Saturday, July 08, 2006

 

Misconceptions

There was an interesting comment on my blog, and the advice I have heeded, but I'd like to draw attention to the phrase: "I think that open market economy is borderline criminal."

There are of course legitimate complaints against free market principles embodies in the existence of market failure and monocultural economic development in a free trade environment, as well as income inquality depending on the tax regime. I do not know what Abu Shreek's exact meaning was, but for all intenets and purposes I thought I'd outline some recurring misconceptions about the the Free Market and The Economy in general:

  1. Corporations and Big Business are reflections of the free-market. This is completely untrue. Monopolistic and monopsonistic (firms with the power to affect wages) are actually antithetical to the free-market. In many cases huge and exploitative corporations arise due to a lack of competition or government regulation and protectionism.
  2. The United States is the greatest bastion of free market capitalism. Absolutely not. The United States economy might have some semblences of the free market, much more so than many Arab countries, but the U.S. remains highly protectionist and mononpolistic. The U.S. has been referred to the World Trade Organization disciplinary committee almost 3 times - more than any other country. The U.S. encourages volountary export restraints in other countries. Taxes are amongst the highest in the world. Bureaucracy is rampant. The state employer in the U.S. is the government (state and federal combined). Americans themselves seem wary of free trade as there appears to be hysteria regarding illegal immigrants depressing wages and taking jobs, as well as a fear of jobs being outsourced. Having said all of this, the U.S. does well in terms of having open capital markets and easy-to-navigate investment laws. There are lots of things that are great in terms of free market economics, I won't go into them here, but the assertion that the U.S. is a model for the free market is completely wrong.
  3. Syria and Israel have great Economies. This has always puzzled me. You always hear people saying, if you build a wall around Syria they'll do fine, because they produce their own goods. Despire whether that statement is true or not, WHY IS THIS AN INDICATION OF ECONOMIC HEALTH?????? Syria has continuously underperformed because of this very reason. Syria suffers from high unemployment, sluggish growth (if any), the products produced on Syrian soil are of sub-par quality, etc. There appears to be admiration of mercantilism and autarky deeply that is embedded in the Arab psyche for some reason. Perhpas it has something to do with the Prophet warning a nation against eating for what it does not sow and clothing itself with what it does not produce. The exact quote escapes me right now. However, the statement is completely irrational. You also hear the same sort of thing with Israel. Israel has one of the most fragile economies in the world, owing to the fact that 63% of Israeli GDP is based on Military spending. Perhaps that is one of the reasons the Israelis are not very keen on ending conflicts because it would simply send their economy into dissarray. They do have a strong high-tech industry, but is still in its infancy, and there is a strong film industry. Israel also relies heavily on foreign aid.
  4. The Jordanian government controls the price of oil. It DOESN'T. The government stopped subsidizing gasoline because it could not simply go on supporting the deflated price indefinitely, considering the soaring price of gas. If anything, it is a good thing. The artificailly low price of gasoline in Jordan has led to many problems, congestion and pollution being at the forefront. The low price of gas has allowed an artificailly high number of people to purchase and use cars, straining the road system. Jordan should not have as many cars as it has now. If proper government policy is drafted and incentives for public transport are increased then the higher gas prices might be benificial for all. I would go so far as to sat that eventually the government should tax gasoline.

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