Markets Are Not ‘Magic’; But They Are Delicate

Just the headline alone was enough to start my head shaking: U.N.’s Ban questions faith in “magic” of markets. Here are the first three paragraphs for additional context:

The global financial crisis endangers efforts to reduce world poverty and demands a new approach with less "uncritical faith in the 'magic' of markets," U.N. Secretary General Ban Ki-moon said on Tuesday.

The financial turmoil roiling world markets put at risk the achievement of the U.N.-agreed Millennium Development Goals set in 2000 to halve global poverty by 2015, Ban said in his opening address at the United Nations General Assembly.

"The global financial crisis endangers all our work -- financing for development, social spending in rich nations and poor, the Millennium Development Goals," he told world leaders gathered in New York for the annual meeting.

Ban is also quoted toward the end of the article (not really worth reading beyond the quotes included here) as saying, “We must think about how the world economic system should evolve to more fully reflect the changing realities of our time.”

Both of these statements reveal a deep ignorance of markets and how they work, and the typical hubris of politicrats everywhere: for anything to work, they must have their fingerprints all over it. Markets are not magic. When unfettered by regulations, they can seem magical because of their fluidity, and the speed at which they can work. Think of eBay, back in the day before they got control–happy—a person who wanted to buy something could search there for a seller, and if he found what he wanted, he’d put a bid on it. If his was the highest bid, he bought the item. A seller could set a minimum price for his item in order not to lose money or to guarantee a minimal profit, but because of competition from others selling identical or similar things, if his minimum was too high he risked losing buyers. Freedom and transparency mean markets work smoothly and fast, when buyer and seller connect in good faith; thus it can seem like magic, especially to those who haven’t thought about the processes.

But markets are delicate things. Interference of any sort can set in motion all sorts of consequences, which sometimes compound. Absent a clearing of these problems, they continue to compound and possibly expand until the market seizes up—as we have seen over the past year.

What can mess with a market? Attempts at cheating can temporarily screw one up. Once that attempt becomes known, however, not only is the game up for the cheater, he now has a damaged reputation that will haunt him in future endeavors. As long as information is available to those in the marketplace, cheating will eventually be discovered somehow.

Rules that tip the market in one way or the other, or allow participants to hide aspects of their activities, can completely skew markets. And thus it is that when politicians try to help ensure fair markets, they inevitably destroy the “magic” of a free market. The free market—which isn’t really a structured system at all; it is simply an aggregate view of individual transactions—morphs into a structured system. And that system begins to favor some at the expense of others. Or it allows cheating. Or it discourages advances. Or any of a number of other things can happen that ultimately hurt, rather than help. This is why any and all interference ends up going wrong; but in their zeal to do good (or at least give the appearance of doing something), all would-be leaders fail to see that the best way to help is to do nothing at all.

Planning is a good thing, especially when flexibility is an integral part of the plan. But one cannot plan and control markets nor the aggregate world market. Ban’s last comment, quoted above, neatly encapsulates the shortsighted hubris of central planners everywhere: there is no way to direct a market without interfering in it. More importantly, the only “reality of our time”—or of any time—is that change is the only constant. And as a constant, it can vary wildly. (Heh.)

This is why agorism is the solution to today’s problem, and indeed every problem of market interference. Agorism is a free, voluntary marketplace of exchange. No, it isn’t perfect; there will be attempts to manipulate it somehow, and natural market changes as technology advances, fashions and tastes change, etc. mean that market sectors will die out—but new ones will spring to life. There’s always risk, but there is also always opportunity. I would much rather take my chances in a free market than any manipulated one.