Tuesday, November 18, 2008

Broken Record

Either I am a terrifically narrow-minded and boring person, or when you have a truly good and simple idea, you find that it appears everywhere. Please don't respond to this question. I only ask it a propos of James Surowiecki's column in the New Yorker where he discusses the state of global agriculture and the Perils of Efficiency.

His basic point is that 'market reforms' have over-optimized the agricultural system and made it more fragile; more crops are now grown in fewer places as countries have moved away from food security, and the centralization of this system has made it more vulnerable to the propagation of initially small shocks vis a vis when this system was less efficient and more redundant -- ie with everyone growing their own food.

While I think this is a valid and insightful description of the current situation (and one that can be applied to the over-optimization of our financial system as well, which is in fact the context I found it in) it is profoundly misguided as a piece of analysis. Because the conclusion he draws from this bit of thinking is that the problem is due to the de-regulation and 'marketization' of agriculture, implying that the way global agriculture looks today is the way markets inevitably end up looking.

I can't think of ANYTHING that is less of a free market than agriculture. Seriously. To use the centralization of global argiculture in a few highly, highly subsidized places like Kansas as a paradigm for the natural endpoint of markets is to fundamentally miss the point. Surowiecki claims that the elimination of all the little subsidies people used to use to control agriculture -- the marketing boards and grain reserves and millions of tiny distortions -- has made the system more 'free market'. This is crazy. We didn't exchange these subsidies for an unsubsidized market. We exchange a ton of little subsidies, for a few giant, centralized, subsidies that not only tremendously distorted the agricultural markets, but threw a giant red state monkey wrench into our entire political system. Agriculture today isn't more 'free market' than 30 years ago unless all you are counting is the sheer number of regulations. But who cares about how many bad laws there are -- what I want to know is how bad the laws are.

They are bad.

They are almost always bad.

This is the basic insight of classic liberal thinking a la Adam Smith. It is still as completely valid today as it was then. Surwiecki is not providing a counter-example to this point. The financial meltdown is not disproving this thesis. Rather, these problems are proving that a few giant distortions that create fundamental mis-alignments of interest and perverse incentives on a grand scale are even more dangerous than a lot of small misalignments that maybe reduce efficiency, but tend to cancel each other out systemically (two sides of the same coin I guess, actually).

The danger is, indeed, monoculture, and the susceptibility of monoculture to a virus. But monoculture is fundamentally anathema to the idea of markets. In fact, if you think about the dangers of monoculture and where it crops up, you are very quickly led back to the single biggest monoculture of all -- the government. Interestingly, the monoculture at the heart of our current problem is the US government's ability to print money, and the fact that it was willing to print a lot more of it than it should have, creating a type of monoculture that propagated down the lines as the government printed money, the banks took it and lent it out, people used it to finance their houses and spent it on cheap plastic shit from China, and the Chinese lent it back to the US government so the whole loop could start over again. What makes the loop run, both forward, and, now, backwards, is monoculture. Federal Reserve monoculture. Chinese monoculture. Banking regulation monoculture. Without these bottlenecks, the feedback loop that created this problem is much less stable, the (mis)-alignment of interests much less precise, the propagation of problems much less rapid. But these features of the system aren't created by market principles, but by governments, and the way the centralization that is the hallmark of government propagates throughout a system once it is introduced at one point.

This leads me to my thesis for this morning: the government is a virus.

No comments: