Myth of Free Markets
If your parents were not well qualified but were hard working carpenters, bus drivers or blue collar workers in the US 25 years ago and you are in the same profession, you are in trouble.
Nobody in the US believed that anything could go wrong…say in the 1990s. Then came Free Markets theory. The Americans loved it. Simple know call it “free markets” and these people were ready believe anything. Great. The Americans, Germans and the UK guys had no clue that about a billion people in India and China will be willing to work for US $ 1 a day and completely take over their jobs.
Till of course Brexit and Trump happened. Both the countries – US and UK – have a young population who think that the rest of the world owes them a living. Yes the rich world was flooded by cheap Asian goods – starting with textiles and semiconductor chips – but along with that went the jobs to Asia. 200 years ago India and China had about 50% of world GDP, however the US, UK and Germany cannot accept that Asia will dominate again. It just does not like that argument!
What is collapsing or has collapsed was (is) the myth that markets can regulate themselves. Markets cannot. Simmering unrest emerged, borne by fears, half-knowledge and justifiable rejection of what has gone wrong with globalization! It became an opportune time for con men and authoritarians. We now see a void that cannot be remedied by trying to fix details. USA needs a new leitmotif, a new guiding concept. The Average American has to get educated, and work hard. If the farm hardwork is outsourced to Mexicans and the coding work to Asians what will the Avg American do? Except vote Trump and hope for a ‘new new order’?
There is a growing suspicion in the US that it was dangerous to allow the economies to be determined by “financial wizards” who are incapable of foreseeing their own debacles! They just follow every fad, and then become part of the government and make rules to help their bretheren!
Look at the rules that the idiotic bankers have changed – a housing loan would be available ONLY for 50% of the cost of the house. These idiotic bankers changed the rule to 10% and percipitated the Mortgage led 2008 crisis in US.
Educational Loans make no sense MATHEMATICALLY for any kid to be borrowing. Take the case of medical education in India – it could set you back by Rs. 5 crores – at the end of a super specialist job. Are you kidding? Will a doc earn that kind of money working in a middle class locality?
Look at housing prices. Look at people replacing cars every 4 years just because finance is available. Is it sustainable? In US or in India?
If half the American and UK popluation drops out of school, has children out of wedlock, has no particular skill, will the rest of the world be responsible to give them a good life?
ha, tough questions. No simple answers.
Nidige Kumar
Depressing but true.
Ashutosh
This is the Asian Century, just look at all asian economics even philippines is growing leaps nd bounds. On the other side European economies are struggling to maintain even 1%
Ganesh
I really like the arguments presented at the end of the post. We also have to remember, especially in the urban centers, that what’s transpiring in US can easily transpire in India. Gone are the days of 60s retirement, indexed pension etc. Losing a job at 40 can be traumatic and easily set one back by money, time and more importantly health.
People are living in a consumerisitic bubble funded by EMIs, buying crores worth of flats, swanky cars etc, all because a bank is ready to fund it. They easily forget that no one guarantees a job till all EMIs are paid. Scary times..
Karthik
I really don’t understand how the “Myth of free markets” has to do anything with what you have written? I think the title doesn’t gel well with the contents….. and the concept of free markets didn’t start in the 90s… I don’t think you quite realise how the economic machine works ….. you should watch the video by Ray Dalio….. the debt cycles are a part and parcel of the economic system we have chosen … this will remain as long as we have fractional reserve banking. I think you should research the topic in far more depth…. 50% margin money for a mortgage is just not true …. I think you have mixed up a bunch of issues together and called it the myth of free markets
Senthil
Karthik, I couldn’t have said it better.
It has become fashionable to simply write off the free market system as a myth or a failure when historically, the world hasn’t had a proper free market at all, except for a brief period in the 19th century in the United States – when the government stuck to its fundamental duties – defence, monetary policy and justice. At all other times, throughout the world, what has been touted as ‘free market’ is nothing resembling one. But instead, they are all examples of a distorted market where the government assumes extraordinary powers in regulating the economy (all in the name of helping the poor and disenfranchised, of course) and naturally businesses abuse that power, in their favor.
To anyone who thinks they know anything about ‘free markets’, I suggest you read Milton Friedman or Thomas Sowell’s books based on extraordinary research of economic and political history of the entire world and backed up by tons of empirical data.
Sheesh! This just makes my blood boil. If I had a Rupee every time I saw someone completely failing to understand or appreciate a true ‘free market’, I’d be a very rich man!