Market Composition

14 December 2011

Wednesday


We can represent the particular market composition of an entity or region by showing the relative proportion of black, gray, white, pink, and red markets in a given economic system.

Yesterday in What color is your market? I introduced the idea, in addition to familiar ideas of black markets and gray markets, of red markets and pink markets — that is to say, sectors of the economy that exist only in virtue of state subsidies, direct (red markets) or indirect (pink markets). A completely nationalized economy is a red market; crony capitalism at its furthest reach is a pink market.

In so far as the ideal of political economy is that all transactions should be fully legal, a representation of an economic system predominated by the white market illustrates this ideal.

One of the greatest difficulties of producing a coherent economic theory is a function of what gets left out of conventional econometrics, and what gets left out is the black market and the gray market. Now that I have formulated the ideas of red markets and pink markets, I would also point out that, while statistics on these markets could be had with a bit of research, they are not the kind of things that governments put prominently on exhibition when publishing their economic statistics to the world.

In a classic Soviet-syle state-controlled economy, the red market would predominate. Nation-states undertaking nationalization measures approximate this representation.

It is nearly impossible to get accurate black market and gray market statistics because people are not about to be truthful about their illegal and quasi-legal financial dealings, and, similarly, nation-states and institutions are not going to be forthcoming about their red markets and pink markets.

Crony capitalist regimes, in which state favor of particular industries is primarily indirect mean a nation-state dominated by a pink market.

Nation-states have a vested interest in misrepresenting their red markets, because a population that was well informed about how the public money is being spent to support certain industries and certain jobs would likely create a backlash. No one wants to know that their tax dollars are being spent to prop up a decrepit industry, unless they themselves are employed in that industry.

Where the informal sectors of the economy dominate, black markets and gray markets flourish.

And while nation-states have a greater degree of plausible deniability when it comes to their pink markets, there is perhaps an even stronger incentive not to divulge the details of the pink market, as compared to the red market. When a government goes so far as to nationalize an industry, the case must be made explicitly that this is a good thing. In the case of pink markets, to case need not ever be made, if all can be done quietly, on the side, and no journalists take an interest in it.

The nightmare for every regulator and bureaucrat is an economy in which the black market predominates: the black market not only resists control, but also defeats attempts at measurement.

We can intuitively represent the overall structure of an economy by representing each of the five markets I have been discussing — black, gray, white, pink, and red — each by its eponymous color, showing the relative preponderance of a particular market in a particular economy by the relative preponderance of the associated color. If we could get good statistics, we could be quantitatively precise about this, but the above sketch is simply to present the idea and for this I claim no quantitative precision.

. . . . .

signature

. . . . .

Grand Strategy Annex

. . . . .

Advertisements

6 Responses to “Market Composition”

  1. MisterEgo said

    You are seriously delusional if you truly believe that the image you placed for state controlled economy is true… a better image would probably be your first one.

    You also fail to understand the true connection between red, gray and black in those economies that make 5 year plans a joke…

    • geopolicraticus said

      Dear MisterEgo,

      I wasn’t trying to give a realistic depiction of a state-controlled economy, but only to present an ideal condition, like the ideal condition of a non-state-controlled economy being a predominately white market. We all know that black markets flourish under state-controlled economies.

      And I didn’t really try to present a detailed understanding of the interaction of these market sectors, though such a project would be an interesting one.

      Best wishes,

      Nick

      • MisterEgo said

        I had a feeling you would say that, but looking over your definition of red from the previous post, I’d say you gave a different version to your readers then you hold yourself.

        Cheers.

  2. MisterEgo said

    Also, crony capitalist economies with VAT probably have much wider gray and black areas…

    • geopolicraticus said

      I agree with you. Where the state grants special favors to particular individuals, institutions, commodities, or industries, it creates a strong incentive to circumvent these state structures, which means the expansion of the black and gray markets.

      Nick

  3. geopolicraticus said

    In regard to giving a different version to my readers than I hold myself, I make a distinction between the exposition of an idea and giving my own position regarding that idea. Sometimes I do both; sometimes I do only the one or the other, i.e., exposition or advocacy.

    Nick

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: