One of the things I come across on the net espeically from people on the left, its their ignorance as to what markets and capitalism truly are.
The first mistake they make is talking in terms of both capitalism and markets being the same thing, they are not. In this post I will deal with Markets and the next one I will talk about my opinions on the nature of capitalism. (note its capitalism without a capital "C")
A market in very simple terms is a mirror against human actions. You will often hear the cries of "the market has failed" thus it is someway a fault of the market that it failed. Thats a bit like looking in the mirror and blaming the mirror for you being ugly. When you need to get the cash together for some plastic surgery.
Markets should fail, that is what we want them to do if necessary. A bit like the fuse box on your electricity circuit, when its overloaded it fuses and shuts down all or part of the system. You inspect the system, repair if necessary and flick the system back on.
People look at the bust of 2008 and talk in terms of market failure, but its not failure at all. It was markets that alerted us to the failures in the housing bubble and the international movements of capital that facilitated that bubble. Very few economists predicted the crash, plenty predicted the housing bubble popping but not the resulting bank failures it would cause. He have had housing bubbles before without banking collapses. Few saw under the iceberg. In fact one study from the Netherlands found that out of 22k professional economists less than 200 got both the bubble and crash together in a perfect prediction, this is less than chance. Next time you hear about economics being a science remember that fact. Thats not to say economics is not important it is, but its not a science.
And how many Politicians understood and predicted the events of 2008? even less than the economists. Too busy telling everyone how clever they were producing all this growth from what turned out to be bad debt.
Markets give us information as to how well resources are being used, so we can make the decision as to how to proceed. Do you spend a million on paperclips or JCBs? Misallocation of resources is the reason we find ourselves in he mess we are in today, if we had taken the money from the far east emerging economies and did productive things with it then the debt would be a good debt. But we sunk the cash into the land through real estate and created a bubble. This is not markets fault its our fault.
There are really two distinct ideas as to what prices are. Firstly the Marxist one which believes that prices are based on labour (money being stored labour) and thus calculable through out the economy. The other being that prices are what ever people are willing to pay for the goods, (money being trust) thus much more fluid through the economy, the one I subscribe too.
The Lefts distrust of markets I believe comes from the idea that prices in someway can be fixed, they cant. There is too much changing information within any given market for that to be the case.
So they you have it in a nutshell, No great shakes, no need for all angst.
