Fair Trade? We Have Nothing Close

Inequality.org

Lest the title of this “fair trade” post confuse you, I’m not talking about the fair trade goods that stock the shelves of shops run by well-meaning nonprofits. That movement — to insure that craftspeople abroad get paid fairly for the goods they make — is well-intentioned and important, but it isn’t the subject at hand. The operation of a market economy — capitalism — rests upon a definition of what constitutes a fair trade. Analysts usually frame this definition as the amount that a willing buyer and a willing seller, both of whom possess all relevant information, agree represents a fair price for the goods or services in question. In some areas, rather obviously, markets don’t work. Health care — no matter what GOP congressmen insist — rates one of these, because health care buyers and sellers do not both possess all relevant information. Economists call this situation an instance of “information asymmetry.” As a practical matter, when one party to a transaction has important information that the other party doesn’t have, the party with the information has an unfair advantage. We have other situations where markets can be manipulated. One of the most common involves “externalities.” Economists use this term to refer to the costs of an economic activity that aren’t paid by either party to the primary exchange, but are instead “offloaded” to someone else — typically, taxpayers. - See more at: http://inequality.org/fair-trade-close/#sthash.yCm6alq1.dpuf