Bad timing, George. What a wonderful fairy tale of how everything is okay, as long as you leave it alone and not try to influence market forces. Yet it's the fervor for deregulation and the idea that government is evil that got us a $700 billion comeuppance. The failure of Republican-led government to apply anti-trust law and to regulate and enforce our regulatory laws is abhorrent. For you to write about the wonders of unfettered market forces at this time is unbelievalbe.
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Pencils And Politics
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When a student asks about the exploitation of housecleaners, Ruth responds that if they are exploited making between $10—above the minimum wage—and $20 an hour, why are they not exploited even more? The answer is that the market makes people pay maids more than the law requires because maids have alternatives.
But back to Big Box doubling prices after the earthquake. The indignant student, who had first gone to Home Depot for a flashlight, says it "didn't try to rip us off." It was, however, out of flashlights. Ruth suggests that the reason Big Box had flashlights was that its prices were high. If prices were left at regular levels, the people who would have got the flashlights would have been those who got to the store first. With the higher prices, "someone who had candles at home decided to do without the flashlight and left it there for you on the shelf." Neither Home Depot nor the student who was angry at Big Box had benefited from Home Depot's price restraint.
Capitalism, Ruth reminds him, is a profit and loss system.Corfam—Du Pont's fake leather that made awful shoes in the 1960s—and the Edsel quickly vanished. But, Ruth notes, "the post office and ethanol subsidies and agricultural price supports and mediocre public schools live forever." They are insulated from market forces; they are created, in defiance of those forces, by government, which can disregard prices, which means disregarding the rational allocation of resources. To disrupt markets is to tamper with the unseen source of the harmony that is all around us.
The spontaneous emergence of social cooperation—the emergence of a system vastly more complex, responsive and efficient than any government could organize—is not universally acknowledged or appreciated. It discomforts a certain political sensibility, the one that exaggerates the importance of government and the competence of the political class.
Government is important in establishing the legal framework for markets to function. The most competent political class allows markets to work wonders that government cannot replicate. Hayek, a 1974 Nobel laureate in economics, said, "The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design." People, and especially political people, are rarely grateful to be taught their limits. That is why economics is called the dismal science.
© 2008
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