The market's limits

In my mishmash of readings in the last week, I came across a couple of pieces (that I now cannot find) extolling the power of the free market as a restorative force after a disaster. I too like the power of the market in response to a crisis, but not with my whole heart. Several pieces have rightly made the point that destruction and the subsequent spending to rebuild what was lost does not help the economy. While they may help certain industries and stores, natural (and unnatural) disasters do not result in a net gain for the economy. Additionally, they certainly do not improve quality of life.

Part of the argument that I can't quite stomach is the assumption that in a supply crunch where prices rise, those most able to afford the higher prices are therefore those who are most deserving of the product. An obvious enough example is the recent spike in gas prices in the last week as production and refinery shut-downs have limited the supply in large parts of the country. Just because you can afford higher prices doesn't mean you deserve the product, it simply means you are most valuable to whomever is selling the product. In my mind, the market values short term factors more than long term ones. It is very poor at recognizing value that does not yield an immediate payoff. What comes to mind is the value of teaching, at nearly any level. Viewed as increasingly essential to the development of an educated populace, teachers are not paid especially well in comparison to what many of them could be making given their varying levels of qualifications. Is this a sign that teachers are not recognized for their long-term value? Or is it more to do with the fact that the majority of teachers work for the government in government-run schools and that a dose of free-market education system would cure those problems?

The market's love of short term value exposes it to unscrupulous people and that is most visibly seen in the major corporate scandals of the last several years. Enron, WorldCom, whatever, pick your poison. The free market does not understand what ethics are if they cannot be quantified with a dollar sign. And people without ethics can use that to their advantage. After all, the market is not some amorphous entity. Ultimately, it is made up of discrete individuals and not all of them are good and decent people by the common understanding of those terms. Sure, the market catches people selling a bad product eventually, but the long-term effects of something can never be known in advance. Only years after the transaction has taken place is the full value or lack thereof realized.

One last thought on this matter has to do with mandatory evacuations. The market would scoff at such a thing because people can make their own choices. And people do, for the mandatory evacuation of New Orleans was hardly enforced, at least not at the very beginning. But if you guess wrong and don't evacuate and need to be rescued, is the market going to rescue you? Last time I checked, there was no insurance covering helicopter evacuations. So, is the market going to rescue those who can pay the most first and let those with no money die? Or is the vaunted market going to realize that while it may loathe the government, there are certain things that need to be done because they don't make money.

Don't get me wrong because I like the open market, its creative power, its ability to respond to consumer needs, its flexibility and adaptability. But there is a role for government, preferably a limited one, but a role nonetheless.