The “Miracle” of the Market Can't Save Us From Ourselves

Inhis 1958 essay I, Pencil, Leonard E. Read celebrated the marvels of the free-market by describing a pencil’s genealogy, from forest to classroom. He argued that even for something as unassuming as a pencil, not one person has the knowledge, on their own, to obtain and assemble the litany of ingredients needed to create it. Instead, as if by a miracle, the free-market’s price mechanism guides the intricate construction process by introducing buyers to sellers, bringing the pencil into existence. The idea won more fame in 1980 when Nobel Laureate economist Milton Friedman featured the essay in his book and television show Free to Choose.

Read’s religious beliefs, and the prevailing zeitgeist of the time, influenced his praise of the free-market as a miracle. He sat on the board of the First Congregational Church of Los Angeles, the pastor of which was a staunch critic of the Social Gospel and of President Roosevelt’s New Deal. Read’s disdain for the socialistic perspective those doctrines advanced, which was anathema to America’s business community during the Cold War era, evidently informed his libertarian attitude toward economics.

It was easier to be a free-market fundamentalist during the 1950s and ’60s. The US economy not only averaged annual growth of 4.4% during that period, but was judged in contrast to the horrors and dysfunction of Communism. Given that context it’s not hard to see why a person would idolize the free-market, whose ability to coordinate people’s actions and allocate resources more-or-less efficiently is amazing.

That was then. Things look different these days, and this sure as hell ain’t your grandpa’s economy. Annual US economic growth has averaged only 1.4% in the decade since the Great Recession, and inequality has reached insane levels, about which most people are utterly clueless.

The problem is, market fundamentalism is a sort of secular religion. And it’s overrated.

There’s nothing miraculous about the market: it’s merely the sum of human desires expressed in monetary terms. And since we human beings are frail creatures, whose desires can be manipulated by appealing to our most primitive instincts and emotions, the free-market is only as good — or as faulty — as we are. The classic notion that a market is an arena where informed consumers make rational decisions is terribly mistaken. We don’t always act in our own best interest, particularly because there is a $500 billion global advertising industry whose sole purpose is to persuade consumers to purchase specific brands of commodities frivolously.

Inequality is off the f**king hook

In 2010, Michael Norton and Dan Ariely asked more than 5500 people to estimate the distribution of wealth in the United States. Their perception looked like this:

 

Figure 1 (Source: Norton and Ariely, 2010)

That’s cute. But this is reality:

 

Figure 2 (Source: Norton and Ariely, 2010)

The fact is that economic inequality is out of control, in terms of income in the United States, pre-tax…

 

Figure 3 (Source: World Inequality Report 2018)

…and income post-tax…

 

Figure 4 (Source: twitter.com)

…and income globally…

 

Figure 5 (Source: World Inequality Report 2018)

…and in terms of wealth in the US (calculated as assets minus liabilities)…

 

Figure 6 (Source: cbo.gov)

…and wealth globally.

 

Figure 7 (Source: World Inequality Report 2018)

It’s only fair to acknowledge that market forces are steadily lifting many people out of poverty around the world. Before we get carried away celebrating its virtues, however, let us not forget that those same forces allow a privileged few to collect the lion’s share of the world’s production, propelling them into untold riches. As I have written elsewhere, the current state of things is neither sustainable nor just.

Don’t put the market on a pedestal

Although the market provides us with much, it also fails to meet our needs in key respects. It even gives us certain things we don’t need and shouldn’t have. Everyone knows that cigarettes are carcinogenic, but people still smoke. Is that rational? We also love eating tasty junk food, which is why a report by the Global Panel on Agriculture and Food Systems for Nutrition warns that a third of the world’s population is at risk of being overweight or obese by 2030. Then there are several black markets where weapons, drugs, artifacts, animals, and even humans are traded illegally — there are an estimated 21 million people enslaved worldwide. In each of these cases, sellers are more than willing to indulge the vices we crave relentlessly. In each case, despite negative outcomes, the free-market is functioning perfectly.

The market’s “miracle” is that it uses the concept of price to quantify the value one puts on a commodity. But the value we place on something reflects how much we want it, which is frequently different from how much we actually need it. No one needs to eat shark-fin soup, own artwork made from elephant-ivory, or ingest cocaine. The free-market provides these things because it’s concerned only with desire as reflected by purchasing power, rather than considerations of personal health, social justice, or ecological sustainability.

The fact that the market equates buying-power with desire also leads to another weakness: it fails to incent the provision of things needed by the poor.

Take tuberculosis (TB), one of the world’s deadliest diseases. It infects one-third of the global population and killed 1.5 million people in 2014, yet the World Health Organization says there is a $1.6 billion annual funding shortfall needed to treat worldwide cases. How could such a serious and widespread disease be so badly neglected?

The answer is that, as a disease of poverty, TB mainly afflicts people living in developing countries who can’t afford to purchase expensive drug treatments. Legislated consumer standards make bringing a drug to market a very expensive process. Pharmaceutical firms won’t invest energy in developing a product unless they can expect to profit from it, and in countries lacking an adequate social safety net, poor people can’t provide the necessary commercial incentive. Instead, Big Pharma disproportionately focuses on ailments like cancer because people in the West can and will pay for the extortionately-expensive drug treatments it often requires. Figure 8 shows that where the free-market fails, the state is forced to pick up the slack.

 

Figure 8 (Source: nature.com)

Or consider the growing fears of an impending antibiotic resistance crisis, which reflects both types of market shortcoming. In an effort to be commercially competitive by maximizing the yield of each animal, some farmers overuse antibiotics to accelerate growth and prevent infections preemptively in their livestock. Even though there’s an established linkbetween reckless antibiotic use and antimicrobial-resistant bacteria in humans, the market motivates competitors to do whatever is necessary to get ahead, long-term consequences be damned.

 

(Source: dailyrecord.co.uk)

We know that new classes of antibiotics will be needed in the future to overcome superbugs. That robust demand isn’t present yet, though, so there’s little commercial incentive for the expensive, but necessary, preemptive inquiry. The market is not always good at thinking ahead. Most blue-sky research would not occur without government subsidies and intellectual property guarantees. Even then we’re still not out of the woods, because patents create monopolies which drive up prices on drugs that people desperately need. Meanwhile, patents that are too short encourage companies to sell as much of the drug as possible while the patent still enables them to collect a high price for it — even if doing so contributes to the very antibiotic resistance we’re trying to overcome. This is a serious dilemma that the free-market is powerless to solve.

The Market for Leadership

Democratic electoral systems also purport as free-marketism, even if some versions make a mockery of the word “free”. Although Russia possesses all the institutional hallmarks of a democracy, for example, power has famously become very centralized under Vladimir Putin. The regime there has been described as one in which

formal democratic institutions are widely viewed as the primary means of gaining power, but in which fraud, civil liberties violations, and abuse of state and media resources so skew the playing field that the regime cannot be labeled democratic.

The American variety, ranked as a “flawed democracy” by The Economist Intelligence Unit in 2017, also has its failings. Noam Chomsky and Edward Herman are most famous for theorizing that relatively free societies like the United States nonetheless manufacture public consent by using mass media to filter popular dissent. Between endemic gerrymandering, the imbalanced Electoral College, the massive sums required to run for office competitively, and a two-party duopoly that circumscribes the Overton Window, voters in the US have fewer true alternatives than it seems. Beware shallow markets, for they offer only the illusion of real choice.

Mirror mirror on the wall, won’t the market save us all?

There’s a balance to be struck, of course, because excessive market regulation has its own demons: the economic policies of Joseph Stalin, Mao Tse-tung, Pol Pot, and even present-day Venezuela have demonstrated that clearly.

Yet excessive market freedom can also precipitate supply deficiencies, be it too much or too little, leaving our most urgent problems unsolved. Key issues like climate change mitigation, nuclear disarmament, and anticipatory drug research demand enormous coordination and advanced planning; past challenges of such magnitude always involved state intervention. Several technological innovations that are popularly, but erroneously, credited to private entrepreneurial brilliance, like running shoes, camera smartphones, Global Positioning Systems (GPS), and even baby formula, were developed thanks to public funding from either NASA or the Pentagon.

 

Figure 8 (Source: businessinsider.com)

Thus is the conundrum. On the one hand the free-market is, in many cases, a remarkably efficient mechanism for allocating an economy’s resources. On the other hand, we need more than just efficiency. The market’s governing logic is based on competition, but human survival in the future will require immense cooperation, forethought, and discipline. The free-market is poorly equipped to provide those latter necessities because it is us, and we are it. It obeys our commands when instead it should question our logic, and it unquestioningly adopts our myopic views when we would be better served by a prudent second opinion. Unchained, the market leaves us exposed to the worst of our own primal devices.

Some preach the miracle of the free-market, but it would be foolhardy to take that as gospel. Market fundamentalism sings the praises of human freedom, but neglects to account for human frailty. We are indeed our own masters, and the free-market is a net-benefit to humanity. All the same, it bears reminding that being one’s own master is sharp at both ends.

Source: https://www.google.ca/webhp?sourceid=chrom...