The great insight of modern economics is the power of markets to align the interest of society and the individual. The idea that attending to your own affairs and following your passions is all that one must contribute to society is incredibly liberating. The market system has proven an incredibly powerful, efficient and innovate tool for distributing societies resources.
But it is time that we recognize that markets are not omniscient, they are merely a tool. The invisible hand does not free us from the obligation to actively create the society that we want. There are many well documented limitation to the power of markets. There is a vast array of goods and services that markets provide better and cheaper than any other system.
But there is an equally important set of goods that are incompatible with a market system. A healthy society must find a balance between the market economy and the need for public goods. Blind faith in the superiority of private investment over public investment has skewed this balance.
I was recently watching a Seinfeld rerun and it made me realize how rapidly technology has changed day to day life. The past 15 years has seen the near universal proliferation of the internet, cell phones and a host of other innovations that have fundamentally rearranged the way that people relate to their world. Yet the achievements of the technology sector underscore the societal failure in other areas.
Over the span of a generation we have built multiple nationwide cell phone networks yet allowed our transportation infrastructure disintegrate into the laughingstock of the developed world. While the internet blossomed into the greatest conduit of information in human history we have failed to provide a depressingly large percentage of our population with an adequate education. While drug makers have cured impotency and perfected the face transplant we have raised a generation of young people that is unlikely to outlive their parents.
The brightest minds of our generation have viewed trading derivatives on wall street or developing new gadgets in Silicon Valley as valuable contributions to economic growth. While government work has been the domain of the lazy or untalented. But in the enthusiasm for private investment the central signal of a capitalist economy has been ignored.
Prices are the brains of any market; by indicating what is needed price signals lead the way for investment. So what have prices been telling us? Over the past 15 years the profit margins of consumer goods from computers to clothing to fast food have been declining. At the same time public and semi-public goods have been kicking and screaming for more investment. It is clear that the bloated private sector has been starving the public sector of essential resources. Once we stop pretending that the private sector is morally superior to the public sector we will better be able to allocate resources between market goods and public goods.
Maximizing profit and loss avoidance guides entrepreneurs activities, while tax collections could be diverted into whatever shifting politics deemed essential. Trillions to prop up unsound business positions and pumping bank credit into the economy is an example. All to be paid for by future tax collections from the next generations.
I think you’re right in that price is the signal that coordinates production with consumption in the free market.
Make work projects funded by tax collections guided by politics (”we”) are another matter.