|
|
Musings Report 2024-7 2-17-24 Blind Markets and Non-Market Values
You are receiving this email/post because you are a subscriber/patron of Of Two Minds / Charles Hugh Smith.
Blind Markets and Non-Market Values
For true believers in markets as the ideal solution in virtually every scenario, to say that markets are not solutions in every circumstance is akin to saying "God is dead." But the truth is markets are not solutions in many cases--on the contrary, they may well be the problem.
Markets have three intrinsic, fatal flaws:
1) markets lack mechanisms to price externalities, indirect costs and future costs that manifest beyond direct production costs and are therefore not included in the sticker price;
2) markets lack mechanisms to differentiate between various types of demand: the demand of speculators, foreign governments, cartels and consumers are all intrinsically equal to markets and so markets are blind to the negative consequences of inherently destabilizing demand,
3) markets lack mechanisms to value non-market assets and liabilities.
Externalities that aren't included in the purchase price abound. When industrial waste turned rivers into dead zones that actually caught fire in the early 1970s, the monumental costs of cleaning up the waste stream and the damage inflicted on the public commons--hundreds of billions of dollars--was not included in the price of the industrial goods being produced. These externalized costs were paid over many years by taxpayers and industries. As I've often explained, funding these enormous, long-term costs were a key cause of the stagflation of the 1970s.
To take another example, the immensely destructive consequences of overfishing the waters of West Africa to feed farmed salmon is not in the price of the farmed salmon.
The cost of recycling lithium-ion batteries isn't included in the price, so 95% of all these batteries are dumped in the landfill.
These external costs are dumped on communities who are powerless to stop the exploitation (West Africa et al.) or on taxpayers, who must devote their incomes to cleaning up industrial wastelands and managing toxic materials in landfills. "Market prices" are thus profitable illusions that deceptively leave out the full costs and consequences of production.
The second fatal flaw in "the market" is the inability to differentiate between various sources of demand. If corporate proxies of unfriendly foreign powers buy up farmland, water rights and essential industries in the homeland, the market has no mechanisms to differentiate this potentially catastrophic ceding of control to foreign entities from the demand of domestic companies: all demand is equal, and the asset goes to the highest bidder.
The profit motive is equally blind. When US corporations increased profits by relying almost exclusively on semiconductor foundry production in Taiwan, the market cheered the reduction in costs and resulting profit surge. The non-market national-security consequences of this dependency--sharply increasing the vulnerability of America's essential industries to disruption of Taiwan's production--didn't register in the market, whose sole focus and metric is profit, and whose Prime Directive is maximize profits by any means available. Markets are completely blind to National Security consequences.
As I described in my recent blog post on housing, the market's inability to differentiate between demand for housing from
1) absentee short-term rental owners,
2) foreign absentee owners parking excess capital in US real estate,
3) corporate cartels buying up single-family homes to convert them to cash-cow rentals and
4) households seeking shelter they actually own rather than rent, means the market sees nothing amiss as it destroys the integrity of neighborhoods--all the non-market assets that the market cannot recognize, much less value.
As in my example, the market cheers the hollowing out of the neighborhood by absentee owners, the doubling of rents, the ascent of home prices to levels that are unaffordable to 80% or more of those working for a living, and the construction of eyesore high-rise condos snapped up by the same absentee owners with excess capital to park who ruined the neighborhood.
Now that half the neighborhood is owned by absentee owners, to households seeking shelter, it's as if half the homes burned to the ground. This artificial scarcity (artificial in the sense that the new absentee buyers do not seek shelter or a family home, they're just buying homes the way they buy bonds or other income streams) then drives families seeking homeownership and shelter far into the exurbs, where orchards are chopped down and prime farmland is paved over, and the two-lane road serving the area is soon choked with traffic and commuters squandering 3 hours a day in commuting time.
That the taxpayers are on the hook to widen the roads because absentee investors bought up the housing in the metro core isn't recognized by the market. Those are direct costs of the market functioning without pricing in externalities and non-market assets and liabilities, yet they're not included in the price of the real estate being traded as interchangeable commodities.
To investors, the single-family home is just another asset to generate income and appreciation, equivalent to bonds, stocks, oil wells, fish farms or any other commoditized, globalized asset.
The non-market value of a functioning, livable, convivial neighborhood--all non-market factors that require homeowner-occupants who care about their homes and the neighborhood--are not recognized by the market. This is why cities and towns are starting to impose limits on housing, limiting the construction and ownership of short-term rentals and imposing fines on housing left empty by absentee owners parking excess wealth in US real estate.
The market's single greatest failing is its inability to differentiate between material essentials--water, food, agricultural land, shelter, utilities, education, healthcare, energy and core transportation-industrial infrastructure--and non-essential discretionary consumerist products and services and unproductive speculation.
The market's second greatest failing is its inability to recognize, much less value, the non-market essentials that are the difference between a dysfunctional, hollowed-out national life and a productive, uplifting national life:
--the integrity of communities;
--social cohesion;
--civic virtue;
--decentralized ownership of enterprises, shelter and resources;
--limits on monopolies and cartels;
--limits on foreign control of essential assets and industries;
--shared purpose and sacrifice;
--social mobility;
--moral legitimacy
--a functioning social contract.
This is why communities must regulate and limit markets to preserve all the non-market values that will be destroyed by unfettered markets.
Within the narrow bounds of markets required to transparently price in externalities and non-market values, markets serve as useful, competitive transactional exchanges. But if externalities and non-market values are ignored, markets lacking limits that serve the common good are blind beasts, destroying all they cannot see.
The globalized economy has hyper-commoditized capital, assets and labor even as it has separated the flow of capital from the real world of non-market human needs and values.
Highlights of the Blog
The U.S. Housing Market: Rent-Serfs and Artificial Scarcity 2/16/24
Digital Service Dumpster Fires and Shadow Work 2/14/24
The "Phantom Legion" Problem 2/12/24
Best Thing That Happened To Me This Week
We finally pickled some of the yard's abundant harvest of chayote (called pipinola in Hawaii).
From Left Field
NOTE TO NEW READERS: This list is not comprised of articles I agree with or that I judge to be correct or of the highest quality. It is representative of the content I find interesting as reflections of the current zeitgeist. The list is intended to be perused with an open, critical, occasionally amused mind.
Many links are behind paywalls. Most paywalled sites allow a few free articles per month if you register. It's the New Normal.
IM Doc Warns of Coming Medical Dystopia in the US via Pervasive Recording of Visits, AI Test Ordering and Upselling (via Cheryl A.)
Google, Epic ink deal to migrate hospital EHRs to the cloud to ramp up use of AI, analytics
"You need to understand the data, you need to see the pattern, you need to see the trends, and then we'll be able to predict. With Epic and Google Cloud, you will be able to bring that intelligence into the workflow."
I’m a trailer park mom living on $30K a year — here’s how I feed my family of four for less than $250 a week -- $250 X 52 = $13,000....
How the world’s falling birthrate is leading to economic catastrophe
As fear rises over AI, Google and Epic fight stronger regulation of the technology in health care
The Dirty Business of Clean Blood -- monopoly-cartels at work...
Your Money or Your Life
The art of doing nothing: have the Dutch found the answer to burnout culture?
Interest in the concept of niksen has grown rapidly over the past five years – and it has become a publishing sensation. But just how easy is it to let go of all outcomes?
Nickel and Dimed 20 Years Later — Why Americans Still Aren’t Getting By
AI Has A Giant, Expensive Flaw: Turns out, your job is safe.
Big Tech disrupted disruption -- by neutering it...
She met over 100 guys but didn’t find love. In China, marriage is pie in the sky for many more
With the country’s marriage rate at an all-time low, the program explores the factors in play, from the changing attitudes of young Chinese to the cost of housing, and how authorities and parents are trying to reverse the trend.
"Nobody realizes that some people expend tremendous energy merely to be normal." Albert Camus
Thanks for reading--
charles |
|
|
|
|
|
