Monday, October 15, 2012

That's the Free Market for you!

The Guardian newspaper inadvertantly offers the summa theologica of the 'invisible hand' of the free market in their bio of the guys who won the Nobel in Economics:

'[Lloyd] Shapley was part of a four-man team that invented the board game So Long Sucker in 1950. The four-person bargaining contest involves the players making commitments they cannot keep and which have to be reneged upon in order for the game to be won.'

Ah, so that's the secret of economic success: you have to be willing to lie and cheat and double-deal and bail on your promises to get ahead!

Score one for Bernard Mandeville!

Friday, October 12, 2012

Mexico's economic mixtura

More than half of all Mexican workers do their business in System D, according to a new World Bank Study.

As this reasonable article in SmartPlanet notes, "Mexico’s vast informal market is, perhaps, embodied most visibly in the capital’s street food culture. After the juice stands and taco shops close in the evening, the vendors of hot candied sweet potatoes push their stainless steel carts through the streets, pausing to blow steam whistles loud enough to rattle windows. And the ubiquitous peddlers of tamales come out on tricycles outfitted with a recorded message that Mexico City residents hear daily, almost without fail: Oaxacan tamales, nice-and-hot tamales! Informality is even built into the system of government services: In Mexico City, for every government-paid garbage truck driver, a half dozen other men work as volunteers on the truck, sorting trash in order to earn a share of tips and what is sold for recycling."

But the article also creates a confusion: the headline talks about the "sins" of the informal market -- without noting what those reputed sins are. And it reports this: "The World Bank report cites restrictive labor legislation and weak enforcement as two factors responsible for the large share of employment claimed by Mexico’s informal market – ills the administration of President Felipe Calderon wants to remedy with labor law reform." (You can download the complete World Bank World Development Report on Jobs here.)

But here's a key question for the 'reduce regulation but raise penalties for working off the books' policy wonks: What percentage of Mexico's more than 20 million System D workers are really working for themselves and not engaging in wage labor? The street food examples given in the article seem to indicate that much of Mexico's System D involves entrepreneurial small business enterprises. This would make these businessespeople sole proprietors and thus immune from any of the supposed benefits of loosened labor laws. What's more, coming down punitively on this vulnerable half of the labor force would put their survival in danger. So you kick those multitude of 'volunteers' off the garbage trucks because they're not being paid a wage -- what then? How will they support themselves and their families?

If governments want to work with informal merchants and workers to find out what they need to grow, great. That's what will bring them in from the cold. But the idea that these two blunt and discredited tools (when you reduce labor protections, you up the possibility that formal business will start exploiting more workers under the newly loosened rules, and when you make more than half your population economic criminals, you push more people away from self-sufficiency and into poverty) are the solutions is simply sad.