Water always finds its level.
Markets ALWAYS clear.
Both of these statements are true, but for some the second is hard to accept.
I say “hard to accept” not to “understand” because even though I think most people who think seriously about markets know in their hearts that markets always clear they do not always like the way markets clear.
Every Econ 101 student learns about “market failure”. I spent a semester learning about “market failure” while at Mary Washington but what I learned is that markets never fail, ever. They just act in ways that maybe we don’t like. Markets just happen. How they happen impacts human beings. Sometimes humans do not like the reality of the market.
This is certainly understandable. I don’t like how markets work all the time and I am a big fan of free markets.
For instance, I can absolutely understand why a guy who worked at a GM plant in Michigan in the 1970s was fearful of “free markets” and “free trade” (which is almost NEVER actual free trade). The guy probably had a house, could provide for his family, lived a middle class life, all of which he knew was under threat from outside competition, from shifts in the market.
But GM also made terrible vehicles in the 1970s.
I had a boss in college who was from Detroit who told me how half the plant he worked at would show up stoned or otherwise compromised. He told me of the union bosses getting fat while bumpers fell off of cars while they were still on the line.
The car buying public soon realized that American cars (in the 1970s) were often crap (there were a few exceptions, but not many) and they started buying Japanese cars which at the time were vastly superior.
Detroit then started to look abroad for solutions. The American car companies wanted to be like Toyota. Plants closed and then moved overseas. Our guy living the middle class life in Michigan, with a nearly guaranteed paycheck suddenly was out of a job. Pain descended on the state. Many economists argued that the gutted small cities of the upper Midwest were a classic example of “market failure”. But they were (and are) wrong.
The market didn’t “fail”, it shifted and that is an important distinction.
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