"System change is now inevitable. Either because we do something about it, or because we will be hit by climate change. '...

"We need to develop economic models that are fit for purpose. The current economic frameworks, the ones that dominate our governments, these frameworks... the current economic frameworks, the neoclassical, the market frameworks, can deal with small changes. It can tell you the difference, if a sock company puts up the price of socks, what the demand for socks will be. It cannot tell you about the sorts of system level changes we are talking about here. We would not use an understanding of laminar flow in fluid dynamics to understand turbulent flow. So why is it we are using marginal economics, small incremental change economics, to understand system level changes?"

Wednesday, January 23, 2008

The Free Market Fairy

Linked from Bryan L's blog this AM, a remarkable blog called bitworking.

I'm very fond of the recent Free Market Fairy article:
You know the one where you put your problem under the pillow and during the night the Free Market Fairy visits and your problem is solved the next morning.

Now no one on the right is using the term Free Market Fairy - they use is "free markets", or very rarely "invisible hand" - but let's be very clear that they are invoking not a general theory of markets nor a deep understanding of economic systems, but instead a magical mythical benevolent force that can do only good and can never do harm and will solve all the world's problems if only we'd let it. I will refer to that force as the Free Market Fairy.

The Free Market Fairy is a very different creature from the original Invisible Hand of Adam Smith, who only mentions it briefly in all of his works where it is couched in a whole framework of economic theory. Today we know that Adam Smith's Invisible Hand is the operation of free markets to maximize efficiency. It is the beginning of an understanding of emergent behavior, the power of individuals, acting locally, that can produce globally things no individual could produce.

I certainly believe in the power of a market economy to maximize efficiency and in the power of emergent systems. What I want to do away with is the Free Market Fairy, a fluffed up fraud injected into the conventional wisdom

1 comment:

David Duff said...

I would dearly like to know how that writer knows what *I* mean when I invoke the phrase 'free market' or 'invisible hand'. I am perfectly well aware of their true meaning and use them accordingly. I think I rather object to ignoramuses putting words in my mouth which I would never use. I may complain to Her Majesty - oh, I've just remembered, her writ no longer runs 'over there'. Pity!