Wednesday, February 2, 2005

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So you say that markets dominate the world....

Those who rejoice and those who reject the supposed triumph of market forces in the global economy would be wise to remember that, "Three of the most important prices in the world economy are set by means other than markets." To see which markets these are, read the Economist story from which this quotation is taken.

Of course, that statement is also an exaggeration -- obviously, market forces have a powerful effect on the prices of oil, capital, and different currencies. It would be more accurate to say that these are three markets where governments exercise significant to monopoly control over the supply of the product in question.

posted by Dan on 02.02.05 at 10:13 AM


True, governments have a large role in the prices of oil, capital, and forex; but the article is pointing out the limits of such influence. Higher oil prices make alternatives look more attractive. There is a lot of interest now in wind power, LNG, hybrids, etc. because their development is becoming economically feasible. The PRC is running around the third world to places like Argentina, Brazil, and Nigeria, negotiating deals to lock in long-term oil supplies. That may be the tip of the iceberg of the cheating that's going to go on when the OPEC prices and supplies become unrealistic. All one can say about the Fed is that their policies have had zero affect on the price of long bonds, and is that not where capital comes from? The PRC's dollar policy is related to its energy demand as well. The big losers are in the Euro zone. The ECB is strangling Europe's economy in order to fight inflation. The dearer Euro is killing EU exports.

posted by: jim linnane on 02.02.05 at 10:13 AM [permalink]

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