Gold, Man.

Goldman Sachs gets a 5 billion dollar 'fine' (or is it a settlement?). In reality the figure will probably end up being less than the headline figure. But it's worth thinking about all the "fines" that the big players have had to cough up (or, more realistically, that they've been happy to settle for).

Now, of course, you can keep on talking about how great markets are (I've got some wheat, you've got some cheese; let's trade! What's there not to like?! We're both better off, aren't we?).

But for heaven's sake let's stick to such examples and not talk or think about the vast power of corporations, the military-industrial complex, the financial industry and the media. Phishing for fools, as Akerlof would say. 


When you get away from the textbooks you see that actual real world markets are full of imperfections (of information), incomplete contracts, transaction costs, uncertainty, social norms, asymmetric power relations, and various motivations beyond simple self-interest.

David Harvey might be closer to the mark when he writes,

[t]here is a vast array of what we would now consider extra-legal activities, such as robbery, thievery, swindling, corruption, usury, predation, violence and co-ercion, along with a range of suspicious and shady practices in the market (monoplisation, manipulation, market cornering, price fixing, Ponzi schemes etc.)

Here's a simple question I ask my students:

If you're in a one-off game (or a situation in which you're only transacting with someone on a one-time basis) then what should you optimally do? Should you, for instance, cheat the other person (e.g. default)? If students have been well trained they'll think of the incentive compatibility constraint. In simple terms: let me look at the benefit of cheating and let me look at the costs of doing so. If I can get away with cheating (low probability of detection, small fines) and if the benefits are large then why not! There are no future consequences, remember (even if this was a finitely repeated game you might get the same result through "backward induction").

So, you cheat. You're not constrained by morality but simply following your self-interest. And that's supposed to be a good thing, isn't it? Your actions are imposing a cost on the other person (who could be someone in the future,a s in the environmental problem) but why should you care about that? Especially if it's legal (Or, to take a more general case, if the following of your self-interest hurts other people but you do not intend them harm).

It gets worse! Not only is the maximization of my self-interested preferences what I 'ought to' do; it is the rational thing to do (since rationality is usually conflated with self-interest). 

If I can corner the market, exploit informational asymmetries, swindle you, gain from your trust in me, exploit workers to cream off all of the surplus value they create for myself, then why not? Well, other people have rights, don't they? But who allocates those rights? The market? Once you start to ask that question you're in the territory of G.A. Cohen. Does the market itself determine the distribution of property rights?

Where are the counteracting forces? Not just against industry-wide concentration of power but within the firm as well? If, on efficiency grounds, it doesn't matter if capital hires labour or labour hires capital why do we typically see bosses/managers with tremendous amounts of power and labour with very little? (You won't see questions of power discussed in Econ 101!). 

Are the only balancing forces the state and unions? Regulation, labour standards, anti-monopoly legislation, "fines"? Or are the unions, or what's left of them, just trying to get a better share of the pie without questioning-as an older left tradition might have and, actually, did-the processes involved in the production of the 'pie'. And to what end? One cannot divorce production from consumption.

An interesting quote from Marglin's fascinating paper. Old, but not dated.

'First of all they [trade unions] would have to break their pattern of not thinking about work, the nature of work, their relationship to work, and what they can do about work..But do they ever say: Hey, the whole concept of production of an automobile on a line stinks; the whole thing is wrong; what we ought to be doing is figuring out new ways of looking at the problem of work? No, these are questions from which every union withdraws.'