Monday, March 09, 2009

Disaster Socialism

Steve is still arguing for Red Toryism:

Mutually advantageous exchange between buyer and seller? Is that what was happening when the casino-bankers trashed people's savings by creating and trading in unintelligible financial instruments? Ask most people and I don't think they'd tell you they got a bargain.

The word 'market' originally described a place in a town where people would meet to buy and sell produce. When free-market economists use the term, that is the image they are inviting us to recall in our minds. But markets for manyof the products and services we use today are nothing like that. In many markets, rather than compete with each other, suppliers operate cartels or, at least, industry standards which work against the consumer.

I posted this comment:

I don't get it - you might not agree with free market ideas but you completely misrepresent them.

The word market isn't supposed to refer to some olde town square, but to a situation in which one or more entities offer to sell a commodity or service to one or more other entities. That's it.

A free market is one in which there is more than one seller and more than one buyer for any given commodity or service, they have reasonable though not perfect knowledge of what is being sold and who is offering it, there is no coercion and there is no collusion, either between sellers or between buyers.

In real life markets are free to greater or lesser degrees.

Markets are not impervious to failure or mania, but nor is any other type of system. Markets, it is argued, are more likely to correct mistakes than are command systems.

To the extent that banks are regulated they are unfree. Regulation imposes barriers to entry that restrict the supply of banking services. I couldn't set up a bank designed to reject the bonus culture and the conspiracy against shareholders and depositors that we've seen, because regulators wouldn't let me do it.

But they do need to be regulated. In fact, a market can't be at the freer end of the spectrum without the involvement of government - free markets depend on governments to maintain them. Everyone, from Adam Smith to Friedman has explicitly and volubly argues this.

Freer markets depend on the maintenance of property rights, of the law of contract and on the prevention of monopoly and monopsony.

But it's not enough just to regulate them; bad or ineffective - or corrupt - regulation would not be enough. The banks were badly regulated. Whether regualtion was light or heavy is beside the point. Light or heavy, no form of regulation should have allowed them to become insolvent.

Red Toryism is a form of Disaster Socialism - trying to exploit a problem by misrepresenting what caused it, blaming your ideological opposites by misrepresenting what they argue, then insisting this means that old, failed ideas need to be reimposed on an exhausted economy.


dearieme said...

The "casino-bankers" operated as an effective conspiracy against the capitalists - the shareholders - by the most senior of the employees - the directors and other 'top' executives. It was a pretty good approximation to a Trade Union, but without all the tedious meetings, resolutions, points of order and composites. It proved more effective than most Trade Unions, being more generously endowed with energy and IQ.

Steve said...

Peter, I'm not sure what you are getting at here.

I was saying that markets, even ones without state intervention, are rarely free. There is often some sort of cartel at work. Therefore Rupert Darwall's idea of mutually advantageous exchange is an idealistic view. Markets often involve someone getting screwed and that is usually the consumer.

Who said anything about imposing old failed ideas on the economy? Now who's misrepresenting whom?