|What a free market looks like|
As recently reported on the BBC, stocks fell briefly this week when minutes of a U.S. Federal Reserve meeting were released. This body meets periodically to set interest rates and to schedule the sale of U.S. debt instruments. Economists and investors spend an extraordinary amount of their time leading up to each meeting trying to figure out not only what the Fed will do, but also how it will impact markets, and how impacted markets will impact other markets, and so on.
The price of "freely traded" stocks are therefore influenced by fiscal policy, which in turn is the outcome of a political process. The value of money itself is similarly subject to policy decisions -- even the value of money in countries that have no power to set the policies. Even hints about upcoming decisions in Washington sent stocks tumbling in emerging markets in Asia -- billions of dollars lost in a single day because of possible changes in the way markets were to be manipulated.
Essential assumptions may be introduced at the beginning of a course on microeconomics, and they might just apply somewhere -- as in the land of the pink unicorns -- but the limiting nature of the assumptions is rarely scrutinized in mainstream discussions of finance, economics, or trade. The degree to which trading conditions are manipulated on the real Planet Earth is made very clear in the final scenes of the extraordinary documentary Black Gold, which take place at a World Trade Organization meeting in Cancun. In this film about coffee, we see that trade negotiations held in heavily fortified conference centers are structured to continue favoring the rich, while the U.S. trade representative sneers at negotiators from the global periphery for attempting to take a stand on behalf of poor farmers. This disdainful attitude has been shared by trade officials of both major parties at least since the first Clinton administration, because liberals and conservatives alike know that "American prosperity" could not take place in a completely free market.
|Whew! Just made it!|
But here is the rub: it is also true for most residents of wealthy countries. To believe otherwise is pure fantasy.