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Monday, November 9, 2015

When Market Solutions are Absurd

- Minimum wage and "labor Markets"

In February of this year I critiqued an article by Tim Worstall, 2/3/2015, of Forbes:

See: []

In my post I pointed out that his arguments were not supported by the Facts, but what I missed is that; even if Worstall's arguments were correct. There is a moral argument why a "labor market" is not a mere tinker toy to play with and try to fit into the Free Market mold.

For one thing as James Galbraith points out, referring to John Maynard Keynes (that savant who's been slandered and ignored for these past 35 years) noted; "There is no supply curve for labor",..."and that is essentially the entire story."

As James Galbraith notes on page 154 of his book "The Predator State":

"'Plugging in the supply side,' an obsession of many economists since the 1980s, counts for little in the real world of work, since it is employers not workers, who control the scale of the workplace. Employers may like job training because it saves them some minor costs, or because it deflects attention from stronger medicine" ...but they "do not delude themselves that it is an actual cure for unemployment -- and in many cases they would oppose it if it were."

We have unemployment because we have policies that don't aim at full employment. On the contrary we have policies that encourage offshoring, that put bandaids on unemployment, that treat the unemployed as if they were lazy "losers". The labor force is not the kind of market that can be bought and sold. As I noted in my previous post, the last time human labor was treated as a 'free market' we were talking about chattel slavery. Human beings can be bought and sold like cattle, but it is immoral. Same with their labor.

For more on this listen to his debate with Jonathan Meer of Texas A&M University, before the Texas Economics Society, on the question of the minimum wage:

I like where Galbraith quotes John Maynard Keynes at the end:

"There are examples of where a relentless magician, starting from a false premise, can work his way around and end up in bedlam."

Where Market's Don't belong

But what I missed before was this simple question:

"When you hear someone speak of a market, the first question should be: Is it real? Is there a commodity, and can one choose among competing suppliers? If not, there is no market, and an analysis based on supply and demand will not work."

Some public goods, people don't have choice about whether to buy them or not. One doesn't have much choice over which hospital to go to after an accident. Trying to turn the healthcare into a "free market" would be an excercise in absurdity even if it were possible. Indeed we see that with the crazy quilt results of the Affordable Care Act. Similarly with the "labor market", One might have a choice about where to work, but one has to work in our society (mostly) to draw a paycheck. Public policy doesn't exist to worship the Golden Bull of "Markets". As Galbraith notes:

"Training and education are no substitute,...for ensuring that good jobs are actually available when needed."

For New Democrats they become "a substitute, not a compliment, for policies aimed at full employment."

And this fact that with health care, jobs, homes, economic protection for the old, unemployed or infirm; none of these things can be even inadequately addressed through so-called "market solutions" -- just doesn't occur to either RW Cons or Third Way Cons. As Galbraith notes:

"policies aimed at 'making markets work' misconstrue the nature of the policy problem because they superimpose the artificial construction of supply and demand over a mass of phenomena that are in fact only unified by a label."

As he notes, referring to healthcare, "Public Universal Health Insurance schemes do not need to evaluate" the risk of illness in order to exclude customers and save money. If they do evaluate risk it's in order to plan adequate coverage and ensure that enough doctors or other resources are available. Not being required to pay dividends to stockholders, or inflated administrative salaries, they can focus on providing their core services and doing their fundamental mission.

My own observation is that the predators referred to in Galbraith's books, privatize these services in order to predate on people. Private insurance makes money by excluding the sick and denying needed care. This privateering off of a basic mission is a form of corruption, not a better way to deliver healthcare or other public goods.

Dealing with Predators

Indeed, James Galbraith doesn't title that section of his book "Dealing with Predators" for no reason. What he's really saying is that this whole futile project of building markets where they don't belong is simply a form of predation. The Predators know that these aren't legitimate targets for a market. Maybe some of the hucksters have convinced themselves that Health Care should be a market because it should be. But the rest, like the employers encouraging job training programs are merely hustling us.

Groups like Third Way, try to impose "market solutions" where they don't belong. That is what makes their politics so destructive.

More to come....

Further Reading

The Predator State
Ezra Klein's Brad Plummer interview with James Galbraith:
How economists have misunderstood inequality: An interview with James Galbraith []
Galbraith got involved with the Greek Rescue:
See: []
References and further readings:

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