Wall Street is Not a Market or the Marketplace: Wall Street is a Scam!

This Is Not a Market

J.D. Evans and Sam Lebovic  August 5, 2016

The floor of the New York Stock Exchange (RosieTulips / Flickr)

Many things have been said of the British public since the country’s vote to leave the EU.  In the immediate aftermath, pundits were unsparing of the “ignorant” voters who, they insisted, had been conned into opting for Brexit. Yet the sternest response, judging from news reports, has come not from pundits but from the market. Just yesterday, the Bank of England cut interest rates to a record low in response to the sharpest drop in stock indexes since 2008. The headlines tell us that the global market, or the stock market, or the financial market, or the labor market, or perhaps all of these markets together have reacted and will continue to react to Brexit. And we are, or we should be, terrified.

This refrain is familiar, but also puzzling, because those reports never really explain what they mean, exactly, by “the market.” In some sense, we all know what we mean we talk about a market: a market is a place where you go to buy and sell things. They’ve existed for centuries; Fernand Braudel wrote of medieval markets filled with “piles of produce, slabs of butter, heaps of vegetables, pyramids of cheese, fruit, wet fish, game, meat which the butcher cut up on the spot, unsold books whose pages were used to wrap up purchases.” These markets met weekly or yearly, at the center of town, or on the outskirts; sometimes under cover, often not. They still do.

But when we talk about markets today, we mean something more grand and mysterious. The meaning of “market” has expanded to cover many aspects of our lives, and become more abstract in the process. As early as 1928, people started talking about a “marketplace of ideas.” By the 1970s, “the market” meant “the competitive free market; the operation of supply and demand;” in the same decade, historian Daniel Rodgers tells us, market metaphors became detached from history and institutions. The market had become a “metaphor for society as a whole.” In the 1980s, Ronald Reagan praised the “magic of the marketplace,” and by the 1990s, “the market” sounded like a democratic utopia.

Given how ordinary people use the term, it’s not surprising that academic economists are a little vague about it—but you’ll be glad to hear that they know they’re being vague. A generation of economists have criticized their colleagues’ inability to specify what a “market” actually is. George Stigler, back in 1967, thought it “a source of embarrassment that so little attention has been paid to the theory of markets.” Sociologists agree: according to Harrison White, there is no “neoclassical theory of the market—[only] a pure theory of exchange.” And Wayne Baker found that the idea of the market is “typically assumed—not studied” by most economists, who “implicitly characterize ‘market’ as a ‘featureless plane.’”

This is a long way from pyramids of cheese and slabs of butter. When we say “market” now, we mean nothing particularly specific, and, at the same time, everything—the entire economy, of course, but also our lives in general. If you can name it, there’s a market in it: housing, education, the law, dating. Maybe even love is “just an economy based on resource scarcity.”

The use of markets to describe everything is odd, because talking about “markets” doesn’t even help us understand how the economy works—let alone the rest of our lives. Even though nobody seems to know what it means, we use the metaphor freely, even unthinkingly. Let the market decide. The markets are volatile. The markets responded poorly. Obvious facts—that the economy hasn’t rebounded after the recession—are hidden or ignored, because “the market” is booming, and what is the economy other than “the market”? Well, it’s lots of other things. We might see that if we talked about it a bit differently.

For instance, we might choose a different metaphor—like, say, the traffic system. Sounds ridiculous? No more so than the market metaphor. After all, we already talk about one important aspect of economic life in terms of traffic: online activity. We could describe it in market terms (the market demands Trump memes!), but we use a different metaphor, because it’s just intuitively more suitable. That last Trump meme is generating a lot of traffic. Redirect your attention as required.

This is just one instance in which talking about traffic, rather than markets, makes more sense in light of our day–to-day lives. We don’t know much about markets, because we don’t deal with them very often. But most of us know plenty about traffic systems: drivers will know the frustration of trying to turn left onto a major road, of ceaseless, pointless lane-switching on a stalled rush-hour freeway, but also the joys of clear highways. Public transport users will feel the pain of canceled trains and overcrowded buses, but also the pleasure of being able to sit and read and daydream while being transported across the city. Anyone who’s ever flown has wondered why the process has to be so unpleasant, and should also have considered that at least the unpleasantness only lasts for a few hours, and not, as in the oceangoing ages, months.

We know the traffic system because, whether we like it or not, we are always involved in it, from birth: as soon as little Jean Doe leaves the hospital, s/he’ll never leave the transport system. If you step out of your door, you’re no longer just yourself; you’re a pedestrian, or a bicyclist, or on your way to another mode of transportation. And that’s how the economy works, too. Jean’s parents are just about to get a bill for the birthing process, and for the doctor’s appointments that came before it. In a month, they’ll buy formula (not that they advocate that sort of thing), and swaddle cloths, and bedding. As of birth, Jean is in the economy—even if s/he rarely goes to a market. You can’t not be an economic actor; you can’t not be part of the transport system.

Just as you’re always already in the traffic system and the economy, and just as you rely on it being there, you also can’t leave the economy, even if it screws you over. If someone engages in economically stupid behavior—let’s say, lending out huge amounts on mortgages that will never, ever be repaid—and you lose out (even though you borrow responsibly, if at all), you might be able to sue, but in all likelihood you won’t be able to do much of anything, even if you’re the United States government. Similarly, if some twit veers into oncoming traffic and causes a five-car pileup that traps you on the highway, Ms. Doe won’t be able to sue the twit. She has to sit there, in her car, until someone cleans up the mess.

Despite these fairly frequent inconveniences, though, Jean and his/her parents happily rely on the infrastructure that has been built up over generations. They really can’t get around without them. The bus picks Mr. Doe up at the same place every day. Ms. Doe knows that she can turn out of her driveway with confidence, and turn into the street, and that the next street will be there, and then another, and then another. You can have a pop-up market, and a market that only opens on Sundays, or only opens at Christmas—but that’s not the way traffic works. And that’s not the way the economy works, either. It has to be there when we need it, and it’s always there, even if we wish it weren’t.

Consider also the composition of the traffic system and the economy. A market, whatever else it is, is always essentially the same thing: a place where people can come together to buy and sell things. We could set up a market right now, with a few fences and a sign announcing that people could buy and sell. We don’t even really need the fences. A traffic system, however, is far more complex. To begin with, the system includes publicly and privately run elements: most cars are privately owned, as are most airlines. But in many countries there are still publicly owned trains, buses and trams, and those that aren’t publicly run are heavily subsidized. There are publicly owned airlines, too, of course. Bikes are usually private, but some cities provide public bikes. Pedestrians are entirely private. But all of these elements use publicly funded infrastructure: your privately owned car is of no use without roads, which are mostly publicly funded, and private toll-roads wouldn’t go anywhere if they weren’t embedded in the publicly-funded road network. This is a much better map of the economy than a market could ever be. Economic activity relies on private actors, public actors, and publicly funded private actors all working within the institutions and infrastructure that have been developed over the last few centuries.

Those institutions can be international (say, the Trans-Pacific Partnership). They can be national (any given state’s monetary system). They can be sub-national (different states have different laws). They can be local (there are very different ways of buying and selling in, say, Istanbul and Los Angeles). The traffic system is just as globalized as the economy (most obviously in air travel, but also shipping and rail) but it’s also localized and diverse: there are no rickshaws in Venice, no water taxis in Minnesota.

As anyone who’s ever traveled in a foreign city will know, those localized transport systems all rely on very different rules and norms. But at home, we can take for granted the many rules that have to be followed by everyone just so we can get to work: Mr. Doe’s bus driver has to follow the rules of the road, with its signs and signals, its lights and lane markers. A bus might indeed have a slightly different set of rules to follow than that of a private car—buses can and must stop at bus stops; they might have specially designated lanes during rush hour; and there are even special categories of buses. Americans, quaintly, stop traffic in each direction when a big yellow school bus drops the kids home from school.

These rules are an accepted, even valued, part of modern life. And their acceptance makes sense. After all, what would a deregulated transport system look like? Cars without roads, without speed limits, without traffic signals, without social conventions? You’d be free to go wherever you like, provided you could find a vehicle and a regular source of gas, which sounds great, until you imagine millions of people all trying to do it at the same time. That sounds more like the world of Mad Max, and all that autonomy starts to sound like an awful lot of pointless horror.

But we don’t have to think in those terms, because nobody has ever seriously suggested that the regulation of the traffic system undermines American freedom. In fact, the highway system has always been a symbol of American freedom, the space where you can flee your past and express your true self: why else did Kerouac and the Beats, Thelma and Louise, go on the road? They were all fleeing the oppressions of private life, and the freeways helped them do that—despite the fact that the highway system itself only exists thanks to government spending. A well-functioning, centrally planned, well-regulated traffic system isn’t just compatible with an idealization of individual freedom: it is the very foundation for a cherished individual freedom. And that’s why Americans can still get their kicks on Route 66.

If it would be odd—possibly pathological—to insist on absolute autonomy on the roads, it’s just as strange to evaluate traffic systems solely by their growth. When asked if the traffic in LA is improving, no one would cite higher numbers of cars driven or more miles of tarmac laid. We know that expansions of the transport system have consequences: Volkswagen executives try to fudge their emission tests; environmentalists try to offset the emissions of their plane travel. Meanwhile, when we talk in terms of GDP and the Dow, when we track the rise and fall of market indicators, growth is the only standard we know—making it easy to forget that the growth of the economy, with all of its environmental and social consequences, is not necessarily the same thing as the good of the economy.

If we don’t evaluate traffic systems based on their size, or their growth, how do we evaluate them? Mostly, by how well they help people get where they want to go. The market metaphor encourages us to think that all economic activity is motivated by the search for profit, and pursued in the same fashion everywhere. In a market, everyone’s desires are perfectly interchangeable. But, while everybody engages in the transport system, we have no difficulty remembering that we all want to go to different places, in different ways, at different times, at different speeds, for different reasons. You might prefer to drive, because it’s faster; I prefer the train, because it’s more comfortable. That’s a more appropriate way to think about the economy, too. Like the transport system, the economy is the necessary framework for us getting where we want to go—but we all use it in our own ways, for our own purposes.

Of course, not all of these choices and desires can be fulfilled. People travel for many reasons, yes, but they also refrain from traveling sometimes, because the traffic system makes certain types of travel much harder than they need to be. A young woman born in South-Central LA can’t get to grocery stores, schools, and jobs as easily as her (distant) cousin in Beverly Hills. It’s easier to move around most American cities by car than it is to travel by bus, so if you can’t afford a car, your options are limited. These different opportunities for travel have very real consequences. We know that living close to good schools and groceries matters, which is why housing prices are so tied to school districts. We know that if you can’t afford a car, and the public transport system doesn’t work well, you can’t travel to accept job opportunities. And we know that, in most cases, these failures are systematic. Nobody chooses to live with a bad transport system: there just is only one of them.

Thinking about traffic systems in terms of individual choices is, then, deeply problematic. The Does have never been able to demand into existence a new public transport line in a poor part of town—and the same goes for new miles of road to an unconnected exurb. It’s impossible to imagine that highway construction and deteriorating public transit systems are the result of individual choices or “natural” economic processes (we’re looking at you, DC Metro). Deciding how to improve the traffic system, how to expand people’s opportunities, is obviously a question of resource allocation and prioritization on a scale that private individuals—even traders—cannot influence on their own. That’s why government have not historically trusted the “magic of the markets” to produce better opportunities for transport. We intuitively understand that these decisions are made at the level of mass society and public policy. And, whether you like it or not, this is true for decisions about the economy as well.

Thinking of the economy in terms of the market—a featureless plane, with no entry or exit costs, little need for regulation, and equal opportunity for all—obscures this basic insight. And this underlying misconception creates a lot of problems: we’ve fetishized economic growth, we’ve come to distrust government regulation, and we imagine that the inequalities in our country, and our world, are natural or justified. If we imagine the economy otherwise—as a traffic system, for example—we see more clearly how the economy actually works. We see that our economic life looks a lot less like going to “market” for fun and profit than it does sitting in traffic on our morning commute, hoping against hope that we’ll get where we want to go, and on time.

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J.D. Evans’s writing can be found in places like The Point, McSweeney’s Online Tendency, and Santa Monica Review.

Sam Lebovic teaches history at George Mason University, and is the author of Free Speech and Unfree News: The Paradox of Press Freedom in America (Harvard, 2016).

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