Tuesday, May 01, 2007

The naturally flawed market

Thank you. Someone else with a spark of understanding about the systemic sham known as the free market. From p227 of Sustainable Energy - Without the Hot Air:
Larry and Tina

Imagine that Larry the landlord rents out a flat to Tina the povertystricken tenant. Larry is responsible for maintaining the flat and providing the appliances in it, and Tina pays the monthly heating and electricity bills. Larry feels no incentive to invest in modifications to the flat that would reduce Tina’s bills. He could install more-efficient lightbulbs, and plug in a more economical fridge; these eco-friendly appliances would pay back their extra up-front cost over their long life; but it’s Tina who would benefit, not Larry. Similarly, Larry feels little incentive to improve the flat’s insulation or install double-glazing, especially when he takes into account the risk that Tina’s boyfriend Wayne might smash one of the windows when drunk. In principle, in a perfect market, Larry and Tina would both make the ‘right’ decisions: Larry would install all the energy-saving features, and would charge Tina a slightly higher monthly rent; Tina would recognize that the modern and well-appointed flat would be cheaper to live in and thus be happy to pay; Larry would demand an increased deposit in case of breakage of the expensive new windows; and Tina would respond rationally and banish Wayne. However, I don’t think that Larry and Tina can ever deliver a perfect market. Tina is poor, so has difficulty paying large deposits. Larry strongly wishes to rent out the flat, so Tina mistrusts his assurances about the property’s low energy bills, suspecting Larry of exaggeration.
Don't worry about it if you don't understand the argument, Myron. The concept is well beyond your intellectual pay-grade. However, it can be summed up with the simple assertion that the very existence of the Competitive Enterprise Institute proves that this society is incapable of supporting a rational market economy not terminally polluted by lies.

3 Comments:

Anonymous Mike said...

Havn't you missed the bit where Tina sees a nicer apartment down the road, gives notice to larry and moves home. Larry then finds it hard to attract a new tenant to his shabby and expensive flat, so installs nice new windows, a modern fridge, does some painting and drops the rent a bit. And grumbles about how hard up he is to anyone who will listen of course.

6:33 AM, May 02, 2007 Permanent link to this entry  
Blogger goatchurch said...

This comment has been removed by the author.

3:16 PM, May 02, 2007 Permanent link to this entry  
Blogger goatchurch said...

In your dreams a "nicer apartment down the road" is more affordable than a "shabby and expensive flat", Mike.

The point of the story is that due to circumstances of means and intellect, most people don't bulk buy, even though it is considerably cheaper. Likewise, they don't move into a higher rental apartments whose running costs are less.

Also, people generally get ripped off by coin operated electric meters, use the services of loan sharks at an APR of 1000%, and put money on the dogs which they lose every single week.

Now, anyone like Myron Ebell can easily propose some naive utopia version of an economic theory, but if it is unable to account for basic common stupid human behavior that happens all the time, then it's a con. The whole of the economy is a series of sophisticated interlinking scams. When guys like Ebell go round persuading people that their interpretive intuition of it is absolute perfection, then they're part of the cult.

3:22 PM, May 02, 2007 Permanent link to this entry  

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