(3) On the failure of markets and allocation mechanisms

[This is a part of a series of entries loosely connected]

Imagine we would half the size of all classes in all schools. It is a fact that this would improve the experience for the teacher and the pupils. It would lead to faster, better and more creative ways to learn. Think of it: there would be double the number of teaching positions available – 350.000 more. And if we would pay them a little more, and stop to publicly denounce them we would so fundamentally have improved their working conditions we might attract a necessary number of qualified candidates.
Not only that. There would be a temporary surge in construction, because we would need more spacious schools, and we would maybe like to build them sustainable and likeable. So we would need solar panels, and better architects. So many things to be done if we were getting serious about improving education! As I can tell from experience, high school math books in this country are of mediocre quality at best.
Education is only one example. There are millions of tasks and loads of work to do that we all could probably agree on, that would benefit all. This is not restricted to high level jobs. It’s basic services: a tighter post office network, help for elderly at trains stations who regularly ask me how to use the ticket machine. Greener cities. A turn towards greener agriculture would need more personnel. More fully wooden furniture would need more forest workers, and more people to work as cabinet makers.
All of these things – and you can think of many more investments in social welfare – have one thing in common: they lack funding. Those who would like to have these services are unwilling or unable to pay for them, and those supposed to work for the offered wage do not want to, because they could not afford their own services and live more comfortably off the welfare state. I will not go into detail here why I believe that the setup of the monetary system is one of the major causes for this. All I want to point out is that there are jobs that would make everybody better off if they were created, but they are monetarily underpriced. In the same vein I argue that there are jobs in this society that make only a pair of people better off, that create a local Pareto optimum, but are overpriced if their effect on total welfare is considered. Markets find one equilibrium (and even that is highly doubtful and a mere theoretical assumption!), but they do not find global optima. The measures used to construct the social rules governing these markets are fundamentally flawed, because they do not take into account the human side of economic activity.

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