Market fundamentalism will be the death of us
WHEN IN fourth form I was introduced to the natural sciences, I was hooked! “At constant temperature the volume of a gas is inversely proportional to its pressure” (Boyle’s Law). “At constant pressure, the volume of a gas is directly proportional to its absolute temperature” (Charles Law). Wow! Reality can be reduced to a series of mathematical equations that explain how nature works! I did my first degree in the natural sciences, and still “follow the science”.
A second bachelor’s degree – this time in philosophy and theology – helped me to understand better the science I had learnt. The natural sciences are grounded in a particular way of knowing (epistemology – sorry for the big words) called positivism or empiricism, based on data discovered by the senses. The observed data are then expressed mathematically, and grounded in theory (e.g., that atoms with protons, neutrons and electrons exist) which has the power of explanation. Theology explored reality that could not be discovered by the senses, but that is another story.
Later, when I explored the depths of economics in graduate school, it became clear to me that the “law of supply and demand”, one of the fundamental maxims of “the market”, was not a “law” in the same sense as the laws of Boyle and Charles. True: it was grounded in observed data; e.g., if an item is scarce and in demand, the vendor may double or triple the price, taking advantage of the situation to increase profits; the aim is not to make a reasonable profit margin, but to sell the commodity for as much as people will pay for it (as much as “the market” will bear). The reverse is also true: that if an item is in oversupply, the vendor may have to sell it cheaply to move it quickly.
GREED AND PRAGMATISM
This kind of behaviour – founded in greed and pragmatism – has been elevated by the “science” of economics to the status of a “law”. It is one thing to say: “I observe greedy people raising their prices when items are scarce”, but it is quite another to canonise greed and to say: “When an item is scarce, the law of supply and demand says that you MUST raise the price”. This makes a virtue and an imperative out of price gouging. And if in these circumstances a vendor does not raise his prices, he is behaving “irrationally”.
And so the religion of “the market” was invented, which determines the “real” price of an item by some “invisible hand”. And if “the market” determines that the “real” price of a litre of gasoline is J$80, who are we to disagree? And if tomorrow the “real price” is $100, then we say “the market” is “working”. “True believers” will accept on “faith” any price “the market” determines.
I find this kind of economic theory to be more akin to religion than science, requiring “faith” that something called “the market” exists: you can’t see it, you can’t touch it; but you can see it at work. Therefore it exists, the economists say. Fundamentalist clap-trap, I say!
The religion of“the market” gives real religion a bad name. Persons who call themselves “economists” speculate on how greedy people would behave in certain situations, make a giant leap to assert that this is how they “should” behave (it is now a matter of ethics), and then call this behaviour “the market”. Economics, therefore, is really a behavioural science, not an objective one (firms behave to maximise profit, while individuals behave to maximise utility). Economics tries to move from the descriptive to the prescriptive, and people who are otherwise inclined to be atheist put their faith in the “invisible hand”.
German political economist Max Weber wrote an interesting book, The Protestant Ethic and the Spirit of Capitalism, arguing that capitalism could not emerge in history until both the material and spirit of capitalism are present; he posits that pessimistic Calvinism (which emphasises the individualistic, selfish and greedy side of human nature) is the very spirit of capitalism.
INTERESTING PHENOMENON
The stock market is an interesting phenomenon. The value of the shares of a company should reflect the performance of the company, but in reality they reflect “confidence” in the performance of the company within the economic environment, which is quite a different thing. Confidence is all about perception, and perception can be easily manipulated. Cash Plus and Olint had the confidence of people with millions of dollars – greedy people, one must hasten to say. And so the stock market is a “confidence” game, and with no change in the intrinsic value of a company, its shares can vary sharply such as to create overnight millionaires – or paupers.
How could the financial system of the “free” world depend on such a fickle arrangement? Surely there is a more objective way to organise the investment of capital? What we have is obviously in someone’s interest. Large numbers of people can be disadvantaged and dispossessed of their money, and then it can be blamed on the vagaries of “the market”.
On page A9 of The Gleaner of last Friday (February 4), Ian Neita, president of the Jamaica Chamber of Commerce, is quoted as saying: “We don’t believe that the Government must interfere with the free-market system. We believe the free market needs to set rates. It’s important because once you start to interfere with businesses by telling them what they need to pay or what they need to charge, you are disrupting the flow of competition.”
Therefore, there should be no minimum wage, no limits on annual rent i ncreases, no restrictions on bank charges, and no caps on school fees.
I could continue to quote from Mr Neita’s treatise on how allowing the market free rein will lead to our redemption and salvation, but you can read it for yourself.
What I want to conclude with is the observation that there are many economic Kevin Smiths out there! Some must die so that others can live. The welfare of some must be sacrificed so that others can prosper. The health of the economy comes before the health and lives of the citizens.
We must expose and root out the fake science in the discipline of economics, and in how we allow our country to be governed.