The Insanity of the Free Market

I am a card-carrying capitalist, and have been for as long as I can remember. In an interconnected world, if it isn't a market-based system, it must be centrally planned, and there, clearly, madness lies. And the prospect of anything but a meritocracy chills my soul.

Frothing, smarmy lobbyists notwithstanding, surely a species capable of decoding the genome and disassembling the atom can see that a unconstrained free market is a path to ruin. The free market must be regulated.

I just listened to an NPR Planet Money podcast on the drought in California. Sheer madness. In prime agriculture areas, that don't receive adequate rain for crops other than peyote or gravel, they have been drawing down the groundwater aquifers at a shocking rate. And now wells are running dry.

photo credit

Funny thing is, this isn't bad news for everyone. While some poor saps no longer have running water at their homes, the scarcity of water reduces supply of water-hunger crops (like almonds and pistachios) which drives up the market price and makes those crops very valuable - a field of pistachios will fetch 10x the price of a drought tolerant crop like flax. Which is an opportunity for those with means.

Via what an economist would call "price discovery", the free market is generating an insane result. Since water hungry crops become more valuable in a drought, and farmers don't pay for the water they take out of the common aquifer, the market rewards those who grow almonds and pistachios, not flax and grapes. Hedge funds come in, buy prime farm land, pump millions into new, deep wells, and plant acres and acres of new nut trees. Market forces are causing a scarce common resource to be used up with no consideration for conservation. A classic case of the tragedy of the commons.

The hedgies will make out like bandits for a while until they completely deplete the aquifer, and then take their massive winnings back home to Wall Street, leaving devastated communities and ruined agriculture land in their wake.

The aquifer is a non-renewable resource within the context of a human lifespan, and in the pursuit of profits, some far-away speculators will squander a precious resource that should belong to everyone. The free market is delivering the worst possible outcome to society.

So the poor go without drinking water, and the rich plant water-hungry crops, get even richer, and expedite the exhaustion of the region's only water source.

Yet again, it is demonstrated that high intelligence is no protection against acting foolishly.