Browsing the blog archivesfor the day Wednesday, July 22nd, 2015.


There Is No Invisible Hand

big picture stuff, economy

This cartoon sums a lot up for me. I remember back in the 1980s when I was living in New Jersey and looking for a decent, affordable apartment for me and two little kids. Nobody was building affordable apartments. There was much building of McMansions, yes, but there there was a shortage of decent lower-rent apartments. And every day I passed a huge, newly built industrial/office complex that was completely empty. Months went past; it remained empty. There just wasn’t that much demand for office space, I guess, or else the builders miscalculated what people would be willing to pay in rent. And I understand there’s a glut of McMansions in the New Jersey real estate market these days.

See also “The Old Suburban Office Park Is the New American Ghost Town.”

Now, proponents of Free Market capitalism will probably argue that the Free Market was not at fault; it was bankers, or the Federal Reserve, or something else that caused investment in the wrong thing. But this assumes that the Free Market is a thing that exists out in the ether somewhere entirely separate from banks and financial policy, separate from land and labor, separate from money and infrastructure.

This was published about a year ago, and I’m sorry I didn’t notice it before.

Polanyi’s core thesis is that there is no such thing as a free market; there never has been, nor can there ever be. Indeed he calls the very idea of an economy independent of government and political institutions a “stark utopia”—utopian because it is unrealizable, and the effort to bring it into being is doomed to fail and will inevitably produce dystopian consequences. While markets are necessary for any functioning economy, Polanyi argues that the attempt to create a market society is fundamentally threatening to human society and the common good.  In the first instance the market is simply one of many different social institutions; the second represents the effort to subject not just real commodities (computers and widgets) to market principles but virtually all of what makes social life possible, including clean air and water, education, health care, personal, legal, and social security, and the right to earn a livelihood. When these public goods and social necessities (what Polanyi calls “fictitious commodities”) are treated as if they are commodities produced for sale on the market, rather than protected rights, our social world is endangered and major crises will ensue.

Free market doctrine aims to liberate the economy from government “interference”, but Polanyi challenges the very idea that markets and governments are separate and autonomous entities. Government action is not some kind of “interference” in the autonomous sphere of economic activity; there simply is no economy without government rules and institutions. It is not just that society depends on roads, schools, a justice system, and other public goods that only government can provide. It is that all of the key inputs into the economy—land, labor, and money—are only created and sustained through continuous government action. The employment system, the arrangements for buying and selling real estate, and the supplies of money and credit are organized and maintained through the exercise of government’s rules, regulations, and powers.

The article goes on to argue that what we all call “deregulation” is really “re-regulation.” “Government continues to regulate, but instead of acting to protect workers, consumers, and citizens, it devised new policies aimed to help giant corporate and financial institutions maximize their returns through revised anti-trust laws, seemingly bottomless bank bailouts, and increased impediments to unionization.”

Our “socialist” mayor, Bill de Blasio, has made the creation of decent low-income housing in NYC a priority, bless him. The city needs this desperately. The “free market” doesn’t provide low income housing here. NYC is a place in which, if you build it, rich people will come and pay ridiculous amounts of money for it. But that means the “free market” only caters to them. There are new high-rise apartment buildings going up all over the place in Brooklyn; rent for a basic one-bedroom unit averages about $2,800 a month, I understand.

The people who have made free market capitalism their religion are certain that as long as government doesn’t interfere, the Holy Free Market (blessed be It) will naturally provide whatever anyone needs. But in truth the Free Market doesn’t give a hoo-haw about what people need. The Free Market will dedicate infinite resources to filling even the frivolous desires of the wealthy; everyone else is just out of luck, sometimes even for life’s necessities.

The Free Market also is wasteful and destructive, depleting resources for short-term profit without thought to the future; using up materials and resources for buildings that sit empty and consumer products that end up in landfills after only two or three years of use. The Free Market refuses to maintain infrastructure, will not safely dispose of hazardous waste unless forced to, and will not clean up the ecosystems it destroys. The Free Market would rather kill coal miners than invest in safety precautions.

Because, you see, there is no “Free Market”; there is no benevolent “invisible hand” that turns individual self-interest into common good. There are just people scrambling to make as much money as they can, and as long as a portion of those people don’t care who they hurt in the process, the results often will not be benevolent at all.

Henry Ferrell — the same guy who wrote the article quoted above — today has a post at Washington Monthly about Very Serious People. He’s talking here about foreign policy, but it applies to economic policy as well.

  1. Everyone has a mix of beliefs, some of which are right, and some wrong.
  2. Everyone co-exists in a social system that tends to value, heavily reinforce and widely disseminate some people’s beliefs while disparaging, heavily discounting, and tending to limit the circulation of certain other people’s beliefs. This bias is not random, but instead reflects and reinforces existing power structures and asymmetries.
  3. People whose beliefs are reinforced and widely circulated so that they are socially and politically influential, even when they are manifestly wrong, are Very Serious People. The system provides them with no incentives to admit error or perhaps to understand that they have erred, even when their mistakes have devastating consequences.

We’ve been fed this fantasy about “free markets” lo these many years, and the fantasy won’t die because the VSPs believe it. But from where I sit that fantasy is not just destroying lives; it’s destroying the planet.

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