[Review] Tom Krebs - Misdiagnosis - Market Fundamentalism

Siehe auch:
[Rezension] Tom Krebs - Fehldiagnose - Marktfundamentalismus

The book "Misdiagnosis - How Economists are ruining the Economy and dividing Society" by Tom Krebs was published in 2024. Krebs is a professor of macroeconomics and economic policy. The book analyzes the energy price shock its consequences for the German economy and the countermeasures taken. Krebs criticizes market fundamentalism and its proponents who, according to him, prevented the recession from being overcome through their manipulation of public opinion.

The Belief in the Market

Krebs describes how economists believe in the healing and self-regulating powers of markets and how this leads to misdiagnoses. Krebs justifies the prevailing market liberalism with two complementary ideas.
Friedrich A. von Hayek's concept states that a pure form of capitalism or a liberal market economy generally leads to desirable macroeconomic outcomes (First Welfare Theorem/Invisible Hand Theorem).
Furthermore it is assumed that one's own freedom ends where it infringes upon the freedom of others. However market liberalism has a very narrow view of human nature and therefore a very limited understanding of which restrictions on freedom are relevant. In its extreme version this freedom is limited to freedom from state intervention in the supposedly always superior markets. [1, p. 73-80]

Auch wenn der marktliberale Politikansatz zu nachhaltigem Wirtschaftswachstum führen sollte, was mittlerweile hinreichend wiederlegt wurde, ließe diese Theorie immer noch offen, wer davon profitieren würde.

Even if the market-liberal policy approach were to lead to sustainable economic growth which has now been sufficiently refuted this theory would still leave open the question of who would benefit from it. [1, p. 76]

But Krebs doubts the effectiveness of the first idea and the relevance of the second one. The ability to react to changes on the supply side depends on income. The lower the income the more difficult it is to cope with price increases or to make investments to react to price increases or shortages. Furthermore the elasticity of substitution is not the same for all goods.
Heating costs can hardly be reduced and gas heating systems cannot be operated with heating oil and vice versa. In addition existing infrastructure or goods can lag behind demand due to price increases or shortages. If for example public transport in the form of buses and trains is insufficient, private transport in the form of cars may become necessary regardless of the population's personal preferences. [1, p. 73-80]

Wenn aber die Gegner von Preiskontrollen die Existenz von erwartungsgetriebenen Überreaktionen in Finanz- oder Energiemärkten von vorneherein ausschließen und allein auf die Wirksamkeit von Preissignalen setzen, wird aus Marktliberalismus ein Marktfundamentalismus, der mehr Religion aus Wissenschaft ist.

However if opponents of price controls rule out the existence of expectation-driven overreactions in financial or energy markets from the outset and rely solely on the effectiveness of price signals, then market liberalism becomes market fundamentalism, which is more religion than science. [1, p. 82]

The Love for the Market and for Shock Therapies

Krebs writes that a love of the market often goes hand in hand with a love for shock therapies. Krebs explains this using two points taking as an example the then-current demand for an immediate embargo on natural gas from Russia. The belief in the market suggests that the state should refrain from intervening even in major transformation projects and allow price signals to take effect. The market price should ensure that companies and individuals adapt efficiently and quickly to the new circumstances. Furthermore the state could halt or reverse the transformation with any delays. [1, p. 48-52]

Economists however tend to underestimate the human and economic costs of the transformation. Goods (here natural gas) can supposedly be replaced without difficulty. Vacant capacity would be immediately filled or the unemployed would be immediately hired elsewhere. In this hypothetical scenario all economic actors know future market prices precisely and the inflation rate has no impact on overall economic output. [1, p. 48-52]

Es ist dieser fast kindliche Glaube an die magischen Heilkräfte eines abstrakten Marktes, der immer wieder zu dramatischen Fehlanalysen führt.

It is this almost childlike belief in the magical healing powers of an abstract market that repeatedly leads to dramatic misanalyses. [1, p. 50]

Krebs has no definitive answer to the dominance of market-liberal and pseudo-progressive economic institutes. One assumption is that capital interests benefit from the recommendations of these institutes and therefore finance them. Krebs explains the two essential strategies of market fundamentalism: Aggressive marketing of its own ideas and selective perception of reality. [1, p. 52-56]

Preview:

• [Review] Tom Krebs - Misdiagnosis - The (Energy-)Price-Shock
• [Review] Tom Krebs - Misdiagnosis - The Counter-Measures and their Failure

Src:
[1] Tom Krebs - Fehldiagnose - Wie Ökonomen die Wirtschaft ruinieren und die Gesellschaft spalten ISBN 978-3-86489-430-5
[2] Leseprobe
https://westendverlag.de/media/e6/6e/04/1728310626/leseprobe_Krebs_Fehldiagnose.pdf