Saturday, December 27, 2008


Free Market Magic

I just love how the Econs 101 explains it all crowd ignores such things as inelasticity ("assume a frictionless spherical cow" anyone? would you trust building the A-bomb to people who understood physics only at that level and ignored any physics more recent than Newton? nu? why should Econs policy be any different?) and even human nature. Markets are find for things people want but what of needs? Market economics, which assumes "wants" not "needs" motivate buying doesn't work so well when demand (or supply) becomes too inelastic.

But it struck me the counter-example is food. Food markets do work (or so I thought) exactly as Econs 101 predicts even if food is something we need. Of course, you could always say that while food is a need, any particular kind of food is a want, etc. So even if aggregate food demand is inelastic, demand in each, particular food market is elastic. Etc. Etc.

But then it occured to me. While people still alas go hungry, etc., we do produce enough food to feed everyone and many people, even the poor get fed. But when did the market start "working" even as well as it does? With the most recent Ag. Tech. revolution. Which was also a revolution of Big Ag.! The market "works" because it is no longer really all that free anymore ... hmmm ....

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