We are being played

[Celerity]

33. Prices aren't just about supply and demand. They're about control over supply and demand.

The limited economy of a Prisoner of War camp offers lessons about the real economy, and the shortcomings of orthodox models

https://dougaldlamont.substack.com/p/prices-arent-just-about-supply-and

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Implications of control over supply and demand

This extra wrinkle of control over supply and demand is significant. Often it’s assumed that there are so many players in the market that competition will keep prices in check. That “equlibrium” is an assumption that there are forces in the market that will moderate excess - that the market is self-balancing. This is the argument against regulation or government intervention. For example, it might be assumed that if supply shrinks, that prices will increase, which will reduce demand because fewer people can afford it, which will lead to a rebound in supply - which means prices will drop again. This seems intuitively correct. But there are many other possibilities that happen when you recognize that you are paying that person (or organization) for the rights to something, not for the thing.

There’s another possibility, however. Imagine that there is a demand for a specific luxury good - say, ivory from elephant tusks. As more and more elephants are hunted for their tusks as trophies, the supply dwindles and the price goes up. But instead of reducing demand, more poachers may enter the market, because the high value of the tusks means they can make more with less work. The cost of the good is not related to its real-world rareness, but to the cost of paying people to obtain it, which may be high or low.

The idea of price equilibrium is that the market will intervene through competition, or creative destruction, or technology, in ways that bring a distorted market back to balance. However, the reality of concentration of power means that those differences in bargaining power and market share can be, and are used to keep prices skewed, and keep people at a permanent disadvantage. It’s why the growing concentration of wealth, of more and more companies owned by fewer and fewer conglomerates, is an issue that has been confronted in the past with what Americans call “Anti-Trust” and what Canadians call “Anti-combine” law.

The reason for doing that is because at a certain point, monopolies and oligopolies will continue to distort the market in ways that reduce the total productive capacity and potential of the economy. Because the idea of returning to equilibrium requires there be an actual, real-world mechanism that rebalances exchanges between buyer and seller, not just a mathematical formula that assumes it. So, why is this important? Well, it’s because of the assumptions that are built into the too-simple idea of supply and demand alone. There’s an idea that the market works properly because it overwhelms or overrides other personal factors............

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