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An Overview, Myths about Markets, Non-Economic Values and Parting Thoughts
An Overview
Majority of the public supports protectionism more than it does free trade. Economists cite lack of adequate facts as the main reason for this, arguing that the public is not aware of how much protectionism costs in relation to its net benefit. For instance, countries in the European Union spend $43 billion on saving 200,000 jobs, meaning that about $215,000 a year is spent per job saved. Other than money, the public is not aware that the cost of protectionism can also be measured using the number of jobs lost. In addition to lack of facts, the public further supports protectionism because of it lacks enough knowledge of economics. This means that it cannot challenge arguments put out by leaders in labor, agriculture and other fields. Finally, economists are blamed for public support for protectionism. This is because they fail to address those with special interests as well as those in support of protectionism for ideological reasons; economists regard protectionists arguments as not worthy of addressing.
While the term ‘globalization’ is often used to refer to free trade, it includes more than free trade. Rules governing the global economic interdependence are also addressed by globalization. These rules are created by such organizations as the International Monetary Fund, the World Trade Organization and the World Bank. Some economists in support of free trade may not necessarily be in favor of some of the rules imposed by the organizations. Interestingly, most small countries have economies that are dependent on international trade as they rely on selling much of their output to other countries. This differs from such economies as the American one whose output can be absorbed at home. In spite of this, American international trade has been increasing and its ratio to the country’s total output stood at 26 percent in 2000, up from 8 percent in 1950.
Despite its recent increase in importance, globalization does harm some industries. However, economists say that this is to be expected of anything that creates efficiency in allocation of scare resources. While profits are reduced for those who produce costly products, consumers benefit immensely from international trade. Anti-protectionists argue that this is true of domestic trade as well. The biggest opposition to free trade comes from the political field because not all industries within nations prosper. This is especially true if they are unable to match the competition and efficiency characteristic of international trade.
There has been a recent realization by third world countries that international trade is beneficial to their economies. This has been caused by observance of the success of once-poor economies like South Korea and Taiwan that have participated in international trade. In fact, some nations with the strong economies such as Britain and Japan also owe much of their success to participation in viable international trade.
Myths about Markets
The first myth about a market is that it is a thing when in reality; a market is the ‘people’. Objectification of markets leads to restriction of individuals’ freedom when it comes to mutually agreeing on terms of the transaction. Additional myths may also come about when pricing is used as their basis. For instance, prices have historically been considered levies for private profit as well as barriers that keep commodities from consumers, also for private profit. This led to the mistake of eliminating profits and price coordination in various countries in the hope that living standards would be raised. However, governments and other stakeholders have come to realize that the profits and the income generated by prices pay for contributions by enterprises and investors, much like wages pay for labor. The question remains whether one can get these contributions at a lower cost.
Another myth based on pricing is that of different prices for the ‘same’ thing. While things may be physically identical, often, other mitigating factors determine pricing. One such factor is the cost of real estate in different regions. Stores often have to recover their real estate costs from the prices of their products. Variations in price also come about due to differing costs of inventory. Different stores have different rates of availability of products. A large inventory decreases the amount of time spent looking for different items, and its management is often reflected in pricing. Finally, pricing is the basis of another myth: reasonable or affordable prices. However, prices cannot be adjusted and maintained by acts of will but rather rely on economics: demand, competition, cost of production and other factors.
Other than pricing, brand names have also been the basis of many myths. Brand names are a substitute for any specific knowledge that consumers have to have on all the products they use. By relying on a brand’s track record, the consumer does not need concern himself with the specifics of the product. A myth about main brands is that they are alike. However, what many critics fail to address about brands is that brand names bring about competition in the market, a decrease in instances of adulteration, and accountability. Quality control is promoted even when brands are made to the same formula by law, such as in the case of medicines. This is due to increased pressure to ensure that products are not exposed to harmful substances during the production process.
Profits are also used as a basis for creation of myths. Of special interest in this category are myths associates with non-profit organizations. While non-profit organizations may engage in similar activities as those engaged in by profit-seeking organizations, they are not under the same pressure to get the most worth out of their money. This affects efficiency as the purposes for which the money was donated may be used for other different purposes. Non-profit organizations have of late increasingly been losing their operations to profit organizations, whose production costs are lower. Finally, the ‘trickle-down theory’ is another market myth often discussed. The theory is essentially a belief that reduction of tax rates will lead to benefits for the wealthy, which will in turn ‘trickle down’ to the ordinary people. However, this differs from what advocators of tax-rate reduction hope for: that additional wealth will be created with less interference from the government.
Non-Economic Values
Discussions about non-economic values arise when critics of economics talk of other considerations, beside economic, that people should make. This implies that firstly, economics is a value, and secondly, that it advocates for making of the most money possible. In reality, advocators of non-economic values do not want their own values measured against those of anyone else. While they may argue that what they are against is consideration of costs, they fail to consider what other ‘values’ may be created by directing these resources to other things. In addition, most people who react in this way fail to realize that a market is not a separate entity with its own values, but is instead made up of people who make individual choices. This introduces the idea that morality is not observed when decisions are made through the market, as opposed to when they are made through the political process. However, privatization of various industries has been shown to increase living conditions, quality of food products, and lower prices, all aspects of morality.
Markets are also associated with greed, yet the world in which we live, when considered in terms of salaries and pricing is greedy, rendering the word ‘greed’ meaningless in this context. Those who talk of greed in market places fail to realize that everyone’s interests must be reconciled in one way or another and that everyone is in favor of their values being addressed first. When considered from a different standpoint, the values of other people are affected when resources are allocated differently from how they were intended. Greed is universal and is not specific to economics. In addition to greed, those who talk of ‘non-economic values’ view exploitation as another common characteristic of markets.
Exploitation often refers to higher prices or lower wages than the observer would prefer. Assignation of the word ‘exploitation’ in relation to prices and salaries is often emotional with no regard for economic facts in the external world. Low-paid workers are often cited as being exploited by governments and corporations. However, it is high-paid workers, whose skills are not readily transferable to other occupations, who are at a higher risk of exploitation. Trying to address exploitation by imposing price controls or minimum wage laws could result in worse effects for consumers or workers if in fact, there was no exploitation in the first place, only undesirable facts. Finally, when it comes to human lives, arguments for non-economic values arise. While people may be in support of laws or policies that save lives, no matter how costly these devices are, they fail to realize that the scarce resources used have alternative uses, which may save even more lives.
Parting Thoughts
Despite the revelation that many of the phrases used in relation to economics by the public are fallacies, there remains a need to continue disproving them because their creation will continue. Economic fallacies often come about due to people’s failure to think beyond initial consequences as well as their ignorance of the role of competition in the marketplace. For instance, while various policies may save jobs in the short-term, there may eventually be repercussions on pricing and sale of commodities, which may in turn cost more jobs than were saved. Consequently, policies should be judged by the incentives they create, rather than the goals they proclaim. It is the incentives that will determine what subsequent repercussions will occur because of the incentives. Differentiating between goals and incentives of economic policies is important in determining the effects, both short-term and long-term, of the policies. In addition, one should consider what the policy rewards, what it punishes, what constraints it imposes, what incentives it crease and what the consequences of these incentives are.
In addition to goals and incentives, knowledge is crucial in the understanding of market economies. Some economists would even go so far as to argue that market economies are more knowledge economies than they are money economies. This can be observed in such cases where knowledge and insight have led poor people, such as J. C. Penney, Henry Ford and F. W. Woolworth to great success and wealth. Knowledge does not however refer to that which only the elite and intellectuals know. It refers instead to the highly detailed, seemingly mundane knowledge that relates to a particular product or service. It is this knowledge, the human capital, which attracts the financial capital to make ideas a reality. Moreover, knowledge of both success and failure is important in the understanding of a free market economy. Failure is often left unaddressed in most instances with many failing to realize that both success and failure are both inseparable parts of the same process.
Finally, economies should be understood as ways of cooperating in the production and distribution of goods of services. Success of economies is determined by whether this cooperation is efficient or inefficient. What individuals and groups fail to realize is that these cooperative activities are not zero-sum contests; all individuals involved in these activities want their contributions to the process rewarded. Economics is useful for understanding many issues. It should therefore be used to address empirical questions that must be addressed if knowledge as a resource is to be obtained and used in a market economy. There should be a distinction between what works and what ‘sounds good’ in order to evaluate logical implications of policies and proposals.
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