Newsflash: Markets Fail

On Thursday night I was at Shine Nightclub listening to the wonderful Kevin Hague debate some rainbow issues with the local candidates for Labour and National. One of the members of Stand Up- Youth Union asked a question about the gender pay gap. David Bennett got up and answered that with economic growth and the free market the pay gap between men and women would close, at the time his position was criticised by everyone there, mainly because if that argument is to be believed then the market is saying that women are worth 12% less than men despite their superior educational outcomes etc. over the past two decades.

So later I’m at home and I’m reading online about the probems in the worlds financial markets. The economies of North America and Europe are in serious trouble and investors are getting scared. So what did they do? a lot of them took their money out of the comparatively safe investments in New Zealand and Australia and invested them in products like T-Bills in the states. We saw the same phenomenon earlier in the year when the US government had its credit rating downgraded to AA+, the same level as New Zealand for American investors. The Americans panicked and responded by investing in the U.S. Government, the very entity which was causing them strife. Then consider that the US bonds are paying almost no interest while the New Zealand equivalent is paying a few percent and you can see how uniquely strange this situation is.

Both of these examples I think what is the main problem with unregulated markets: they are most certainly not rational. Women are not worth 12% less than men – their pay is being influenced by factors other than the value their work provides, and this is simply unjust. When New Zealand has a stagnant economy but the rest of the world is heading backwards rational investors would be choosing stagnant economy, but instead they panic and invest in what used to be the safe investments.

We can’t have a more prosperous New Zealand when distortions and injustices arising from unregulated markets go uncorrected. Any first year economics student who stays awake in class will tell you there are market failures. Our politicians are too often inclined to forget.