All hail The Market

Kings used to assert their authority as “divine”, and therefore not challengeable. Today, a bodiless idea called The Market rules the same way. We are subtly conditioned to think of this perfection existing somewhere in the universe, undetectable yet all pervasive. By now, we all instinctively “know”, don’t we, that whenever a government tries to interfere with it (say, aiming to reducing inequality or insecurity), we pay through “distortions” and “lower efficiencies”. This worldview changes everything. For example, if not with the program, you may think that in the US during the great depression there were appalling, long breadlines and that unemployed people were selling apples on street corners to survive — but to a pro-market Herbert Hoover this would just mean unusually high demand for bread and apple-selling being more profitable than usual, respectively (well, the first is speculative, but actually, Mr. Hoover is on record for saying the latter, without a hint of irony).

Seeing the end results in such a twisted way is clearly bonkers, if not an outright lie and deception, but bonkers is what happens when the pernicious underlying assumption (that “it is so because market forces have determined to be thus”) is so blindly accepted.

There is nothing pre-determined when it comes to markets. Governments don’t stay out or intrude into, but in fact a) CREATE every single market and then b) SHAPE everything about them. They have to — free markets need the policing, for obvious starters, but more importantly, actual free markets need so many conditions (low entrance/exit costs, information symmetry, many buyers/sellers, etc.) that they would never exist on their own. Markets that have imperfections (so that’s almost all of them) need other man-made imperfections to improve outcomes — for example, since not all companies are of equal productivity, legislating a high enough minimum wage actually improves living conditions by forcing labour to move to more productive companies (see Lindner et al 2020).

Even if something approaching a pure markets comes into existence, most disappointingly for the pro-market brigade, its outcomes are often sub-optimal. For example, investment markets are held to be allocating capital efficiently, but now we know the best strategy for investment is not to put money into what we think is worthwhile, but what other people think is worthwhile. As Keynes said, “we devote our intelligence to anticipating what average opinion expects the average opinion to be” — so this market serves up a distorted price signal at a cost of the waste of the precious, rare commodity! Another example is a constant bane of competition economists’ lives: without secure, well-funded players able to afford longer-term planning, there will be little innovation — but with well-funded players able to overpower competitors with innovative products, monopoly-like dynamics are a constant risk. Ponder this for a second.

Sometimes the market-dictated outcomes will be completely unacceptable to any thinking human. Historically and now again, India uses direct governmental (non-market) measures to smooth over the food shortages that the unreliable monsoon rains causes in regular intervals. However, during Adam Smith-influenced, pro-market English rule, sticking to the market-derived prices and product movements, tens of millions of Indian died of hunger during those regular monsoon failures— a colossal human suffering solely due to the pure-market craze of Smith-acolytes.

1–1.5 million Irish starved to death while food was being exported in around 1850. Relief committees were forbidden to give food to the “work-ready” starving at below market cost as that would have interfered with the market.

Or consider US, the current custodian of the free-market ideology. When (due to the otherwise very profitable business of owning the world reserve currency-another juicy story) the US was dealing with persistent trade deficits with Germany and Japan in the 80s, it intervened in the market by forcing the trading partners to lower the relative strength of US dollar and thus “restore” US competitiveness (being a currency manipulator is only a negative term if others do it).

So, creating markets, shaping them to bring about optimal outcomes, and overriding them when necessary is a careful balancing act, and instead of that simple, universal, efficient free market we have a complex, changeable man-made landscape. Furthermore, in real life markets are not value-free and neutral — they also reflect the power structure of the society (well, they reflect the societal norms also, but those norms are also largely created by those in power). Our slavish devotion to the market itself is a good example of our values being shaped by power. The myth of the mystical, Kantian-transcendental (a priori) free market is propagated by the powerful simply because it hides the influence of and the benefits to the powerful, and cuts out discussion about what rules need to be altered. It is also a highly refined irony that those that have the most influence how the market is shaped will be the most active spreaders of the mythology of free market — just think of the government of Reagan being “afraid” of the government.

(As an aside, this “black is white, white is black” tactic of 180 degree disorientation is used extensively by all culture-war propagandists: in countries with right-wing governments, apparently the left “woke” rule, in Christian populist parliaments somehow the Muslim get the preferential treatment, bushfires are the fault of the environmentalists even where there is not one green representative — let alone green government, powerful white male voices complain about being “cancelled”, and the strong defenders of free expression attack the “snowflakes” that take a knee in support of human rights, as if that was not free expression).

Tax policies (man-made, clearly affecting the market and with clear beneficiaries and losers) give us the clearest examples of power structures influencing markets and speak out in defence of free markets at the same time. For example, the tax code in my country taxes capital gains at half the rate of ordinary income and the excise on truck fuel (business expense) is also half compared to passenger cars (consumer cost), despite the massive damage trucks cause to the roads (for an extra dose of the absurd, road maintenance is paid from the very same excises so lopsidedly contributed to). These policies “distort” markets — discounted capital gains drive up asset prices and lower fuel excises put more trucks on the road at expense of freight trains — but owners of assets and truck companies benefiting from these market-distortions will publicly decry interference with free markets to their dying minute.

Revolutions eventually did challenge Kings’ rights; the emperors were found to be without any attire (sometimes even without a head). The Market, our current monarch, can and will be found similarly disrobed. Hopefully that happens before too long, and hopefully it will not be topped off like some obstinate rulers have been. A simple demotion would be the best — we just need markets stop being served and be made to serve.

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10AM Jam

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