Making the market work for humans

Much contemporary economics is underpinned by the ‘infallible market’ hypothesis. This hypothesis possesses an irrefutability rivaled only by religious convictions.

The market is held to unerringly seek efficiency, where efficiency is defined as whatever the market seeks. If the market fails, it is because of interference, where interference is defined as whatever causes the market to fail.

Markets are held to be incapable of producing undesirable results on the grounds that what is desirable is simply the sum of all desires, and that such is expressed by the market. In other words, what people spend their money on is the same thing as what they want.

Aside from these recursive arguments, there are many other problems with this view, not the least of which is that it is easily demonstrable that systems of freely competing individuals do not produce the best results: Braess’s paradox, the Downs-Thomson paradox, the non-optimal nature of Nash equilibria are all examples; as is trying to get out of a burning building: in the free market, everyone burns to death as we express our desire to get to the exit by elbowing our competitors in the face, otherwise, a fire marshal conducts an orderly evacuation, giving everyone a better chance of survival.

A practical example: free-market reasoning would predict that unemployment would be lowest in an unregulated labour market; but this is also false: other things being equal, unemployment is lowest in countries with a high level of unionisation combined with coordinated collective bargaining with employer organisations.

And by what definition of “free” is a desperately poor person free to work or not for an exploitative employer?

In Australia we have seen attempts to marketize everything, with results ranging from good (in the case of telecommunications), through bad (other public utilities) to disastrous (jails). Despite the fact that nowadays the vast majority of people would like to buy back the worst cases, this doesn’t happen because free-market ideologues in government tell us it’s better this way. A little ironic.

Outside the U.S., not all threads of libertarianism are market-centred. Indeed, the capitalist market depends on notions of private property enforced by social norms otherwise known as laws. This fact is a chink in the armour of capitalist (“proprietarian”) libertarians.

The market is just one aspect of human society, interacting with (but not predominant over) science, politics, culture, family, language, religion, sport, philosophy, etc., and as such involves balancing individual liberty with overall benefits. The road system is similar: we may efficiently discover where roads are needed by letting people go where they will, but if the resulting maze is suboptimal, we may rationally intervene to improve it.

In both cases, they exist to serve human society, and not the other way around. The moment the market is producing detrimental results for humans, we should fix it. To suggest otherwise is mere ideology.

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