The main operating assumption of the neoliberal era is now everywhere in question. Proponents of markets have been arguing for nearly 30 years that the reason people reject the price mechanism as the best - indeed the only way - to allocate resources is because they did not understand properly how competitive market pricing actually work. Market critics were assumed to reject economic reality, while embracing delusions about democratic planning and public spending.
With chaos and panic pervading financial markets, and yesterdays heros such as central bank heads Allan Greenspan and David Dodge now struggling to keep their names from being associated with the scandals of collapsing securities markets, blocked credit mechanisms and economic distress, one thing should be clear: markets fail.
Critics of the markets are magic thesis got it right. The economic reference points for today are the works of economists Karl Polyani, John Maynard Keynes, Michael Kalecki, Joan Robinson or Hyman Minsky, along with Canadians Kari Levitt, Mel Watkins, Mario Seccareccia and Gilles Dostaler. The work of economists associated with corporate subsidized American and Canadian think tanks, inspired by Von Hayek and Friedman, notably, the American Enterprise and Fraser Institutes, was fatally flawed.
Microeconomics (the study of how prices are set in individual markets) was assumed by market proponents to be the foundation on which macroeconomics (the study of how national income is created) was based. For instance, unemployment occurred because individuals chose leisure ahead of work.
Following this assumption the great depression could be attributed to a sudden, worldwide, outbreak of laziness, as MIT economist Franco Modigliano famously retorted to Friedman. As the economy recedes, the Keynesian analysis of a failure of market demand to generate growing incomes, and employment is being hastily re-discovered, as governments rush to stimulate national economies though deficit spending.
For proponents of market economics, rooting out market imperfections such as trade unions, unemployment insurance and welfare payments, and relying on flexible wages instead was thought not only to cure unemployment, but in its wildest expression, say in the National Post, to provide a living wage as well. Except that falling rates of industrial unionism, and a weakened social safety net, increased inequalities, not to speak of re-introduced begging on the streets and widespread homelessness.
It turns out that, contrary to the National Post, price setting is not politically neutral after all. The market does not abolish power relationships: it facilitates the accumulation of market power in fewer and fewer corporate hands. The accumulation of economic power leads straight to the concentration of political power and allows corporate executives to increase their take of what we all produce, while reducing the share anybody else gets.
Contrary to market dogma, governments do not fail, they are the main instrument for deciding who gets what, and corporations have invested continuously to achieve political power commensurate with private economic wealth.
It is still widely assumed that private investment in corporate stocks and bonds outperforms public investments in non-military government services. It is thought wiser for you to put your money in Coca-Cola than in public health insurance, not only because you might not get sick, and could well make a financial gains, but because the market rate of return always outshines iffy public investment spending on health, reduction of child poverty, recreation or the arts.
The reality is otherwise. In most of the world people do not have any funds to invest as individuals, while people have basic human needs for food, shelter and water that go unmet. Societies fare poorly when illiteracy is widespread, poor health prevails, and social inequalities are widespread. Despite the market works best rhetoric, allowing corporations to control investments in education, healthcare and other basic public services is expensive and inefficient compared to public investment and delivery of services, as comparisons of the two models (say Norway with the U.S.) shows.
Market rate of return is not up to measuring human well-being, and quality of life. As the world economic crisis deepens, rather than continuing to speculate about how to maximize rates of market return, financial market participants are now more concerned about the return of their funds: the money that was entrusted to the care of the market. The neoliberal world may never be the same.
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