The “Market Equilibrium” is not always right
Neoliberal economists and their precious equilibrium lied to us. They said everything will be alright and all problems will be solved at the market equilibrium. Clearly, that's not the case.
The fact that something is mathematically correct doesn’t mean that it is right.
As usual, I want to rant about housing. There is not enough supply of decent entry-level housing in the market. House prices have gone parabolic. Building materials have not gone that parabolic. The population has grown but has not exploded to the same level as house prices. People are not yet falling off the edge of the earth. The land is still abundant, as usual. Take a road trip to the outskirts of your city, and you'll see “never-ending” land spaces. Construction labor is still relatively underpaid. The use of machines has improved productivity in house construction. All these factors should point to stable house prices. The reality is different, prices have skyrocketed.
Economists say the price, as reflected by the market equilibrium is right. It is sacrosanct. It must not be tampered with. So, whichever prevailing level of house prices prevailing is right. That declaration is deemed final and not subject to questioning. This then prohibits anyone from questioning the factors driving the two precious lines of Supply and Demand that are intersecting at the equilibrium.
My base case is that supply is being tampered with. If Supply and Demand are “tampered-with”, whatever equilibrium comes out of those two lines is also an equilibrium that's “tampered-with”. The factors behind the two lines need to be interrogated, and by so doing the interrogation extends to the equilibrium itself.
Regarding this “house prices” equilibrium, whose equilibrium is it? Buyers and sellers, you say. But it excludes an awful lot of people from the market. What type of market is this? It excludes an entire generation of Millennials and Gen-Z’s. If the precious market and its equilibrium are so exclusionary, don't we have a right to complain about it?
The market equilibrium and whatever dynamics led to this equilibrium in the housing market are not right. The market equilibrium is not always right. Whose equilibrium is this? Who is it serving?
Supply and demand meeting at an intersection is mathematically correct, but that correctness doesn't mean that the intersection is right. What is under challenge here is the magic of the markets to solve all problems. The free market is penalizing an entire generation from accessing housing. Clearly, that ain't right?
The average house price versus the average salary of a millennial, in cities across the globe, have moved in opposite directions. Salaries have shrunk in real terms whilst house prices have increased in real terms.
Economists warn us that if we interfere with the markets, there will be shortages. Well, shortages are already here. The economists don't see the shortages because their precious markets have excluded the people from the market. Do these people deserve to be excluded? Hell no?
Instead of using the market as the criteria for exclusion why not use a deliberate policy as a criterion.
There is enough land, enough labor, and enough building materials to ensure everyone has a decent and affordable house. Let's assume that is not the case, there are real shortages and there is not enough for everyone. Why not find a more democratic manner to allocate the resources than the so-called free market, which is not really free since it freely excludes those without money? The market equilibrium is simply regurgitating whatever the rich say, or whatever the oligopolists and financiers say.
Why not stop those buying holiday homes, second homes, homes-to-rent out, homes for AirBnB, homes for speculation, etc, from doing so in order to choke-off unnecessary demand and allow young families a chance to buy homes. Because it's a free market where everything goes, a house is not viewed as a place where people can stay and raise a family but rather seen as an investment, an asset class, etc. It's financialized. The price reflects the financialization. The market equilibrium is thus tilted in favor of financial players (banks, property firms, hedge funds, trusts) et cetera at the expense of the rest of the population. The economy should satisfy the needs of those who want a home first before those who want exposure to property investments. The economy is working for a few and not working for large swathes of people.
The declaration that “free markets are perfect”, saliently invalidates looking into these issues. The whole shebang then boils down to growing levels of inequality. Mathematical equality is saliently deemed to be economic equality. The mathematical reality of a point where supply and demand are equal does not and should not necessarily be extended to real-life equality.
Free marketeers say all is well, as long as supply and demand meet to establish market equilibrium. They say if the market is interfered with, there will be shortages and excesses. Isn’t it better to have shortages and excesses in a much fairer system in terms of distribution of resources, that to have the precious equilibrium at the expense of destabilizing the world? Look, we are now asking, whose equilibrium is this? We don't have respect for your equilibrium anymore.
The free market has now precipitated a pornographic amalgamation of market power in a few hands. The so-called free market is establishing an intersection that is largely determined by one group: suppliers. Those on the supply side, in this era of Monopoly Capitalism, have the power to control output. In some industries, a handful of firms control the entire supply curve, hence having the power to decide where they want their supply function to meet demand.
Back to the road trip to the outskirts of your city and the “never-ending” land spaces, do you know who owns them? It's the big property firms. They call them land banks. They buy up all the immediate farms surrounding cities. They say they will develop that land later, not now. They have cornered all the resources. Now, the little guys are forced to squeeze each other inside the city, raising the price of every square meter in the city. The city is artificially deprived of horizontal expansion.
Is it ridiculous for those that are “sidelined” and “elbowed out” of key resources by the free-market system to complain and want out of the system? Is it nuts to desire a better system?