I was having a chat with a prominent Brexiteer this week, as you do. I said to him that while I had to concede there was a Brexit that could provide for an economic boost in the abstract, in hard reality it was going to be tough precisely because business thinks that it will be bad. In other words, since most businesses will treat it as a negative, the market will respond in kind as businesses downsize, lay off staff, leading to more people being unemployed, meaning less money circulating, meaning businesses downsize further……
“But the thing is,” Mr Brexit retorted, “the market will then kick in and businesses will be forced to ride the positive wave.”
The further we talked, the more we were at odds on this one particular point. Until I got it: we just look at free markets in a fundamentally different way. And this has nothing to do with whether or not the free market is a good thing or not – we both agree that it is a very good thing – it was much more elemental than that. We basically disagree as to what the free market in fact is.
Day one, minute one of Economics 101 is this concept: human wants are unlimited. Therefore, people need to make choices. The choices made have consequences, good and bad, for everyone, not just the individual making the choice. You see, the first word there is “human”; in other words, economics and thus the free market is dependent entirely on how human beings behave. Except, to a certain type of free market Brexiteer like my friend cited above, this isn’t the case. They sort of see the market like one might see a god – it is intangible and immortal. In this world view, if Earth was hit by an asteroid and all human life ceased to be after a week or so, the free market would still exist in the universe in some fundamental way, even if there was no life intelligent enough to realise this or use it in any way.
If you think of the free market as something abstract that has nothing to do with humans or their behaviour, then Mr Brexit’s argument makes perfect, rational sense. Businesses may treat Brexit like a disaster but when the market god descends upon them, they will see the light and it will all come good. If, like me, you see the free market as how humans behave economically when left to their own devices as the very basis of what the free market is, then my fears are also rational. But this can’t be argued out: the free market is either God or it isn’t. The disagreement, like so much when it comes to Brexit, is religious in nature. You believe in it, or you don’t, regardless of any rational arguments either way.
Of course, not all people who really want the UK to leave the EU are free marketers (very far from, in fact), never mind see the free market as some sort of deity, free from human influence. But I think a lot of the people who are the leading spokespeople for Brexit at present see the market in just such a way – and thus why they don’t fear a no deal scenario. The market god will save us all, you see.
Um. Surely the idea is not so much that the Free Market is God, but that if currently-existing businesses respond to Brexit by retrentching and cutting staff, etc, then that will create a space into which new businesses by people who aren’t so pessimistic can expand.
The existing businesses will then either be forced to reverse their retrenchment and re-invest in order to succeed, or they will go bust and be replaced by the new busineses formed by the optimists.
That is, the issue is not whether you think the market is God or it isn’t; it’s whether you see the market primarily as a space in which existing busineses operate (and therefore what those businesses do is important) or whether you see the market as primarily a series of gaps just waiting for new businesses to expand into them.
Like those optimcal illusion pictures: is the market the faces, or is it the candlesticks?
That is, what you seem to be missing is that ‘humans behave economically when left to their own devices as the very basis of what the free market is’, combined with human nature, means that there are constantly loads of people looking for the next hustle, for a way to make money.
Therefore any time there is a way to make money which isn’t being exploited, many people will rush to exploit it. The ones which do best will succeed. That is the fundamental operation of the market, and it’s all about human nature, not some invisible godlike force. Humans seek moneymaking opportunities just like water seeks to run downhill, and therefore just like water they will find the tiniest crack that is not blocked and open it up.
That is what is meant by ‘the market will kick in’: if there exists an oportunity which existing busineses are not exploiting, then people will rush in to exploit it, because that is what people always do if they are not somehow prevented from doing so.
Therefore even if you’re right and businesses downsize, and lay people off, well, that just means more people looking for ways to make money in the new environment. and some of them will find such ways (lots of them will fail, but then, that’s part of the market too — the point is that there will be so many of them, trying so many different things, that some of them are bound to succeed).
The market is basically Pratchett’s C.M.O.T Dibbler.