Wednesday, November 21, 2012

Exactly What Does The ‘"Free’" In Free Market Mean?

image source
Henry Harding
Activist Post

The Libor was rigged, the wholesale gas market is a fix, the biggest of multinationals pay next to no tax on their profits but bleat that they pay payroll on their minimum wage workers, insisting that this is both responsible and, probably, humble. Several UK water companies spend a great deal of money to ensure that supplying life’s essential is the only socially responsible thing they do.

Having bought the infrastructure built by our forefathers for pennies in the pound, and then left it leaking like a Government enquiry, they presumably justify their position by pointing out that they have enough crap coming down their pipes to deal with already. So be grateful, pleb.

So why are they called free markets? In what world can monolithic corporate monsters dominate everyday life, to the absolute exclusion of any meaningful competition, and still be called free? In an Orwellian mood it may be suggested that it is simply Newspeak, a distraction of language to trick our minds into believing the opposite of truth. Leveraging maximum possible value is really just a posh way of saying screw the customer for all they got. Price gouging in a disaster zone, as Governor Christie of New Jersey reminds us, is a crime. Outside of a disaster zone it’s a business model. On Wall Street and in The City, it’s a very lucrative way of life. So let’s take a trip to a foreign beach to see the view from there.

Catalan Bay on Gibraltar is a beautiful place. Gibraltar, or The Rock, is nestled at the tip of Spain and sits at the point where the Atlantic meets the Mediterranean and where Europe meets Africa. Ahead, across the Straits, are the Atlas mountains of Morocco. At night you can see the diamond lights of the Spanish enclave Ceuta so clearly you can almost hear the illegal immigrants being beaten as they climb the razor wire fence to the West. Above on the top of The Rock, even higher than the squawking seagulls and occasional ape call is the NATO listening base, so sensitive it can hear the screams of those immigrants. So sensitive, they will shoot you if you try to visit. But that’s not why we are here.


On this side of the Rock, offshore and far from the money laundering in town, glitter the tanker lights. At night they light up, not to look pretty, although they do, but simply to avoid collisions. When you are carrying hundreds of tons of highly flammable petroleum products you really don’t want other boats banging into you. Things tend to go boom in fairly catastrophic ways, and that’s expensive. Miles of complex pipework traverse these ships, so much so that a Microsoft screen saver would be embarrassed. They come from the Middle East mainly, but some from the Far East. Exotic places with faraway names destined for more mundane locations like Grangemouth, Milford Haven and Teeside. With that competition I think we’ll stay on the beach a while.

The Straits of Gibraltar have always been a place of trade and traffic. The nearby Spanish town of Tarifa became the source of the word tariff after the Berber commander Tarif ibn Malik took the town in 710 AD and imposed a fee on any passing trade. These days the tankers extract a different fee.

In a free market the laws of supply and demand set the price. If there is more demand, or less supply, the price goes up. Less demand, or too much supply, and the opposite happens. One doesn't need a Harvard MBA to realise that if the supply can be artificially restricted then high prices can be maintained regardless of the real market position. If the commodity is an essential supply, restriction can shift prices to heights normally only seen by Boeing 747s. Those sparkling lights on the tankers in front of us suggest that there is a lot of supply. But gas/petrol prices just keep going higher. In a free market a glut of supply would force a company to take reduced profits, perhaps even to go bust, but the ships with "no smoking" signs so large they can be read from the shore tell the lie.

As we leave the bay and return to our hotel for the night, past the palm trees and bird of paradise plants, cicadas screeching just out of sight, we might notice that the pump price at the BP on Devils Tower Road has risen again. It is such a normal event though that perhaps we may not notice at all, too engrossed in the cheap kebab we scored at Alfonso's and breathing in the warm night air. But the next night, drawn back to the bay by the gently lapping waves and fresh sea air we will notice one thing. None of the ships have moved. Some of them won't move for weeks, some not for months.

And that seems strange. Ships are expensive to run, a moored ship doubly so. The reasons though are painfully simple. Painful not for the shipping company or the oil company that owns the cargo - painful for the customer. Us, sitting on the beach with a beer in our hand and the sand between our toes. Moving the ships, quite simply, would lower company profits, so they stay with us in the bay. Just off shore, shining almost as bright as the profit their inactivity will generate, every moment lifting an extra dollar, pound or euro out of our pockets. Not because there is a shortage but because this market, like most markets, is rigged.

Market manipulation is illegal in most Western countries but speculation is not. It certainly used to be. In the Europe of the 1950s you could happily get lynched for it. Through the introduction of a middle man, the speculator, markets can be rigged wholesale, on a global basis. And they are. Oil and gas sits here parked for months, long after our trip to Catalan Bay is but a pleasant holiday memory, to be re-sold by the speculator at a time when prices have risen sufficiently to make the sort of profit that would pay for almost everyone on Earth to take the trip to Gibraltar that we just have.

So what does the "free" in free markets mean? As our ships have shown us it means free to manipulate, free to outmanoeuvre regulation and free to empty our pockets. Freedom for those who run the market to do whatever they like, legally.


The answer? Disengage. It really is the only way. You can't fight a Tomahawk cruise missile when you are armed with a rock (ask the Palestinians) but you can fight restriction by finding alternatives. Got a garden? Grow food, not flowers. Live somewhere sunny? Get some solar panels and batteries. When you vote, spoil your ballot. A spoilt ballot is less easy to dismiss than no ballot. Invest in reality, land or metals, not shady financial instruments. Cease to desire the crap they sell us. Can the TV.

And if you're ever on Gibraltar again, I'll get the next kebab.

This article has been entered into the Activist Post Writing Contest - Solutions. 1st place receives a $250 cash prize & $250 gift certificate to Offgrid Outpost. 2nd place receives a $250 gift certificate to Offgrid Outpost. Additional details and submission guidelines can be found here: http://www.activistpost.com/2012/11/activist-post-writing-contest.html

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4 comments:

Anonymous said...

Well written article but I have one comment. Speculation and market market manipulation two totally different things.

Everyone speculates everyday. In the dictionary, a few synonyms for speculation are: chance, venture, and enterprise. Everyone takes "chances" every day. Pretty much every action you take is a "venture". Every one who opens a business and hires others is operation an "enterprise", with the hope of making a profit. Every person who has ever bought a stock through their broker is a speculator.

The average speculator like you and me has no power to manipulate markets. Only very deep pocket market manipulators (many times with the support of governments, and/or central banks) have the power to manipulate the prices of large markets and distort the normal supply/demand relationship.

Only market manipulators (and hefty government taxes) can artificially raise the price of a gallon of gas at the pump. Market manipulators (not speculators) rigged libor prices and they did it (as some evidence showed) in many cases at the suggestion of central banks. Only market manipulators and government energy policies artificially raised the price of corn to the point of food riots in many countries around the world.

Greedy, selfish, and deep pocket market manipulators (and in many cases - stupid government policies) are the problem, not the average every day speculator like you and me who have no control over market prices.

Anglo Saxon said...

A very well constructed article. I wish luck to Mr. Harding in the competition.

abinico said...

I think this article succinctly points out that free markets have nothing to do with economics; they are all about control and downright theft.

Andy Strauss said...

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