The Flaw of Market Economies

One of the most basic problems with a market economy is that it values goods and services essentially on their cost of procurement and not upon their importance to society, or even to survival.  For survival, for example, two of the most basic goods are air and water.  Without air, we would die within minutes, without water, within days.  Yet in any market economy, there is no charge for air, and an ounce of gold, which has no intrinsic value at all, will cost somewhere over $1,500, while an ounce of the most expensive bottled water might cost five cents [fifteen cents in New York], and tap water, in my area, costs about a tenth of a cent a gallon.

The same discrepancies occur in paying for services.  Both society and individuals can exist without hedge fund managers, who are, as a category, about the highest-paid individuals in U.S. society, and who collect salaries/bonuses in the million dollar plus category.  On the other hand, firefighters, police officers, and teachers, who are vital to an organized society, have among the lowest salaries of skilled professionals because they are public employees and considered easily replaceable.  What essentially determines those relative salaries are two factors – how much income an employee generates and what it will cost to replace him or her.  This is the bottom line of the business model so often touted these days by politicians and business people.  And from a profit and economic basis, it makes sense – but only from those bases, and often, only in the short-run and only to the specific organization.

What market economics ignores is the value provided by those “cheap” and “replaceable” people. Without teachers, those high-paid hedge fund managers would be even harder to find, because there wouldn’t be enough educated people to spare any for complicated financial dealings.  Without firefighters, sanitation workers, police officers, and other public infrastructure employees, cities as we know them in the Europe and the western hemisphere would become uninhabitable… or at the very least, warrens of filth, squalor, and crime.

Even within the business community, the heads of companies often do not know the return on their investment in their employees.  A year or so ago, I ran across a study on retail stores that concluded most large retail establishments would be more profitable if they hired more staff, rather than less.  It’s anecdotal, but my wife and I came up with five separate occasions in the last month or two when we went somewhere to purchase a specific item… and left without purchasing it because we couldn’t get service, not even a polite, “I’ll be with you in a minute.”  I’ve watched people walk out of restaurants because they sat there for five or ten minutes without seeing a server.

Now… the latest “buzz” in education is the need for more professionals in the STEM [Science, Technology, Engineering, Mathematics] areas, and politicians have even proposed charging students more for university courses in curricular areas where there are fewer jobs, such as the performing arts, history, and philosophy.  But, of course, I haven’t seen any move to raise tuition or cut faculty salaries in law and business, where we now suddenly have far more graduates than jobs for them.  The fact is that a society needs a wide range of abilities and skills, and the scarcity of skill or a job shouldn’t be the only factor in determining what it pays.

But then, to pay more for people who provide vital functions, in order to get better individuals in those fields…. how shocking… how… uneconomic… how at odds with the business model.

 

6 thoughts on “The Flaw of Market Economies”

  1. Damocles says:

    There are no markets. There are only individuals making decisions. We call the average of all these individuals’ decisions “the market” and speak as if it had an invisible hand and made decisions. Religious twaddle!

    CEOs get paid a lot because other CEOs want to be paid a lot. By ensuring every CEO they choose is paid a lot, they ensure the “market prices for talent” go up. The same goes for hedge fund managers.

    We don’t need more STEM graduates. We need to employ those already here. The only need for imported STEM graduates is to increase the supply and reduce their cost. Bright people notice, and go into other fields.

    Isn’t it odd that Science is strengthened through attempting to falsify its predictions, but if one criticizes capitalism, one must be some sort of communist? Like anything that is not subjected to periodic scrutiny, capitalism has rotted — “crony capitalism” now rules.

    Another example, is the revelation that you too can be a New York Times bestsellers and Washington Post bestselling author if you pay the right people:

    http://www.leapfrogging.com/2013/02/18/debunking-the-bestseller-book-sales-spike/

    Since “the market” is simply the name we give our corruption, should we be surprised its “pricing decisions” make no sense?

    1. Actually… an upcoming blog will deal with “best-sellers.”

  2. R. Hamilton says:

    A non-market economy would be better…how? By putting the decisions in the hands of those whose only planning is how to enhance their power? By hiding all the corruption so deep we’d never know about it all?

    Here’s an example of the corruption of a planned solution:

    http://dailycaller.com/2013/02/28/obama-donor-in-process-of-buying-up-and-destroying-americas-top-pro-gun-media-outlets/

  3. I’ve NEVER opted for a non-market economy. I want a solid market economy with enough regulations and laws to stop the worst abuses… because those abuses have existed in every market economy that didn’t restrict or outlaw them. We don’t want child labor, air we can’t breathe, rivers that catch fire, food that’s unsafe, etc., all which have existed until laws were enacted to put a stop to such practices.

  4. Cindy says:

    Howdy…thought I’d mention that even in the latest BUZZ area : STEM, a number of colleges aren’t hiring extra STEM faculty or even paying them more…instead they are hiring “academic coaches” and other non-teaching roles to aid “success” in the STEM curriculum! I am the only full time math person at my college..the rest are either adjuncts or science faculty who teach some math courses…however, there have been at least 5 new people hired in the last year just to be “supportive” to STEM students and with almost the same salary as faculty …..

  5. Bob Walters says:

    The Daily Caller is such a fine example of unbiased journalism. When will people stop reading this garbage. Getting news from the internet does not mean finding sources that only agree with ones own opinion. There are sources of information available that are not vehicles designed to foster and agenda.

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