Easy for her to say
December 20, 2013
Blame the leptins, I say… or rather, the absence of leptins. Once upon a long time ago, in moments of midnight susceptibility, I could open a bag of chips or a box of cookies or a carton of ice cream, steadily working my way to the finish line. All the while aware of the consequences, something very powerful nonetheless pushed me forward. When the craving hit, there was no stopping it. There was no explaining it, especially next morning to my wife who discovered the empty packages. She couldn't understand it because her supply of leptins is fully intact. Leptins are the hormone that govern appetite. They issue the signal, "you're full now, stupid… stop eating." For me, there is no such thing as one cookie, or a half-dozen chips, or a single scoop of ice cream. Once begun, it's an invariably long journey. I'm certain that my leptins are in short supply. That's my story and I'm sticking to it. The first cookie tastes great. Even the second brings joy. The final crumb, however, yields nothing good. As my wife says often, seek out the golden middle. Moderation in all things. Easy for her to say.
Just as Socrates wrote, "the unexamined life is not worth living," I say, the ungoverned bag of potato chips is better left unopened. Life is full of examples of negative returns. Negative returns are what happens after we use up our supply of diminishing returns. Fertilizer added to a lawn will help it to grow. A bit more fertilizer… a bit more growth, but not as much as with the first application. That's diminishing returns. Too much fertilizer, of course, will burn the grass. That's a negative return.
The notion of free markets and individual rights work much in the same way. I'm a big fan of the free market concept and pursuit of individual fortune. Much, if not most, of our modern day comforts are a direct result of free markets and individual freedom. Ungoverned, though, free markets and individual freedoms will inevitably yield negative returns. Ungoverned, the extraordinarily successful will create barriers to entry by others. Open markets become closed. Economies of scale, alone, restrict participation. This restriction happens both intentionally and inadvertently.
Free market purists will tell you that this is a good thing… Darwin and the survival of the fittest. Competition to be the very best is a good thing.
What happens, then, when the result of that competition becomes an absence of competition?
What happens when a single player, or even a small number of players, dominates the marketplace?
Where's the free market? Poof! It's gone. Negative returns.
I can't help but continually return to the concept of the greater good. The greater good doesn't seem to fit within the purist's model of free markets. Laissez-faire defaults to a seemingly rational path of thinking, without regard for impacts on the whole. The greater good is sacrificed in the name of a singular profit motive. The greater good is thrown under the bus in the name of an amoral corporate mission. By definition, corporations are not moral entities. Not immoral either. Just amoral, possessing of a singular mission – shareholder wealth, irrespective of the consequences to unrelated parties. This is without reference to any nefarious intention or activity on the part of unethical people. That's another matter altogether, and certainly one worth considering. The point here, though, is that the free market concept, in the form advocated by purists, contains a serious structural flaw. 'Otherwise' moral people who run corporations with a mission in conflict with the greater good are often unable to reconcile the two. On a personal level, that must be very stressful. Despite what some argue, reductionist rational self-interest is not consistent with the greater good. This structural flaw will ultimately bring the entire system to its knees.
"Growth for the sake of growth is the ideology of the cancer cell." (Edward Abbey)
All products are subject to life cycles. Early adoption, rapid growth, declining growth, maturity, and decline. Many businesses invest heavily in extending the life cycle of successful products, not wanting to lose any potential for future benefits. We do the same thing as individuals every day. Extending the life of our own bodies consumes entire walls at the book store.
I would contend that systems, like the free market, are subject to the same life cycle limitations. Structurally, no system yields perpetual motion. That one has yet to be invented. Some, like Karl Marx, would have us believe that capitalism is just one more phase of history, leading to the next. While I don't see Marx's ultimate utopian destination as a natural conclusion to our journey, there may be something to the notion of an economic journey as he describes. His vision is surely not the ultimate answer. Neither, however, is the laissez-faire free market. We're on a journey, to be certain. The question of the day is: Where do we go from here?
Somewhere in the middle is some version of our current model, the mixed economy, blending the best of many worlds. We haven't found the perfect model yet, and will likely never find it, but there are signs of progress. Characterized by constant struggle between centralized and free markets, I would argue that the mixed economy has great potential to balance freedoms for the individual with service of the greater good.
The question to be asked and answered is: Can this phenomenon of diminishing, then negative returns of free markets be staved off, allowing the current system to sustain itself a while longer… and by that, I mean, continue to be a source of value to the greater good? Does the curve still offer any upward potential?
Here's the crux of what I see. Independent regulation offers a key component to extending the life of our mixed economy/free market. The word, 'independent,' is not to be overlooked in this equation. Just as hockey referees and football officials need to be independent… just as Olympic figure skating judges need to be free from bribery… just as stock market exchanges need to be regulated from the outside – which they are not – free markets need to be independently regulated in order to be sustained in a free state.
As incongruous as that juxtaposition may appear, nothing in life – free markets included – is as simple as we would like it to be. The life of our batteries, and of our bodies, is limited… no matter how hard we try to extend the cycle. All systems are similarly limited, especially those we create. No living system is static. As Dirty Harry declared near the end of Magnum Force, "A man's got to know his limitations." In both hockey and football, the increasing size of players has resulted in new and amended regulations, in aid of protecting the players… and the game – the system. Why should markets not be subject to the same amendments, the same protections? Why should an understanding of the dynamics at play not contribute to continual refinement of the rules that govern? Biofeedback giving signs of negative returns, ignored over time, will eventually signal the end of the game.
Ungoverned at midnight, the 13th scoop of ice cream brings no good at all.
Are all systems necessarily doomed to collapse? I've wondered long and hard on this one. My conclusion? I think not. At the same time, I believe that systems failing: in complacency (the greatest enemy); in circumspection; in character and values; and in self-regulation, in fact, are doomed to collapse.
In contrast, systems committed to education and self-study and re-examination, systems that work to protect themselves against structural flaws, attack, and corruption, can adjust where appropriate and migrate to safer ground.
Markets do not self-regulate. The notion that they do is naïve and flawed in every respect.
Supply and demand, ceteris paribus, self-regulate, but that's another story altogether. Ceteris paribus does not exist. It's just another myth founded in a useful economic theory. Why do people continually equate theory with reality? Really!
Proponents of deregulation commit a huge mistake (or falsehood) when they equate the free market supply and demand dynamic to how systems actually function. Structure dictates markets. There is no such thing as a free market. Those who control the structure control the system… as a result, they also control supply and demand.
It is naïve to think that a human creation won't be gamed by those unwilling or unable to govern themselves.
Those most wanting to eliminate the role of government are often the same who most need to be governed.
'Free market' proponents, or at least those who claim that territory, are staunch individualists, dedicated in battle against the collective. They put forth the argument that, left alone, and free from government intervention, a market will find its own rightful equilibrium. There's truth in this, but only some.
If only the world were this simple. Left to its own resources and without appropriate regulation and oversight, the so-called free market inevitably devolves into an oligarchy. Power and wealth become increasingly concentrated, and the whole thing begins to look like the conclusion of King of the Hill. Is that what we're all about? I think not. I hope not.
The select few at the top of this food chain are not, as they claim, against regulation. They're all for regulation… as long as that regulation forms a barrier to participation in their game by others. They've created a complex and burdensome labyrinth, restricting access to members of an exclusive club. Insofar as they succeed in this, the market becomes anything but free. The game is rigged. In this model, you and I are like sheep, fed only so as ultimately to be fleeced.
The dynamic at play here is a see-sawing battle between those who would enable and those who would impede.
We in Western society may, at last, be ready to understand that what we are losing is something we never had in the first place. This loss, just the same, will rank among our greatest of failures. Some things lend themselves very nicely to simplification. Others, not so much. The concept of a free market lies in the latter.
Free markets as the answer to all our problems? Too easy to say.
Free markets are no more than a myth.
Individual pursuit of success, however defined, is one of the strongest supports of a free society. Competition is a good thing. Winning leads the way. Here's the catch.
Individual pursuit, at the expense of the greater good… competition that leads to corruption of the system… winning that leaves entire classes disenfranchised and unable to participate… can end in only one way – total collapse. Disparity in wealth and income is the principal factor in creating conflict, both between people and among nations.
Overwhelming success is one of the best predictors of failure.
Free market proponents, in the purest definition of the term, wave a flag of false patriotism, pointing to all other options as socialist or communist. Whether they know it or not, these flag wavers are, for the most part, no more than talking heads for those few who strive to dominate the economy. Their error, like most, is in buying (and selling) an over-simplification of the model. Free market means free market… and that's all there is to it.
Markets don't stand still, especially free markets. As power and control concentrate, the free market warps into a perverse kind of top heavy command economy. From an historical perspective, it's easy to see. When you're in the middle of the transition, however, all you see is that something is not quite right. The eye of a hurricane is perhaps not the best place for making weather predictions.
A free market, taken to a point where wealth and power are so concentrated as to exclude full participation by all members of society, finds itself in the territory of negative returns.
The irony here is even greater when those in control fail to see that their positions, individually, would be greatly enhanced by full participation. It's a modern day dispute between powerful ranchers and weak homesteaders. What the ranchers couldn't see was that influx of farmers spawns whole populations of towns and new markets. The pie can get bigger, and it does when greater proportions of the people get to come to the table.
Kevin Graham
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