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Dogma Premise # 15

Markets are self-correcting and get smarter over time in the sense that if a practice leads to a bad outcome (e.g., economic bubbles get created), then other actors will be forced by the market to learn from experience and make sure it never happens again.

Markets do get smarter over time, and they incorporate new knowledge just as they incorporate new technologies.  However, smarter is not necessarily better, just more effective, and so the fact that markets get smarter is only a good thing if their underlying activities are also good.

Participants in capitalist markets single-mindedly pursue profit.  If they learn anything over time, it is how to more effectively create profits and how to more effectively avoid losses.

It would certainly be the case that market participants learn from the past in the simple sense that if something bad happens they try to make sure it never happens again.  However, from the standpoint of a profit-seeking market participants, bubble economies are not necessarily bad. If you invest properly you can make as much money as someone else is losing.  And if getting caught doing something illegal leads to lower profits, the rational actor will first look for a way of not getting caught, and only if that is not available will they cease the profitable activity.

If the only way, or the most effective, efficient and reliable way, to maximize profitability is to produce ever better products and services at ever lower costs, then the learning markets will internalize over time will more or less correspond with the teachings in beginning economics textbooks, and all will be efficient.

However, if instead of making their money “the old fashioned way,” capitalist firms can generate bigger, faster profits from the dark arts of market distortion, or the darker arts of coercion and fraud, then the market will provide better rewards for worse behavior, and and the learning the markets will internalize will more or less correspond with the teachings in business school textbooks -- such as how to control prices without violating the trade regulation statutes, how to mislead consumers without making false statements that would be illegal, and how to capture or defang regulatory agencies -- and all will be plutocratic.

The fact that market fraud and bubble economies recur suggests that indeed the dark arts are what are being mastered by market participants.  When one also considers the increasing sophistication of marketing, pricing, persuasion, and sales, there can hardly be any doubt that market learning over time is mostly about ways to skin a cat, and not so much how to help the cat.

Dogma Premise 16

All Dogma Premises

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