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Posts Tagged ‘instability of now’

Competition and the Free Market

12 Sep

One of the primary ideas of capitalism is that in the competition of the free market, the best roducts and services will naturally rise to the top. Governmental monopolies are seen as detrimental, because they are not subject to such competition and thus have no incentive to provide good service. In a number of cases, this is indeed true. But this view of competition is fairly limited. It assumes that competition must be an external process. In reality, there is another, internal type of competition that makes up an enormous part of our civic discourse, and yet is rarely talked about in this context: democracy.

In recent years, the United States has fought a war in Iraq to overthrow a dictator and replace him with a democratially elected government. If you told someone that the proper response to dictatorship was to install another five dictators so that competition for citizens would lead to better governence, they would think you were mad. Having more than one government in one area would be impossibly inefficient, and the threat of losing citizens to other dictators wouldn’t make the dictators nicer to their citizens, they would just make it harder and more dangerous for citizens to leave. Instead, we open the democratic process to all citizens, and allow internal competition of ideas to take the place of impractical competition between governments.

You see a non-governmental model of democratic internal competition in Wikipedia. There have been multiple attempts to create external competitors to Wikipedia, and for the most part they have remained miniscule in comparison. The strength of Wikipedia lies in the size of its userbase, making it as impractical to have multiple Wikipedias as it would be to have multiple governments. But multiple Wikipedias are completely unnessessary, because wikipedia is democratic. Inefficiencies in Wikipedia are weeded out not through competition with similar sites, but through choices made by the users.

Perhaps the world of computer Operating Systems might be a better example. On the one hand, we have a traditional free-market competition between Microsoft Windows and Mac OS X. This is far from a free market ideal, since Microsoft has used its marketing department and general influence to ensure that its products are seen as necessary by most of the consumer base and therefore has many of the advantages of a monopoly. None the less, it is a traditional competition between two for-profit corporations selling competing products to consumers who are choosing how to spend their money. For those of us with a contrarian bent, there is a third option: open source software. The Linux universe contains a lot of software options, but very little competition in the standard capitalist sense. Users are free to choose whatever software they prefer without needing to pay, and developers have no direct financial incentive to gain users. And because there is no direct financial competition between developers, simply a desire to make the software that they use themselves as good as possible, there is a much greater degree of compatibility between programs. A user can select Ubuntu linux, replace the default GNOME window manager with KDE, and still use all of the programs originally written to be used with GNOME. Because GNOME and KDE are friendly rivals instead of financial competitors, GNOME doesn’t have to worry that greater compatibility will lead to a loss of customers to KDE. It doesn’t particularly need to worry about losses of customers in general. The motives behind it are not financial, they are to make the best program they possibly can, and that includes as much compatibility as possible. Maximizing the users’ ability to make choices is one of the primary goals of open source software. And because of that goal, I am typing this right now on the following laptop setup: the OS is the Ubuntu brach of linux, but instead of GNOME I’m using xfce as my window manager to save on RAM (I’ve had this laptop since high school) and I’m using a text editor native to KDE. And I was able to make all of those choices in a fully informed manner, because all of the software was free and I could try 20 text editors to find my favorite without spending a dime.

By contrast, once you’ve chosen between Mac OS X, your only option for a windows manager is Aqua. And the windows manager for Windows doesn’t even have a name, as far as I know, because it is so deeply engrained in the operating system that it’s never treated as a separate entity, let alone a choice for users to make. And while most people probably don’t even know what a window manager is, let alone care which one they use on their computer, both operating systems relentlessly push customers towards other products made by that company, greatly restraining choice. Mac OS X cannot legally be run on computers made by companies other than Apple, and Windows has a long history of resetting a user’s default preferences to Microsoft programs and websites. Windows computers can only run software specifically written for Windows, and the same thing goes in most cases for Macs. Once you’ve made the single Mac vs. Windows choice, dozens of other choices are made for you without you even being aware they were there to be made. The customer’s best interest, which is to have as great a degree of choice and compatibility as possible, is made second to the corporation’s best interest, which is to make sure that they control as much of a customer’s total relevent expenditure as possible.

I’m going to go out on a limb here and say something relatively crazy sounding: rather than being inseparable companions, the free market and modern capitalism are mutually exclusive.

The trick here is to tease out the two very different ideas of the free market in today’s society. The first, advanced by Reagan-style laissez-faire advocates, defines a free market as one in which a government does not interfere in the practices of business. The second, which is the one more commonly used among economists, defines a free market as one in which fully informed and rational buyers and sellers are free to make choices in their own best interest without restrictions. They come into conflict because it is always in the best interest of a business to restrict the information and choices available to its customers in a way that favors the business. The imbalance in resources makes it extremely difficult for customers to escape the influence of corporate marketing and truly make a decision in their own best interest. For a society to create a properly informed marketplace, it must impose rather severe limitations on corporate speech, and in most cases undertake a massive information gathering campaign. Because any type of marketing distorts the natural flow of information and thus of the free market. This is, in brief, the entire point of the marketing industry. And unless the customer is equally aware of all of his options, requiring a government to collect and make available massive amounts of information about all available products and which marketplaces sell them at what prices. Unless all producers have equal access to current customer needs, they cannot choose what is in their best interest to produce. As it is, the largest corporations have the advantage on both counts: over their customers, because of their increased marketing budget and brand awareness, and over their competitors because of their greater ability to do market research and predict and influence trends.

This is one of the primary problems that technosocialism attempts to solve. Not by reforming the current system, but by creating a new type of marketplace, with its three goals being freedom of choice and action for all involved, distribution of complete and transparent information about the current state of market supply and demand, and efficient distribution of resources to meet the needs of all members of society. This is done through the creation of a single centralized marketplace through which all trade is conducted, which brings our discussion around full circle. Right now there is a seemingly endless number of competing marketplaces through which goods are sold. From eBay and Etsy to Wal-mart and the garage sale down the street, the average modern consumer could make every single one of their purchases through a different venue without ever running out of options. One consequence of that, however, is that no customer could ever check all possible venues for the best product and value, and no producer could ever guarentee that his product would be presented to every customer seeking a product of the kind he produced. Quite a lot of societal effort is wasted through this competition between marketplaces, on the part of the merchants through duplication of effort and marketing against one another, on the part of the producers by having to submit and distribute their goods to the myriad marketplaces, and on the part of the consumer through the need for endless shopping from marketplace to marketplace in order to find what they need at the best price. Once the blinders of tradition and conventional wisdom are removed, it quickly becomes clear that having more than one marketplace in a single market is as inefficient as having multiple competing governments in a single country. When an activity does not contribute directly to the material or intellectual growth of a society, such as government or the buying and selling of goods for profit, it is in that society’s clear best interest to minimize the footprint of that society as much as possible, and to avoid duplication of effort above all.

This is where we get back to our original discussion of internal vs. external competition. After all, the reason that Craigslist emerged to duplicate the efforts of the newspapers’ classified sections was that it did a better job. And while Craigslist does an admirable job of filling the classified ads niche, its lack of any but the broadest categorization leads many to prefer eBay for specialty or valuable items. If all the goods of a society were channeled through a single marketplace, what incentive would that marketplace have to respond to the changing needs of the producers and consumers who trade through it? The answer is that it doesn’t need one, as long as it is designed on the principles of direct democracy which underlie technosocialist society. Users of the system do not need to be able to indirectly encourage change through economic influences when they can directly enact change themselves. But that is a matter for another essay.

 
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All I ever needed to know about economics I learned from Beanie Babies

04 Jul

All I ever needed to know about economics I learned from Beanie Babies

The recent financial meltdown has given rise to a new genre of television pundit: the former laissez faire advocate who has seen the light and now acknowledges that the market may not always be the wisest judge of risk and value. This sentiment can even be found coming from such heavy hitters as Alan Greenspan and Richard Posner. And while it’s always nice to see people learning from their mistakes, it makes me laugh to see prominent economic theorists going on TV and explaining that they have now learned something that I’ve known since I was about thirteen, and managed to learn without driving the entire US economy into a ditch.

Now, I actually owned several Beanie Babies. Mostly I got them as presents and  I treated them as toys. They were cute, and they were heavy enough to play catch with. At that point I still operated in the largely cashless economy of someone who got a dollar a week for allowance, but if you’d asked me I probably would have said that the enjoyment of having a Beanie Baby to play with was worth at least two or three dollars.

Then, when I was about twelve, the Beanie Baby collecting craze hit. Adults lined up in front of stores to buy limited edition Beanie Babies and traded them on the newly-popular eBay for thousands of dollars. You could buy special acrylic cases to keep them clean and plastic covers to keep the tags “mint”. I thought they were insane. But from a free-market perspective, those Beanie Babies genuinely were worth thousands of dollars. After all, that was what the market was willing to pay. There were people who actually considered their Beanie Baby collection an investment that would pay for their children’s college tuition, and even some who got in on the trend early enough and out early enough to make a decent amount of money. I continued to consider them an entertaining toy that was worth two or three dollars.

Eventually, the fad ended, as fads tend to do. The Beanie Baby bubble burst, and these priceless collectibles went back to being worth two or three dollars if the owner was lucky. From a free market perspective, the value they had disappeared. From my then-thirteen-year-old perspective, crazy people had spent thousands of dollars on something that was worth two or three, but their inherent value had never changed.

Soon after the decline and fall of the Beanie empire, I got to see tech stocks do exactly the same thing. People were paying hundreds of dollars a share for stock in companies that did not, in fact, seem to do anything. Again, there were people who got in early enough and out at the peak who managed to make quite a lot of money. But in general, people were paying obscene amounts of money for things you couldn’t even play catch with. Most of these stocks did not promise dividends, and people were buying them solely because they expected the price to go up and that they would be able to sell them for a profit. And so once people woke up and realized that there was no actual inherent value in these stocks, they crashed hard.

These sorts of booms and busts are more the exception than the rule when it comes to capitalism. In the ten years since then we’ve seen real estate, financial derivitives, and Pokemon cards. As soon as people begin to make purchasing decisions with the assumption that they will be able to sell what they’re buying for a profit because the price will go up, the price of the item rapidly loses its link with any inherent value the item has. Classic economics assumes that both consumers and investors make rational choices based on complete information, but anyone who has spent ten minutes around humans knows that they are far from rational. They get caught up in trends, they like to think of themselves as more knowledgable than they are, and our modern economy is simply too complex for anyone to understand the entire thing in detail. And they are easily bullied by our capitalist ethos into thinking that everything they do should be turned for a profit.

I mention all of this because even in our current recession, there is one big bubble left. One shared delusion of value that is not backed by anything substantive: money itself. Let me make clear here that I am not saying this because we are no longer on the gold standard. Gold is one of the longest lasting bubbles in human history. Shininess does not count as inherent value. I’m saying it because as a culture we have long since lost track of what money was actually for: a way of getting people to barter with each other. If I’m a tailor and I need bread, there’s no guarentee that the baker needs clothing. The blacksmith needs clothes and the baker needs a frying pan, but it’s hard to know that in advance. Currency allows us to close the circle. But that’s all it does. It does not have value in and of itself. The point in that circle is never the money, it’s the bread, clothes, and frying pan.

These days when we look at the productivity of a nation, we’ve stopped looking at what it is actually producing. Instead, we look at the money that it has generated. Here in the United States, we’ve systematically eliminated the manufacturing sectors and now consider ourselves a “service economy”. Basically, one that does not actually produce anything. And yet our Gross Domestic Product has remained high because we are still producing money and we think that counts. Meanwhile under Reagan and George W Bush, the government has run itself deep into debt, and American consumers have contributed to an increasing trade deficit. Both the US private and public sectors now owe massive amounts of money to entities outside our borders. And we have very little in the way of tangible goods that we can use to support that debt.

So if you’ll forgive a bit of crackpot prophesying, here is what I think happens next: At some point in the next ten years, the world stops lending money to the United States. Finding itself with a crushing debt burden and no major industries with which to earn money from the rest of the world, the US is forced to resort to inflation. Either at that point or at an earlier point, the rest of the world loses confidence in the value of the dollar. Between these two, the value of the dollar crashes. Americans, who had been importing so many of their consumer goods from other countries, suddenly find the price of those goods skyrocketing. Meanwhile, the collapse in the value of the dollar throws the worldwide financial system into chaos as major investors across the world are destabilized by the loss of their American assets. Other currencies are destabilized by the upheaval, and the very concept of currency is called into question as people realize the illusory nature of money. And humanity is faced with a choice: to go back to the roots of capitalism, first with barter and then with various shiny metals as currency, or to adopt some sort of post-currency socialism such as the theories I am exploring in this blog.

 
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