Flaws of the Modern Economy

The four obvious problems

There are four major adverse global tendencies, which critically undermine the virtues of the current neo-liberal economic model. As they are both commonly recognized and sufficiently severe, finding their solution is the principal task of humanity:

• Deepening of economic inequality
• Environmental degradation
• Depletion of natural resources
• Systemic crises

The first one is associated with the idea of justice, the next two with the idea of sustainable development, and the last one describes in the same time the conditions for and the consequences of the first three. Both these notions are insufficiently addressed by today’s global community and this fact is considered to be one of the reasons why the four problems above become more and more acute. The possible solutions of these problems are complicated by the fails of modern markets, strengthened by the principles of neo-liberalism. The flaws can be distinguished to those of financial markets and of goods markets. The rational value scale of a regular consumer of goods is distorted by imperfect information as well as by the influence of marketing induced consumerism. In turn, the financial markets’ instability raises human uncertainty about the future, creates a significant scale of path-dependencies that provide further economic misbalances, thus forming a vicious spiral that leads to a large number of adverse social phenomena such as social unrest and crime. In general the set of the markets’ problems is resulted in a distortion of the principal function of the market system – the informational function. This function lies in expressing all the multitude of information on the status of supply and demand through a single indicator – the price, which is determined from the supply side by the production costs, and from the demand side by the value (utility), perceived by consumer, which determines the latter’s willingness to pay. These three crucial informational indicators: price, cost, and value are what today’s economic model is unable to set adequately. In the short run the above mentioned flaws induce economic instability, lack of balance between supply and demand and distortion of value, while in the long run their effects lead to overproduction and are associated with the systemic profound crises that the world is experiencing today. Only after the fundamental causes of these market fails are eliminated, the further evolution towards higher social justice and sustainable global economy becomes possible.

Fails of the markets

The flaws can be distinguished to those of financial markets and of goods markets. The rational value scale of a regular consumer of goods is distorted by the imperfect information as well as under the influence of marketing induced consumerism. In turn, the financial markets instability raises human uncertainty about the future, creates a significant scale of path-dependencies that provide further economic misbalances thus forming a vicious spiral that leads to a large number of adverse social phenomena such as social unrest and crime.

In general the set of markets’ problems is resulted in a distortion of the principal function of market system – the informational function. This function lies in expressing all the multitude of information on the status of supply and demand through a single indicator – the price, which is determined from the supply side by the production costs, and from the demand side – by the value (utility), perceived by consumer, which determines the latter’s willingness to pay. These three crucial informational indicators: price, cost and value are what today’s economic model is unable to set adequately.

In the short run the above mentioned flaws induce economic instability, lack of balance between supply and demand and distortion of value, while in the long run their effects lead to overproduction and are associated with systemic profound crises, last of which the world is experiencing today. Only after the fundamental causes of these market fails are eliminated, the further evolution towards higher social justice and sustainable global economy becomes possible.