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On the inability of Free Markets to solve problems

The ideology, or perhaps the theology of neo-liberalism is partly based on the idea that 'markets', that is to say, the scope of human activity where trade of valuable goods and services occurs, reveals a fundamental truth or reality beyond that scope of immediate trade. One could say modern Capitalism, or Neo-Liberalism is essentially a form of 'Marketism', where market forces rule all, judge all and value all. The exact name employed to describe this isn't as important as the realisation that underlying what we call Capitalism today, or Neo-Liberalism, or Growth or even The Economy and Society, is a fairly rigid belief system that market forces are behind much of how the world works, and that market freedom is among the most important freedoms for human liberation. It is an idea which some may argue over its correct taxonomy, but it is clear that it is a distinct thing. Many of its opponents, often people whom Neo-Liberalism has failed, critique the damage wrought upon the environment, the dog-eat-dog mentality which emerges, the financial crises the erupt like clockwork, but often fail to think outside the frame of reference of 'Marketism'.

I will look at three ways in which Market economics on its own can fail to solve major problems or provide a reasonable, dignified quality of life.

Markets can only provide marketable solutions to problems

The statement that a market system can only provide a marketable solution may seem like a tautology that carries no meaning or profundity, but it only does so if one believes that the limits of the market are the limits of human activity. Free Marketeers argue that the Free Market will provide solutions to problems, because where there is a need, there is the possibility of profit, and therefore an opportunity for someone to benefit by fulfilling that need. This simple analysis seems complete and logical but in doing so disregards quality and places no value on optimal solutions. When people are faced with a problem, a desire, a need or some other challenge which requires a solution, the best solution isn't necessarily the most profitable. We therefore have a disconnect. The most profitable solution, or the most marketable one, is not necessarily the one which most effectively and efficiently addresses the issue, and the more complex the issue, the greater the disconnect between the two is. A market may respond to a need to listen to music while jogging effectively and efficiently, but it is less effective when dealing with problems such as climate change. With this problem, the solution is presented as marketable energy efficient products, "green" technology, carbon credits, things which may at least slightly lower carbon output from what would have otherwise occurred. Missing from these marketable solutions though are caps on carbon output, regulation of industry, cultural change or prioritisation of energy expenditure. The prioritisation of where energy is expended is determined currently by the market, and the market in practice, has not been capable of regulating its use of energy to avert a climate catastrophe.

Cars are another example of a marketable solution to a problem, but not the most efficient solution. A car represents a sell-able item and exists as a solution to efficient transit. But if the problem to be tackled is moving around the city, this isn't the most practical efficient solution. Our roads are clogged with single passenger vehicles and people are taking longer and longer to traverse the city. One can find better solutions in urban design, public transportation and thoughtful measured placement of residential, commercial and industrial areas. Such a solution though exists outside of the market. Market forces cannot control city design writ large and no single company, entrepreneur, businessman or merchant has the power or inclination to approach the problem from this angle.

Governments and other organisations which act on behalf of a collective are able to implement such solutions, but Free Market ideology argues that the government should do as little as possible, and for many Free Market Libertarians, nothing at all. If Free Marketeers were to have their way, such solutions would never eventuate in the future.

A belief in markets solving problems therefore excludes all non-market solutions to problems, solutions which may be more effective, more efficient, or may be the ONLY effective solutions. The more our culture is framing things in terms of market economics, the narrower our scope for human ingenuity and problem solving becomes. Solutions which may have been trivial decades ago, such as prudent regulation disappear from our scope of thought and we are left with non solutions or a belief that nothing can be done.

Free Market ideology is egalitarian

Equality is seen as an unquestioned positive, and Neo-Liberals use equality in a cynical manner to support their ideological agenda. One of the fundamental tenets of Free Market Libertarianism is that all desires and all market activity is equal. The people who want to trade hardcore pornography have just as much right as people who want to trade pharmaceuticals or food. It is argued that it is left to people to determine what they want to buy, want to sell and want to produce, and that this very act of trade is sacrosanct, and cannot be interfered with. To interfere with it is a violation of someone's rights, and regardless of whether that person is seeking to buy cigarettes, amass residential property for their own petty insecurities, or fund development of software or research into Multiple Sclerosis, their rights are the same. As a result, the resulting transactions are deemed equal, and no one has the right to prioritise one over the other, except when dealing with their own personal transactions. So we observe people's right to buy up the entire street for no other reason than a personal whim to be equal to someone's right to buy shelter for their family. Someone's right to remove trees and wildlife from their property is equal to the rights of others to live in a world with nature. Someone's right to pollute as much as they wish is equal to someone's right to secure a future for their children without the disastrous effects of climate change. This ideology states that one person's situation, no matter how dire, or how much more it affects that person, should not impinge upon anyone else.

This ideology levels human needs, and despite being touted as equality, for most people this means their needs, their quality of life are subject to the whims of merchants and the elite. It stultifies political action by convincing people that they don't have the right to shape society in a way which benefits them and their nation. It is essentially a slave morality, and makes people subject themselves to forces that others control. It is ironic, as people like Ayn Rand promoted market capitalism as a force which empowers people to live in their own best interests, to liberate peoples own will to live from the demands of the masses, but in practice it forces people to voluntarily limit their political and social power, and accept intrusions on their quality of life in the name of the market.

Free Markets degrade the human spirit

Going back to Ayn Rand and many Free Market Libetarian thinkers, there is an emphasis placed upon the right of individuals to support themselves through their own work. The idea, noble enough, is that an individual has the right to the fruit of their own labour, and preventing a person from providing for themselves, and denying them the ability to use their own talents and efforts for their own profit is evil. This idea is the cornerstone of much modern freedom, and anyone who supports human freedom and dignity would support this notion, to a practically reasonable degree. Taken to its absolute thought, it works against the human condition. The original thinkers of the Enlightenment, and of early Liberalism saw this condition in opposition to slavery, feudalism and other systems whereby people worked for someone else. It was argued that it was a natural right for a man to be able to work for himself. This idea has been corrupted in the 20th and 21st century, and Free Market Libetarianism today posits this not only as a right, but as an ideal. Free Marketeers today also take it to an absolute, with many claiming that taxation, any level of taxation at all, is essentially no different to theft by gunpoint. What was a general idea of social organisation is now seen as a set of axioms to be followed dogmatically, even if people don't benefit from them.

Also, this idea has been taken from being one person's right not to be enslaved, either literally or figuratively, to an exaltation of work as a good in and of itself. Human beings are seen as Homo economicus, creatures who exist only to gain profit and in the metrics of what is desirable in life, everything which doesn't fit in with Homo economicus's need for profit is disregarded. Spirituality, nature, security, society, belonging. Only that which people do to trade goods counts, and all other aspects of humanity disappear, as they don't appear on the profit registers. Neo-liberalism therefore sees humanity as nothing more than people seeking to consume, reproduce and consume more, trying to consume more than they produce. There is no other goal than to grow and consume, and human beings therefore are seen as nothing but animals. Society, civilisation, should have no other goals, other than self-perpetuated consumption. Humanity therefore is seen as nothing but an endless competition for resources, with that scramble for resources being more honourable than art, contemplation or self enlightenment. In more enlightened times work was seen as an embarrassing necessity, and the highest act that one could take part in was art, politics, education and religious service. They saw the goal of humanity as not to perfect the art of acquiring wealth but to improve itself. Religion rightfully saw base lusts as desires as sin. It is no coincidence that, of the seven deadly sins, greed, avarice, pride, envy, are the most animalistic. Rather than succumb and nurture these, we should move beyond them. Neo-Liberalism however makes greed a virtue. Human beings are ranked solely on their ability to acquire wealth.

The natural hierarchy which occurs in market societies is therefore based solely on one's skill as a merchant. Regardless of one's ability to build, invent, create art, produce food or goods, teach, write or philosophise, one's success is based on one's ability to do business. Therefore, those who progress in companies and "win" at life are those that can play the corporate game. Whether an artist or writer, you are not judged by your ideas, but by your ability to sell. Banal pop music is put ahead of true art because it has a better marketing team. Even whether one can get a house these days is based on one's ability to play the property market. People absorbed into this culture judge a person's success of failure based on their ability to work a market. As a result, it is the merchant class that has become the elite, as the merchant class consists of those most adept at playing markets. People who have valuable social skills, but no desire or skill at profiteering, are left by the wayside. Teens that can't sell themselves in interviews are judged as lazy and a worthless drain on society. People who aren't competitive may miss out at auctions. People who provide no benefit to society, but are aggressive and acquisitive, are lauded as producers and job creators.

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The economic culture we operate in now, call it the free market, neo-liberalsm or the age of marketeers and entrepreneurs unfortunately knows the price of everything and the value of nothing. Only those involved in the exchange negotiate the price, but the value is endowed by society for itself and for the future. Society in its turn is ignored when the market rules. One or a few people's freedom can result in vandalism and a loss to the many where nature is concerned (and it usually is in some way) . The winners from the current economic paradigm, even if they are merely skimming a bit from the top,can delude themselves that everyone could have what they have; that others just haven't got there yet. But it would indeed be a delusion as what is being exploited largely cannot be exploited twice.

Thank you for your thoughtful article.

In fact there is a formal theory that causes our courts to assign right to the biggest profiteer, and the primacy of economic profit over environment and social rights is also enshrined in state parliamentary policy for interpreting laws. The formal theory is Coasian economics and pareto superiority. This was beautifully (or horribly, really) demonstrated in "Supreme Court today for the Orrong Towers and the Relevance of Residents' Objections in VCAT." I quote from my coverage of that case, below:

Economic theory behind our predicament

It takes being caught up in the undignified, expensive and painful reality of turbo development for people to begin to grasp just how mad our laws are and how weak our democracy. You can spend a lot of time trying to argue sensibly, writing submissions and getting nowhere. Meanwhile some corporation is making a lot of money out of your misery.

The economic theory behind this goes back to the 18th century in Britain, the time of the Restoration, where a particularly predacious kind of land-tenure law replaced an earlier kind that gave people more rights. Although enclosures had happened since the time of the Normans, the 18th century was particularly fierce.

“In the eighteenth century, when the British economy entered an unparalleled era of expansion, Britain’s Parliament began operating according to Coasian principles and reorganized property rights en masse. In the nineteenth century, when most common-law doctrines reached their modern form, doctrines of equity (enforced through the Chancery Court) dominated the conveyance of land. These doctrines were designed to protect beneficial interests, not to maximize productivity. Efficiency became a dominant doctrine in the English legal system only after Parliamentary intervention.”(Source: Bogart, Daniel E. and Richardson, Gary, 2008, June. "Making Property Productive: Reorganizing Rights to Real and Equitable Estates in Britain, 1660 to 1830."NBER Working Paper No. W14107, p.7)

Coasian economic theory was originated by Ronald H. Coase in “The Problem of Social Cost”, Journal of Law and Economics, 3: 144, 1960. The theory assigns value arbitrarily, according to the highest dollar profit probability. It takes no heed of non-monetary values and therefore is unresponsive to social cost or individual equity. [Extracts from Sheila Newman: Demography, Territory, Law 2: Land Tenure and the Origins of Capitalism in Britain, Countershock Press.]

And that is the key:

Coasian economics takes no heed of non-monetary values and therefore is unresponsive to social cost or individual equity

This works out to mean that big business can almost always claim to be benefiting the community because of large financial through-puts, and that residential or small business objectors are NIMBYs, with much lesser financial sums at stake. This method of appraisal of a situation almost completely ignores every non-monetary interest affected and lesser monetary interests of small businesses. Residents cannot claim financial costs that might be incurred, for instance through loss of sunlight rendering solar panels useless or vegetable gardens unproductive.

"Coasian economics takes no heed of non-monetary values and therefore is unresponsive to social cost or individual equity"

Economics is a model of human behaviour. If the model of human behaviour is incomplete, than the economic model must also be incomplete. Economic models tend to based on a 'Homo economicus' rather than 'Homo sapiens'. They are based on the hypothesis that human beings are rational wealth seeking agents, and that all interactions can be reduced to economic transactions. Therefore, if you understand the economics behind human activity, you understand how humans work. Some people have taken this to a logical extreme and as a result, books such as "The Logic of Life" have been written, which although interesting, are based on the idea that our brains are 'economic calculators' in all matters, not just purchasing goods, but in whether to continue smoking or give up, how to handle relationships, etc.

While its true that we have an understanding of physical economics (ie, that there is scarcity and we should seek to exchange goods for other goods with at least the same quantum of utility), this isn't perfect, far from it. It's easily corrupted, fooled, broken, subverted, inverted, deformed, malformed and scrambled. We can only try to approximate the read world, but ideology, lack of knowledge, denial and bias stop us evaluating it properly and we make economically 'bad' decisions as a result. Look at all the financial crisis and bubbles that come through reasoned analysis. Wall St traders literally become addicted to money making, and the chemical stimulus results in a different rationality coming through.

So I think its worse than simply not having non-monetary value not included in our accounting of the value of things, the minds which do that accounting can be flawed, and like a buggy computer program, good data goes in, rubbish comes out. That is to say, even if you DID account for all those externalities, a broken culture, broken education would still see bizarre behaviour. We couldn't "economically" manage things even if we did account for everything, so I think its better not to frame more abstract things such as environment, safety, social cohesion economically AT ALL but revert to more tried-and-true cultural and spiritual values.

A good article Dennis that captures the essence of many of modern problems.

See the this - perhaps start at 8.21: