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Then the Gods of the Markets Tumbled
Early on in one of my harder math courses at the university, the professor stood up in front of the room, writing on a chalkboard. He proved that all possible problems of the class we were studying had a solution. He was quick to point out though, that no one was guaranteeing that you could find it. I spent the rest of that semester increasingly frantic as I couldn’t find those solutions.
All too often, when presented with a problem, conservatives will wave our hands and say “the market will provide a solution.” The certainty of our inevitable triumph absolves us of any need to bother with anything in the meantime. And make no mistake; I believe in the inevitable triumph of market forces as much as anyone. But we should spend a little time thinking about what all that implies.
The market is slow. Communism has been a failure wherever it’s been tried, but somehow we’ve had three generations of murderous scumbags ruling in North Korea. That regime can’t last forever but it has lasted for several decades. From the moment the Soviet Union was born out of revolution it was doomed. That didn’t prevent the Holodomor, or save uncounted multitudes from the gulag. Quite a lot of awful things can happen while we wait for the market to correct itself.
The market is unpredictable. The New York Times (a former newspaper) is still making money. Isn’t it obsolete? Shouldn’t a print medium have gone out of business by now? Maybe; word of them having layoffs always brings a smile to my face. Maybe the market is still correcting and we’re just waiting until they lay everyone off. Maybe there’s still enough value in what they create to pay to keep the doors open. It’s useless to wait for the market to solve that problem if the market is balanced already.
The market is chaotic. There’s still good money to be made in a dying industry if you play your cards right. And you can still end up bankrupt in an up-and-coming one even if you did everything right. The only way that the market rewards or punishes people is through money. There’s a lot of noise in that signal. One shouldn’t attribute too much virtue to someone who succeeds, or too little to someone who doesn’t.
The market is amoral. Not immoral, just completely indifferent. Someone was telling me about the difficulties in returning their rented cable box. The company makes money if they can charge you for it, and they’re already losing you as a customer. It’s in their economic best interest to abuse that process. Makes life worse for you the consumer, but there’s very little market incentive to change.
Some problems are resistant to market forces. Smoking weed is pretty much a dead end in terms of making money. People still do it though. Definitionaly market forces can’t demand every single person do one thing; the people have to be responding to their own incentives and making their own choices. People are chaotic; they won’t all choose the same things even given exactly the same circumstances.
Statistical effects don’t balance out in individual cases. If I lose my job maybe I don’t get another. Not because I’m not qualified or because I didn’t plan sufficiently. Statistically speaking, some people get the shaft. In a similar sense, you’ll find occasional people on this site who benefited from Obamacare. The thing is a train wreck and ruining the economy and all that, but they rolled the natural. Maybe I would have gotten another job, maybe Obamacare’s implosion would leave them worse than before. Maybe we die before that happens; there’s no karmic balance sheet that has to add up.
What does all that add up to? Before you tell me the market will solve a problem, stop and consider it. Will it solve the problem quickly, or slowly? What immediate problems is it generating while we’re waiting, and how serious are they? Is the market pointing towards the solution you want it to? If it’s not, what incentives do you have to adjust so it is?
And for heaven’s sake, show a little empathy when someone gets kicked in the teeth.
In “I imagine you already know this” news, the title is taken from the poem The Gods of the Copybook Headings by Rudyard Kipling.
Published in Economics
Not sacred, just next-to-impossible to get it to go where we want. Like my cat.
Pretty much.
Mystery, yes. None of us have any idea what the workplace will look like 50 years from now. The same was true 50 years ago.
It’s certainly not a vote-winner. But then again, it’s also why I could never be a politician.
I don’t think any form of government can rule forever. And if an increasing pace in change coupled with an increasing sense of unpredictability and uncertainty about the future is what eventually dooms democracy, so be it. However, I’m not convinced that the question of technological progression & disruption is inherently linked to democracy.
The trade off, of course, with that model is this: it has a horribly bloated bureaucracy with ungoverned technocratic impulses. In Europe it does indeed control the means of production, or at least heavily direct them to the point of creating cartels and highly regulating minutia past the point of reason. One need look no further than conglomerations like Airbus, and one need look no further than the ridiculous and petty interferences like the banning of lead in practically everything without regard for the consequences. And it is hard to argue that European society is necessarily healthy or moral in the long term, what with the decline in marriage and family. Too much social democracy enervates society by removing the desire to look ahead to the future, or to the spiritual. It is like the French Directory period, corrupt and amoral.
Not to mention a number of those social democracies are, or soon will be, dismantling large portions of that safety net because they simply can’t afford it.
I currently live in Germany so I get to see these downsides every day.
On the other hand, the closer one looks, the more one sees that a) the differences aren’t always as great as they might appear from the outside, and b) America isn’t all that far off from European-style social democracy, we’re just much better at hiding it (particularly from ourselves).
Boeing benefits from government favors to an incredible extent; the number of children with one parent is higher in the US than Germany; starting (and running) a business here is equivalent to about 1/2 of the states in the US; and of course, the big complaint among Republicans is “our government isn’t accountable to us anymore”.
That’s not to say the differences which do exist aren’t real. It’s to say that Americans shouldn’t kid themselves about Europe being much worse off. Having lived in both, it’s a toss-up as to which will crumble first.
And in any case: if the European model doesn’t work, and our current American model doesn’t work, which one does?
As opposed to Social Security and Medicare, which are on solid financial footing for the next two decades.
Oh, wait….
I was pointing out that their model isn’t a solution to our problems.
Define work?
Not arguing with that at all. If all things were measured equally, I’d say the US likely is spending even more.
Well, that depends. The employment laws in Germany make it significantly harder to fire anyone there compared to here. The important difference isn’t necessarily starting a business, it is in how you are able to run it.
Europe is more invested in stasis, which has the risk of rotting out from inertia – indeed crumbling from lack of renewal or desire to renew – malaise.
America cannot stop with wild and schizophrenic swings between stasis and forced changes, frequently demanding both at once and damn your eyes for daring to point out the dichotomy. This has the risk not of inertial malaise but of violent and sudden fracturing, like taking a frozen glass and plunging it into boiling water.
I can actually envision some European countries weathering the baby boomer storm better than the US thanks to their existing models.
For example, here in Germany, there is an established source of well-educated cheap foreign labor (from Eastern Europe); living in small, densely-packed apartments is already a way of life; and perhaps most importantly, there is already a system in place to ration health care based on medical benefit and need which is widely accepted.
In other words, when the money runs out, the resulting belt-tightening might not be as much of a body blow in countries already well-versed in doling out government resources which are less than the public wants. Based on the absurdity that was the Medicare Sustainable Growth Rate, I shudder to think what the bloodshed will look like when Medicare funding goes negative and we need to start actual rationing.
Of course, it’s always possible that “EU solidarity” will cause even the better-funded and -prepared European countries to get yanked off the cliff by their more profligate brethren.
I think mass immigration is what is going to render that social contract null.
Gentlemen, I have things to say but I’ve got to get to work right now. I’ll speak with you later.
I’m just repeating this because it’s so very true.
And, because I jumped the gun to make this reply before reading any further, this is most likely also a repeat: Sometimes the only defense of free enterprise is that it’s better than the alternatives.
It might, but that remains to be seen.
Americans (especially on the right) have such a fetish for Islam that they forget the main source of cheap immigrant labor in the EU is from Eastern Europe. Indeed, the real boogeyman in the Brexit campaign wasn’t Jihadi John but the Polish Plumber.
Especially for countries which already border Eastern Europe, the impact of their labor isn’t nearly as stark as either Middle Eastern immigrants or even Latino immigrants in the US. Eastern Europeans tend to be culturally quite similar, they can assimilate very easily, and they’re better educated. Perhaps most importantly, they can fly back home in a few hours for less than $50, which means many of them don’t set up a permanent residence in their new country and go back home when they’re job is finished.
Sure, immigrants from North Africa and the Middle East exist and are indeed a problem. But their actual impact to date has been less than the sensational stories that hit the US.
I think the problem isn’t the immediate impact its the impact in 30-40 years.
Exactly. And a hardboiled conservative typically loves his Mencken.
I think a quote from Gary Schilling is quite appropriate here: “The market can remain irrational longer than I can remain solvent.”
That’s really what it comes down to — the triumph of the market means that in the big picture view, more people are successful than in any other system. It makes no promises regarding any individual.
An analogy might be how Christians believe that the church is lead by the Holy Spirit. It however isn’t in the business of sending bolts of lightning to zap anti-popes and heretics.
The search for a secure world will continue. It will also continue to be frustrated. Heaven cannot be found on earth. Hell sure can.
That is the answer every politician gives, Titus – change things to fit American needs. And it’s no kind of answer, because it’s every and any answer any American politician might advertise at any time.
No, Titus, the fault may be I understand the failings of theses stories too well. But that is a conversation for another time.
Midge–I explained below that line one important, maybe fundamental thing, to do with how technological change is understood, so far as its effect on the economy is considered: Whether it amplifies human powers or removes humans from work.
Nobody knows what it’s going to be like in 40 years-
Why don’t you consider a China model?
Why do people on the right avoid talking about China?
I’ve read many business books over the last twenty years, so when I say this post is a truly great essay, I know what I’m talking about.
Well said. :)
Avoid talking about China? I don’t think we do. Avoid talking about China as a positive example? Yes, that we do, because we don’t see China as a positive example. To most of us, what we see and “know” of China is: Authoritarian. Dismissive of human beings as individuals. Internally corrupt. And it appears to us that any recent gains in economic freedom in China are concentrated and fragile.
These perceptions may be in error (and, certainly, this very short list I’ve given has no room for nuance). But this would be why we don’t even consider China as a model that has anything to offer us [that we want].
I admit to being a bit distressed by the tone of many here. The importance of free markets isn’t in the outcomes they provide – although they do that remarkably well. The importance is the “free” part. The outcomes, for good or ill, are the result of choices freely made by the participants. Any process that impinges on that freedom is a process that uses force to achieve its goals. And that is the beginnings of tyrany. Communism isn’t bad because it’s outcomes were bad ( though they were horrific) but because it used force to achieve them.
You are correct that “free” is the truly important part. But we also know that most people are practical beings first.
There’s a point when words become abstractions. We’re “free”. We all know why the quote marks are there, because there are limitations on that freedom. We get too easily into pretending that everyone else, therefore, are slave states without freedom–Britain; Ireland; Canada; Germany–all “unfree”. This is baloney, which is why the rest of the world doesn’t take us too seriously when we act like the differences between US Medicaid and the UK’s National Health Service make us the last remnant of freedom on Earth.
If it’s baloney then we are no better than the Socialists. We just have a different basket of goodies we want to force on people. Bernie Sanders in cowboy boots
We have a lot of socialism built into our economy. And I think that is a good thing. I like to think we have struck a healthy middle ground between all-out socialism and all-out free markets. That said, where socialism is less restrictive and less taxing (our food industry, for example, which provides food at all prices for everyone), it succeeds here beyond anyone’s imagination, and where it is most intrusive and taxing (education and health care), it fails abjectly.
From the 1900s through the 1960s, socialism was sweeping the world. The pressure within the United States to embrace socialism was intense. I wonder lately if the New Deal kept us from becoming a full-on socialist economy, and I wonder if the legitimate fear of being infected and killed by the socialism virus on the loose in Europe and Asia was what motivated so many Republicans to support it.
As an aside: The two types of economies are more properly called “socialist” and “free market.” I have learned this only recently when I read two books (this is one of them) about the history of education in modern China. The Russian and Chinese intellectuals who still adore Karl Marx see “socialism” as the name of an economic system. “Communism” is the name of a government system. It’s a distinction Solzhenitsyn made, but it didn’t really sink in for me until I read about socialism and communism from the perspective of someone high in the government who had lived through the last sixty years in China.
It would be very helpful for conservatives to use this terminology of “socialism” and “free market” consistently in talking about taxation and economics. The reason is that when we say “communism,” the Democrats and progressives reject our argument out of hand because they see it as extreme language. They agree unequivocally that communism always leads to the utter destruction of whole countries. Democrats think, however, that we can be socialist without being communist. They look at Canada and Denmark, not China and Russia.
In our counterargument, we need to say forthrightly that it was actually western European-style socialism that so utterly destroyed China’s and Russia’s economies under the Communists. Denmark’s socialism cannot be transposed onto the United States successfully, and that’s what we need to stress. For many reasons that we should enumerate, it cannot work in a superpower populous state.
Darwin got his insight from Adam Smith’s invisible hand. Hayek and the Austrian school went in that Darwinian direction and the American school went toward Newtonian physics and Marshall’s models. Hence Americans speak of the market fixing things, or regulators tweaking the market to fix things or macroeconomic fiscal policy to cure market adjustments. That school builds models and uses equations and math and national income accounting and macroeconomic interventions and regulatory tweaks. Hayek rejects such notions and said that there are no economic datum and to assume that there are in order to build models leads one to believe that a centralized authority with more information and a broader view can do a better job of creating prosperity and avoiding harm than freedom’s chaos under the rule of law. We use the term market when we mean freedom under sound law. There are lots of law’s and systems that empower government decision makers, large and small, including dictators, to which we all must adjust. These adjustments can also be called market forces. Every human interaction can be modeled in the abstract and marginal analysis used to speculate about behavior but in the overwhelming number of these interactions there are no monetary exchanges that leave data which provide information to actors about the costs and values of the things they buy or sell or think about buying or selling or making. We call these instances market forces or indicators or markets. The fact that they kick up numbers called prices that capture an infinity of information creates the illusion that the process is centrally controllable, It isn’t. (At least liberal Democrats are consistent, they also want to control and regulate the infinitude of other human interactions that aren’t captured in prices.) Conservatives are now struggling with trying to change a century of superstructure, laws and regulations built under the false assumption that we can use markets or government controlled markets to fix things. While we’re not able to fix things nor manage an economy centrally, we do have to have laws, and revenues, and public goods, and security, and a legal framework that protects freedom and property and in such circumstances it is vital that we know what incentives we are creating to which an infinite number of adjustments will take place. In this sense we must focus on market forces even as imperfectly as is within our meager powers.