by ubercynicmeister » Tue 11 Oct 2005, 23:16:26
The "freemarket" doesn't work, FULL STOP.
In theory, when the availability of something goes UP, the price (supposedly) goes down.
When the availablity of something goes DOWN, the price (supposedly) goes up.
Or at least it should, but witness the recent drop in the price of Oil, when the supply went DOWN, while the demand remained about the same.
This above account doesn't take into account the dumping practices of various companies (and governments) around the world, but that's not actually part of the "freemarket" in theory...in practice it very MUCH is part of the Freemarket.
Now, in the Freemarket, any given company would be able to get as much money as it can (ie: sell it's products or services for as high a price as it can) and increasing it's profit-margin(s) by cutting costs.
One of the ways a company can cut costs is simply by making fewer of of their product, especially if that "product" is so vital (especially if there are no ready-to-hand replacements) that the average consumer has no choice about using their product. That is, one has to buy it no matter what the price. Water, for example, is one of those substances that a human MUST have.
One of the other products which fits this description of "utterly vital and without ready-to-hand replacement" is, of course, Oil.
Oil companies themselves face this very thing from the Oil Tanker owners, who have allowed the number of Oil Tankers to decline to the point where we're looking at 100% utilisation of said Oil tankers, thus driving the price of Oil up by somewhere between $10 to $25 per barrel. If you're an Oil Tanker Owner, this price-hike is a good thing and because the Oil MUST be transported by Tanker, because there is no "ready to hand" replacement, this means that the "shortage" of tankers is actually rewarded by higher prices, thus higher profits.
Why go and build more Oil tankers, then, when the Freemarket is rewarding you for NOT building tankers?
Now, if some dope steps up and tries to "muscle in"; to set up as a rival to you, it's pretty easy, under the Freemarket, to deal with such. If this happens, then you (because you're an existing player) can order ships be built from the few shipyards that actually can handle the Very Large Crude Carriers, and thus make sure the new-comers don't get anywhere. But one can order them at such a rate as to tie up the shipyards, without doing anything other than replacing the existing tankers that are too old.
Thus one can truthfully say that "we're adding new tankers" without actually INCREASING the overall number of tankers, thus keeping the shortage going for as long as one can.
And supposing that if someone still wants to "muscle in" to supply cargo space on Oil tankers, then they're gonna have to start by building their own Oil Tanker Construction Yards (the old shipyards were all 'downsized', a word most people in the West are gonna hear an AWFUL lot more of soon). So that means that the new-comers have to undertake addititional expediture either of building their own ship-yards or of waiting until there is a "free spot" in the construction schedule of the existing shipyards.
Even better - given the indecent haste with which the steel-smelters which supplied the ship-yards with raw material (steel) to build the ships have also been downsized-into-non-existance, then any newcomer who wants to step into the Oil Tanker business by building their own Oil Tankers must also build a new steel works to supply their new shipyard, OR "take their chances" waiting at the end of the queue of those who are asking for steel from (you guessed it) China.
This means that either the new-comer must undertake massive expense, with little-to-no guarentee of a return once they DO finally have a product they can sell, or else they just "have to put up with it" (ie: high Oil prices).
This is the Freemarket of "supply and demand"...where the "supply" can only be materially increased by massive amounts of money (shortly to be in short supply itself), then the hard cash to do this get hard to come by. Investors don't tend to like investing (as we have seen) in Long Term stuff anymore. They want the quick returns that will bring results by the "end of next quarter". This makes the oft derided "short term thinking" of politicians (only thinking to the end of their terms in office) seem like the meditations of Buddha in comparison.
But wait, there's less - in the Freemarket, as the price of everything rises, the money supply becomes tighter - thus the Freemarket has this self-reinforcing feed-back loop that is set on HIGH GAIN, so that each time the price goes up, it sucks more money outta the economy, thus making money supply tighter, thus the chance of investment (ie: cold hard cash) being divvied up to allow for the investment in means to lower the price itself beciomes less and less likely in a sort of death-spiral. I'm not necessarily talking about Oil, here - this is the price of anything traded on the freemarket.
Thus the freemarket always runs to excess - isn't the price of anything is always stated to be either "underpriced" or "overpriced"?
"Self-correction" seems to only occur in the Freemarket by catastrophe: "The bull comes in the front door - the bear leaps out of the window", as is the saying, meaning the Freemarket, as it runs upwards (a "bullish" or "bull" market, refering to the sheer amount of "bull" (propaganda, as in the Dot Con era) that is used to support the price-run), is welcomed and enters smoothly via the agreed-upon entrance, and probably causes vast damage once inside. Then, when things get nasty, the "bull turns bear" : investors get mauled and then eaten.
And that exit from the window is no mere metaphor: "It's raining stockbrokers" is the usual phrase to describe a day of "heavy selling" on that most well-known of Freemarkets: the stock-market.
Take the Dot Con era - everyone was (freely) investing in the Freemarket's greatest boom, as it was called, the Boom That Could Never End. Companies weren't necessarily traded on the stock-market, though that attracted the greatest interest (pardon the pun). If it had "e" in front of it (e-Commerce, e-Banking, e-Trading) then one just HAD to be part of this, because everyone else was, too.
This Dot Con Boom sucked the money out of every other bit of the economy, causing investment into real stuff that actually (gasp) could turn a profit (the "old" economy) to languish, at the very time when it might have done more good (such as research into, say, Nuclear Fusion) to prevent the coming Oil-induced economic catastrophe.
Thus the freemarket's "greatest experiment" (the Dot Con Boom) has showed the Freemarket to be what it acually is: incapable of seeing through the "hype" and "hucksterism" (to use some now very old words) to get to the real substance, and above all, it proves the Freemarket's UTTER inability to provide (voluntarily) corrective action to prevent the Dot-Con style of "bubbles".
The Freemarket, driven as it is by the Clueless Yuppies, has no idea. No idea of how to stop itself from "over correction", from "over investing" from "over subscribing" from "UNDER investing", and from "under investigation" intoi whether that company one is stuffing money into can every (really) turn a profit. The Freemarket contains no mechanism, no philosophy, no concept of how to stop these massive "runs" which always end in tragedy.
No, the Freemarket is in permanent self-destruct mode and when it goes, all I can say is: Good Riddance To Bad Rubbish.
