won't. At least, not as radically as it might. The system is so sick, so malfunctioning, so aberrated, I feel anything is possible. There are earth-shaking discoveries taking place daily, and the rate of change shows no sign of abating. Only a fool could believe he can see the future a year from now, let alone a decade. I'm interested only in what's wrong and what's possible. It's a very exciting and interesting period.

Martin said...

Yes, nature as a perfectly balanced system, as an object to be revered and emulated in our imaginations and practices, has been long replaced by a sick emulation of efficiently running machinery. Each new model using less propellant and lubrication than the one before. Pure narcissism.

I wonder when the cutover will come. Will herds of tornadoes (already seeming to form) drive us from our self-fascination? Multitudes of earthquakes and tsunamis (maybe through some yet unknown connect they are also actually linked somehow to global warming)?
It will take quite a bit. We are mesmerized by our own magic tricks.

Toby said...

"We are mesmerized by our own magic tricks."

Indeed (nice line), but we need new and wiser ones. They're out there, and hopefully things like biophysical and behavioral economics will nudge people's view of what this system is doing to our future in the right direction. However, the sheer momentum and gravity of the current mode of operation -- consumption and eternal growth -- will take rude wake-up calls to address at a mass level. Then again, with 82% of Americans wanting more financial controls, it suggests that the hypnotic power of the MSM is waning rapidly. The MSM's propaganda barrage is as fierce and insistent as it ever was, but it's not working like it used to. I'm sure the Internet is the primary reason for this. The elite is losing control. I think they are losing the information war, can only lose it.

As an aside, my brother talks to his customers about this stuff regularly (he's a resource-based economy supporter like I am), and often meets the reaction that such a system could never work because people are greedy, always wanting more than their neighbors. But when he asks them if they are motivated by greed, they admit they are not. I know I don't want to have more than my neighbor, and am satisfied, more or less, with what I've got. All people I know personally are like that, more or less. It's not that there's no rivalry and tension, but on the whole the idea that we are all driven by greed seems, in my experience, to be totally bogus. The truth is far more subtle and flexible. Orthodox economics, clunky and rigid, assumes insatiable greed as one of it's foundation stones. Orthodox economics is going down!