The Invisible Hand of Plutocracy

This morning I was listening to an old episode of the economics podcast EconTalk and happened on an obvious insight that explains some of the things going on. For those not familiar with the podcast, it’s hosted by Russ Roberts where he talks to economists and other social thinkers about their work and other things. The episode had Russ talking to Robert Frank (one of my favourite economists) about the subject of economics and how it plays out in everyday simple situations. Around the 17th minute they started talking about competition and prices.

For example, say you go to the market to buy rice. The vendor you approach tells you one Kongo is N800 whereas the average market price is N400. The natural response is leave the vendor’s post and go to a rival where you can get it cheaper. But what if the vendor tells you they have personal things to pay for, or suffered a loss, or somehow incurred a high cost to justify the price difference? You may sympathize or care. But standard economic theory validly predicts most people won’t care enough to pay that price. Because you can always buy it cheaply elsewhere.

What about an alternative scenario where Dangote decides to enter the cements or tomato paste business? Perhaps he’s also manage to incur some very high costs. His fellow “industrialists” may be borrowing cheaply in other nations whereas he’s taken a bank loan at 20%. Poor transport system means he has to buy his own trucks or pay high costs. Abysmal power supply means he has to spend more to complete an abandoned government power project to fend for himself. The question is: should you care about all these costs enough to pity him and pay a premium for his products in the face cheaper substitutes? That’s a moral question for which I cannot presume the answer for anyone. But theory and evidence both suggest that most people will not care! He knows this because he’s human like you and subject to the same instincts. So how does he manage to make you care? By keeping competition out and hence limiting your options and choices. Every time they talk about protecting local producers means substitute products have to be banned, it is the ‘’invisible hand’’ of powerful plutocrats at work. Another means is to use regulations to impose high costs on competitors that cannot be kept out. This remedies their chronic lack of efficiency and creativity. To paraphrase Adam smith, markets are a way towards the common good without people necessarily caring about each other.

The tool for pulling this off is the government. This where I think most of us arguing on the other side of the current government miss it. Appropriating moral or ideological intents like ‘’communists’’ or ‘’socialists’’ to these guys is an undeserved respect. The Nigerian political space is an arena where practitioners have found an elastic bargaining equilibrium to keep fleecing the country! This is why they hate markets and enterprise. Our system, though democratic, is terribly flawed. The lack of transparency about management of the affairs and resources of the state means political elites can game the rules (or lack thereof) to arrogate to themselves powers that allow them act consistently in the interest of their greed without fear of accountability and punishment. We the electorates are also poorly informed to hold them to better standards. This is why it is easy to exploit our base instincts like ethnicity, nationalism and other group mechanisms to get us to keep caring and looking after them even after they bleed us dry.