Markets, the Left and Capitalism

Reading the editorials of the last few days one could get the feeling that capitalism has failed, that markets don't work, and that the chantings of the Left are now being listened to.

What a crock.

Let's talk first and foremost about markets and what the Left has failed to understand - and appears congenitally incapable of understanding - about how markets work.

First and foremost: markets are ruthless, efficient and really, really don't give a shit about you or how noble or empowered you may be. Markets clear seller's goods from their shelves to meet the demand from the consumers of those goods with simple and ruthless methods: price and availability. Price something too low and it will disappear quickly; price something too high and no one will buy it. If you've only got a few goods, then you'll be able to sell them at a high price if demand allows it; if you've got a huge amount of goods, you'll probably have to drop prices to get rid of them.

The law of supply and demand is ruthless and punishing: price your goods too low and you forgo profits; price them too high and you won't sell. It's really a very simple set of rules that govern the most complex game there is.

Markets invariably work: it's just that they don't always work the way that some people think they should work. I remember working, back in college days, in a food coop to get my groceries cheap. I remember how the folks there would rant and rave about how some of their acquisitions - usually vastly overpriced goods from politically correct countries, such as Nicaragua - didn't sell, that the people buying coffee, for instance, had an obligation to support the coffee growers in Nicaragua directly instead of buying what they liked to drink. They were seriously proposing that when consumers refused to buy an overpriced product (overpriced for political purposes) that it meant that the market didn't work. The same was true for the poorly dyed t-shirts they were selling, as they were dyed using organic dyes and were dyed by a local woman's collective. The truth was that they were so poorly dyed that you had to wash them separately for weeks on end until the dye finally stabilized, and then the damn things were splotchy and looked drab and terrible; you were supposed to wear them to show that you were politically correct. When no one bought them, that was, in their view of the world, a failure of the market.

I can't repeat it enough: markets are ruthless and efficient, but not always in the way that people want them to behave.

And that is the failure of the Left: to claim that markets don't work is to show their fundamental ignorance of what markets are and what they do. Banks are going bankrupt not because of market failures, but rather because the market is ruthless and buyers are putting low values on something that someone paid too much money for. Credit has dried up because the banks are carrying too many bad loans on their portfolio, largely because markets were manipulated and the banks made mistakes based on that.

You see, markets are not magical places where things magically happen: the invisible hand, while invisible in the sense of no one is really able to see exactly how it operates, is still how the market works. Or, more exactly, it's what we use to explain that we can't exactly describe how markets actually function.

Markets are like the brain that way: while lots of neurologists out there like to think they know how the brain works, no one has ever been able to document where the feelings of love that I have for my wife and children are encoded in my brain; we know basic functions, but we don't have the ability to document the details. We know that such things work and do so in ways that no one can figure out, but at least the neurologists - generally - know that if you create a chemical imbalance in the brain, you skew the personality associated with that brain severely. While psychotics and other loonies can be helped by changing back the chemical balances, the basic idea remains: interfere with brain chemistry at your peril. So it is also with economic and financial markets.

There are few markets out there that aren't skewed in one way or another. The market for health-care drugs is strictly regimented to avoid damage to patients from drugs not adequately tested; the market for consumer goods are skewed by safety testing and liability laws; these are interferences into a market to ensure that these markets don't end up providing dangerous pharmaceuticals or toys that kill small children routinely. This kind of interference serves to ensure that the goods traded meet certain requirements and standards.

But then there's interference in markets that try to adjust them to skew their functioning in one way or another. That is where things go really, really wrong.

Capitalism is, to the Left, cruel and unjust, concerned only with profits and not with people.

What the Left doesn't realize is that while Capitalism is the worst of all economic and financial systems in providing some sort of "justice", it is the only way for any working economic system to achieve any sort of political goal. They are making the fatal conceit of associating business with politics, a rather tedious trait of the Left (the incessant and permanent politicization of everything is what makes the Left largely unbearable even in the worst of polite company).

More on capitalism and the errors of the Left to come...