Skip to content

MY 1,000TH BLOG – DEDICATED TO ROBERT KUTTNER (PART I)

November 7, 2015

MY 1,000th BLOG – DEDICATED TO ROBERT KUTTNER (PART I)

This is my 1,000th blog, and I hereby dedicate it to Robert Kuttner, whose penetrating insights into the intricacies of policy (or lack of policy) affecting labor, trade, corporate governance and in general both micro and macro economics have inspired and sent me scurrying to the keyboard more than once. Mr. Kuttner, along with Paul Starr and Robert Reich, were the founders of The American Prospect, my favorite magazine. All such founders are brilliant and I have been a subscriber to their magazine since it began publication years ago. I have yet to be disappointed with a single edition of this great magazine.

For instance, in the Winter 2015 edition of the magazine Mr. Kuttner in writing the lead article and introducing others writing under the title of “The Libertarian Delusion – What the Free Market can’t do” points out that “The free-market fantasy stands discredited by events” and that “Our challenge now (is to) redeem effective and democratic government.” He is, as usual, right, but I will go him one further.

His definition of the “free-market” as a fantasy is in consonance with my oft-stated claim that it does not now and never has existed beyond economic theory. Why? Well, because there are too many situations that have to be in place for the theory to work in the real world, like, for instance, perfect competition (as described by Adam Smith) which there never was what with royal charters in English history to favored interests (aka grants of monopoly) for a kingly cut of the profits (see East India Tea) or symmetry in information (where buyer and seller are perfectly apprised of all risks and benefits to be endured or enjoyed in a buyer-seller transaction), a little noted area until recently when an American economist won a Nobel Prize in pointing out the effects of asymmetry in information in buyer-seller transactions.

Thus the free-market model as trumpeted by today’s libertarians and capitalists not only doesn’t work; it doesn’t even exist, and has no place in our economy in any event even if it did exist in view of rampant monopoly pricing in the market today where symmetry of information between buyer and seller is a joke. Thus while I wouldn’t banish it from the lexicon if I were in charge of writing a dictionary, I would define it as an economic theory with no concrete application in the real world and on the order of the Loch Ness monster in the world of fantasy. Those who refer to it as a force in economics are, in my view, using it to cover the real world of monopoly pricing in which they are so profitably engaged and committing verbal fraud on the unwary for their own selfish ends. It is, at best, a myth, but a convenient one for certain interests who need PR cover for their myopic greed in the market place. It doesn’t exist because it can’t, and it can’t because of the pre-conditions to its existence that do not themselves exist.

Paraphrasing Mr. Kuttner in his piece, the libertarian idea of a “free market” stubbornly persists, despite “mountains of evidence that the free market is neither efficient, nor fair, nor free from periodic catastrophe.” He further notes that “In an Adam Smith world, the interplay of supply and demand yields a price that signals producers what to make and investors where to put their capital,” and that under the libertarian view of this exchange, “the more the government interferes with this sublime mission (free enterprise), the more bureaucrats deflect the market from its true path.” (True path – also a myth).

I don’t agree. I think “the market” has done a lousy job of allocating resources and risk in maintaining its stability, and that when it fails or engages in practices that lead to failure, then regulation by government is essential to restore stability to the market (see the Great Depression and recent government bailout of big and insolvent Wall Street banks which, contrary to their assurances, did not allocate risk and resources appropriately and almost brought the world to economic ruin). This government they so detest very generously bailed out not only the banks but their insurers and shareholders as well.  Government “interference” is not interference at all but rather a public effort made to benefit all actors in our economy in re allocation of risk and resources in a market sensitive to such dangerous practices as reckless investments like those made by the big banks that brought the world to the brink of depression while Bush’s regulators slept. The big banks should be thanking government for its “interference,” not putting down government for regulating the banks’ excesses.

In any event, the libertarian view of “free market capitalism” is not the one you and I experience in the real world, where markets do not produce the “right” price. Thus, for example, markets do not produce the right price in buying and selling of carbon. The price of carbon-based energy is “correct” as a reflection of what consumers will pay and what producers can supply, but only if you leave out the fact that carbon is destroying a livable planet. Where is that factored into costs of such transactions? It isn’t, and Mr. Kutter notes that markets are not competent to price this problem and that only governments can do it. (He is right; you don’t invite foxes into the henhouse to count the chickens; you rather invite impartial referees to assess such costs into the buy-sell carbon agreements, referees who represent vital public interests such as breathable air beyond mere buy-sell understandings between consumer and producer in an open economy). Exclusion of referees (aka regulators) from such processes as favored by climate deniers and corporate America is an invitation to catastrophe, and for what, corporate profit? The “freedom” to pursue profit trumps even survival? What are we thinking? Or are we thinking at all?

Mr. Kuttner writes that the other great catastrophe of our time is the financial collapse in which “supposedly self-regulating markets could not discern that the securities created by financial engineers were toxic and that markets were not competent to adjust prices accordingly.” He notes further that “only government could produce regulations against fraudulent or deceptive financial products, as it did to good effect until the regulatory process became corrupted beginning in the 1970s.” He agrees that deregulation “arguably” created small efficiencies by steering capital to suitable uses – but that  “any such gains were obliterated many times over by the more than $10 TRILLION in GDP lost in the 2008 crash” (aka Bush’s Great Recession). Lack of regulatory oversight nearly did us in, and we are still on the hook for trillions in lost economic production and the forever lost wages, profits and taxes that go with that hook, tax monies lost to the government that we could have used to reduce Bush’s massive debt increases with his credit card wars and tax giveaways to the rich during war time – the latter a first time event in history. Bush preferred debt over responsibility in budgeting, and we still have years to go to pay for his disastrous eight-year reign of borrowing for tax giveaways to the rich and paying for wars. No president before him ever gave away our tax money during wartime. They paid for their wars.

Finally, Mr. Kuttner then proceeds to discuss a third grotesque case of market failure (and the one I most harp about in hundreds of blogs), to wit: the failure of the market in income distribution (which has led to chronic and ongoing wage inequality, perhaps our biggest economic issue on the table today).  Most of what we will see in Part II from his take on this continuing situation I have already treated many times, but it is an area so vital that it needs constant reiteration (and especially from a brilliant analyst like Mr. Kuttner to supplement what amateur economists like me write about), so stay tuned. GERALD  E

Advertisements

From → Uncategorized

Leave a Comment

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: