The market will not be denied--some random ramblings on economics

There's a good article in Tech Central Station today which traces the decline and fall of the German biotech industry. The pattern is a common one: first the government regulates, imposes controls, and tramples markets. Then the industry withers and relocates.

In all things, the Market will not be denied. It can't be.

This is a concept that has long fascinated me. All transactions between human beings take place on a value consideration basis determined by a host of intangible factors, modified by the constraints of supply and demand. People perceive the Market as harsh, or heartless, or fueled by greed, or [insert your pejorative of choice].

Some have attempted to invent alternate systems. In all cases, they have failed to realize that even if you alter the mechanism of exchange, people still ultimately seek to acquire things most valuable to them at the least cost. This holds true even in communes. "From each according to his ability, to each according to his need," sounds nice, but the fallacy of that statement is contained in the wording.

How do you determine need? Why, by assignment of value of course. When a person works like a slave (and indeed, communism makes the most sense when understood as a form of state-mandated universal slavery), he does so out of fear that failure to do so will result in a denial of needs. Thus, he exchanges his labor for what few goods can be obtained from others (embodied by the state, community, or what have you).

In other words, within the framework allowed by regulations governing commerce, exchange will always happen according to Market principles. The less arbitrary interference (i.e. government intervention), the more efficiently the Market operates, and the more value is created. Government interference in any way, shape, or form by definition destroys value.

It is no coincidence that over the period from 1950 - 1995, the countries which experienced the highest rate of GDP growth were the countries whose laws most respected & protected property rights (specifically: Singapore, Hong Kong, and Taiwan). When governments step in, you get effects like those from the article linked above.

German firms once dominated the biopharmaceutical field. Known as the “medicine chest of Europe,” German drug makers spawned U.S. divisions that are now multinationals in their own right. But today, as The Philadelphia Inquirer detailed in a recent series, there is not one German company among the top ten drug-makers.

[...] A range of shortsighted government policies did much of the damage: Reference-pricing policies, in which the government will pay only for a certain amount of low-cost medicines in a class of drugs, have become one more disincentive to develop improvements in any category of drugs. Price and access controls make private R&D too expensive, even forcing some labs to shut down.

[...] The transatlantic shift is the result of a friendlier environment to competition and consumer choice in America. Unhobbled by price controls, companies in the U.S. have a greater incentive to invest on the front end of drug development, because risk is matched with potential rewards. And risk-taking and innovation go hand in hand, as innovative firms attract the talented individuals who are the real fuel of future progress.

It is a simple lesson with simple, straight forward, common sense causes and effects. Unfortunately, the vast majority of politicians & bureaucrat decision makers aren't sufficiently smart to understand that lesson. Of course, you could argue that the vast majority of politicians couldn't be morons. If I grant that argument, however, then the only other possible explanation is that the vast majority of politicians are corrupt and/or dishonest.

So I've decided to give them the benefit of the doubt and just chalk it up to stupidity.

posted by Beck on 01.12.06 at 12:17 PM


It seems that an overcontrolling government gets what it truly deserves-nothing to control.

Frank   ·  January 12, 2006 7:46 PM

It is not exactly a universal law. I was surprised to discover the other day that under feudalism, things like the price of bread remained the same, even during times of plenty and famine. Because that was just how the economy worked, where conventional pricing set (I assume) by whichever lord was in charge, was more important demand value. Not exactly something to aim to return to, of course!

nic   ·  January 13, 2006 9:51 AM

It is *ridiculous* to point to feudalism as an example of a "market".

You're dismissed.

Billy Beck   ·  January 13, 2006 2:38 PM

I would further add that, even to the extent that there was any sort of "price fixing" in feudal times, markets would still ultimately assert their supremacy, though in often unpredictable ways. For one thing, there would be no mechanism for rationing in the case of extreme scarcity. There would simply be shortages and starvation (which, in fact, happened quite often). In times of surplus, value would be destroyed by people failing to consume as much as they potentially could have, and by causing incorrect asset realocation (if you have too much wheat, maybe you should be planting some barley, etc, etc, etc). Finally, serfs didn't really have access to money--they were simply given back a portion of the fruits of their labor. They exchanged their labor for these handouts, and since their labor input remained relatively unchanged (i.e. non-stop toil from sun-up to sun-down) then you could argue that the "price" didn't change, but you'd be engaging in the falacy of incorrectly identifying the serfs as free, rational decission makers when in fact they should be classified as slaves.

Beck   ·  January 13, 2006 3:49 PM

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