Category:Market's Edge
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WIP
This info will end up being broken up into different essays.
To the hard core "Free Marketeer" markets can never fail. Failure in the markets are always due to the imposition of non-market forces. "Regulation" is the usual bugaboo in the narrative.
In my world view, you don't need to know anything about markets to know this is a silly idea. Everything has it's place, it's time, it's requirements. The human body is a robust, remarkable piece of engineering but you can't take it into space. At the same time, a satellite designed to operate under hard vacuum would be ruined after a day at the beach.
Furthermore, talking about "markets" can lead to the same kind of mistakes one makes when talking about "them". In reality, there's no such thing as "the markets" or "a market". Each domain, at each point in time, in each setting has unique factors. This isn't to say that there aren't fundamentals, modes and processes that we can apply to many different markets, and it does make sense to talk about "markets" just so long as one remembers that it's a convenient and reductive fiction.
Markets are good at lots of stuff. So good, that I have been converted over the years to a classically liberal free marketeer in line with Milton Friedman and Adam Smith.[notes 1]
Contents |
Defining Markets
Originally, markets where a physical place. Sellers set up stalls in a designated area and buyers come to purchase goods. In modern times, buyers and sellers define a market. I.e., sellers of cars and buyers of cars constitute and define the car market.
It's fair to say that markets are defined by the presence of buyers and sellers. But the mere exchange of goods and services does not a buyer and seller make. The individual exchange must meet certain requirements and serve specific functions.
What They Do
- enforce responsibility
- allocate scarce resources
What They Require
When we talk about markets, we really mean "free markets" and freedom is fundamental to the existence of markets. Not because freedom is virtuous, but because freedom is necessary for the markets to perform the functions which define them. Having now examined those functions, we can discuss freedom as an operational question. In other words,
We understand freedom as a virtuous concept, but it can be more precisely defined by consequences. Meaning, the question here is not "freedom" in some abstract sense
Freedom, however, is not merely the absence of overt coercion. When there is only one offering, there is no choice and therefore no freedom. When there is misinformation
The Market Spectrum
Competition
Markets rely entirely on broad and robust competition. Without competition, they function poorly or not at all.
It's not possible to enforce responsibility when there are no alternatives and there can be no allocation of resources when there's no one bidding on that allocation.
The desktop operating system has existed for nearly three decades without a serious market.
On Charlie Rose, Ken Auletta[1] said that Random House was the only one of the 5 publishers who was going to keep eBook prices at $9.99 while all the others were going to $13.99.[notes 2] The others were upset because Random House was breaking ranks. So we have a situation where 5 players in the market are not enough to ensure competition... instead of bringing down eBook prices to something reasonable, they use the entrance of a new player--Apple--to raise the average price significantly.
Abundance and Artificial Markets
What to do in the case of abundance is not clear.
- Joseph Kennedy built fortune on unethetical stock market manipulation (would be entirely illegal after reforms of the 30s) and bootlegging; in other words, he was a criminal whose fortune allowed his sons to shape American politics for 50 years. JFK's victory was entirely dependent on the families crime connections. "The American Experience." - bad at relegating responsibility at the individual level (managers) - easy to manipulate at the margins for personal gain - a cohort of edge manipulators in a large market can actually subvert and distort even large and otherwise robust markets
Failure to Allocate Personal Responsibility
Markets are the macro emergent of micro activities. They are related to and effected by aggregate micro activity, but are fundamentally macro in scale. They are therefore poor at relegating responsibility and transmitting effects to the micro/individual level.
Over time, this means that the rich get richer despite the relative disadvantages of being rich precisely because they can act contrary to market forces. We can see societies flourish where the rich interfere the least with the non-rich--where economic growth is greatest. At the same time, however, there is always a tendency to the rich to abuse their position more and more, sapping the resources of the non-rich and effectively removing resources from the real economy. It's not unheard of and can even be said to be rather common that entire economies and even societies can fail due to this effect. To some extent, the story of the modern era is that the rich have learned to curb their abuses just enough to keep from killing the golden goose.
References
- ↑ 4/23/2010, about 15:00 minutes in.
Notes
- ↑ I've considered myself 'libertarian' for quite awhile, however this was initially more from a place of distrust of government more than a trust in markets. At the same time, I didn't much trust markets. As far as this article goes, I've also come to have much more trust in the robustness of markets at the macro level despite the problems I discuss here.
- ↑ Amazon had originally, more or less, set the price at $9.99. Apple worked with the publishers to renegotiate the $13.99 price.
Pages in category "Market's Edge"
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