Archives for posts with tag: Free market

We, but let me start with the beginning.

First of all, I find it very interesting that Adam Smith never used the expression.
He explained the intricacies of the market without describing it as being ‘free’. For him, the market had to be free in order to function properly…

But, perhaps, no country has ever yet arrived at this degree of opulence. China seems to have been long stationary, and had, probably, long ago acquired that full complement of riches which is consistent with the nature of its laws and institutions. But this complement may be much inferior to what, with other laws and institutions, the nature of its soil, climate, and situation, might admit of. A country which neglects or despises foreign commerce, and which admits the vessel of foreign nations into one or two of its ports only, cannot transact the same quantity of business which it might do with different laws and institutions. In a country, too, where, though the rich, or the owners of large capitals, enjoy a good deal of security, the poor, or the owners of small capitals, enjoy scarce any, but are liable, under the pretence of justice, to be pillaged and plundered at any time by the inferior mandarins, the quantity of stock employed in all the different branches of business transacted within it, can never be equal to what the nature and extent of that business might admit. In every different branch, the oppression of the poor must establish the monopoly of the rich, who, by engrossing the whole trade to themselves, will be able to make very large profits. Twelve per cent. accordingly, is said to be the common interest of money in China, and the ordinary profits of stock must be sufficient to afford this large interest.”

OK, he was talking about the XVIII-th century China… but I’m sure you already know that.

Then what was it which lead Britain on what is currently known as the ‘free market path’ but blocked China, until very recently, from following suit?
After all, the participants to both markets were driven by the same self interest and their efforts were determined by the same division of work. Not to mention the fact that China’s was a many times bigger market than Britain’s. Initially, of course.

Both countries had a lot in common. Both populations were similarly stratified and class conscious, both monarchies had reached the same level of impotency, both states were run by specialized coteries … what was the difference?

“A country which neglects or despises foreign commerce…”

For a market to be truly free – as in ‘fully functional’, those who participate in it need to be free to do as they see fit and to go wherever they wish.
For this to happen the participants have to feel free – to be conscious of their freedom, and those who oversee the market need to act only as ‘arbiters’ and never as rulers.

This was the difference between the XVIII-th England and China. The British authorities were a lot more permissive than those ‘in charge of’ China and the British subjects felt a lot freer than the Chinese.
While the British authorities did nothing more than police the market, the Chinese Mandarins actually run the day to day activity.
The end result being that the British merchant men learned to deal with each-other and ask for help only when the law was broken, while the Chinese were conditioned to look up for directions at every corner of the road.
As a consequence, the free participants to the free market have learned to respect each-other, and to collectively defend their freedom, while the mainland Chinese have been conditioned to accept that bowing your head was safer.

But people learn fast.
Just look at what’s currently happening in Hong-Kong.

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“Do you know why I hate capitalists?

1. All they care about is money

2. They have all the money”

This is a bi-partisan joke. Some of the haves use it to demonstrate that money is the essence of modern life while the ‘lefties’ use it to demonstrate the ‘malign’ nature of capitalism.

Both sides are wrong.

According to Adam Smith, the market consists of many specialized economic actors who sell their wares/services. Thus helping each-other lead a better/simpler life than if each of them had to ‘do everything’. Furthermore, a free market is better than a ‘cornered’ one, simply because competition keeps everybody on their toes.
In this sense, a capitalist is a guy who organizes a group of synergically skilled operators in such a manner as to increase their aggregated efficiency.
In order for the market to remain free, a.k.a. efficient, there must continue to exist a certain degree of competition between the said capitalists. And for the whole thing to remain a market, each of the capitalists must remain but an actor, not become a dictator. A.k.a a monopolist.
Differently put, for the market to remain functionally free, capitalists should remain/must be kept level with the other ‘merchant-men’. The bakers sell their bread-making skills, the brewers their beer-making skills, the butchers their ability to carve carcasses while capitalists sell their ability to organize people. Their entrepreneurial skills.
OK, there is difference. But only in our heads. While each of the others use specialized tools – ovens, vats, knives, etc., capitalists use money. Yet another tool but one which seems familiar to all of us. But very few of us see money as a tool and even fewer accept that using money, a lot of it, implies a huge responsibility.  Hence the enormous misunderstanding. No reasonable human being – except for a carpenter, of course, would dream to amass a huge number of, say, hammers, but a majority of people are convinced that having a lot of money would make them happy.

And why did I say “both sides are wrong”?

Because real capitalists are focused on the needs of their business partners – a.k.a. ‘consumers’, not on their pockets/paychecks. Because real capitalists understand that sellers would go hungry if there was no money to buy their wares.
Because free market capitalists are focused on making money go round – and getting handsomely paid for this, instead of constantly attempting to hoard all the money in their grasp.

It’s not me who says so.
Jamie Dimon, Alex Gorsky, Tim Cook, Ray Dalio….

 

This rule of thumb is also known as ‘Gresham’s Law’

At the core of Gresham’s law is the concept of good money versus bad money. The law holds that bad money drives out good money in circulation. Bad money is then the currency that is considered to have equal or less value compared to its face value. Meanwhile, good money is currency that is believed to have greater value or more potential for greater value than its face value. One basic assumption for the concept is that both currencies are equally liquid and available for use simultaneously. Logically, consumers will choose to use bad money over good money because good money has the potential to be worth more than its face value.”

‘Concept’, ‘the law holds’, ‘is considered’, ‘value’, ‘compared’, ‘is believed’, ‘assumption’, ‘logically’…
So. The way I see it, ‘Gresham’s Law’ is about people interacting according to their own ‘impressions’, ‘drives’ and ‘internal logic’.

But wait. Things are far more interesting than ‘commoners’ hoarding the potentially more valuable coins, when having the ‘opportunity’ to choose between good and bad money.

“The minting of coins provides the most basic example of Gresham’s law applied. In fact, Gresham’s law itself was built around the minting of coins and Gresham’s service to Queen Elizabeth I of England. Sir Thomas Gresham lived from 1519 to 1579, working as a financier serving the Queen and later founding the Royal Exchange of the City of London. Henry VIII had changed the composition of the English shilling, replacing a substantial portion of the silver with base metals. Gresham’s consultations with the Queen explained that consumers were aware of the change and began separating the English shilling coins based on their production dates to hoard the coins with more silver which, when melted down, were worth more than their face value.”

In fact, Gresham’s Law is about ‘commoners’ reacting in a logical manner whenever the powerful had tried to ‘trick’ the less powerful into accepting less valuable coinage.

Let’s examine the situation from another angle.

Gold and silver had been used to make coins for a number of reasons.
Both were rare enough to maintain their perceived value no matter how much of them might have been ‘suddenly’ discovered. For example, the Spaniards had brought shiploads of precious metals into Europe from South America without creating much ‘inflation’.
They, individually and or alloyed, were soft enough to be minted using primitive technology. The oldest coins made of precious metals go back almost 3000 years
Both gold and silver are impervious to the passage of time. That being the motive for those coins having survived for so long.

For these three reasons gold and silver had been the obvious choices when people had realized they needed a ‘technology’ for making payments and for preserving and transporting value.

In reality, this is the intrinsic logic for which gold and silver had been valuable for us. They had represented the most convenient manner of making payments and for transporting/preserving value. As metals, gold was basically useless until the advent of microelectronics while silver had become really useful only after Daguerre started using it to make primitive photographs.

So. Ancient people had discovered that by using gold and silver coins they could vastly accelerate their economies. The most interested being, of course, the powerful of the day.
The rulers. Those who had the means and the authority to mint.
Some of whom also had the gumption to mess with the whole process. For their own profit, of course. Why do you think Hieron, the King of Syracuse, had hired Archimedes to determine whether a piece of metal – a crown, but the shape had no real meaning, was made of pure gold – as the goldsmiths pretended, or not?

Instead of a conclusion.
Since the start of time, some people have tried to swindle the others. No matter how high their position on the social ladder. And the rest have tried to protect themselves. Or, sometimes, even to emulate the ‘bad’ behavior.

This being the beauty of the free market.
Whenever a market is truly free, the reasonable people naturally weed out the swindlers.
Whenever the swindlers happen to have the upper hand, the rest have no other option but to follow suit. To hoard the ‘good’ money.
The consequence being the slowing down of the economic cycle. To the ultimate ‘bad’ of everybody. The swindlers included. And their children/suitors!

 

“Profit is a natural by-product of voluntary commerce, exchanging value for value. Increasing profits come from better exchanges of value over time. Accepting a lower value of trade in order to benefit someone else believed to need the benefit is a myth. Self interest has always been a key component of human commerce.”

Paul Garner

The barons who had forced King John to sign the Magna Charta were interested in preserving their privileges, not in the deepening of their fellow citizens’ freedom… yet this was the ultimate consequence of their actions.

“No free man shall be seized or imprisoned, or stripped of his rights or possessions, or outlawed or exiled, or deprived of his standing in any other way, nor will we proceed with force against him, or send others to do so, except by the lawful judgement of his equals or by the law of the land. To no one will we sell, to no one deny or delay right or justice.

This clause gave all free men the right to justice and a fair trial. However, ‘free men’ comprised only a small proportion of the population in medieval England. The majority of the people were unfree peasants known as ‘villeins’, who could seek justice only through the courts of their own lords.”

The heirs of those barons had evicted their Scottish tenants in search of the higher profits yielded by raising sheep, not because they wished to improve the local food market. Yet exactly those ‘clearances’ had constituted the stepping stone for the economic blooming of Scotland. And for the advent of the ‘Scottish Economic Thought’, epitomized by Adam Smith.

Are we to understand that ‘self interest’ will, sooner or later, somehow morph into ‘the greater good’? By its own, according to a yet unknown ‘natural law’?

I’m afraid this is nothing but wishful thinking.

The barons who had rebelled against King John were following an already established tradition.
Being the nephews of the Norman – read Viking, invaders, they were familiar with the Scandinavian things. Their uprising against the king was nothing more than a defense of their fore-fathers’ way of life.

Of their fore-fathers’ free way of life!

The landlords who had evicted their tenants to make way for the more profitable sheep may have created the conditions for the development of a thriving free market… only it was exactly this free market which had represented the doom of the ‘landed aristocracy’…

So. Is freedom the most important aspect of the free market?

I’m afraid that would be an oversimplification.

The markets are free, period.
If anything impedes their (transversal) freedom in ‘space’ – a ruler, a dictator or even a natural set of events, markets will find their (longitudinal) freedom in ‘time’. All dictatorships have been toppled by ‘history’ and all ‘natural’ sets of events have been overcome. As yet, at least.

The most important ‘things’ in the market are the people who animate it.
Any market would be nothing but an empty intersection of roads if not for the people who gather there to trade their wares. To better solve their existential problems by exchanging the ‘fruits of their respective skills’.
And the freer those people are to hone their skills and to take the fruits of those skills to whatever intersection they choose, the better the solutions developed, by them, for their existential problems.

And what about the profit? Is it good?

Of course it’s good. But for only as long as it remains free!
For only as long as it doesn’t depend on external forces and for only as long as it doesn’t become an obsession.
Since most of you understand the perils of monopolistic ‘external forces’ being exerted to limit the freedom of the market, I’ll delve directly into my obsession about the hidden dangers of pursuing profit as an existential goal.

We describe ourselves as being conscious.

In Humberto Maturana’s terms, ‘we are able to catch ourselves red handed’.

As a human being I do what we human beings do, I operate as an observer observing. The observer is not a condition of being, it is not a transcendental entity that exists by itself, it is not a material entity, it is our experience of being aware of ourselves doing what we do as we human beings operating as observers observing. And what do we do as human beings operating as observers in observing? We make distinctions. We make distinctions of objects, of notions, of ideas, of concepts, …,of entities that we bring forth with our operations of distinction together with the domains of existence in which they arise.

When hungry, we not only feed ourselves. We also notice that we feel good once our bellies are full. And we strive to make provisions for the next meal. Thus increasing our chances to survive.

Some of us end up eating too much. They are so keen to reproduce ‘that’ good feeling that they end up morbidly fat. Thus diminishing their life span.

Still others try to make sure they’ll enjoy their next meal by appointing themselves ‘gatekeepers’ to ‘food’.
And, sooner rather than later, every time they succeed, this ‘arrangement’ ends up in abject failure. The most publicized recent example being the failure of the centrally planned ‘popular democracies’. Unfortunately, there had been countless other examples. In fact, in all instances where power had been concentrated in a too small number of hands, the societies which had allowed this to happen have eventually collapsed.

Another example is our addiction to drugs.
All of us enjoy feeling good. Which is an evolutionary device meant to show us we are on the right track. To prod us in the right direction.
Some of us have discovered ‘the short cut’. Instead of doing ‘the right thing’ first and expect the reward afterwards, they just imbibe the ‘right’ substance. Alcohol, sugar, nicotine, heroine, coke, THC

Now, can any of us pretend that a drug addict or a morbidly fat individual is a free person?

Returning to the freedom of the market, we can only say that a market is functionally free for only as long as a functional majority of the trading agents behave in a free manner. Do as they individually see fit.
Compare this to the situation when, for whatever reason, the majority of the trading agents feel compelled to follow a fad.
The Tulip Mania is the first example which springs into my mind every time I discuss this subject. Followed by all other bubbles which had ‘punctured’ our economic history ever since.

The current fad being ‘profit’.
Which profit is essential for the long term well being – read ‘survival’, of any economic enterprise.
Only we need to remember that economic enterprises are meant to solve problems. To be of service to people. So useful to the consumer side of the market that the consumers are willing, on their own accord, to part with enough money to make those enterprises profitable.

If the market is warped so far that things go the other way – enterprises are managed to maximize profits at the expense of the services rendered to the clients and the ‘beneficiaries’ are not aware of what’s going on, or have no say in the process, the whole thing starts to resemble what used to happen inside an opium den.

We somehow managed to weather all economic crises that we, ourselves, have brought upon our heads. And to outgrow our obsession with opium.

I’m sure we’ll manage to free ourselves from our current obsession with profit.

Nota bene!
Under no circumstances we may allow capitalism itself to be left behind in our quest for liberty from the tyranny of ‘profit’.
Capitalism is something else than the unending and callous adoration of the ‘golden god’, just as profit is a very useful indicator but a horrible master.

 

Classical economy sees the market as the place where demand meets supply and prices are born.

‘Relative’ economics, which hasn’t been written yet, sees the market as the place where people meet to offer their wares and to fulfill their needs. In order to meet this goal, people negotiate prices and adapt their behavior/attitude.

Classical economics sees the market as being either free or ‘non market’ – a.k.a. ” “planned” economy“: the one which “is heavily regulated or controlled by the government, most notably in socialist or communist countries.
As an aside, while I fully agree with the notion that communist countries – ‘popular democracies’, as their rulers used to describe them, had organized their economies around strictly centralized decision mechanisms, I cannot but wonder how would a classical economist describe Hitler’s economy? Or ‘crony capitalism’?

‘Relative’ economics, which – I repeat, hasn’t been written yet, sees the market as being either ‘free’, ‘un-free’ – a.k.a. ‘captured’ or ‘cornered’, or ‘obsessed’.
Of course, there never was such a thing as a completely free market, only functionally free ones. And I’m sure most of you fully understand what I mean.
Also, it is clear what ‘un-free’ means. Any situation where a small number of people call all the shots for an entire market. It doesn’t matter a bit whether those few people are directly involved in the market – over which they ‘enjoy’ monopolistic power, or they are involved with – read ‘control the’, government. The determining factor here is the scarcity of decision makers and the chock-hold they have over the entire decision making process.
The ‘obsessed’ market is the most interesting of all. For me, at least.


Remember “Tulip Mania”?

As with many interesting stories, there are at least two sides attached to this one also.
One version describes the whole thing as a generalized folly which had ended only after the government stepped in while the other paints a considerably duller picture.
Only nobody denies the fact.

That for whatever reasons, tulip bulbs had been – admittedly for a relatively short while, on a par with houses. Value-wise.

Did it make any sense? Then?
For those involved, yes! Otherwise…
Could they afford it? Had they been affected when the bubble burst?
That depends on whom you ask… and whom you believe…

Does it make any sense now? Can we make anything out of it?

We can certainly explain what had happened.
Holland’s was the most affluent economy of the continent and the wealth was sort of spread around.
A lot of money was ‘sloshing’, a lot of people were looking for a way to ‘show of’ and tulips were the ‘thing of the day’.
Does it make any sense now? Retrospectively, no. Not for me, anyway.
Do we have an explanation for what had happened? You’ve just read a very condensed one. If you need a more elaborate version, try Veblen’s ‘The Theory of the Leisure Class‘.

Anyway, that’s the perfect example of an ‘obsessed’ market.
Where the agents are free to do what they please but are obsessed enough to act in sync. As opposed to ‘in concert’.

‘Obsessed’ means that all present look in the same direction and react in the same way.
Which might be a good thing – when a group tries to escape a fire.
Or a bad one, when the same group is trying to gather food from a forest. If all of them are looking, exclusively, for a single type of mushroom, many other sources of food are neglected.

In a really – as in ‘functional’, free market, people display a variety of behaviors.
Some suppliers are greedier than others, some are diligent, some are sloppy and others are dedicated craftsmen.
Some buyers are more ‘relaxed’, others ‘stingier’. Some know their way around the market, others are ignorant.
On the whole, a dynamic equilibrium is constantly negotiated among all these ‘free’ agents. Simply because there is a variety of opinion.
When the market is ‘un-free’, the whole notion of negotiation and equilibrium disappears. The parameters are set by the ‘rulers’. And things go on only as long as the ‘rulers’ manage to maintain a modicum of normality.
When the market is ‘obsessed’, things become really interesting. The agents maintain their apparent liberty – at least for a while. Only they don’t actually use it. All of them act as if pre-programmed.

And somebody sooner or later notices what’s going on. And turns the whole thing to fit their own goal. Which is, almost always, not so different from the ‘general’ one.

Tulip Mania was relatively benign.
Nothing really bad had happened.

We’ve somehow managed to weather the recent financial melt down.
Which had been the consequence with our obsession with money as the ultimate goal.
Which obsession continues unabated.

“Capitalism has generated massive wealth for some, but it’s devastated the planet and has failed to improve human well-being at scale.”

Drew Hansen, Unless It Changes, Capitalism Will Starve Humanity by 2050,
Forbes, feb. 9, 2016.

I’m afraid we are dealing with a huge confusion.
Capitalism hasn’t generated anything and hasn’t starved, nor fed, anybody.
People did!

Capitalism is nothing more, nor less, than a particular manner in which we, ‘the people’, relate to property while ‘the free market’ is one of the manners in which economies are run.

And here’s the place where things become ‘murky’.

‘Oekonomia’ is Greek for ‘making ends meet’.

“The annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniencies of life which it annually consumes, and which consist always either in the immediate produce of that labour, or in what is purchased with that produce from other nations.

According therefore, as this produce, or what is purchased with it, bears a greater or smaller proportion to the number of those who are to consume it, the nation will be better or worse supplied with all the necessaries and conveniencies for which it has occasion.

Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, 1776

The way I read it, Smith sees ‘wealth’ as people’s/nation’s ability to supply for their ‘necessaries and conveniencies’.
In other words, ‘to make ends meet’.

How we define our needs, the manner in which we choose to fulfill them and what we are disposed to ‘spend’ in the process… is our responsibility.

So.
What is it that we need/want?
A healthy planet? Clean air/water/soil and a fair opportunity for each of us to earn their keep?

Or a dog eats dog type of contest for ‘who has the biggest pile of money’?

Capitalism can encompass both.

Unfortunately, the second scenario has nothing to do with ‘making ends meet’.
On the contrary!

I’m not going to educate you about what fractals are.
The internet is full of information, go find it. If you care, of course.

I’ll just remind you of an old saying,
‘There’s nothing new under the sun.’

As if nature doesn’t exert itself.
If something works… why invent anything new when you can adapt something which already exists?

In this sense, I somehow must admit that those who believe is God do have a point about this. Sometimes Nature seems to have been fine tuned by an engineer…

Or that engineers have learned a lot from Mother Nature?

Enough with this back slapping between the engineer in me and … whoever is at the other end of this game.

1. The ‘revolving’ principle.

Basically all matter turns around a center, is circled about or finds itself in both situations at the same time.
From the electrons which turn around the nuclei of the atoms to our Sun which spins around the center of the Milky Way.

Behind this principle lies another one.

2. The dynamic equilibrium.

Everything which exists is in a state of dynamic equilibrium.
Both internal and external.
Its components relate to each-other in such a manner as to keep that thing together while the surrounding medium exerts various influences towards that thing.
From the meager proton – whose quarks ‘cooperate’ to constitute a distinct individuality and somehow manage to remain ‘apart’ from the rest of ‘world’ despite the huge forces which keep each atomic nucleus together, to, say, a living organism – which remains alive for only as long as it conserves its ability to interact, both ways, with the environment.

I can probably identify a few more but today I’m going to mention only one more.

N. Killing your host might not be such a good idea.

Remember the fable about the Scorpion and the Frog?

‘Now you really got my attention! How on Earth are you going to spin this into your tale about fractals?!?’

When syphilis first appeared in Europe in 1495, it was an acute and extremely unpleasant disease. After only a few years it was less severe than it once was, and it changed over the next 50 years into a milder, chronic disease. The severe early symptoms may have been the result of the disease being introduced into a new host population without any resistance mechanisms, but the change in virulence is most likely to have happened because of selection favouring milder strains of the pathogen. The symptoms of the virulent early disease were both debilitating and obvious to potential sexual partners of the infected, and strains that caused less obvious or painful symptoms would have enjoyed a higher transmission rate.”

Robert J. Knell, Syphillis in Renaissance Europe…, 2004

Want some more?
How many people have you seen last winter wiping their noses? How many of them actually had the flu and how many suffered from having a benign ‘cold’.
You must have surely got my drift by now… flu kills many more people than the cold. And Ebola kills far many than the flu. And that’s why the cold viruses have far more chances of finding a host than both flu and Ebola.
On one hand, the more deadly a virus is, the less hosts are left for the next generations of viruses.
And on the other hand, the more dangerous a virus – or any other ‘parasite’, is, the more those in peril will try to do something about it.

N+1. If you can’t beat them, join them.

Now that I’ve mentioned parasites, let’s take a step further and talk about symbiosis.

“Mitochondria are rod-shaped organelles that can be considered the power generators of the cell, converting oxygen and nutrients into adenosine triphosphate (ATP). ATP is the chemical energy “currency” of the cell that powers the cell’s metabolic activities. This process is called aerobic respiration and is the reason animals breathe oxygen. Without mitochondria (singular, mitochondrion), higher animals would likely not exist because their cells would only be able to obtain energy from anaerobic respiration (in the absence of oxygen), a process much less efficient than aerobic respiration. In fact, mitochondria enable cells to produce 15 times more ATP than they could otherwise, and complex animals, like humans, need large amounts of energy in order to survive.”
The mitochondrion is different from most other organelles because it has its own circular DNA (similar to the DNA of prokaryotes) and reproduces independently of the cell in which it is found; an apparent case of endosymbiosis. Scientists hypothesize that millions of years ago small, free-living prokaryotes were engulfed, but not consumed, by larger prokaryotes, perhaps because they were able to resist the digestive enzymes of the host organism. The two organisms developed a symbiotic relationship over time, the larger organism providing the smaller with ample nutrients and the smaller organism providing ATP molecules to the larger one. Eventually, according to this view, the larger organism developed into the eukaryotic cell and the smaller organism into the mitochondrion.

Another interesting case of symbiosis is that between each of us and the flora which populates our guts and helps us to digest our ‘daily bread’.

Now, do you remember my post about viruses?
Where I mentioned that viruses are organisms which somehow penetrate into their hosts, take over the management mechanisms of said hosts and ‘convince’ them to actually manufacture the next generation of ‘invaders’.
Killing the host cell in the process, but not necessarily the whole host organism.

This being the difference between the common cold, influenza and Ebola viruses.
On one hand.

On the other hand, there’s the difference between a parasite and a symbiont.
A parasite always being a ‘nuisance’ – from the innocuous common cold to the deadly Ebola, while all symbionts bring along quite lot of added value.

‘OK, and where’s the fractal side of all this?’

How many of the politicians you know behave as parasites and how many as symbionts?
Relative to the rest of the society, of course.
How many of the business people you know behave as parasites and how many as symbionts?
How many of the working age people you know….

And do you remember about the dynamic equilibrium which is essential for survival?
Of everything? Including human societies?
Which need ‘division of labour’ and ‘free market’ in order to thrive?

DSC_0007

The way I see it, this lady is freer, in body and mind, than most of us will ever be.

Autumn of 2008.
The Bucharest Stock Exchange assembled a conference for the investors where some relatively junior guys working for the ‘Global Banking Establishment’ tried to uplift our mood by outlining their bosses’ envisioned reaction to the crises. Something which would later be known as  ‘quantitative easing’.
I asked one of them:
‘The current crises is the straight consequence of money having been used improperly. Are you sure that throwing a fresh amount of it on the market would make things any better?’.
‘Well, nobody has come yet with a better idea…’

Almost ten years later, it seems that ‘throwing fresh money at it’ did revive the market.
Dow Jones has climbed through the clouds, unemployment is low, inflation is low, interest rates are also low…

Some 120 economies, accounting for three quarters of world GDP, have seen a pickup in growth in year-on-year terms in 2017, the broadest synchronized global growth upsurge since 2010.“, according to the IMF.

Only the very same words could have been used to describe the 1990’s…

But there is something that at least some of us have noticed.

income-inequality-08

©Elliot Wave International (www.elliotwave.com)

Both major economic crises which have scarred us in less than a century have been closely predated by spikes in ‘income inequality’.

To make things worse, we are confronted by yet another fast moving development which pushes us towards uncharted waters.
Large scale replacement of ‘human capital’ by industrial robots, some of them driven by ‘artificial intelligence’.

Reaction has been mixed.

Some of the very rich have pledged to make available to charity important chunks of their estates while other ‘concerned parties’ promote  heavier involvement of the government – ‘guaranteed universal income’, etc., etc…
All these in the name of an illusive ‘equality’.

‘On the other side of the isle’, where inequality is seen as being not only natural but also harmless, people are happy with what’s going on and see no problem in everything continuing to march to the same beat.

I argued earlier that ‘heavy involvement of the government’ has already been experimented. And failed. Check the fate of every communist dictatorship.
Actually, check the fate of all dictatorships.
You’ll find that whenever a society becomes too centralized, that thing alone considerably diminishes its survival chances.
Same outcome whenever people in a group/community evaluate things using a single yardstick/from a single perspective.
To make things worse, the speed of the degenerative process becomes catastrophic when decision making becomes centralized while the reduced number of decision makers are partially blinded by too many of them using a single yardstick to do their job.

We are fast approaching that situation.

Extreme wealth polarization means that economic resources become concentrated in very few hands. Hence economic decision making.
And since policies cannot be put in place without resources…

The funny thing is that this concentration of power/decision making take place regardless of property remaining private or communism taking over.
As long as those who control the whole system are too few, ‘who owns it’ makes no difference.
Absolute monarchies faltered in the very same way as their communist successors.

It doesn’t matter whether an universal basic income would be supported by a tax exacting government or by a small coterie of ‘concerned investors’, sooner or later any such arrangement would become sour.

One other thing.
Claims for equality might become so deafening as to impede clear thinking.

Just as money is a very good tool/servant but a lousy goal/master, equality is a commendable goal but a lousy tool.
Human beings ‘work best’ as autonomous individuals who cooperate freely inside what has been described as ‘free market’.
Whenever that market was cornered, either from outside – by the government, or from inside – too many of the players acting in ‘concert’/sync because they had been ‘mesmerized’, remember the ‘Tulip mania” of yore? – it had faltered. Sometimes abysmally.
Attempting to fit everybody in a ‘one size fits all’ mould would be catastrophic.
Just as catastrophic as when less and less people can develop and express their true potential. Remember that we haven’t changed, biologically, during the last 50 000 years or so. But, generation after generation, we’ve been able to do more and more things simply because each generation made it easier for the next one. Most of the times, anyway.
Let’s not change this.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

“Between 1970 and 2010, the number of administrators in health care grew more than 3000%, while the number of physicians grew about 200%, according to the Bureau of Labor Statistics. During that same 40 years, U.S. health-care spending rose 2300%. Doctors’ fees account for only 8 cents of the health care dollar. Where do you think the other 92 cents are going?”  (Marni Jameson Carey, Focus on Health Coverage Misses the Point, Forbes.com, Oct 24, 2017)

A few years ago I was arguing that profit was overrated.
It seems that Forbes, a magazine which cannot be accused of any socialist tendencies, has reached a somewhat similar conclusion.

Even more interesting is the solution proposed by Forbes to the health care problem.

A return to the free market!

Free from what? Who says the American health care market is not free?
Well, click on the quote above and see what Forbes has to say about this…

But what happened? How did we get here?

Well, the free market described by Adam Smith was an environment where people used to fulfill their needs by selling their wares.
The butcher sold meat and bought everything else he needed, the brewer sold beer and bought everything else he needed, the baker… and so on!
OK, there  was a certain kind of competition which kept the things in check. The butchers competed against other butchers, the brewers…
And because of this competition, all traders – those who wanted to survive, anyway – streamlined their operations and became more and more efficient. Hence profitable.

I mentioned the link between the survival of a commercial enterprise and its ability to generate profit.
Apparently, it doesn’t make much sense to elaborate on this. Bear with me, please.

The whole point of the free market is the division of labor. Besides its freedom, of course.
Each of us does what he knows better and then we trade our respective wares. This way all of us fare better than if each of us would have had to produce everything each of us needs to survive.
In this scenario, competition – between ‘bakers’, for example – is actually a tool which makes it so that the market, as a whole, doesn’t waste resources. When the less efficient bakers are ‘encouraged’ to find something else to do, the entire market is better off. And so on.
In this sense, profit is only one indicator – and a very good one – of how able to survive is a certain commercial venture. But not the only goal of the entrepreneur who started/runs the enterprise. What he wants is to make an as good as possible living by doing what he knows best, in close collaboration with the other participants to the free market.

Adam Smith had written his books some two and a half centuries ago.
And the free market had served us well, for a while.
Just look at what we’ve accomplished in these two and a half centuries.

But, just as Forbes points out, things are no longer going in the right direction.

Why?

Simply because the market is no longer free!

Not only because some of the participants have become ‘heavy’ enough to crush all competition. This is only the lesser part of the problem.
The really big one, and so well hidden that it’s almost invisible, is that too many of us have become obsessed with the same thing. Money!

Life-of-modern-people

Profit has become THE absolute goal of everything we do. Too many of those who participate in the free market no longer want to collaborate with the others but simply want to get rich. By any (legal) means.

Some say this is a good thing.
They invoke Adam Smith’s words as a justification for their beliefs.

I beg to differ.

The simple existence of our current obsession has profoundly altered the very nature of the market. Which is no longer free.

Because WE are no longer free. When too many of us are obsessively concentrated on the same thing, they will necessarily disregard all other options. And the rest have no other option but to follow.

This is not freedom!

Mesmerized people can not be described, by outside observers, as being free.
Regardless of how they consider themselves.

 

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