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Food for Rethinking Markets

The views expressed are those of the author and are not necessarily those of Scientific American.

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No perfect rationality is needed to see that markets often don’t work as advertised. But without perfect rationality, and other utopian conditions, the math of market theory doesn’t work. Businesses often ignore such unrealistic theorizing. So should we.

“Free markets” are supposedly “efficient.” But by what stretch of reason, or misuse of words, can the following facts be considered efficient: “as much as 40% of food produced in America is thrown away,” while “18 million households” are “food insecure”? This is food for rethinking markets.

Economists use “efficient” usually to mean “Pareto efficiency,” a hypothetical situation whereby no change in allocation of goods can make “at least one individual better off without making any other individual worse off.” But wasting “1,400 calories per person per day” or “$400 per person per year” is neither Pareto, nor any other valid kind of efficient. Is the utility preference of some to buy more food than they eat more important than feeding the food insecure? To too many economists yes. To most untheorized humans, no.

Conventional explanations of such “market failures” include taxes, market barriers, and “externalities” (factors left out of prices) which supposedly distort otherwise optimal outcomes. But what these market failure excuses fail to see is the reality of imprudent consumers. Efficiency in markets requires prudent purchasing. But many businesses profit from promoting imprudent spending. Ignoring that we’re supposedly in theory rational, they trade on the maxim that “there’s one born every minute.”

Markets aren’t simple “mechanisms” that can balance supply and demand like a see-saw. They’re exceedingly complex social ecologies. The mechanistic market view arose in “The Marginal Revolution,” which Philip Mirowski says was a “wholesale appropriation of 19th century physics” metaphors along with the mathematical models of energy fields. Mirowski also notes that “the most important concept in physics,” the principle of energy conservation, was inspired by business accounting. Joule worked as a brewery accountant while conducting energy conservation experiments. And Leibniz asserted “God was like an architect that had to worry about his funds.”

Free market economics of the Chicago School variety borders on becoming a totalizing ideology, an all encompassing system of ideas, preached as the one true way. It is all the more dangerous because it is shielded in mathematics. But algebraic coherence guarantees no truth. Statements in any language can be grammatically correct without being useful. The same applies to algebra, especially if it uses unreal referents or unrealistic assumptions. Free-market models have become descriptions of unicorns. We should beware the elegant but unreal seeming certainties of mathematical revelation.

Free-market economics harbors the last unlaughed-at Utopian ideas. Utopia is a pun on good/perfect-place and no-place, and in no real place can free market assumptions apply. Messy markets worked long before The Marginal Revolution’s physicsy theorizing. They will long after the fad for modeling utility maximizing unicorns has faded. We leave markets unguided at our collective peril.

Illustration by Julia Suits, The New Yorker Cartoonist & author of The Extraordinary Catalog of Peculiar Inventions.

Previously in this series:

It Is in Our Nature to Be Self-Deficient
Inheriting Second Natures
Our Ruly Nature
It Is in Our Nature to Need Stories
Tools Are in Our Nature
We Fit Nature To Us: Evolutions two way street
Justice Is In Our Nature
Behavioral Telescope Shows How Cooperation Works
Selfish Genes Also Must Cooperate
Game Theory And The Golden Punishment Rule
Revolutionizing Economics by Evolutionizing it.
Science’s Mobile Army of Metaphors
Greek Myths About Human Origins
Evolutionary Economics And Darwin’s Wedge
Economics vs Fiction on Human Nature
Is Economics More Like History Than Physics?
Maxims Are Fitter Than Maximization

Jag Bhalla About the Author: Jag Bhalla is an entrepreneur and writer. His current project is Errors We Live By, a series of short exoteric essays exposing errors in the big ideas running our lives, details at His last book was I'm Not Hanging Noodles On Your Ears, a surreptitious science gift book from National Geographic Books, details at It explains his twitter handle @hangingnoodles Follow on Twitter @hangingnoodles.

The views expressed are those of the author and are not necessarily those of Scientific American.

Comments 6 Comments

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  1. 1. gesimsek 4:10 pm 09/6/2013

    If markets work like a pyramid scheme transferring wealth from the bottom to 1% at the top instead of functioning like a Maslow pyramid ensuring the supply of best product for the cheapest amount of money to the demand , then, something is going wrong

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  2. 2. Hel-n-highwater 10:49 am 09/7/2013

    Adam Smith really was referring to the investors in Scotland in each individual city. They were able to watch closely which businesses thrived, unlike the national and global extrapolation some economic gurus created. It was not a claim that the hand was unknowing. The investors he spoke of really saw up close and personal how each businessman acted. Really reading a book is always helpful instead of believing what some egotistical idiot claims is in a book. And markets work the way the individuals with the most money and therefore, power direct them. Buffett just bought out Heinz 57 Varieties and 600 Pgh citizens lost their jobs immediately. How much will he coordinate the food market with Wal-Mart to give us allegedly USA grown food??? NOWHERE is the truth found.

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  3. 3. TTLG 1:32 am 09/9/2013

    A capitalist free market IS efficient: efficient at getting goods to those who can afford them. If a business is only interested in getting elephant tusks to those among the very rich who can afford them, then killing the elephant and leaving everything but the tusk behind is perfectly efficient. Same with food. If we are interested in getting good quality food to those who can afford it, then wasting anything that is not up to standards is still efficient. As far as the right-wing capitalists are concerned, the only problem is those foolish people who think that the system should bother doing anything for those who cannot afford much of anything.

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  4. 4. marclevesque 8:57 am 09/11/2013

    Interesting article. I also enjoyed the following article:

    “God knows, they’ve [economists] done enough damage with their arrogant, drunken prescriptions. Here’s how each and every economist can face up to their inner demons, and make their own small contribution to setting things right.”

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  5. 5. ziggy77 2:53 pm 10/2/2013

    > “Is the utility preference of some to buy more food than they eat more important than feeding the food insecure? To too many economists yes. To most untheorized humans, no.”

    Are you in favor of instituting limits on how much food people are allowed to buy? I’d wager that about 99% of humans would be dead set against such idea — indeed, it has only been implemented in the most centralized economies, and only under the most severe wartime/crisis conditions.

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  6. 6. N a g n o s t i c 11:23 pm 10/8/2013

    ziggy77, a week’s gone by, and the silence greeting your question was deafening. I’d interpret it as a “yes”. Jag Bhalla consistently misrepresents principles he opposes in furthering his arguments against individual liberty. He subjects lone phrases from Hobbes taken out of context to withering scrutiny, sets up straw man qualifiers such as “perfect”, and so on, only to imply that the best, most efficient economic arrangement imperfect humans have arrived at to date can be ‘perfected’ by additional centralized control. Bhalla blithely offers prescriptions long dispensed and found lacking at best, and often quite harmful. He’s clever with rhetoric, but lacks originality.

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