Wednesday, 02 January 2019 16:22

The Moral Limits of Markets

From paying people to queue for you to selling permits to allow factories to pollute, Michael Sandel (Professor of Philosophy at Harvard University) is uncomfortable with the creeping marketisation of our society. Is attaching a price to something a morally neutral act that might help us to achieve our aims more efficiently or can the act of paying for something devalue and degrade the very thing we hope to obtain? Sandel certainly thinks so.

Published in Blogs
Sunday, 24 November 2013 13:30

Fool's Gold?

Eating Gold is a time honoured tradition. The Greeks thought that Gold was a high density mixture of water and sunlight, the Romans that it was flakes of skin from the gods that would give them strength. Chinese and Indian cultures consider gold to have medicinal purposes and in Japanese culture it is eaten at new year to bring good luck. Now, not content with eating it you can drink it as well.

Earlier this year, in what some will see as the ultimate in immoral, conspicuous consumption, the drinks giant Diagio released Smirnoff Gold. The clear bottles contain cinnamon flavoured vodka with 23kt gold leaf suspended in it. Is this desire to consume gold simply the pinnacle of western over consumption? Last year, while Diagio were planning the launch their new product, growing grains, malting them, fermenting, distilling and bottling before adding precious metals, an estimated 260,000 people were dying of starvation in Somalia.

The value of Vodka market worldwide has grown about 3% year on throughout the recession and with most countries now showing signed of a more stable recovery they must feel people are ready for some luxury again and are trying to capture the premium end of the market. It is well known that consumers like the feel of exclusivity, appearing to themselves and others to be part of a wealthy elite but with a global market distributing resources to satisfy wants, how is it that western desires to appear affluent are able to trump the need of African consumers to eat in order to survive?

As with so many things, the answer is money. Much as economists may pretend otherwise, the market system does not distribute resources to their most needed/important use. It distributes them to the use that is most willing to pay. In an ideal world where everyone has similar wealth this would be the same thing but this is not an ideal world. Each pound spent is a little like an economic vote. When you buy a coffee, you are voting to use some labour, electricity, raw materials etc. to produce you a coffee. There is an opportunity cost. Those resources are not now being used to produce food or shelter or capital goods. Because wealth is so unevenly distributed, western consumers can signal their sneaking desire for a status enhancing, gold infused drink more strongly to the market than a homeless Somalian family can signal their crushing need for food and shelter. Is there a clearer example of market failure?

Published in Blogs
Friday, 12 July 2013 00:00

Cobweb Theory

Nicholas Kaldor was a Hungarian-born Economist who spent much of his working life at LSE and advising the British Government. He is credited with being one of the first to propose VAT. Amongst his other contributions was an explanation for wildly fluctuating and unstable prices in pork markets. This has since been broadened to include other markets and is known as Cobweb Theory.

Monday, 24 June 2013 13:19

Causes of Government Failure

Government failure happens when the government intervenes to correct for a particular market failure but for various reasons ends up making the situation worse. It is an important concept when it comes to evaluating the effectiveness of government intervention.