Wednesday, January 03, 2007

The Market never fails. Never!

via Battlepanda, this is a fascinating story: Dallas Food Blog did a major 10-part series on some boutique brand of chocolate that's one of the most expensive, if not the most expensive, in the world -- as much as $2,000 a pound. Turns out, the company (Noka) is buying commercially available chocolate, changing the ingredients not one whit, doing an amateurish job making the chocolates, and putting it in fancy boxes. The price reflects absolutely nothing of substance, and derives entirely from good PR.

I'm with BP on this one when she says:
Mark Thoma at the Economist's View, in particular, characterized the scandalously high prices charged by NoKa chocolates as a market failure. Well, if we count price anomalies caused by good advertising, branding and public relations as market failures, this really throws off the assumption that the market is essentially efficient.
Of course it does. The only consistent definition of a "market failure" seems to be "grossly unethical behaviour that even economists can't justify."

This is what bothers me about how we view a "market failure" -- it presumes that the default position is that the market will act efficiently, and that "failures" are the exception. (And here it's probable that I've simply been raised in a neoliberal environment for my entire life, and get cranky over things like this.) But the lesson of Keynes is that, in fact, the market naturally tends towards crisis. And the lesson of Stiglitz is that information asymmetries are everywhere, and that market failures are therefore inevitable. That is, market "failures" are part of the system. Hell, if you define unreasonably high prices as market failure then software, pharmaceuticals, and much of the media and fashion world exist in a permanent state of market failure. So how can it be a failure, if it's clearly what the market is built to do?

A rational society would recognize that there are many areas where business has no business, and would further recognize that some areas of the market need the strictest regulation. There are clearly a whole bunch of things that the market alone doesn't do well (like prevent abusive chocolatiers from fleecing their customers) because that's not what the market is designed to do. Indeed, the market is perfectly designed to produce unethical behaviour, and is only restrained by the moral sense of the actors involved, or the force of law. Only people who've drunk too deeply of Adam Smith's demon rum would believe otherwise.

Better examples abound -- look at the US medical insurance industry, which seems to exist for the sole purpose of not insuring people who need medicine. "Market failure"? No, because the market doesn't exist to properly and universally insure the sick. Calling it a market failure is like driving your Civic in to a lake and describing the inevitable disaster as an "automobile failure" -- it's not meant to do that, don't ask it to.

If you want universal coverage at fair prices, go to the state. If you want market insurance, accept more poor and dead people -- especially children and seniors. But don't, as a country, choose market insurance and whine about how it's not serving everybody. The fault, dear Brutus, is not in our stars, but in ourselves...

Now, I don't actually care a whole lot about some poor saps who got suckered in to paying exorbitant prices for mediocre chocolate. (Dymaxion World Shopping Tip: Chocolate is never more valuable than gold or platinum. DWST service is provided free, because I'm a dirty Commie.) But in my continuing battle to rehabilitate a direct government hand in the economy, I'll take any example that's reasonably interesting. Then I will make it boring.

1 comment:

Mike said...

"Only people who've drunk too deeply of Adam Smith's demon rum would believe otherwise."

If my memory of Smith's writings OTHER than "Wealth of Nations" is correct, Smith himself did not believe otherwise.

Ironic, that.