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

41

My more reasonable partner just asked if LEGO is a market force in its own right? They’ve just built a caravan out of LEGO. James May built a house out of LEGO.

This leads to the obvious next big thing in LEGO. We could build a new parliament out of LEGO and populate it with LEGO politicians. They could come in bright colours like green and blue and red. You could even have a choice of heads and hair styles to mix and match.

How much more practical and reliable. You would even get to decide who wins each night before going to bed. Bet Rupert would have the biggest LEGO Parliament?

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42

On the subject of ‘market forces’, I heard on a podcast that women in the US who breast-feed do not get access to subsidised baby formula. To access the subsidised formula, went the claim, you could not also breast-feed!

I spent 30 seconds trying to research this, and while I couldn’t find a basis for it I did find a published paper on the policy. (I am ignoring for current purposes the paper’s point about how terrible formula is compared to breast milk.)

So - if you qualify for the subsidy the government pays the entire cost of infant formula. The article goes on to say:

Rebates per can of formula also vary across States and ranged from 85 to 98 percent of the manufacturer’s wholesale price in fiscal 2000. As a result, the highest net price a manufacturer received for WIC-provided infant formula was only 15 percent of the wholesale price.

Why is this? Because the retailers are selling to government at just over cost, and government does the distribution. In other words, the wholesale price is up to fifty times the cost to manufacture, and the retail price would be correspondingly higher!

In a free market, competitors would step in and produce cheaper alternatives. I’m guessing that US ‘health’ regulations (and probably other laws) prevent that, and so permit a cartel to charge what it wants rather than act according to market forces.

This is similar to the way many US states have legislated to prevent cities from creating their own Internet infrastructure, because of lobbying from the existing big players. Cities could provide Internet to their citizens more cheaply than the existing suppliers (often only one company supplies a city), but the state governments pre-emptively pass laws to prevent this.

Who are the legislators representing?

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43

It needs to be understood that the cited paper is on a US NIH site that is dedicated to hosting papers not endorsing them. At the end of the day the NCBI mission is IT not medical, although there are a huge collection of very fine papers made available that would otherwise rarely if ever see the light of day.

As for the cost/price commentary in the paper, if one understands the US economic environment this example is typical of how it works. Everything is sell, sell, sell and everything is profit driven. (often followed by wait, there’s more for the first 25 callers!)

Educated (meaning understanding how the US clicks along) insight suggests the formula companies use WIC as an advertising and marketing budget as well as to underpin their economies of scale.

For pricing in the US, as with medical services there, those without insurance pay full rack rate while insurance companies get steep discounts, sometimes unbelievably steep. I remember one of my pathology bills that was around $25, the lab was happy to accept $3.23 in full payment from the insurer; my contribution was $0.00. Without insurance they would have come after me for the full $25.

It is day-to-day normality there. I suspect coming to us as quickly as one party is able to arrange it. Early examples are our private health plans that have networks of doctors one must use. Those doctors provide the steep discounts to the insurer, who often doesn’t pass it to their policy holders but does pass it to their shareholders, executives, and dare I surmise some may go to political donations.

The bottom line is the price is what the market will bear, adjusted for programs like WIC, discounts to insurers, made up by those usually least able to pay ‘full freight’ having to do so. On average the actual costs of delivering the product or service are a small fraction of the sales prices.

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44

Yet more on why “market forces” (traditional growth-oriented economics) lets us down. I’d never even heard of “green growth”.


" a sustainable level of resource use is about 50 billion metric tons per year—a boundary we breached back in 2000."

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45

Thank you for clarifying that. PubMed Central’s (PMC’s) aim is to open scientific research to public scrutiny, and I think it largely achieves this by saying that if you are subsidised by US taxpayers then you must provide us with your findings. That said, the paper has been published in a journal, and has been cited several times in other papers on the PubMed website.

Just to be clear on my distinction between PubMed and the NCBI; this is because the National Center for Biotechnology Information (NCBI) - while hosting PubMed - appears to have a charter that is somewhat different to that of PubMed due to its focus on “providing access to biomedical and genomic information”. I would not, for instance, see the study I cited as fitting within this definition. Additionally, I think it is useful to drill down to the lowest level of entity that embraces what we are discussing; in this case, I suggest that PubMed is it.

Unfortunately, I suspect this is where Australia is heading - as my re-reading sees you state in your penultimate paragraph.

I am surprised it took until 2000 for us to hit unsustainability. Of course, Malthus predicted it centuries ago, but didn’t account for new inventions.

Unless and until the market can build externalities into its pricing, we will continue to trash our home and destroy its other residents (including other humans). This is why we need things like carbon pricing, and pollution taxes; they encourage corporations to change how they do things. At the moment, our politicians are going out of their way not to mention climate change, because they know that serious action is needed but would affect their ‘donations’.

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46

It’s a new name for decoupling economic growth from resource consumption growth. If you search on “decoupling” you will get more hits. The UN has addressed the issue on and off over the years and that is where I got some of the background for my post on the topic 5 days ago. Their recent papers were new to me but come to the same conclusion - you can’t do it.

It is interesting that the UN is doing this kind of research but few others, another reason for them to be unpopular in some circles.

I wonder if those who see as far as the apparent link between employment and perpetual growth have ever considered this issue of decoupling and if they have, how is it that nothing is said or done? I suspect it is called kicking it up the road; hoping that the consequences of short term thinking never come back to you while you are in office and fearing that if you really try to deal with intractable issues you will fail and get the blame, where if you don’t act the other blokes will get the blame.

In this context inaction becomes a winning political strategy that both sides play. Which is just another example of how winning at all costs has completely swamped public service and national leadership.

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47

Is it reasonable to also suggest that the alternatives challenge the fundamental positions of the party organisations that select our politicians for us?

One difficult alternative to growth thru new development and expansion funded thru debt and return on investment of conventional economics is to stop both. History demonstarted the challenges of such changes. There are recent examples.

A step change would be to place a halt or even force a decline in population expansion. Effectively a limit to the birth rate. The second is a complementary realignment of economic output to one of renewal, using only sustainable solutions. Nothing new can be created unless it directly replaces an exisiting asset with one that is sustainable. Conventional economics need not apply, however credit would accrue against the delivery of sustainable change.

If we stay with the market economy and conventional wisdom, it may be difficult to see how without drivers such as a big fat tax on unsustainable outcomes things will change. In particular given the stagnant pond of thinking elsewhere.

In continuing as usual through this century if we avert narrowly a greater disaster, and if the solution relies simply on a new technology to bury the problem (eg deep sea disposal of CO2) without fundamental changes to our economic thinking will there follow one more crisis after another?

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48

Certainly. Because the capacity of the earth to deal with released CO2 without serious consequences is not the only thing that is fast running out.

The most reliable and humane way of stemming population growth is by raising living standards, education and provision of social services. If that was possible we would then exchange growth in resource use through rising population with per capita resource growth.

I think it is fair to say the way that humanity has dealt with climate change is not a good sign for how we are going to deal with all the other limitations coming our way in the next few decades.

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49

I’d just like to run through a few basics of modern economics, to explain the underlying problem.

  1. The economy must grow! This is accepted as gospel, and for good reason. If the market stops growing and starts shrinking, that means people become less well off.
  2. There are only two ways of growing an economy. Either you have more people (more consumers of the pie), or you innovate - so the available pie grows.
  3. Emerging markets expand the available supply of consumers and are therefore good.
  4. Sometime this century, the global population is expected to stabilise… and then fall.

So, what happens when the number of humans starts to shrink? Logically, so does the economy unless the world becomes more equitable in its distribution of wealth and raises everyone up to ‘Western’ standards. Some problems with that:

  1. Current economic powers do not want new powers to take over (such as China).
  2. If all 10 billion projected people live like the average Australian, then our planet’s finite resources will disappear even more quickly!
  3. Maybe item 2 can be addressed by ‘space mining’ - or even colonisation. Maybe.

Item 3 above is one form of ‘innovation’ by which the economy may be kept growing. Other innovations may include the improved use of computers and AI, quantum computing, and game-changers that we cannot yet envision.

Finally, it has been suggested that current generations may be the last that will die; science expects to solve this minor blip in the roadmap of life over the next 50-odd years. That would mean that the world population may not start shrinking.

Yes, absolutely! Unfortunately, most rich countries find this politically repellent. “We’re falling behind”, and such jingoism. The IMF and the World Bank have done very well at keeping certain countries ‘in their place’. France insisted that Haiti pay its ‘independence debt’ - which was finally cleared in 1947 but kept the country in poverty. As for improvement of welfare, this seems to be against the interests of our political paymasters - and I have no doubt the situation is similar in poorer countries.

those of us who currently have a lot (comparatively) will need to make some major sacrifices to find a level of resource usage that is sustainable across the global population. Alternatively, we will need to find ‘a better way’ (i.e. innovate).

Our current politicians are looking at the next year, or the next election (or the next chance to knife a PM in the back). They can’t even deal sensibly with climate change! The global economic challenges that are coming, while some are due to or exacerbated by climate change, put climate change problems to shame. I cannot see them being dealt with by existing systems of government - whether local, national or international.

Unfortunately, if these challenges are not resolved by international consensus, then humanity will likely wipe itself out in a struggle over the last remaining resources.

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50

It is getting repetitious to keep posting the Story of Stuff. videos. For forum newcomers or anyone yet to watch, the last one (2007) could be one of the most meaningful messages of a century with the others being close behind.

One can take or leave the messages, but anyone who does not at lest reflect and consider their veracity is probably a core part of the The Problem.

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51

I see they also have fact sheets for those of us who don’t have a 20 minute attention span :wink: .

http://storyofstuff.org//wp-content/uploads/movies/scripts/StoryofStuff_FactSheet.pdf

Scary stuff!

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52

Some of us simply don’t have 20 minutes spare time …

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53

The short version is that with 4% of the planets population the USA as a consumer is punching above it’s weight and should be worried.

The worry is that the rest on the planet might desire to be like the USA.

Separately in the Economic Olympics:
The USA produces 15% of the planets greenhouse gas emissions.
China is still playing catch up. When it gets to the same level of economic development and consumption (measured by emissions) the two will account for 80%-90% of everything except population.
China is doing well with catch up responsible now for 25% of global greenhouse gas emissions.
Australia as T Abbott pointed out does not even make the semi finals in this race. Australia held 17th place in 2013, if you discount Germany who cheated by entering twice. Once as itself and also as team Europe. They use a trainer from the old East Germany apparently.

Note: China is currently in the gold medal position, the USA a long second has announced plans to leave it’s training organisation in 2020, after a split with it’s internationally accredited trainers in Paris and Kyoto.

In the handicap event of emissions intensity per capita. This is intended to throw us off the scent of the 6 most economically active (high emissions) nations. Australia’s performance has been a bit erratic. We made the final in 8th place with 25t CO2e Per capita in 2013. Our recent drop in form to 22t in 2017 may see us drop out of the finals next year. Australia hangs on to a spot due to it’s ability to produce large quantities of raw materials and produce for other nations, saving them carrying on their books the economic activity (emissions). Proposals to change the handicapping system to reweight this to the end user has not gained the support of those nations who do not compete in the handicap event, for fear they may be forced to qualify in the handicap event next year.

Note: the nations with the greatest economic outlook and activity if greenhouse gas emissions are the measure are predominantly energy exporters. Kuwait heads the list.

Australia remains a proud competitor, just hanging in there in the Economic Olympics. We have adopted the latest handicappers recommendation and adopted LULUCF as weight measure for emissions. After a poor start carrying nearly 140Mt in 1990 we had slimmed down to 64Mt by 2000 and today come in under weight slightly with a small credit. Some trainers now blame the LULUCF for our lack of success in getting back into the finals events due to our lower total emissions as a measure of economic activity. Others suggest it is just another unfair advantage like the body suits in swimming. It might be that it is no benefit at all as the accuracy of the measurement of LULUCF is hotly debated. Each competitor self assesses using a guesstimate of what they think the number should be with a tolerance of 100%?

For the real details of economic activity behind LULUCF and what the F stands for


The simple answer is providing Australia keeps turning farm land and wasteland back into forest it generates credits. These carbon credits to date have offset the majority of growth in economic activity and population since 1990 or 2000 baselines. That’s a different topic perhaps.

Whether market forces have any useful influence on economic activity remains debatable. Emissions are possibly a reliable measure of economic activity and important to the nation. Market forces appear to have had little effect on these if you accept that other than LULUCF all of the other sectors of economic activity have continued to increase their emissions.

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54

Another perspective:
“There remains vast support for public ownership, higher taxes and more spending on essential services – surprisingly enough, people just want the basics they need to live a good life.”

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55

It’s happened!

APH 30th Anniversary Lego build

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56

the answer: business interests with lots of money

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57

I think this requires a minor change. “…providing Australia keeps turning farm land and wasteland back into forest…” should read “…providing Australia keeps claiming to turn farm land and wasteland back into forest…”. Feel free to correct me if I am being excessively cynical, but I suspect that words and deeds may differ somewhat in this instance.

Of course, ‘growing more trees’ is a long-term solution to a medium-term problem. Cutting emissions should be the first priority! Australia has lost some huge advantages in the alternative energy markets simply because government turned its back on the future and said “it’s really only a theory”.

This is totally unsurprising. It explains Jeremy Corbyn in the UK, Bernie Sanders in the US, and Western Europe for the last 70 years! We’ve been dudded for decades by economists with theories that just happen to screw the poor and help the rich.

As for the linked article (by a Greens candidate), I suspect that the Greens can pull a lot more votes - but they have to be more vocal about their differences from the current Laurel and Hardy show.

I miss the Democrats :cry:.

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58

Did you take the ABC online test to find out how cynical we might be? I decided not to as there was no point wasting my time with it. “smiles”

I’ve introduced a new topic to the community “Greenhouse Gas Emissions - facts, fictions and do they have cost impacts for consumers?”, to share more specific to just that issue. These may be on the reliability of what we are being advised verses what is being reported for emissions and the connections to consumer outcomes. There are already several diverse topics that pick up specific actions or solutions that are complementary.

Note previously re LULUCF if you substitute nation for competitor and excuse the simple wit.

How effects of LULUCF (Land Use, Land-Use Change and Forestry) are assessed and estimated fills several documents of 50-100 pages each. The confidence level of the measurement estimate is statistically low. It uses aerial mapping data and sample forest areas to extrapolate a result. It has been an improving trend (less emissions) from 2008 thru to 2013/14, and a worsening trend (increasing emissions) from 1997-2007, as well as post 2014.

Arguably LULUCF responds to economic or market forces legislation permitting. The latest trend of increasing emissions is reported as largely due to Qld and the previous Newman lead govt changes relaxing land clearing. You could argue in this instance market forces are working against the nation and the need is to reduce total emissions. Or they are working for the economic good of the nation if you accept the position of the current PM. (p.s. The current Qld Govt has introduced further changes to land clearing requirements effective April 2018. The effects, economic and on emissions will not be apparent for some time.)

In respect of market forces addressing greenhouse gas emissions in a timely manner - my humble opinion is that the market only reacts and evolves to serve short term interests or needs. If you do not accept the current situation re emissions, the alternatives are severe government intervention with or without a form of pricing on emissions.

At a macro economic level the near term requires a massive shift in capital investment nationally to provide the solutions necessary. A more pragmatic response that pursues a number of solutions in parallel is likely to be more cost effective while delivering change more rapidly. The market may respond more adeptly to a number of step changes over time with differing solutions for each of the sectors, while still providing the outcomes needed at a sustainable cost to the nation.

That the current government does not have a plan has been said many times. Arguably it does. It is to do no more with the apt title of “Direct Action”.

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59

You don’t need to be humble about that opinion; I think it is widely shared even by economists.

The other problem with ‘market forces’ is that they don’t address externalities. Pollution is largely an externality that can be ignored because doing something about it doesn’t help profitability (unless you want to greenwash your company). Government fines for ignoring pollution laws tend to be less than the profit realised by the breach, and so companies are often happy to take the slap on the wrist. It’s the same with online security breaches; the cost of providing decent security is sometimes higher than the cost of a breach.

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60

Many interesting insights. From a neoliberal market-totalitarian perspective, the public doesn’t exist. There is no society, just greedy self-centred individuals.

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