Creating Markets

I have had a few posts recently on my twitter feed about the government creation of markets (I am not talking about the U.S. government specifically by the way). There are a number of these that I am not sure are entirely desired, but nonetheless in retrospect any armchair economist can easily spot the reason the government screwed up and the normal market conditions prevailed.

Take the war on drugs for example. The government wanted less drugs so they spent loads of money to capture shipments of drugs and attack drug traffickers. Any reasonable business person would run the numbers and find that if there was a sustainable demand at level X, they should produce and ship enough product to meet the demand at level X and account for the loss to the government. The problem is that the drug raids aren’t all that sustainable and politically it is a nightmare to controll in relation to the other macro-economic factors in the world like oil, hunger, and war. The result is a glut of drugs, competition, and of course cheaper drugs. So the government taxes tobacco products and alcohol and the use/availability goes down while at the same time the ban and actively try to remove narcotics and the use/availability goes up.

Another interesting drug example is the addition of abuse deterrent in OxyContin resulting in the increase in use of MORE dangerous drugs. Let’s not kill patients in an attempt to prevent them from being drug addicts please.

Yet another example – this one not related to drugs, this one in Indonesia where the government has created an industry where previously low paid or out of work individuals can now be paid to ride in cars so that the driver can use high occupancy routes. This seems to be an alternative to the government spending money to build transit systems…

To reduce the number of cars on the road, lawmakers have designated several main arteries as what they call “Three in One zones.”  During the morning and afternoon rush, you can’t drive there unless you have at least three people on board.  That’s why, near the entrances to the zones, men, women and children line up – raising their index finger  – offering to rent themselves to commuters in a hurry.

20-year-old Litjak climbs into a black sedan, cradling her 2-month-old daughter Nabilah. Together, they’ll help a college student get to class on time.  The baby gives Litjak a competitive advantage, providing two passengers for the price of one.

Litjak says she can make at least two trips in a morning, collecting two or three dollars to help pay for household expenses.  She never worries about her safety, and she likes the work. People who can afford to pay have nice cars, so she sits in air conditioned comfort, listening to the radio.

She and others in this line of work are called traffic jockeys.  They dress neatly each day and may have regular customers.  For some, it’s their only income.  Others, like 21-year-old Adik, see this as an easy way to make extra cash when he’s not on the job parking cars.

How about one not created by governments. Look at the Amazon marketplace – yes I know they intentionally created the marketplace. The unintended market that sprouted though is being run by the same High Frequency Traders that permeate the stock market and now there is truly such a thing as High Frequency Marketplace manipulation on Amazon. Having sold a few items on Amazon, this is annoying to deal with in real time.

Moving past the obvious creators of markets, there is a market that exists for startups that are willing to go for bribery and spam in an effort to get funded before crashing. A pump and dump of sorts in the world of web startups. The formula is pretty simple – build an app or site (porn perhaps), buy some users, spam everyone to register, start to get the unique visitor count rising at a geometrical pace, get investment – pay out and crash. Simple enough… especially if you can do it again and again like the true penny stock pushers do.

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