The wonders of the Market

Courtesy of the intriguing 'Thoughts on Economics' Blogspot, I found this quote from the great guru of market-based equilibria, Leon Walras;
"Equilibrium in production, like equilibrium in exchange, is an ideal and not a real state. It never happens in the real world that the selling price of any given product is absolutely equal to the cost of the productive services that enter into that product, or that the effective demand and supply of services or products are absolutely equal..." -- Walras (1954: Lesson 18, Section 188).
This blog likes its little lists. Way back, my list of those powers who have ever won any war in Afghanistan was a bit of a hit, and past lists of what Britain needed to do to save itself, when the going was good, did raise the hit rate a little. So, I thought on this lazy Sunday,that I would compile another little list, with links, partly for my own benefit in the future.

Here's a list of market failures attributable only to the workings of the sort of market that various people have been worshipping for years;
1. The cost of the collapse of a derivatives industry 'worth' $85 trillion.*
2. The Bailouts.
3. The BP Oil Spill.
4. The true cost of the Private Finance Initiative.
5. The burden of student debt.
6. The employers' understanding of the reality of human exploitation, here and elsewhere.
7. The public debt of the EU, the US, Japan, and the UK.
8. Food Supply in a fully Free Market.
9. The true level of unemployment in the UK and US.
10. What Flexible Labour Markets Really Mean
11. The Value of Big Oil's subsidies, wars and pipelines.
12. The Subsidies to the Car Industry.
13. The Social Cost of Private Healthcare.
14. The Social Cost of Wal-Mart.
15. The Subsidised Defence Industry in the UK and the US.

As one blog puts it, the Atlantic rim now hosts large banana republics with no bananas. Still, at least Friedrich Hayek began to get the point, before the end;
Nor is there any reason why the state should not assist individuals in providing for those common hazards of life against which, because of their uncertainty, few individuals can make adequate provision. Where, as in the case of sickness and accident, neither the desire to avoid such calamities nor the efforts to overcome their consequences are as a rule weakened by the provision of assistance, where, in short, we deal with genuinely insurable risks, the case for the state helping to organise a comprehensive system of social insurance is very strong. There are many points of detail where those wishing to preserve the competitive system and those wishing to supersede it by something different will disagree on the details of such schemes; and it is possible under the name of social insurance to introduce measures which tend to make competition more or less ineffective. But there is no incompatibility in principle between the state providing greater security in this way and the preservation of individual freedom.
I think that market theorists fail because they either start from a Utopian position of human perfectibility and rationality, or because they engage in a sort of recursive moral mathematics in which their proofs prove their own foundations. I'd like a sort of economics that allowed for flawed human beings, acting not completely rationally and often in groups, to develop a free society in which limits, balance and happiness mixed with the protection of the weak as far as was possible, were the touchstones. I'd also like the state to be run by people who understand that they, and the economy, are there for us, not vice-versa.

Roll on Distributism.

*See Toni in the comments for an upward correction to this figure


Toni said…
Unfortunately, the nature of people who seek positions of power means that they can never accept that they are here to serve the people. The Romans knew it, Napoleon knew it and Hitler and Stalin knew it.

Social insurance should be the right of everyone in this world, countries like the UK that exploited their own people for hundreds of years and generated wealth should have an obligation to provide a safety net for people. Obviously the UK provides more than most countries, otherwise why would there be so many immigrants headed here rather than countries with a higher standard of living such as Scandinavia or Germany. The two hundred and fifty years or so that the UK ruled the world should have generated so much wealth that no British person should live below the poverty line. As we know that wealth was never fairly distributed. Mind you in comparison to our American cousins, we are practically a nirvanna. The American century and its global dominance is almost over, (most people say America became the number one economic power around the time of the second world war, but it was clear even before the first war that America would overtake the UK). The Americans never even installed a basic health service and one wonders what will happen to America in the future as its debt outstrips its capacity to service it. No matter what people say China will not be the next superpower. They and the Indians have economies based on selling or providing services to America and Europe. If we are not buying, they are not selling, then you have two and a half billion people looking for work. a tinderbox situation if ever there was one.

What bothers me most about the UK is the lack of accountability. The press is very good at reporting on the thirty eight million labour spent on Gypsy camps, but UK finances are generally a mystery. I was doing some consultation work some time ago for a foreign owned investment bank that had a very active commodity business and I wondered since North Sea Oil was first started to be commercially extracted, lets say mid seventies. How much revenue has the state made. At its peak the North Sea produced about six million bpd, roughly equally split between us and the Norwegians. Now if you consider the tax at extraction, which was raised under Tony Blair, the tax at point of sale, the corporate taxes, the vat etc, how much money was made? Being conservative you would have to estimate it in the trillions of dollars - where did it go?

By the way, good list, but the notional value of the derivatives market is over six hundred trillion but a lot of that is offset. The cost of the bailouts is estimated at around six trillion, not including Fannie Mae and Freddie Mac, which made it the single most expensive expenditure of money ever, (world war two was estimate to have an inflation adjusted cost of four and half trillion dollars), although these things are impossible to estimate I am fairly sure the war number doesn't include post war reconstruction in Germany and Japan. WalMart is the classic example of western retailers. We want to be green and free trade and all that but we also want cheap prices. WalMart is equally destructive to its suppliers as its staff and customers. I met an executive from one of their major grocery suppliers in the US and he said the worst thing you can do in our business is not have WalMart as a customer, the second worst is have them as a customer because they kill you on the margins every quarter.
Martin Meenagh said…
Thanks for the comment, Toni. you know what I think, which is that there is something very deeply wrong with the west, and with the world economy in general. It spreads out materially, but is also a spiritual sickness; much better and wiser people than I have called it a culture of death. I think that, maybe, we could wake up in time--normal people are resourceful , determined, and sane much more than they are not. Yet we have such strong structures of social control, all the worse for being debt- and media-based and therefore possessed of the illusion of freedom.

You're right about North Sea Oil. There's the Thatcher wirtschaftwunder right there, and something that I think of as largely wasted. We're now in an even worse situation that Britain was before that arc, though, because the world economy has been hollowed out and irrationally rebalanced. We've gone two hundred years back in time, to an Indian Ocean world, and eighteenth century economic ideology, but with the dollar, the global credit market, and oil as phantom links holding the present together. Once they lose critical integrity, everything hits the fan.

Wal Mart can be trammelled, more hopefully--the tale of them being pushed out of Germany is wonderful to read.

DBC Reed, who sometimes comments on here, thinks that a land tax is critical step in rebalancing western economies. I keep trying to find the time to blog on it, but I suspect that it could only realistically happen after a crash. I'm also trying to find alternative economic sources and ideas to the prevailing consensus, and will try to blog on that soon.

All the best!