How market forces have failed the nation (its citizens and consumers)

[Drop_Bear]

@PhilT

If one goes back a few decades a family could have a comfortable life with a single wage earner, eg what is often called the traditional family unit. Compare that with today. Are ‘we’ better off today or were we better off in a previous time where one could keep their heads above water while maintaining a decent standard of living? The mega wealthy have acquired $billions while the low end have acquired bigger $debts and poverty - noting poverty is relative, but.

Extreme Austrian school totalitarian Capitalists commonly blame “expectations”. We expect more these days, they aver, so we shouldn’t be surprised if a single wage won’t suffice. That ignores the fact that baselines shift. In market economics, if the baseline shifts on one side and the other doesn’t move in proportion, then the market has failed.

When Justice Higgins established the minimum wage, he didn’t assume that the average Australian lived in a tent and cooked game that they’d hunted themselves over an open campfire. Higgins chose a more realistic baseline. Over time, that baseline (what totalitarian Capitalists call “expectations”) has moved. These days, life without a motor vehicle is difficult for most of us. Telecommunications, electricity and information technology (including television and radio) are basic necessities. If the market doesn’t provide the necessary income, then the market has failed.

It took business interests the better part of a century to overturn the principles established by Justice Higgins. The decline in quality of life can be traced to that overturning, though the rise of more exploitative employment practices probably plays a role.

Mr Higgins ruled that, regardless of the capacity of the business to pay, the employer must pay wages that meet “the normal needs of an average employee, regarded as a human being in a civilised community”. In that, he echoed Pope Leo XVIII:

… there underlies a dictate of natural justice more imperious and ancient than any bargain between man and man, namely, that wages ought not to be insufficient to support a frugal and well-behaved wage-earner. If through necessity or fear of a worse evil the workman accept harder conditions because an employer or contractor will afford him no better, he is made the victim of force and injustice.

The notion that the value of labour is not limited to what an employer will pay horrifies totalitarian Capitalists. It’s an argument that I had repeatedly during my years at the CES. Polanyi characterised labour as a “fictitious commodity”. Labour exists, regardless of demand.

A business must pay the full cost of all of its inputs. Before a worker enters the workplace, they’ve been nurtured, educated, housed and sustained. The market must pay for all of that. If a business cannot pay its share of the accumulated debt of a life, then that business is technically insolvent.

@syncretic

… the claim that capitalism is the reason for huge environmental damage does not pass even quick scrutiny, the centralised control economies have all had pollution problems, loss of species and environmental damage.

Failure of one in no way excuses failure of the other. Capitalism might not be the reason, but extreme Capitalism is undeniably at least part of a reason. The lesson is that extremes tend to fail. Extreme laissez faire Capitalism is no more viable than extreme centralised planning. Even the messiah of totalitarian Capitalism had his doubts (though he was loath to detail them). As Keynes wrote to Hayek:

… You admit here and there that it is a question of knowing where to draw the line. You agree that the line has to be drawn somewhere [between free-enterprise and planning], and that the logical extreme is not possible. But you give us no guidance whatever as to where to draw it. In a sense this is shirking the practical issue. It is true that you and I would probably draw it in different places. I should guess that according to my ideas you greatly underestimate the practicability of the middle course. But as soon as you admit that the extreme is not possible, and that a line has to be drawn, you are, on your own argument, done for since you are trying to persuade us that as soon as one moves an inch in the planned direction you are necessarily launched on the slippery path which will lead you in due course over the precipice.

Hayek’s publication of The Road to Serfdom spawned many responses. As a matter of interest here’s an obscure one that I found intriguing. Bear in mind that it was written at the end of World War II. The planet was different then.