Market failures: bridges vs tunnels

There are some areas of major importance to human beings: air & water, food, security, shelter, energy, ethics, and economy.

In all except shelter, and that one is debatable, there are huge market failures. The economic models that we use do not satisfactorily regulate supply and demand for these good.

Take a moment to think about that. What it means is that the vital systems upon which we depend most of all, which form the foundation of all other human activity, have weaknesses.

I suspect this is a legacy problem. When the idea of free market economics was evolved, everything in that list, apart from security, was taking care of itself.

• Society was largely agrarian and suffused with a sense of stewardship more than ownership, so that took care of air, water, and food.
• Shelter was a simpler affair since populations were less dense, building supplies more readily available, and the accommodation was generally simpler.
• Energy use was far lower (no lightbulbs), and production and consumption was distributed and localised (chop logs, burn them).
• Smaller communities where every knew each other that much more, coupled with more pervasive religious belief, took care of ethics.
• The economy was smaller, and more directly linked to goods.

So with the sole exception of security, which had long been served by government directed armies and more recently by police forces, these fundamentals were not considered sufficiently deeply when designing economic theory. Of course they were factored in and were used in examples of supply and demand and so on, but they don’t seem to have been given their due gravitas as the foundation upon which the rest of the economy stands.

The models which evolved were not stress-tested and falsified to account for any future changes such as increased demand for resources as quality of life “improves”, massive increases in population, changes to the structure and linkages within society, or more abstracted and globalised financial markets.

Sure, the theories consider the tragedy of the commons, but to no great avail deciding to deal with it by firstly removing the ‘commons’ part (privatisation), and then treating it as a problem of scarcity. When our economic system encounters scarcity, the items’ price rise. But this makes the assumption that people will invest where there is profit to be made, and therefore supply will increase, ergo no tragedy. This theory works well with most of man’s economic activity, but does not work very well at all with the fundamental goods listed above.

Which begs the question: “What is to be done about all this?”

Whatever the solution is it needs to be dynamic and flexible, and be not too far away from the models we use now. Most things aren’t broken, we just require a bit of a shift in how we look at things…

To use an analogy, a long time ago in a very much smaller world we built bridges so we could trade more readily with our neighbours.

The bridges have stood up well, for the most part. Sometimes small bit falls off, causing people to slip and climb back up, or slip and fall off never to be heard from again. Sometimes the entire bridge collapses with massive losses, and the bridge is slowly rebuilt allowing gradually more traffic through.

But on recent surveys of the bridges there were lots of reports coming back of cracks in the foundations. Since then, some of those bridges with same pattern of cracks in their foundations have collapsed quickly, violently, and tragically. More people are looking at their own bridges, questioning how safe they are, and many people are refusing to travel across at all.

It used to be that if you had a heavy load to take across the bridge, you’d meet a chap on the bank before you crossed, and this ‘Banker’ would help you and arrange to carry much of your load. But now even the Bankers are refusing to cross fearing the bridge might collapse beneath them, too.

It seems that the bridges have a fundamental design flaw which makes them completely unsuitable to the modern heavy loads. We can tell people the bridges are safe. We can build bigger and bigger bridges. We can spend lots of resources of huge engineering works to give a short term fix.

Or we can build something else. Something that does not have these weaknesses and (importantly) is worth having anyway as a backup. We can build tunnels, use barges and ferries, we can even build dirigibles. It turns out that there are lots of ways to hop from trading place to trading place! Sometimes there is no chasm to cross at all, and it’s just through habit that we’ve built a bridge! We can build roads, and use bicycles! We can walk! We can use trains! This whole “we must use bridges or else” stuff turned out to be nonsense, and we were just stuck with it through habit! What a great new world this opens up! The principles are the same: we’re still trading, we’re still going to work and making stuff, we’re still paying taxes for education and healthcare and all the things we love, it’s just that we’ve found a better way of trading that works the way we humans do! It’s flexible, it’s resilient, it’s safer, it’s more fun!

But what is it?! What are these new models?!

Alas, I don’t yet know, but I know that other people do, and I assure you I’m going to find them and shout the news from the rooftops.

Read more, and find some useful links on the economy section of www.elected.in