blogorrhoea
Monday, November 04, 2002
 
BLOGORRHOEAIC ECONOPHOBIA

I was put in mind of US economist Michael Perelman whilst watching Four Corners tonight. Perelman writes nicely, knows his history, doesn't believe much of what he's told, and delights in heresy. So I love the bloke in exactly the same way I did not love that pack of smug suits Four Corners served up tonight.

So long have market economists enjoyed priestly status in our society, they are no longer capable of humility. All that matters is economics, therefore it is the economist who knows most about what matters.

I nearly bit the neck off my stubby when one of 'em dared question the predictive power of CSIRO's models. Fancy forgetting to exempt those little econometric regressions that constitute his own stock in trade ...

And why is it that blokes who must've spent about eight years studying economics only ever spout shit we all learn to chant in High School? Assumptions as Lexicon as Liturgy: 'Leave it to efficient markets,' Murphy demanded; 'rising prices in conditions of increasing scarcity' chanted Fullerton.

Yadda yadda.

So let's have a quick Captain Cook at these two ideas, eh?

EFFICIENT MARKETS

Markets, it is held, allocate resources where they'll do the most good and distribute largesse where they're most deserved. As no-one can hope to know all they'd need to know efficiently to allocate stuff, the price mechanism should be left to do the job. Argued Ozplog hero von Hayek, "the whole acts as one market, not because any of its members survey the whole field, but because their limited individual fields of vision sufficiently overlap so that through many intermediaries the relevant information is communicated to all ... bring[ing] about the solution which might have been arrived at by one single mind possessing all the information which is in fact dispersed among all the people involved in the process."

I don't say that lot is bereft of rational substance (although one wonders what a bit of parallel computing power couldn't do these days), but I do say it's a case of rationalism gone mad. Prices don't generally get set by supply and demand alone. They are a function of power differentials. For instance, as JK Galbraith note, oligopoly produces the same results (price, quality and service) as monopoly (this matters in this context because water, electricity and fossil fuels will typically be offered by very few vendors in any one market. And where prices are set consciously by the powerful few (who effectively practice lots of central planning and demand management, by the way), rather than unconsciously by a continuum of small traders in the context of a continuum of small consumers, prices convey bugger-all of any use to the environment.

Then there's the problem of 'information' per se. I don't know how exactly I'd define that, but it'd be difficult to do it without having to allow for some of it being wrong. Weren't Enron's books 'information'? Weren't the ravings of messrs Malone, Gilder and Negroponte, the messiahs of the (still-born) new economy, 'information'? Clearly these dudes were powerful. The New York Times and the Wall Street Journal splashed Enron's revolutionary corporate strategy, the technoboosters' blue-sky predictions, and that Dow-36000 stuff all over their front pages. That information has engendered electricity crises, 90% oversupply in telecommunications hardware, decimated pensions and a looming bad-debt/credit-crunch nightmare.

Power has a direct impact on information and a direct impact on the information upon which prices depend. What, then, of the information these prices are meant to convey? What then of the fabled efficiencies of the market? No wonder the equity markets make like a bear on a trampoline ...


'RISING PRICES IN CONDITIONS OF MOUNTING SCARCITY'

I'll just do what Perelman did: quote Gardner Brown. "The passanger pigeon is a marvelous case study for the economist ... The market price of passanger pigeons did not rise, because chicken was regarded as a close market substitute and the price of chicken remained stable during the passenger pigeon's demise. Since price did not rise to signal growing scarcuty, there was no economic force inducing entrepreneurs to attempt to save the pigeon, because there was no evident economic scarcity rent to be earned."

So economic scarcity is not necessarily the same as real scarcity. As much information (and remember how precious the free and fair flow of information is to these same economists) is economically scarce but not really scarce ('intellectual property rights' brought to you by a coupla big pharmaceutical companies, a coupla whopping software firms and a few Hollywood giants via the IPA and the US Trade 'Representative') the passanger pigeon was really scarce but not economically scarce.

We're concerned with what's REALLY scarce, aren't we? Many fish are REALLY scarce in Australian waters, but while close market substitutes remain at stable prices, we'll keep stuffing 'em down our fat necks at $12 a kilo until they're gone. And economists wouldn't have a fucking clue as to what might happen to all the other fish when those fish are gone. That's one of the trillion things economics has nothing to say about, you see. Guess it mustn't matter then ...

Fresh water is REALLY scarce in Australia. Arable land is REALLY scarce in Australia. Fresh air is REALLY scarce in Sydney. Are we REALLY sure privatisation and oligopolistic pricing is the answer?

Oh, and while we're on about wrong information:

1. Distinctly Secret
2. Pugin
3. Sandmason
 
political economic and cultural observations in the register of dismal dilettantism

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