‘Market Fundamentalism’ Is an Obstacle to Progress

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Yves here. This is a fine compact treatment of the intellectually shoddy market fetishism, and how its biggest fanbois are routinely the ones who get waivers, such as bank and airline bailouts and subsidies via favorable tax treatment. There are many other points I am sure readers can add to this critique, but this is designed to reach a broad audience and is suitable to send to friends and family.

By Richard D. Wolff, professor of economics emeritus at the University of Massachusetts, Amherst, and a visiting professor in the Graduate Program in International Affairs of the New School University, in New York. Wolff’s weekly show, “Economic Update,” is syndicated by more than 100 radio stations and goes to 55 million TV receivers via Free Speech TV. His three recent books with Democracy at Work are The Sickness Is the System: When Capitalism Fails to Save Us From Pandemics or Itself, Understanding Socialism, and Understanding Marxism, the latter of which is now available in a newly released 2021 hardcover edition with a new introduction by the author. Produced by Economy for All, a project of the Independent Media Institute

A changing world order, a shrinking U.S. empire, migrations and related demographic shifts, and major economic crashes have all enhanced religious fundamentalisms around the world. Beyond religions, other ideological fundamentalisms likewise provide widely welcomed reassurances. One of the latter—market fundamentalism—invites and deserves criticism as a major obstacle to navigating this time of rapid social change. Market fundamentalism attributes to that particular social institution a level of perfection and “optimality” quite parallel to what fundamentalist religions attribute to prophets and divinities.

Yet markets are just one among many social means of rationing. Anything scarce relative to demand for it raises the same question: Who will get it and who must do without it? The market is one institutional way to ration the scarce item. In a market, those who want it bid up its price leading others to drop out because they cannot or will not pay the higher price. When higher prices have eliminated the excess of demand over supply, scarcity is gone, and no more bidding up is required. Those able and willing to pay the higher prices are satisfied by receiving distributions of the available supply.

The market has thus rationed out the scarce supply. It has determined who gets and who does not. Clearly, the richer a buyer is, the more likely that buyer will welcome, endorse, and celebrate “the market system.” Markets favor rich buyers. Such buyers in turn will more likely support teachers, clerics, politicians, and others who promote arguments that markets are “efficient,” “socially positive,” or “best for everyone.”

Yet even the economics profession—which routinely celebrates markets—includes a sizable—if underemphasized—literature about how, why, and when free (i.e., unregulated) markets do not work efficiently or in socially positive ways. That literature has developed concepts like “imperfect competition,” “market distortions,” and “externalities,” to pinpoint markets failing to be efficient or benefit social welfare. Social leaders who have had to deal with actual markets in society have likewise repeatedly intervened in them when and because markets worked in socially unacceptable ways. Thus, we have minimum wage laws, maximum interest-rate laws, price-gouging laws, and tariff and trade wars. Practical people know that “leaving matters to the market” has often yielded disasters (e.g., the crashes of 2000, 2008, and 2020) overcome by massive, sustained governmental regulation of and intervention in markets.

So then why do market fundamentalists celebrate a rationing system—the market—that in both theory and practice is more replete with holes than a block of Swiss cheese? Libertarians go so far as to promote a “pure” market economy as a realizable utopia. Such a pure market system is their policy to fix the massive problems they admit exist in contemporary (impure) capitalism. Libertarians are forever frustrated by their lack of success.

For many reasons, markets ought not claim anyone’s loyalty. Among alternative systems of rationing scarcity, markets are clearly inferior. For example, in many religious, ethical, and moral traditions, basic precepts urge or insist that scarcity be addressed by a rationing system based on their respective concepts of human need. Many other rationing systems—including the U.S. version used in World War II—dispensed with the market system and substituted a needs-based rationing system managed by the government.

Rationing systems could likewise be based on age, type of work performed, employment status, family situation, health conditions, distance between home and workplace, or other criteria. Their importance relative to one another and relative to some composite notion of “need,” could and should be determined democratically. Indeed, a genuinely democratic society would let the people decide which (if any) scarcities should be rationed by the market and which (if any) by alternative rationing systems.

Market fetishists will surely trot out their favorite rationalizations with which to regale students. For example, they argue that when buyers bid up prices for scarce items other entrepreneurs will rush in with more supply to capture those higher prices, thereby ending the scarcity. This simple-minded argument fails to grasp that the entrepreneurs cashing in on the higher prices for scarce items have every incentive and many of the means to prevent, delay, or block altogether the entry of new suppliers. Actual business history shows that they often do so successfully. In other words, glib assurances about reactions to market prices are ideological noise and little else.

We can also catch the market fetishizers in their own contradictions. When justifying the sky-high pay packages of mega-corporate CEOs, we are told their scarcity requires their high prices. The same folks explain to us that to overcome scarcity of wage labor, it was necessary to cut U.S. workers’ pandemic-era unemployment supplement, not to raise their wages. During times of scarcity, markets often reveal to capitalists the possibility of earning higher profits on lower volumes of product and sales. If they prioritize profits and when they can afford to bar others’ entry, they will produce and sell less at higher prices to a richer clientele. We are watching that process unfold in the United States now.

The neoliberal turn in U.S. capitalism since the 1970s yielded big profits from a globalized market system. However, outside the purview of neoliberal ideology, that global market catapulted the Chinese economy forward far faster than the United States and far faster than the United States found acceptable. Thus the United States junked its market celebrations (substituting intense “security” concerns) to justify massive governmental interventions in markets to thwart Chinese development: a trade war, tariff wars, chip subsidies, and sanctions. Awkwardly and unpersuasively, the economic profession keeps teaching about the efficiency of free or pure markets, while students learn from the news all about U.S. protectionism, market management, and the need to turn away from the free market gods previously venerated.

Then too the market-based health care system of the United States challenges market fundamentalism: the United States has 4.3 percent of the world population but accounted for 16.9 percent of the world’s COVID-19 deaths. Might the market system bear a significant share of the blame and fault here? So dangerous is the potential disruption of ideological consensus that it becomes vital to avoid asking the question, let alone pursuing a serious answer.

During the pandemic, millions of workers were told that they were “essential” and “front-line responders.” A grateful society appreciated them. As they often noted, the market had not rewarded them accordingly. They got very low wages. They must not have been scarce enough to command better. That’s how markets work. Markets do not reward what is most valuable and essential. They never did. They reward what is scarce relative to people’s ability to buy, no matter the social importance we give to the actual work and roles people play. Markets pander to where the money is. No wonder the rich subsidize market fundamentalism. The wonder is why the rest of society believes or tolerates it.

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  1. PlutoniumKun

    One of the examples that most annoys me is transport infrastructure. You regularly see articles in the English speaking world bemoaning the extraordinary costs of transit schemes or high speed rail, yet its rarely asked why these often cost orders of magnitude more in the Anglosphere than in continental Europe or Asia. While in nearly all countries the actual work on the ground is done by contractors, overwhelmingly they are designed and strictly controlled by centralised design teams, who only use consultants selectively and maintain long term relationships with contractors who know that delivering on time and on budget is the only way they’ll keep those contracts.

    In contrast, the whirlwind of consultants and multilevel contractors as promoted by economists creates ample opportunity for everyone to pump up the size of the pie. In many cases, they get more money if the project is never built (this means there is no end date for the contract).

    Its so very simple, and so very obvious to anyone except economists.

    1. Colonel Smithers

      Thank you and well said, PK.

      One suggestion is that the economists you are thinking of may be a corrupt bunch. In addition, whether in academia, the media or government, economists and others who think like you will not prosper. The scale of politicisation is breathtaking. An Irish friend / former colleague has two sons at a local grammar (selective) school and wants the boys out ASAP as he fears for their prospects.

      As it’s Friday, we could all use a laugh. This week, the British government sent a delegation to Mauritius to offer, in return for money as Blighty hasn’t got a pot to piss in, “Britain’s world beating know how in public infrastructure project delivery”, words direct from the British High Commissioner to Mauritius and like me the child of Mauritian immigrants. As we know each other, I burst out laughing. She seemed uncomfortable, so I didn’t add. The number two and a team from the UK Infrastructure Projects Authority are using Mauritius as test case in soft power, in tandem with the Foreign Office. I wonder if the visitors noticed the airport gifted by Uncle Xi and the tram system gifted by Uncle Modi.

      I also wonder if the party on the jolly included some morality lecture in their power point presentation, may be compulsory gelding of male toddlers and having drag queens provide class room assistance with reading. Us zone b types always get a lecture from western do gooders.

      BTW, HS2 and the East-West Railway are being built a couple of miles from where I’m typing.

    2. Ignacio

      This world of consultants… I am in a very early step to try to develop an agri-voltaic project consisting on solar fences along rural roads without interfering with agricultural activities. This project in particular is designed to fit mixed olive fields-cereal steppes which comprise a lot of land in central Spain. Instead of converting those fields in ugly solar farms which all pour most of the produced electricity in the very same mid day hours and that are owned by utility producers and paying a very small rent to the small landowners and removing necessary vegetation cover, in this model the land owner would be the producer, pour some electricity earlier in the morning and later in the evening, and have some extra income to complement or to invest in agricultural improvements. My main challenge is to find some engineer to design fences which are durable and not too intensive in materials. In fact, what I need now is a reliable estimate of €/km of fence (installation and materials) for viability analysis.

      I am hoping to have soon an estimate provided by a fence builder, a small company that makes their living doing exactly that. In parallel I contacted a couple of engineering consultants but these guys only do the cheap and easy thing of doing financial estimations with already known structures. For them loosing their time in some engineering modelling is a waste of time, they need the money yesterday.

      1. Chas

        Very interesting. I’d like to know more about solar fences and hope you will keep us updated as you proceed.

      2. vao

        Will you publish something about your project (e.g. description + lessons learned), once it is completed?

        1. Ignacio

          This is intended as reply to both Chas and you vao. I will be very very happy to share my experience the moment I have something valuable to share.

    3. Bill W

      Economists have become like engineers. The solution they create is rather complex regulated market with price information. It is never the markets fault, it is just that the information was wrong! prices will adjust and everything will be fine. When all the evidence suggests that prices do not adjust this way.

      Our governments have entire websites describing how businesses should price their goods. Capital depreciation is a large part of why businesses price things the way that they do. The economy might have shut down for a year or 2, but depreciation didnt stop.

      1. Ignacio

        I interpret PK’s take more as economists/finance types disguised as engineer services. Lot’s of middle men there to make things unviable.

        1. KLG

          Agreed. Any engineer who “engineeered” our political economy (GFC, SVB, Citi, JP Morgan Chase, Medicare Advantage) would be out of a license. For every Tacoma Narrows Bridge or Millennium Tower, there are thousands of monuments to engineering like this.

          1. Ignacio

            Romans indeed did such awesome civil infrastructures. It is sad knowing there are now excellent engineering brains and tools but we seem unable to use them for good!.
            The US is still very capable to do very good things. For instance, to estimate solar production I use an excellent software that was developed by the NREL (SAM) which is freely available and allows also for financial estimates. I thank the US Administration for this tool.

        2. PlutoniumKun

          Its at all levels, but ultimately I think economists provide the intellectual cover for justifying the running down of technical knowledge within the public sector while relying on ‘efficient’ outsiders to do all key work.

          1. Ignacio

            Oh I see. The Public administration has to hire the very efficient financial consultant, engineer consultant, land-manager consultant, environmental consultant, international relationships consultant etcetera and costs skyrocket. isn’t it? Because Markets are efficient of course.

    4. digi_owl

      The rest of Europe is rapidly following the anglosphere down that particular rabbit hole thanks to EU directives.

  2. Ignacio

    Quoting: “Anything scarce relative to demand for it raises the same question: Who will get it and who must do without it? The market is one institutional way to ration the scarce item.”

    Let’s go, for instance, to a particular “market”, let’s call it this way, which is the demand for new systems for energy production and storage. Market fundamentalism would state that by having all researchers competing to develop the best solutions we would have the fastest way to get the thing and Market will solve the issue in a brink. IMO, that might be more or less correct if the solutions available were low hanging fruits that a few individuals can reach with some effort. Current challenges, however, look to me extremely complicated and out of the reach of a few actors even if these are resourceful. As I see it, hundreds of labs in the world are committing the very same mistakes every day in pursue of a solution that would make a few extremely wealthy. The challenge to develop, for instance, dense, durable, affordable and not excessively resource-intense batteries is showing to be a good example. You have small achievements here and there but as I see it there are too many scientists repeating the very same expensive experiments only to find the same problems and bottlenecks. That is an enormous waste of time and resources and better coordination of research efforts globally, IMO, would almost certainly procure better results in shorter time. I think this have been said here at NC, a war economy would be necessary if we want to achieve, at least, some success. Following the quote there is high demand for such solutions and market fundamentalism only provides for scarce and expensive products available for a few.

  3. orlbucfan

    What a great read on human greed! Thanks, Yves. BTW, I would take the brains of a competent engineer over any economist’s any day of the week.

  4. Telee

    I have a friendly relationship with a doctor who is a stanch libertarian. Interestingly, he sees many of the same societal problems that I do but proposes much different causes and solutions.
    He believes that the problems seen in the current market system are caused by regulations, taxes, government interference and democracy. That a completely unregulated market would yield the best outcomes. For example, he sees the problems with healthcare and the greed associated with it, would be corrected by getting rid of Medicare and Medicaid which he feels has created the greed we see today. That competition would bring down prices and make it affordable for everyone. While he accepts global warming, he sees the problem is created by the environmentalists who are proposing solutions that would make the situation worse. Another view is that governments should do nothing to help the common man. For example, the proper response to natural disasters is that the government should do nothing to help. Furthermore, all public places such as parks should be privatized and people should pay to gain access. He proudly displays a bumper sticker on his car that proclaims ” I don’t vote” and another that says “taxes are robbery.” He adheres to the libertarian view that feudalism is a superior system. He has hope that we would do better to have a benevolent dictator rule our society. I could go on but his faith in unfettered markets has the feel of a religion. I might add that his dealing with other people and his patients is admirable so I think of him as a decent person who sees the solutions of society ills much differently than I do. I agree with Hudson. Libertarians would give absolute control to the oligarchs with all the suffering the rest of us must bear and completely destroy our society.

  5. some guy

    I have read that there are Catholics who believe and practice some elements of Catholicism and not others.
    Catholic Fundamentalists deride and insult these people as ” cafeteria Catholics” . . . picking and choosing what they like from the ” Seamless Garment” of Catholicism.

    One wonders if there could be, in the same way, ” cafeteria Marketistians” who pick and choose what they like from the ” Seamless Garment” of Fundamentalist Marketistianity. If there are such, or if such arise, they will be reviled and condemned by the Marketistian Fundamentalists.

  6. Polly Cleveland

    Excuse me, but there is no such thing as a “free (i.e., unregulated) market”. All markets take place within a government-created framework. At the most primitive level, government (the tribal council?) provides and polices a physical location and time for exchange. It also determines who does or doesn’t have access to that space, and under what conditions. See https://mcleveland.org/blog/index.php/2013/06/it-takes-government-to-create-markets-alex-marshalls-the-surprising-design-of-market-economies/

    1. Futility

      You are preaching to the choir here. Everybody on this site knows this. The problem are the people, as described in the article, who ‚know‘ that markets are guided by natural laws akin to the laws of physics and any government intervention interferes with the flawless functioning of ‚the market‘ even if said market only delivers societally inferior solutions. People who have way too much influence in our societies.

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