How “Market” Nonsense is Killing our Economy and our Democracy

Remember Adam Smith? Modern, right-wing ideologues have perverted his brilliant, path-breaking analysis of economic markets into a fairy tale. All the little farmers sell their apples or oranges in nice neat rows, in a marketplace compact enough for every shopper to visit every one of them and compare the quality and prices of their produce. It’s a nice, simple picture fit for grammar-school kids.

But the tellers of this fairy tale leave out some important stuff. They forget Smith’s assumption that all products are “fungible,” meaning practically identical in size, appearance and quality. They ignore his underlying assumption that all buyers have all necessary information about all sellers and their products, the so-called hypothesis of “perfect information.”

In what practical universe, and on what real planet, are these assumptions generally true? even reasonable approximations of reality? As this essay will show, not many. In the case of today’s Internet-based economy, maybe not even one.

So hold onto your hat. I’m going to show you that, most of the time, in the real world we inhabit, the fundamental assumptions that so-called “conservative” economists have used to bedazzle, mislead and dupe the average Joe and Mary are simply and badly wrong. And, in the process, they do Adam Smith a grave injustice, for he was much smarter and more honest than that.

Before we start, I’d just like to remind you of one modern catastrophic market error. Remember Alan Greenspan? As Chairman of the Federal Reserve, he was charged with the ultimate authority of regulating America’s banks, as well as with the better-known tasks of taming inflation while insuring full employment.

He failed miserably. In fact, he and his fellow true believers in “classical economics” failed to stop a grand stampede of banks offering home loans to millions of people who visibly couldn’t afford to pay them back. Some banks even broke their own, internal, written credit standards just to join the stampede to grant ever more supposedly profitable home loans. Some bankers actually encouraged “liars’ loans” to people who had lied on their loan applications.

Why did Alan Greenspan, then the “high priest” of American economics, let all this go by? Because, he said, he relied on markets to self-correct automatically, rather than on regulation, which was his job. After the ax fell, when the so-called Crash of 2008 was already under way, he confessed error before Congress.

We are still recovering from that Crash and the more-than-decade-long spell of ultra-low interest rates that it took to fix it. The global economy is just now adjusting to basic interest rates in the 5-6% range, where they had been for most of modern economic history. (And BTW, that entire history is less than three centuries: Adam Smith coincidentally published his seminal work about markets, The Wealth of Nations, in 1776, the very year of our nation’s founding.)

As this essay will show, today the assumption of well-functioning markets is, in many important cases, a myth. It’s more religion than science, for the simple reason that modern economics’ broad assumptions, such as perfect information and markets self-correcting, are intrinsically untestable hypotheses.

It’s worth noting again that none of this is Adam Smith’s fault. His famous work actually enumerated several ways that his so-called “perfect” markets could fail. Two that he laid out explicitly—sellers’ collusion and imperfect information—are rampant today. Another, corruption, is gaining steam, and Smith’s work deals with it implicitly. As one of the greatest thinkers in human history, Smith was no fool. His name is just being used in vain by many devious ideologues to dupe other fools.

So don’t blame Adam Smith. Blame the modern economists, like Alan Greenspan, and virtually every Republican pol, who have made “free markets” a religion and an ideology, instead of what Adam Smith meant them to be: just conceptual starting points for painstaking, detailed analysis. Let’s take a look.

1. Imperfect Information. In theory, the Internet could provide the “perfect information” on the prices, features and quality of products that Adam Smith assumed for his “invisible hand” theory. Maybe it did at some time early in its less-than-thirty-year life. But it doesn’t today. The reason is incessant and rampant self-promotion, which tramples “perfect information,” let alone market efficiency, underfoot like so much used Kleenex.

Here’s a concrete example. I have a Whirlpool WHER25 reverse-osmosis water filter for drinking water in my house. I’ve installed one in three houses where I’ve lived and even gave one to a friend whose kids have allergies. If memory serves, I’ve installed and used these devices for at least two decades.

I’ve also used the Internet since its inception in 1996 (27 years ago). I spend hours per day online, and once taught a course in Computer Law with a unit about the Internet. So you might think that I, if anyone, would know how to get the best price for the filter elements (one RO, two carbon) that have to be replaced every six months or so. Not so.

There’s a high-pressure promo firm called “Filters Fast” that operates on the Web. A few years ago, I fell prey to the convenience of using it to order my replacement filter elements online. In the interim, this firm has become one of the highest-push self-promoters on my Web: I get several unsolicited promo e-mails from it every week. (I haven’t yet unsubscribed because of past purchases. I should and probably will.)

So I was recently about to “click here” to buy the two carbon-filter-element replacements from Filters Fast for about $75. Then I thought, “Do I really want to wait several days for delivery when I might get them from Home Depot today?”

I went online and discovered that Home Depot offered the very same filters for around $50—a 33% discount. All I had to do was drive into town, in my solar-power-driven electric car, to pick them up. That I did. The story doesn’t end there: Home Depot put the wrong stuff in a box labelled for my pickup, so my wife returned the wrong product and picked up the right stuff a couple of days later. For this trouble, Home Depot gave us another $25 off the price, bringing our total discount to 67%.

The moral of this story is threefold. First, the Internet’s value as a tool of “perfect information” for retail buying is, as Mark Twain might say, “greatly exaggerated.” From the beginning, it worked that way only if you were an expert user and spent all the time and effort to do your own full, “due diligence” for every online purchase, usually visiting several separate online sites. How many people actually do that, let alone all the time? How many just go online to Amazon, Walmart or their favorite big-box store because doing so is simple and quick?

Second, as you may have noticed, the honest, old-fashioned “free-market” Internet is a shadow of its former self. When you search for anything online today, the first N search results are “sponsored” links, essentially paid advertisements. Those ads are intended to distract your attention and often do so. When I recently ran a search for the rental-car company “National Car Rental” online, the first eight or so results were sponsored ads posted by competitors of or companies that leech off of National. I had to scroll down a page just to get the link to National itself, the firm whose name I had typed in. So much for “perfect information.” So much for “efficiency.”

Finally and most important, there’s the time and annoyance factors. The time that consumers have to seek “perfect information” on the Internet is hardly infinite. We are all busy people, and we all spend far more time staring at screens than we should. As biologists and doctors are slowly discovering, the sedentary lifestyle, high-mental-throughput and high-annoyance quotient of an Internet desk potato are not good for one’s health.

And in our increasingly promo-based economy, from which science, engineering and manufacturing seem to have fled abroad, it’s increasingly hard to get straight answers from the Internet, let alone in a reasonable amount of time. Our online economy, let alone today’s all-promo-all-the-time Internet, is simply not set up for “perfect information,” even in theory. It’s set up so that firms that pay the price can distract, seduce and even delude you in order that the search and other Internet services you use can somehow qualify as “free.” The promotional part of the Internet—which is most of it these days—is designed to get you to buy what advertisers want you to buy, not what Adam Smith would advise his hypothetical rational economic actor.

2. Oil and Motor Fuels. We hold, or should hold, three truths to be self-evident. First, the vast majority of cars and light trucks today run on gasoline or diesel, despite the much-vaunted early rise of electric vehicles. Second, there is only one significant source of both motor fuels: crude oil. Third, OPEC, dominated by Russia and Saudi Arabia, has classic a monopoly of crude oil, controlling nearly 80% of all known global reserves.

What is the consequence of these bare facts? The supply of crude oil, and therefore of gasoline and diesel to run our cars and trucks, is monopolized by our geopolitical enemies. One of them, Russia, is pushing the others mightily to keep the price of oil high, so as to finance its atrocity in Ukraine. Another, Venezuela, by itself has close to 20% of all known global oil reserves. Its mercurial dictator Maduro, with Russia's encouragement, takes every opportunity to stick his economic thumb in our still-democratic eye.

So why are our own Republicans blaming the current high prices of gasoline and diesel on President Joe Biden, who, like the rest of us, is just an innocent victim of a global oil cartel (“cartel” being a word for a collective monopoly)? Because they can. Voters, apparently, don’t understand the basic facts of the global oil economy. Republicans are not about to inform them, since keeping voters ignorant serves their selfish political purposes.

On a day-to-day basis, the good ol’ USA is the world’s biggest producer of oil. It’s also a net exporter. But that matters only only if you divide things up nation by nation, an irrelevant thing to do in the global oil market. The fact is that, taken all together, petro-states like Iran, Iraq, Russia, Saudi Arabia, Venezuela and the like out-produce us by a country mile. And their collective, known reserves vastly outnumber ours, because most of our current production comes from fracking. (Fracking reserves are notoriously hard to estimate, because they comprise infinitely complex three-dimensional networks of oil-filled cracks in underground rock.)

So what is going on here is a classic and totally transparent example of what Adam Smith himself recognized as a big exception to the pretty picture of his “invisible hand”: collusion. Our geopolitical enemies, who collectively monopolize both crude-oil reserves and crude-oil production, are using their collective monopoly to screw us and, incidentally, to support Russia’s brutal war in Ukraine. That, dear readers, is what’s keeping the prices of motor fuels at the pump high here at home. It’s not some imagined default or defect in Joe Biden’s White House or Jay Powell’s Federal Reserve.

Blaming our president and the independent Federal Reserve for things entirely outside their control are like a child blaming his parents for the bad weather that spoils a party or an outdoor game. And at the risk of repeating myself, I should say that this type of thing—collusion on pricing—is something that Adam Smith specifically mentioned and warned against in his great treatise The Wealth of Nations.

It gets worse. Our own native and friendly Western oil companies both pump crude oil from the ground and refine it into fuel for cars and trucks. At the moment, their doing so at internationally-determined prices is making them billions of dollars of profit. They could, if they wished, push a little less dough out to their shareholders and take the pressure off millions of hard-pressed American consumers and small businesses. But they don’t.

Why is this so? Well, if you think “free markets” are America’s mindless, secular religion, you’re not quite right. Profit is. The GOP and the right-wing ideologues don’t really give a damn about economic theory. If the truth be told, they’re not even passably good at it. (Just read any of the many columns by Nobel-Prize-winning economist and columnist Paul Krugman on this subject.) What they care about is profit, i.e., the riches flowing to the oligarchs, corporate bosses and rich people who fund their campaigns. And they absolutely love the false “economic theory” razzle-dazzle that leads voters to accept and even applaud the outsized profits that provide those riches.

Could government brings fuel prices down by regulation? Most probably. Price controls have a long, albeit contested, history in our country. Even Richard Nixon tried them during the early-seventies inflation. But bald price controls don’t work very well because market prices do move, even in controlled markets, and government is seldom nimble enough to follow the movements intelligently. So a better approach might be to tax excess oil profits heavily, giving oil firms an incentive to lower prices, reduce shareholder bonanzas, and devote more precious resources to energy transformation to renewables and so save our planet. (Investments in research and development get subtracted before tax rates are applied.)

If you think any of these approaches would help our nation and your family seek a better life, with less economic anxiety and uncertainty, you have only one choice. You should work, donate and vote your heart out for Joe Biden and the Democrats. Getting the necessary legislation done will require a House and a Senate in Democratic hands, with enough of a majority in the Senate to kill the minority-rule filibuster stone cold dead, a fate it richly deserves.

3. The Internet Giants’ Soft Corruption. Besides imperfect information and collusion (e.g., in cartels), Adam Smith identified another big exception to his idealized story of the “invisible hand.” That’s corruption. A smoothly functioning market system, by succumbing to corruption, can suck consumers dry like some kind of economic vampire. It will do so when key market participants decide that sucking blood best serves their interests. And, big news flash: average consumers are never among those key participants, who are mostly CEOs, marketers, investment bankers and big shareholders.

That is exactly what appears to be happening with the great Internet giants. The legendary founders of our Internet infrastructure—Steve Jobs, Jeff Bezos, Larry Page, Sergey Brin—have died or taken their chips and left the table. The “leaders” sitting there now are green-eyeshade folks. Imbued with the gospel of profit, but having no bold new ideas for improving goods or services, they have turned the Internet that we use daily into an all-promotion-all-the-time advertising extravaganza. The extent and speed of this transformation is already remarkable.

If you haven’t noticed this, you are either not paying attention or a newbie at the keyboard. A decade ago, I praised Amazon mightily on my blog for being the first retailer in human history to abandon the old Roman rule of “caveat emptor” (let the buyer beware!) and allow actual buyers and users of products for sale to evaluate them for potential buyers. Amazon’s introduction of user reviews of products, which many online retailers have now copied, was something truly new under the Sun.

But today, when you search on Amazon for a product by description or type, you get so many promotional paid ads that it’s hard to complete your search. Some, if not many, of the ads don’t even precisely match the search words that you used. And then there are the numerous “customer” reviews, produced by ‘bots and/or by competitors, that require you to read what once were mostly honest customer ratings with increasing care and skepticism.

Of course competitors and spoilers abusing Amazon’s review system is not entirely Amazon’s fault. But I have the distinct impression that Amazon devotes about as much time, effort and money to eliminating bogus reviews on its site as Facebook (now “Meta”) does to eliminating harmful and even deadly misinformation from its pages. (We won’t even mention Elon Musk’s reveling in the right to lie on his dying site “X”—once known as “Twitter”—as supposedly sacred “free speech.”)

No, insofar as goods and services for sale are concerned, the Internet is rapidly becoming a cesspool of deception and misinformation for retail, as much as it is already in the fields of politics, public health, and policy. And the driving force is something Adam Smith recognized from the very beginning: corruption. If green-eyeshade folk with few really beneficial ideas can make more money by confusing, duping and deceiving consumers, that’s what they will do. The gospel of profit so demands.

One other aspect of today’s Internet deserves mention, although it’s much too complex a topic to do more than outline here. The Internet giants are crushing small businesses nationwide by forcing them to pay exorbitant fees for such things as: (1) presenting and selling their products online and (2) arranging for services to deliver their products (including restaurant food) to online customers. Companies that charge these exorbitant fees, such as Apple, Amazon, Walmart and DoorDash, often have monopolies or near-monopolies in relevant markets, so there is little room for the small businesses that pay them to renegotiate the high fees.

These arrangements have some advantages for the small businesses, of course. Among them are providing selling access to a larger geographical market, statewide or even nationwide. But they also have important disadvantages: (1) reducing the profit margins of the small businesses, making it harder for them and their individual owners to survive; and (2) concentrating massive distribution of goods and services under central management, in the proceess creating powerful economic combines that can exert deadly economic power and even political power.

Having a mid-level manager at Apple or Amazon control the fate of millions of small businesses that depend on their respective Internet platforms for economic survival is hardly a clear path to an open, vibrant, and creative small-business economy. On the contrary, it’s closer to a monopoly or duopoloy of product distribution nationwide.

Today our Internet distribution and delivery gateways are in much the same positions of dominance and unfettered economic power as were the railroad trusts at the end of the nineteenth and the beginning of the twentieth centuries, and for much the same reasons. Our antitrust authorities are just beginning to look at their dominance and power and consider whether they are healthy for our economy and our democracy, and rightly so. In the past, one of the key moral drivers of antitrust law was the notion that too much power in too few hands is bad for our economy and our democracy in general, regardless of the presence of some sort of technical competition. When current regulators and members of Congress take a close look at what is happening to small businesses on line, I expect and hope that they will come to much the same conclusions.

* * *

In case you haven’t noticed, our nation is in the throes of a Second Guilded Age. All the symptoms are clear and rampant: impossible wealth alongside grinding poverty, even among many full-time workers, rampant injustice among non-oligarchs, massive corruption and self-dealing at the top, and a culture of impunity. Over it all hovers a media culture of celebrity, “glamour” and glitz, as if the hoi palloi’s vicarious thrill from watching the oligarchs flaunt their wealth were a valid substitute for justice and fairness, let alone efficiency. The only reason we don’t see the massive breadlines and gross dislocations of the Great Depression is that most of the economic reforms and safety nets put in place by FDR, LBJ and (lately) Obama are still working, at least for now.

But, relative to the baselines established in the immediate aftermath of World War II, we have appalling rates of child poverty, substandard education, discrimination and inequality, family poverty, union-free and justice-free jobs, localized pollution, and homelessness. Plus we have crazies in Congress who don’t seem to give a damn about any of this. And unfortunately, the Internet, with all its promise of a future of universal knowledge, is rapidly becoming a cesspool of lies and self-promotion that makes all of this worse.

We can fix this, using a tool of our species that’s been around for at least three thousand years. It’s called democracy. But in order to make our democracy work, we have to abandon the oligarchic, minority rule that our slave-holding Founders bequeathed us and create something new.

It’s not an impossible task. We don’t have to amend the Constitution, at least not right away. For the immediate future, all we have to do is take a “trifecta” for the people: re-elect President Biden, take back the House for the Dems, and give the Dems a big enough majority in the Senate to kill the slaveholders’ filibuster stone cold dead at last.

With an avalanche of legal liability and criminal convictions now falling on the Demagogue, and with the GOP having settled on no alternative, this outcome is within our grasp. But we each must do all we can to make it happen: work, think, speak, write, donate and vote.

Most of all, we have to abandon simplistic faith in the power and goodness of free and unfettered markets, which Adam Smith himself did not share. We must use our political power to reshape our rigged and broken markets closer to the dream of an equal, fair, efficient and unpolluted economy running in something resembling the Earth’s climate in which we evolved.


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