Thursday, August 7, 2008

My personal breakthrough on unfettered v. regulated free market theory?


What the central planner is unable to do -- at all -- is duplicate the zillions to the zillionth power different rational decisions that need to efficiently operate a market. What the central planner (in the broadest, most general sense of the term) is able to do -- very efficiently -- is to interfere with or substitute any individual decisions that he can be personally aware of -- like deciding what the minimum price per hour of labor should be.

What any one of the millions of individual decision makers are not usually doing -- at all -- is seeking an outcome that the overall consensus of millions of decision makers would see as useful.

Fans of the unfettered free market believe its outcomes are perfectly proportional and that interfering with it is inherently inefficient. Actually, whether 80% of the profit of a fast food enterprise goes to labor and 20% to ownership -- or vice-versa -- has no direct effect on the consumer at all -- only affects what the profit will ultimately buy: perhaps better educated because better paid labor or perhaps more business investment because more profitable; both of which are within the realm of reasonable predictability to central planners.

Ditto for labor upping the price of a burger through minimum wage hike (or collective bargaining) to the highest price consumers are willing to pay (even it means selling fewer burgers for more labor profit per burger). "Natural" utility, if you will, should be seen as the highest price a product or service can command, not the lowest.

If a piece of land is sold at a fire-sale price because the owner is destitute and on the verge of starvation, that price probably wont fully reflect the utility the land might have to the purchaser. Unorganized labor is often in the same fire-sale position, since necessity may force it to accept whatever price will barely sustain it. There is nothing "naturally" efficient about sale of anything below the price which reflects its full utility to the purchaser. (There is something very naturally inefficient about keeping people too poor to reach the natural potential of their personal talents.)

First bites into the animal, anyway...