Thursday, January 29, 2009

Free Markets

Gapper reports on a loss of American faith in the free market and suggests we might be back in 1919 when 'the public's trust in institutions is exhausted'. The comments on his post should be read. I'm not sure public trust in institutions is the issue here. Of course, nobody would now trust a director of RBS or Citibank as far as they could throw them, but trust in the British Museum or MOMA is probably unaffected. Companies should not really be seen as institutions, however reassuring their advertising. The issue is the free market. One side says this all shows totally free markets lead to anarchy, the other says free markets are the only way and they've never been given their chance because of government interference. The latter argument is just plain stupid because a) it sounds like those dumb Marxists who still wander around saying they are right but have never been given a proper chance and b) governments create markets. (And please nobody say - as somebody always does - that paleolithic man made markets. It's just not the point and if you can't see why, I can't help you.) The problem is, I think, the phrase 'free market' because it is utopian, there has never been and will never be any such thing. (Paleolithic man would have thought he was trading freely until Ug turned up with his mates and beat him to death with a mammoth tusk. Free markets, you see, are human and therefore not free.) What we should be talking about is levels of competition without getting hung up on the non-existent extremes - zero and total competition. Extremes let in dogma and subvert reason.


  1. Gapper's article mentions an "annual trust barometer report". A quick mouse across to this is enough to make one want to jump out of the window. The report is all about smug, rich people casting around for ways to grab even more of both.

    So maybe the issue isn't trust - whatever that is - or free markets. It's more basic than that: what kind of society do you want to live in? The answer will dictate how allegedly "free" markets and trust operate. Obama said that he wasn't in the game to help the prosperous to become more prosperous. I don't think that one's sunk in with the prosperous yet. At the moment they seem to be telling us it's our duty to help bail them out, pay the school fees and service the mortgage on the yacht and agreeable holiday home in sunny climes. The message from Davos is that the elites intend to hang on to every last bauble. Yuck.

  2. talk about it then.

    competition is all about winners and losers. no change since palaeolithic man but at least Ug was honest about being a self-serving bastard.

  3. The defining charecteristic of free markets is co-operation, not competition. Ug and Og were in pure me-first competition until the market came along and they found that if they co-operated and exchanged the different things that caught or made they both were better off, both winners!

  4. ...and along came capitalism and shareholders, and Ug said ''feck this co-operation lark! let's go back to how it was.'' And Og said, ''Yes, and I'm going to form 'government' and encourage you but rein you in at the same time!'' And Ig said, ''I'm going to invent the upper house and change my name to Lord Ignoble of Northerntown and not care who wins as long as I get £100k per annum...''

    And on the eighth day, God beheld his creation and said, ''I'm no longer existing for tax purposes''.

  5. I think the term "free" is meant as "free of distortion" for example the boom in property was the distortion, the fall is now the clearer view.

    If you are saying a market can be perfectly free from distortion. then that indeed is a Utopian pseudo scientific viewpoint. But I can only know of few who think that way, mainly Anarchists.

    So the "lefts" viewpoint is that the market failed, my viewpoint is that we failed as people/society and the market just reflected that failure. A less distorted market might have shown that failure sooner and pointed us sooner in the right direction.

    And a lot of that distortion was Governments themselves with regard to blind faith in central banks to understand international capital and monetary flows and the resulting hidden inflation, made into a nuclear weapon by Govt and companies alike not understanding the risks in the system.

    So it really is a matter of trust for me, can you trust the signpost that we are reading when we traveling to our desired destination?

    I do find it very far fetched that free marketeers like myself are supposed not to believe in the rule of law. Property rights and the resulting business transactions depend on the enforcement of a contract, so what we have is freedom under the law.

    The "lefts" view which is a materialist philosophy, thus things like "society" and "markets" which are social constructions as is "race" are seen by them to be unscientific. Thus they are anti-market.

    Markets just are, free or otherwise, its govts job when you stand on the weighing scale to make sure as far as possible that the scale is calibrated and is giving correct readings that can be trusted and verified. If it says 14 stone when you believed you are 12 stones, tough go on a diet and do some exercise don't blame the scales.

  6. ..Sir reason is not a priori.Extremes or no extremes (still an extreme ?!)middle of the road(whatever this might mean?)etc etc does not mean reason will be absent nor present.

    Smarten up Sister

  7. John Meridith above mentioned co-operation, and I am with him. One eye-opening book for me, has been No Contest: The Case Against Competition by Alfie Kohn. His focus in mainly on education, so at first his studies seem not to apply to the current economic debates. But one critical aspect within education, is that we teach our kids to compete, when co-operation is where productivity and creativity come from. So much of this is learned behavior, what Ug and Og teach their kids.

    Here are a couple articles by Alfie Kohn that apply more to the corporate environment versus the educational system:

    In Pursuit of Affluence, at a High Price

    Here is an excerpt from that article:

    There is a modicum of good news, Dr. Rindfleisch added. In a still-unpublished study, he and Dr. James Burroughs of Rutgers University found that while "people who are more materialistic tend to be unhappy with their lives," this effect may be moderated or even eliminated for those who have close, caring relationships.

    But the bad news, according to the Ryan-Kasser work, is that close, caring relationships may be among the casualties of a life devoted to getting rich.

    For Best Results, Forget the Bonus

    And here is an excerpt from that article:

    If rewards do not work, what does? I recommend that employers pay workers well and fairly and then do everything possible to help them forget about money. A preoccupation with money distracts everyone -- employers and employees -- from the issues that really matter.

    Those issues might be abbreviated as the three C's of quality: choice, collaboration and content. Choice means workers should participate in making decisions about what they do. Collaboration means they should be able to work together in effective teams. Content refers to the job's tasks. To do a good job, people need a good job to do.

    So what's the paradigm-shift needed? We need vision to guide our free and fair market decisions. That vision should be toward our communities. That's the heart and soul of where the best changes can be made. If a decision is being made, or an impetus is detected, that is disempowering at the community level, that's where the market or government must be checked. It's not always that federal or super-corporate control is a bad situation, but only when disempowerment takes place.

    One of the best ways to build community, is to look at healthy, thriving communities, see how they do it, and apply this to our own arenas. There is a branch of psychology for this, Community Social Psychology, that contains just such knowledge. It confounds me that UMass Lowell here has such a program, but the knowledge is hardly applied here, nevermind anywhere else.

    We have Alfie Kohn's knowledge about competition versus co-operation, but don't apply it enough. We have the knowledge about how to create environments that maximize healthy communities, but don't apply it enough. We pay people big bucks to run companies and banks, who go counter to what we know. We need to get to the idea that a fair market system includes everyone.

    I have become a Labor Republican, if there is such group outside of me. The basic GOP idea is absolutely correct, to keep political power as local as possible, to oppose big government. This empowers the community, and so community members.

    Another part of the dark force of centralization is that businesses, farms, banks, have become nation-wide. Local businesses cannot complete, and often are run down using the power of amassed money. A current example: one economically dangerous reaction to the mortgage situation is that big banks are starting to buy up properties defaulted on and held by local banks. But why is it dangerous? Because we have not thought it out. These aren't post-Obama new bankers who have shifted paradigms. These are the same bankers who have us in this mess. But, we only have these market forces to handle the situation, and nothing to ensure that the result will be beneficial to anyone.


  8. The emphasis on co-operation from John and Rus - who I assume may not agree on everything but are here co-operating in an exemplary way - is very welcome.

    At the moment "free markets" is at best an abstraction, at worst an insult. How insulting depends who's saying it and the context. I sympathise with Don the libertarian Democrat in the other place: "As for the free market, I’ll email you the minute I see it."

    If I run an innovative software business that is allowed to go bust if my products and services are not sufficiently wanted by others one year and someone at Davos runs a bank that is not allowed to go bust even if they have made years of dreadful decisions investing in CDOs they didn't understand that turned out to mask sub-prime hell ... then it's pretty hard to take that my lack of confidence in Davos Man is taken by him as lack of confidence in "free markets".

    It's those that have tried and failed as entrepreneurs that best embody the free market, in other words, not those who bribe politicians (to use a simplistic term that does the job) to avoid that fate.

    If banks were allowed to fail it would cause suffering. If they are never allowed to fail the suffering will come later and (I strongly sense but will not seek to prove in the confines of this blog) will be far worse.

    Forget the finer points of free markets. Two basic steps would help right now:

    1. Davos Man says sorry -- Michael Gove on Monday

    2. Bailout money is diverted into tax cuts -- Thomas Sowell on Tuesday

    As Sowell says, if it's such an emergency, why do all the proposed solutions take so long to have effect? He gives the reason.

    Obama worshippers have I assume been avoiding the "sage of Palo Alto" the last year. I made a point of reading every word as the community organiser from Chicago began to rise higher than anyone thought possible. I felt a fellow black who was also arguably the world's greatest living economist might provide balance. Just in case. Those "impossibly high expectations" everyone talks about happily don't apply to me as a result. I can only be pleasantly surprised. I pray that I am.