Economics of the 1%

“Government causes inflation” probably stands first among the favorite refrains of the econfakers. Allegedly based on sound economic theory, the argument provides great benefit to the rich and powerful, repeatedly used against public spending.

Exchange requires clear ownership rights, and with those rights go equally clear obligations. All exchanges place upon the seller the obligation not to defraud the buyer. A food seller must not poison the buyer, and claims of the qualities of the food do not constitute a defense. All countries have legal systems that enforce the obligation of the seller to adhere to basic standards without which exchange would be impossible or severely limited. Governments enforce property rights and the obligations associated with them. The regulating government cannot in most cases be local if commerce extends across national or international markets. This is why the US constitution grants the federal government control over commerce (Article 1, Section 8, Clause 3, the “commerce clause”).

We find as a close familiar of this illusion the belief that “markets” and “governments” represent separate realms. This misconception results in the associated misconception that governments “intervene” in markets. If we again touch base with reality, we recognize that markets require governments as a precondition of their existence, as well as a necessary condition for their continued functioning. To put it simply, markets function because of government regulations, not despite those regulations.

For my part I think that capitalism, wisely managed, can probably be made more efficient for attaining economic ends than any alternative system yet in sight, but that in itself it is in many ways extremely objectionable.
(J. M. Keynes)

These well-known, everyday problems with markets – affordability, discrimination and inadequate information – are not fatal flaws. All can be managed in the public interest, and to varying degrees have been. While not fatal, they do imply that markets, as with everything else in this imperfect world are also, well, imperfect. And being imperfect, markets require careful and responsible collective (public) oversight and regulation.

There are no “market fundamentals” in the sense that the mainstream has coined the phrase.

because preferences arise from a person’s social interaction, and many choices are forced upon us, the collective actions of people to improve their society by government intervention cannot be condemned in general as restricting freedom.

whatever the source of people’s wants and needs, whether or not they enter into exchanges “willingly” is a matter of definition. For example, no one is forced through physical coercion to forego medical treatment because it is too expensive. Nonetheless it is a choice many people make in most countries, and a choice that would not be presented to a person in a humane society.

The existence of markets is a social phenomenon.

First, market choices by people are not the result of preferences and desires arising at the individual level. An individual has choices in markets as a result of living in a society with a division of labor that has organized its production and distribution in a specific historical manner.