Buffalo Bill on wealth and happiness

Roy Rogers has rightly pointed out the absurdity of measuring happiness according to the method used by the New Economics Foundation. The tragedy is that our own Fairfax journalists could be so uncritical as to accept the report - complete with the conclusion that Australia is a less happy place than various impoverished, war-torn and corruption-ravaged corners of the earth.

A simple look at the study's methodology reveals that the index does not actually measure happiness at all. Since it arrives at its rankings by dividing measures of happiness and life expectancy by a measure of ecological footprint, the best that could be said of the index is that it seeks to arrive at some measure of the average ecological efficiency with which different nations achieve a given level of happiness. If we assumes that there are diminishing marginal returns in this space - i.e. that the effect on happiness of a rise in national income gets smaller the richer a nation becomes - then it would come as no surprise that some of the poorest nations, using low levels of ecological resource to generate low levels of mateiral wealth, would score well on this measure.

That doesn't make them happier. In fact it makes them considerably less happy than their more developed counterparts.

Economists might point to a simpler measure of the relative happiness between nations - revealed preference. Where do people wish to live? If Costa Ricans are the happiest people on earth (as the survey suggests) then we would expect to see a steady flow of (say) Americans getting the first available flight. We might expect illiegal immigration by Americans to become a big political issue in Costa Rica. I am not aware that this is the case.

But it is worth asking what the bigger issue is here. The study so breathlessly reported by the SMH is part of an increasingly cliched attack on policies which seek to improve national incomes. At times, the attack is directed at the economics profession itself. The basic claim is that money doesn't make you happy. That richer nations aren't really any happier than poor ones (once you adjust for ecological footprints etc.).

One of the key findings relied on by attacks of this type is that measures of happiness do not appear to have changed much in the last 60 years, despite considerable gains in global wealth over that period. The conclusion drawn by anti-growth activists is that money doesn't make you happy and that the best approach would be to give up on the goal of boosting growth and incomes.

Money does not guarantee happiness, but poverty is a fairly reliable route to misery. Cross-sectional surveys generally indicate that richer people are happier than poor, and that richer nations are happier than impoverished ones.

But the the claim concerning the lack of increased happiness in the last 60 years can also be clarified through another fundamental economic principle - the distinction between marginal and average effects. It might be true that average happiness is no higher today than it was 60 years ago. But what if the issue was assessed at the margin? That is, what if the choice confronting society was whether to maintain existing levels of income and lifestyle or whether to revert to the levels prevailing 60 years ago?

Given the choice, virtually no one would prefer the levels of income and wealth of 60 years ago - in other words, over this range, there is an increase in marginal happiness associated with increased income and wealth. The same is true in relation to the small-scale actions and decisions made by individuals every day: people take a number of decisions - to go to work, or do some overtime - not because they believe money will buy perfect utopian happiness, but because they have worked out that having a few additional dollars is better than not having them. Of course, this is not to exclude the reality that the quest for material goods also comes up against limits. Few would always pursue monetary gain at the expense of other human needs like social interaction or emotional intimacy.

The fact that measured happiness has not increased over the last 60 years does not show the worthlessness of material gains, but rather points to another eternal human behaviour pattern - the tendency to take things for granted. We all do it from time to time, whether it be our health, friends, family or good fortune in general, we are notorious for forgetting or ignoring how lucky we are. For all our advantages, we still conjure up problems, challenges, complaints. But this is not actually the same as saying that we are indifferent to all our blessings - that they bestow no happiness or that we would just as soon not have them.

It is one thing to say I take my friends for granted. Another entirely to say I wouldn't miss them if they were gone.

There is always someone worse off than yourself...... (Lone Ranger) 11:35 PM

After a bit of a hiatus (sick kiddies, sick wife, lack of sleep, stressful time at work), I will now try to blog a bit more regularly.

This caught my eye, to the point that I almost choked on my cup of tea (thus causing a colleague to ask whether I was trying to impersonate a coffee perculator, but I digress. Not that I would be reading the internet at work much less posting at work).

The following is cut'n'pasted from Mish's site (globaleconomicanalysis.blogspot.com). Mish is a free market/Austrian economics advocate and is required reading. If I can ever work out how to link sites, I will link his site to this one. Anyway, back to the quote (which Mish links from a news site). US Vice-President Biden, already reknowned for his way with words, has come out with a corker:

Vice President Joe Biden told people attending an AARP town hall meeting that unless the Democrat-supported health care plan becomes law the nation will go bankrupt and that the only way to avoid that fate is for the government to spend more money.

“And folks look, AARP knows and the people with me here today know, the president knows, and I know, that the status quo is simply not acceptable,” Biden said at the event on Thursday in Alexandria, Va. “It’s totally unacceptable. And it’s completely unsustainable. Even if we wanted to keep it the way we have it now. It can’t do it financially.”

“We’re going to go bankrupt as a nation,” Biden said.

“Now, people when I say that look at me and say, ‘What are you talking about, Joe? You’re telling me we have to go spend money to keep from going bankrupt?’” Biden said. “The answer is yes, that's what I’m telling you.”

Link to whole thing is here.

While the economic literacy of Government in this country is appalling, at least no one has (yet) attempted to claim that the only way to avoid bankruptcy is to spend. Although.....

One of the key differences in the stupendous levels of debt in Australia compared to the US is that nearly all debt in Australia is privately held (households, businesses, banks). Is the stupidity exhibited by Biden much different to our fearless Prime Minister urging heavily indebted households to get out there and spend? Wonder what the Commonwealth Government deficit will be in 2010-11?

The predator Vs the regulator (Roy Rodgers)

When I was a postgrad I was lucky enough to take a subject called industrial organisation. Our lecturer was Nisvan Erkal. I’ll never forget the subject, it was the first time in three years of propositional calculus that I was able to sit in a theatre and think my god this stuff does bears some resemblance to the real world.

Nisvan was a fairly good lecturer and one of the best moments during the semester was when she spent a couple of hours going over classic economic fallacies. One fallacy that we spent a bit of time on was that of predatory pricing.

This lecture served as a bit of an awakening. Up until that moment in time it had never occurred to me that predatory pricing was in fact an absolute load of bull. Nisvan informed us all quite calmly that the actual conventional position of the vast bulk of economists was that it is absolute crap.

At this point its worth noting that our government appointed protectors the ACCC have yet to come to this conclusion. As embarrassing as it is it is true, the ACCC believes whole heartedly in the theory. Not only that, they have the powers necessary to intervene and protect us from it. The regulation will save us!

http://www.accc.gov.au/content/index.phtml/itemId/816375

While the ACCC does believe in it, it also notes that it is difficult to prove…..apparently

the initial signs of predatory pricing are pro-competitive and there is often no written evidence of anti-competitive purpose with which an allegation could be upheld.

Heads up boys …. Maybe its sooo hard to prove because it’s a load of baloney.

What is predatory pricing? The theory holds that a dominate firm will price goods at below cost (that is below their costs) in order to force other firms/suppliers to lower their prices … effectively engaging them in a price war. The theory holds that for some strange magical reason the dominate firm is able to sit out its subsequent losses whereas its smaller competitors can not and go broke. Once the little guys are broke (or in eco speak exit the market) it is theorised that the dominate firm can increase its prices to a higher level (than pre price war) due to its new found market power. Ultimately these inflated prices should provide our newly monopolised firm with more than enough profit to compensate for the losses incurred during the price war.

Sounds sort of a little bit compelling doesn’t it?

However, the reality is that its loony bin territory and just because the ACCC says its true doesn’t make it so. It belongs to that same school of bizarre bullshit economics that anti dumping regulations comes from (anti dumping is a sort of predatory pricing theory with a bit of xenophobia thrown into the mix). They both belong to the school of protectionism dressed up in strangely illogical and yet somehow bizarrely enforceable pro‑competition drag.

The theory also appears to pander to the insecurities of anti capitalists and big business haters whose formal economics training usually amounts to nothing more than a couple of lectures they gatecrashed halfway though their arts degree.

At this point its worth noting that not once in the last 100 years of research has an economist been able to produce a single example that serves to validate the theory.

In reality there is nothing pro competitive about predatory pricing regulation. It is purely and simply a vehicle for small inefficient firms to shelter themselves from aggressive price competition. The theory of predatory pricing is in fact a tool for anti competitive behaviour. Let me reiterate … this is not some libertarian anti government ranting it is in fact the main stream economic opinion.

If you believe in predatory pricing you probably did your economics degree sometime around 1950.

There are three main reasons the theory doesn’t stack up (note that I am relying on my somewhat hazy memory of a single lecture that occurred a number of years ago … so apologies if I’ve left something out):

1. In order to engage in predatory pricing the dominant firm needs to supply goods at below cost prices , that is prices below not only the prey’s costs but also the predator’s costs. This is a very important point. If the dominant firm is pricing below competitors costs but above or at its own average cost it is not engaging in predatory pricing it is simply engaging in old fashioned competition.

The problem with the theory is that the predatory firm by virtue of its own pre-existing dominance has a lot more to lose from underpricing than its smaller competitors.

The following highly exaggerated example should shed some light … If the dominant firm produces 1 billion units and sells them at $10 below cost it has lost $10 billion. On the other hand the small competitor that produces 1 thousand units is only out of pocket by $10 thousand, Who do you think has the better deal?

2. The second issue is temporal, just how long does the alleged predator have to endure these losses before the competition does the honourable thing and bugger off. Bit of a risk, the smaller competitors by definition are incurring much less loss and may be able to weather the storm much better than the actual predator. It may be even worse than that …. what if the competitors decide to run a skeletal production schedule or alternatively temporarily cease production until the price war is over. After all forgone revenue may be a cheaper option for the smaller firm given that they potentially lose $10 per unit if they continue producing.

3. The third and final issue is that the whole thing is doomed to fail even if the predator actually triumphs over his prey. For predatory pricing to stand the predator has to engage in monopoly pricing once the prey have gone. The problem is that this implies they will earn abnormal profits and abnormal profits tend to attract new entrants.

And guess what if you’re a new entrant you have access to some bargain basement priced capital. When the prey exited the market they would by definition sell off their capacity/capital goods (its usually not sound commercial practice to abandon assets). These capital goods are priced to reflect the lowered expectations of future benefits that results from the price war. So at the end of the day not only does the predator find himself competing with new and keen entrants, these entrants have lower costs curves that reflect the price war and thus are able to compete aggressively with the predator, and if I was an entrant this is exactly what I would do because I know the predator is carrying massive liabilities resulting from his stupid pricing policies.

To the best of my recall this is what Nisvan taught us all those summers ago, and I have to thank her for one of the most memorable economics lectures Ive sat through.

ACCC to probe big fuel discounts 5:06 AM

ACCC to probe big fuel discounts

Is it just me, or has anyone else noted the absurdity of the Australian COMPETIION and Consumer Commission investigating what can only describe as excessive competion. Although I dont really know what that means ... too much competion? prices too low? too much benefit to that other C word .. Consumers?

Maybe it means no one is looking after the little guy, the small local petrolstation, the one that bob from the footyclub runs. The one that cant compete effectively with the big boys .... For gods sake who is PROTECTING bob and his overpriced petrol from competion!

This is all rather suboptimal from a governance point of view. I mean how confusing is it for an organisation to be chartered with the protection of competition and consumers and then have to act for special interests.

If society wants to enforce inefficiency then we really should establish a new commission one with clear objectives ... the Australian Protection and Subsidisation Commission ... their mandate could be to represent vested commercial interests and block mergers on the grounds they would create too much efficiency and too low prices.

The APSC could stand against subadditivity. Its charter could be the advancement of diseconomies of scale and scope.

Are you serious? (Roy Rodgers) 6:59 AM

Last week SMH ran a gob smakingly absurd story by Cathy Alexander, entitled "Australia not home to the good life". The story centres on Australia's ranking in the recently released happiness index.

Apparently Aus ranks 102 in the happiness index. That’s 102 out of 143. Here are some pearls of wisdom from Cathy ....

South and Central America are home to the happiest, greenest people, the survey found; nine of the top 10 countries are from that region. Costa Rica topped the poll. South-East Asia also did well.

Rich western countries did badly, while African nations came in at rock bottom. Zimbabwewas last.

And some more ....

While Australia disgraced itself in the poll, coming well behind Iraq, Burma and Palestine, there was a shred of good news. Australia beat New Zealand by one place.

Ill give you a second to consume that last one. Yes it did say Iraq was a happier place thanAustralia.

By now your bullshite metres must be spinning wildly out of control.

Heres some stuff Cathy didn't tell you ...

The happy planet index is produced by the New Economics Foundation. The foundation is described by Cathy as a British think tank. A more accurate description would be a bin of environmental Malthusian Marxists who appear to harbour an abject hatred of economic growth. Their self confessed goals are environmentalism and welfare economics. And by welfare economics they are not talking about welfare economics in the proper sense of using microeconomic techniques to assess allocative efficiency. I suspect they are talking about creating a welfare state (which any economists should be able to tell you is a rather shitty idea). ... well in Brittan’s case not creating but rather devolving to a welfare state.

and here is the index

Well it looks like Cathy didn't mention how the index was constructed for a good reason. I don't know about you but my modest exposure to statistics is standing on my shoulder poking its little pencil in my ear screaming ROY, I SMELL BULL! Luckily for us the Foundation was stupid enough to accompany the formula with some definitions.

Happy life years: A stat based largely on self reported life satisfaction data. Self reporting or self selection is at the best of times dodgy as ... just imagine how dodgy it is in regard to happiness. Imagine the framing issues. Where do you start ... even defining happiness is next to impossible. One man's happiness is not another’s. I am 100% confident that my utility function is totally different from that of a lycra clad masochist gimp. What makes him happy is not going to make me happy.

Ecological footprint: a measure of the amount of land required to provide for all resource requirements plus the amount of vegetated land required to sequester (absorb) all their CO2 emissions embodied in the products they consume ... apparently 2.1 hectares is each individuals fair share, any more than that and your using more of the globes resources than you are really entitled to, I also assume any less indicates your being ripped off (my BULLSHIT valve just blew a gasket).

Alpha: the alpha constant is added to ensure that the ecological footprint coefficient of variance matches that of the health life years across the entire dataset. Hey why not ... it would smooth things out some.

Beta: the beta constant is added to ensure that any country with a max life satisfaction of 10, life expectancy of 85, and is living within its "fair share" of resources gets a score of 100. Although i have paraphrased I’m not grossly miss quoting.... so yes they are basically saying the index is rigged to max outcomes for those of us who consume "fairly".

The results are driven primarily by the denominator. The data used shows quite clearly that US, Canada, Europe and Australia all have the highest stasifaction ratings and the highest life expectancies. However, the ecological footprint shows (as would be expected given the relative levels of development) that these countries use the most resourse. The US is the outlier using more than 4 planets worth of resources. Europe, Cananda, Australia and Japan come in at 2 to 4 planets worth. South America, Russia and China come in at 1 to 2 planets and Central America, Africa and West Asia come in at under 1 planet.

... all this begs the question of exactly which planet it is that we are currently running this massive trade imbalance with. It must be someone because we are apparently consuming more than 10 times the amount of resources the earth has to offer. I just bet its those pesky free trading plutonians, sneakly blue little bastards.

I could go on all day, but I’m not going to ... I’m more than convinced this is alot of bull.

The real tragedy here is not the crappy report but rather the crappy reporting. All Cathy had to do was spend 10 minutes on the Web and she would have had enough material to write a much more informative article about the absurd use of statistics to promote an essentially anti growth agenda. The last thing we would want is for developing countries to start getting all uppity.

Check it out for yourself.

Happy Planet Index Link

Just to really piss you off, if you spend enough time on the site you may encounter the following

The Index doesn’t reveal the ‘happiest’ country in the world. It shows the relative efficiency with which nations convert the planet’s natural resources into long and happy lives for their citizens. The nations that top the Index aren’t the happiest places in the world, but the nations that score well show that achieving, long, happy lives without over-stretching the planet’s resources is possible.

So after all that the index turns out not to be about happiness.

Wolframalpha (Roy Rodgers) 7:13 AM

This is a seriously cool site ...

Today's Wolfram|Alpha is the first step in an ambitious, long-term project to make all
systematic knowledge immediately computable by anyone. Enter your question or calculation,
and Wolfram|Alpha uses its built-in algorithms and a growing collection of data to compute the
answer.

http://www22.wolframalpha.com/

Roy Rodgers vs the Hairy Bitch. 4:16 AM

ROUND ONE: THE FREE MARKET

Its late afternoon, you’re in your library perched on your dark red leather chesterfield, which is floating on a sea of richly ornate silk Persian rugs. You are admiring your collection of literary works. You know… they say you can judge a persons intellect by the number of books they own, and boy are there a lot of books on the shelves (the dark mahogany shelves).

The sheer size of the collection is somewhat intimidating, but deep down you suspect that its not just the size of this collection that impresses but rather its depth. It’s the depth that truly separates the intellectual lambs from the lions (at this point I should confess, its not my library, it actually belongs to the Lone Ranger).

Your pleasant moment of solitude is welcomingly interrupted by your six year old son/daughter who, with a look of adoration in their eyes, approaches you in a quiet and respectful manner. However, something is not quite right. Their perfectly angelic face seems to carry a look of concern or confusion. They sidle up to you and ask in a well behaved manner.

“Daddy can I ask you a question?”

“Of course you can. Every thing I have I give to you. The lessons I’ve learnt, the wisdom I’ve acquired, my mathematical and financial nouse. It’s all there for you whenever you need it.”

“Daddy … Daddy in class today Ms Doe said that the western free market based capitalist system had collapsed … what does this mean Daddy?”

The Hairy Bitch strikes again!

I promised my wife I would not call our child’s grade one public school teacher the hairy bitch, and to the best of my ability I will try not to. It’s just that I can’t think of anything else to call the lovely self righteous Ms Doe.

I’ve had enough. Enough of the politically motivated morality the lovely Ms Doe seems intent on ramming down my child’s throat.

It started with plastic. My son now thinks plastic is evil — nude food day …absurd. It should be renamed soggy sandwich day or unhygienic lunch day. Plastic was quickly followed by saving whales, recycling, walking instead of driving … who knows where it’ll end.

Well this is my stand. I am going to blog the biach. And it all starts now with a defense of free markets.

The land of the free

Apparently free markets are the root cause of everyone’s problems. Free markets are the reason the world has gone to the dogs. Free markets are responsible for freddy mac and fanny may, they are responsible for the apparent insolvency of Iceland, free markets destroyed general motors, and unfettered free markets have brought the UK to its knees. I’m not really sure what free markets have done to Australia, but if we keep listening to big kev, then we may be blessed with a recession some time in the future.

When I sat down to write this post I asked myself a simple question, in the face of all the recent market hate that has been floating what are the fundamental aspects of free markets that my son/daughter should be made aware of before his/her public school teacher starts brainwashing him about the evils of the modern world? And I’ve boiled it down to five things. Five is a good number and is probably the extent of a 6 year olds attention span… so five it is, and these are:

1. Markets are natural — they are an elemental part of the human experience, markets have been with us since the first cave man stood up and scratched his nuts.
2. Markets are relevant to you — they are not populated solely by mysterious mustachioed Argentinean water barons that smoke cigarillos and have really hot girlfriends
3. Markets don’t fail — they don’t actually sit exams
4. Markets are efficient —actually they are more than just efficient, they are the super troopers of allocation.
5. Some people hate em — happy clappers, nutjobs and entrepreneurial parasites hate markets.

Before we get started we should be clear what it is exactly that we are talking about. What are markets? Apologies if your not actually six years old.

In economics the term market refers quite clearly to the act of exchange between a potential buyer and a potential seller. Markets may be shallow with few participants or deep with many. They may be based on barter or alternatively be pecuniary in nature. They may be accompanied by formal structures that constrain people’s behavior, alternatively they may be informal with no or little constraint on the structure or form of exchange. Whichever form they take their very essence will always be the voluntary and beneficial exchange between two participants.

1. Markets are natural.

They are an innate part of the human experience. The act of exchange and markets themselves, have been around for the full extent of known human existence. They are not an invention of Adam Smith or David Ricardo. They are not an unnatural artifice of evil capitalists. Markets/trade/exchange have been with us since we climbed down out of the trees.

Lets take a trip back in time and see if this is true

- 3^rd century Rome. Emperor Elagabalus (AD218 to 222) was by all accounts a nasty bastard with excesses that ranged from murdering children to wearing too much makeup … but he had a particular fondness of wearing clothes made entirely form silk. The thing is that the romans, who had always consumed quite large quantities of silk, had absolutely no idea how to produce it. In fact they didn’t even know where it came from. If you tossed a roman a silk worm he would probably think it was bait. In fact no roman ever met a chinaman and no chinaman ever met a roman, however the wonderful properties of markets and trade allowed for the establishment of the silk route which became one of the most economically important trading routes for both roman empires and their chinese equivalents … yes even back then the local emporium in Rome had a made in China section.

- Lets go all the way back …6000BC. Historians have shown that prehistoric man had established trading routes throughout the Mediterranean and the Middle East. Modern researchers have been able to map these routes using the atomic fingerprints of obsidian artifacts from the stone age (obsidian was apparently very good for spears and such and fortunately for us has an atomic fingerprint unique to the volcano from which it originated), to establish where trade occurred

2. Markets are relevant to you

Market participants are not mysterious foreigners. Markets are composed of you and me of our mothers, fathers, siblings and, heaven forbid, even the odd Nanna. Markets are not some obscure abstract things that do not impact on you. You are part of not just one but many markets. These markets are not populated by moustache wearing foreigners. Markets are composed of many people, individuals buying and selling goods and services, of people pursuing their dreams and ambitions.

The point here is that whenever someone mentions market failure (discussed below) what they are saying is that the participants are not making the correct decisions … that you and me and your nanna have somehow got it wrong and need to be protected from ourselves.

The next time you hear someone mention market failure take it personally, because what they are saying is that you are in effect too stupid to do the right thing. And while I don’t condone physical violence you need to question them and make them defend their contention.

3. Markets don’t fail

Aside from the obvious anthropomorphic issues, markets don t fail. Well actually they do sometimes fail, but when economists talk about market failure they are talking about something specific, something technical.

What they are talking about is the inability of markets to provide the optimal allocation of resources. They are saying they can observe one of a number of specific phenomenon that are stopping the market from achieving a more efficient outcome (just to make things quite clear … they are not saying that the market is crap and we need government to step in).

There are four basic forms of market failure and all of them are overrated. They are:

- Alleged abuse of market power. This occurs when a monopoly starts charging exorbitant prices and acting like an evil profit maximiser. I say alleged because in most cases the data shows that monopolies have provided lower prices.

- The existence of externalities (positive or negative) — an externality occurs when the market does not take into account the impact of an economic activity on outsiders. For example, the market may ignore the costs imposed on outsiders by a firm polluting the environment. This issue is somewhat confused, as often the externality itself results from the lack of a market in the ‘externality’ (see carbon trading schemes).

- The existence of public goods — that is goods that exhibit properties of non rivalness and non excludability, not goods that are provided by publicly owned corporations or utilities. For example Water is definitely not a public good. The amazing thing about this failure is that it’s dolled out quite liberally as a justification for government intervention despite the fact that actual public goods are extremely rare.

- Where there is incomplete or asymmetric information or uncertainty. Yes markets may breakdown when there are too many unknowns. But the thing is, when something is unknown or uncertain this means its unknown or uncertain, not its unknown or uncertain for participants in a market but widely understood by bureaucrats in cubicles. If the actual participants in a market are a bit unsure about something you can bet your next pay cheque the government has not got a clue.

Here are a couple of quick observations about the practical implications of calling market failure.

Firstly, its been my experience that market failure outside of an economics text book is one of the most abused concepts in modern government. For a start quite a lot of alleged market failure is not actually technical failure but simply the market producing outcomes that the bureaucrat finds undesirable. Maybe there should be a fifth type of failure called Cubicle Failure — a markets inability to please a government bureaucrat or minister.

Secondly, the question that should be asked is not if the market has failed (so what if it has) the question is what set of arrangements provide for the best outcome. Are markets with all their failure better than central planners with their own set of failures … let me rephrase is it better ….let people make up their own minds or should we entrust 20 year old civil servants to make up our minds for us? Which approach provides for a more efficient or effective outcome (I know where my money is).

Lastly, I recently heard a fellow economist make the following syllogistic statement

..a properly functioning market that provides for optimal outcomes must by definition be perfectly competitive perfect competition is an abstract concept that only exists in textbooks (very true) therefore all markets are in a state of failure …

oh be still my beating heart.

What crap! Markets are human institutions and as such are never going to be perfect and so what if they’re not? The application of a bench mark that can’t be met is a meaningless exercise. The real question is a relative one … Are markets the best way?

4. Markets are efficient

The statement should read ‘markets are the most efficient’. Don’t believe me? Then ask yourself where would you prefer to live … Hong Kong or North Korea?

There are a number of reasons why markets will always be more efficient than a bureaucrat. The principle one is information. In a market information doesn’t need to be collected, collated and analysed. Each participants knows what their tastes are, what there requirements are, what they want when they want it and how much they can pay for it and also how much they value it relative to other goods or services. They then go out and find what they want by engaging a seller or a number of sellers.

These sellers by the way know what they are good at selling . They know what it costs to produce and acquire all the stuff they need to make the stuff they want to make (and if they don’t the market makes sure they get kicked out on their arse).

The thing is there is no way in hell our 20 year old civil servant can begin to process this information. No matter how big and complex his model is, he will always stuff it up.

5. Some people hate em

Happy clappers, nutjobs and entrepreneurial parasites hate free markets.

Happy clappers want to save you from yourself, entrepreneurial parasites want to suckle on the public teat or alternatively stop their competitors from providing cheaper better goods and services … and nutjobs … well they hate markets because … just because

What about the rest of us

Aside from the happy clappers, entrepreneurial parasites and nut jobs why do seemingly normal people appear to hate free markets? This is a hard question to answer. A more specific narrowly focused question that I have often asked myself is why do some economists (given all that they know about markets) seem to hold a base dislike and distrust regarding free markets.

My theory is that bureaucrats and economists invariable fall somewhere on a spectrum between those that believe people are generaly smart and those that believe people are generaly stupid. Those that err on the smart side (I confess to being one of them) hold that markets are the optimal mechanism for the allocation of resources. Those that believe people are stupid (with the obvious exception of themselves) see market failure everywhere and will inevitably seek to control markets either through public ownership or by levying rules and restrictions that constrain people’s behavior. They are the regulators and they are here to save the world.

This lot of pushy bastards are more aligned with the ideology of guys like Maynard Keynes or his current stooges Stiglitz or Krugman. They know what’s best and they are more than willing and able to help you help yourself (whether you want it or not).

On the other hand, economists that believe people are on average smart generally seek to uphold free markets, lessen regulatory interventions and abolish planning regimes.

So my son/daughter, the next time the hairy bitch complains about free markets you should remember that markets are the most human of all institutions; they facilitate our dreams and provide a forum for us to express our aspirations. They have been and will continue to be a fundamental part of the human condition despite the best efforts of the heroes of social democracy.