Wednesday, May 14, 2008

Review of Monthly Review part two

Against the Market Economy - Advice to Venezuelan Friends, by Robin Hahnel

This is one of the best short explanations of why capitalism does not achieve what its proponents claim it does. "As a well-published, professional economist who has taught theory at the highest levels in economic doctoral programs in the United States for over thirty years I want to testify as an 'expert witness' if you will, that the conclusion that markets can be relied on to yield efficient outcomes is completely unwarranted. It is well known among professional economists that markets allocate resources inefficiently when they are out of equilibrium, when they are noncompetitive, and when there are external effects." All three of these conditions obtain in the real world - therefore, markets do not allocate resources efficiently, which is their only reason for existence, and the only reason proponents of capitalism can offer to defend their ideal of free markets.

The author divides her critique into four major sections:
1. Why Labor Markets are Unfair "In a market economy we must either allow the market system to reward people unfairly, or, if we try to correct for inequities we must tolerate even greater inefficiencies."
2. Why Markets Undermine the Ties that Bind Us "Markets reward those who are the most efficient at taking advantage of his or her fellow man or woman, and penalize those who insist, illogically, on pursuing the golden rule—do unto others, as you would have them do unto you. Of course, we are told we can personally benefit in a market system by being of service to others. But we also know we can often benefit more easily by taking advantage of others. Mutual concern, empathy, and solidarity are the appendices of human capacities and emotions in market economies—and like the appendix, they continue to atrophy."
3. Why Markets Subvert Democracy "[M]arkets undermine rather than promote the kinds of human traits critical to the democratic process... [Also,] economic liberalization breeds concentration of economic wealth, and in political systems where money confers advantages it leads indirectly to the concentration of political power as well. Those who deceive themselves and others that markets nurture democracy ignore the simple truth that markets tend to aggravate disparities in wealth and economic power."
4. Why Markets Allocate Resources Inefficiently
A. Externalities Are Pervasive "Why should we assume that in market economies it is infinitely easier to expand private benefits through socially productive behavior than through socially counterproductive behavior? Yet this implicit assumption is what lies behind the view of markets as guided by a beneficent invisible hand rather than a malevolent invisible foot."
B. Markets Are Generally Not Competitive "[J]ust as it is easier to make profits at the expense of disenfranchised external parties than through socially productive behavior, it is often easier for a small group of sellers to make profits by restricting supply than producing the socially efficient amount of their product. All empirical evidence indicates that most goods are sold in noncompetitive markets and that market structures are growing less, not more competitive."
C. Markets Often Fail to Equilibrate "[I]t is rational for buyers to respond to an increase in price by increasing the quantity they demand before the price rises even higher, and for sellers to reduce the quantity they offer to sell waiting for even higher prices to come... [M]arket bubbles and crashes, which all economists agree cause efficiency losses, are generally the result of rational not irrational behavior, and much more likely to occur than mainstream economists would have us believe."
D. Practical Problems with Policy Correctives "There is a clear divide between 'free market fundamentalists' whose influence has grown significantly over the past few decades, and more pragmatic supporters of the market system who favor market interventions to create what some of them call 'socialized markets.' The ideologues’ enthusiasm for a laissez-faire market system literally knows no bounds as they brush aside qualifying assumptions as if they did not exist. Market pragmatists, in contrast, concede that we must sometimes intervene in markets with policies to internalize external effects, curb monopolistic practices, and counter disequilibrating forces. However, those who give qualified support to market intervention conveniently ignore practical problems that inevitably arise whenever we attempt to 'socialize'” markets... [C]ontrary to both popular and professional opinion, free markets lead to a very inefficient use of our scarce productive resources, and even when 'socialized' by policy correctives, a great deal of inefficiency inevitably remains."

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