He who pays the piper calls the tune. This applies to economists as well as musicians and explains why economists have so much difficulty coming to terms with the ideological aspects of their field.
This post was prompted by an article about whether economists are biased towards the free market or towards regulation. This blogger would prefer to evaluate economies according to who makes decisions.
I get suspicious when I hear economists talk about the “free market” because they usually mean something different to what I understand is a free market economy. To me a free market economy is one based on the perfect competition model. What we actually have is an economy where governments pass legislation to restrict competition. Copyright, patents, licensing, tariffs, health and safety regulations all work to restrict competition and allow some people to make profits they would not get in a competitive economy.
Sometimes the profit making gets out of control and the way to deal with this is to introduce regulations rather than to return to more competition. Therefore I figure the debate in this article is irrelevant.
What is relevant is who makes economic decisions. If we had perfect competition most if not all decisions would be made by consumers who would vote with their spending decisions. Unfortunately there are too many people in this world who like to make decisions for others.
One of the big things which influences decision making is the fractional reserve way of creating money. In this process money is created when bankers make loans and as they get to decide who gets loans they have a say over what economic activity is going to take place. If we had a national exchange trading system as proposed in the essay “LETS to market: Dealing with the economic crisis” on this weblog money would be created via payments to individuals who would then make decisions in their purchases or investments.
The fractional reserve system also limits decision making in that many people, especially during their working years, carry a large debt load. As most of us have to work to repay our debts, we are forced to support another person’s decisions. And the work ethic adds a lot of support.
Governments also interfere with decision making by passing legislation which restricts competition and by accessing large amounts of created money. This of course allows them to make economic decisions according to their values which don’t always agree with their citizens.
My view of how the economy works is less than consistent with conventional economic wisdom. Readers will decide for themselves which view they want to accept but I will point out that economists who don’t promote the conventional view probably don’t stand much chance of holding important high paying jobs. People in power, industry or government, want to feel they are doing good and it is the role of economists to say what their employers want to hear and most economists are paid directly or indirectly by business or government.
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Filed under: Economics | Tagged: Competition, economic crisis, economic decisions, Economics, Economy, free market, free market economy, making decisions, Perfect competition, perfect competition model |