Copyright 1997 by The American Prospect, Inc. Preferred Citation: Robert Kuttner, "The Limits of Markets," The American Prospect no. 31 (March- April 1997): 28-41 (http://epn.org/prospect/31/31kutt.html). THE LIMITS OF MARKETS By Robert Kuttner Adapted by the author from Everything for Sale: The Virtues and Limits of Markets, Alfred A. Knopf / Twentieth Century Fund, published January 1997. The claim that the freest market produces the best economic outcome is the centerpiece of the conservative political resurgence. If the state is deemed incompetent to balance the market's instability, temper its inequality, or correct its myopia, there is not much left of the mixed economy and the modern liberal project. Yet while conservatives resolutely tout the superiority of free markets, many liberals are equivocal about defending the mixed economy. The last two Democratic presidents have mainly offered a more temperate call for the reining in of government and the liberation of the entrepreneur. The current vogue for deregulation began under Jimmy Carter. The insistence on budget balance was embraced by Bill Clinton, whose pledge to "reinvent government" was soon submerged in a shared commitment to shrink government. Much of the economics profession, after an era of embracing a managed form of capitalism, has also reverted to a new fundamentalism about the virtues of markets. So there is today a stunning imbalance of ideology, conviction, and institutional armor between right and left. At bottom, three big things are wrong with the utopian claims about markets. First, they misdescribe the dynamics of human motivation. Second, they ignore the fact that civil society needs realms of political rights where some things are not for sale. And third, even in the economic realm, markets price many things wrong, which means that pure markets do not yield optimal economic outcomes. There is at the core of the celebration of markets relentless tautology. If we begin by assuming that nearly everything can be understood as a market and that markets optimize outcomes, then everything leads back to the same conclusion—marketize! If, in the event, a particular market doesn't optimize, there is only one possible conclusion—it must be insufficiently market-like. This is a no-fail system for guaranteeing that theory trumps evidence. Should some human activity not, in fact, behave like an efficient market, it must logically be the result of some interference that should be removed. It does not occur that the theory mis-specifies human behavior. The school of experimental economics, pioneered by psychologists Daniel Kahneman and Amos Tversky, has demonstrated that people do not behave the way the model specifies. People will typically charge more to give something up than to acquire the identical article; economic theory would predict a single "market-clearing" price. People help strangers, return wallets, leave generous tips in restaurants they will never visit again, give donations to public radio when theory would predict they would rationally "free-ride," and engage in other acts that suggest they value general norms of fairness. To conceive of altruism as a special form of selfishness misses the point utterly. Although the market model imagines a rational individual, maximizing utility in an institutional vacuum, real people also have civic and social selves. The act of voting can be shown to be irrational by the lights of economic theory, because the "benefit" derived from the likelihood of one's vote affecting the outcome is not worth the "cost." But people vote as an act of faith in the civic process, as well as to influence outcomes. In a market, everything is potentially for sale. In a political community, some things are beyond price. One's person, one's vote, one's basic democratic rights do not belong on the auction block. We no longer allow human beings to be bought and sold via slavery (though influential Chicago economists have argued that it would be efficient to treat adoptions as auction markets). While the market keeps trying to invade the polity, we do not permit the literal sale of public office. As James Tobin wrote, commenting on the myopia of his own profession, "Any good second-year graduate student in economics could write a short examination paper proving that voluntary transactions in votes would increase the welfare of the sellers as well as the buyers." But the issue here is not just the defense of a civic realm beyond markets or of a socially bearable income distribution. History also demonstrates that in much of economic life, pure reliance on markets produces suboptimal outcomes. Market forces, left to their own devices, lead to avoidable financial panics and depressions, which in turn lead to political chaos. Historically, government has had to intervene, not only to redress the gross inequality of market-determined income and wealth, but to rescue the market from itself when it periodically goes haywire. The state also provides oases of solidarity for economic as well as social ends, in realms that markets cannot value properly, such as education, health, public infrastructure, and clean air and water. So the fact remains that the mixed economy—a strong private sector tempered and leavened by a democratic polity—is the essential instrument of both a decent society and an efficient economy. The second coming of laissez faire has multiple causes. In part, it reflects the faltering of economic growth in the 1970s, on the Keynesian watch. It also reflects a relative weakening of the political forces that support a mixed economy—the declining influence of the labor movement, the erosion of working-class voting turnout, the suburbanization of the Democratic Party, and the restoration of the political sway of organized business—as well as the reversion of formal economics to pre-Keynesian verities. Chicago-style economists have also colonized other academic disciplines. Public Choice theory, a very influential current in political science, essentially applies the market model to politics. Supposedly, self-seeking characterizes both economic man and political man. But in economics, competition converts individual selfishness into a general good, while in politics, selfishness creates little monopolies. Public Choice claims that office holders have as their paramount goal re-election, and that groups of voters are essentially "rent seekers" looking for a free ride at public expense, rather than legitimate members of a political collectivity expressing democratic voice. Ordinary citizens are drowned out by organized interest groups, so the mythic "people" never get what they want. Thus, since the democratic process is largely a sham, as well as a drag on economic efficiency, it is best to entrust as little to the public realm as possible. Lately, nearly half the articles in major political science journals have reflected a broad Public Choice sensibility. The Law and Economics movement, likewise, has made deep inroads into the law schools and courts, subsidized by tens of millions of dollars from right- wing foundations. The basic idea of Law and Economics is that the law, as a system of rules and rights, tends to undermine the efficiency of markets. It is the duty of judges, therefore, to make the law the servant of market efficiency rather than a realm of civic rights. Borrowing from Public Choice theory, Law and Economics scholars contend that since democratic deliberation and hence legislative intent are largely illusory, it is legitimate for courts to ignore legislative mandates—not to protect rights of minorities but to protect the efficiency of markets. Regulation is generally held to be a deadweight cost, since it cannot improve upon the outcomes that free individuals would rationally negotiate. These intellectual currents are strategically connected to the political arena. Take the journal titled Regulation, published for many years by the American Enterprise Institute, and currently published by the Cato Institute. Though it offers lively policy debates over particulars, virtually every article in Regulation is anti-regulation. Whether the subject is worker safety, telecommunications, the environment, electric power, health care—whatever—the invariable subtext is that government screws things up and markets are self-purifying. It is hardly surprising that the organized right publishes such a journal. What is more depressing, and revealing, is that there is no comparable journal with a predisposition in favor of a mixed economy. This intellectual apparatus has become the scaffolding for the proposition that governments should leave markets alone. ------------------------------------------------------- MARKETS, EFFICIENCY, AND JUSTICE The moral claim of the free market is based on the interconnected premises that markets maximize liberty, justice, and efficiency. In a market economy, individuals are free to choose, as Milton Friedman famously wrote. They are free to decide what to buy, where to shop, what businesses or professions to pursue, where to live—subject "only" to the constraints of their individual income and wealth. The extremes of wealth and poverty seemingly mock the claim that markets epitomize human freedom—a poor man has only the paltry freedoms of a meager income. But the constraints of market-determined income are presumed defensible, because of the second claim—that the purchasing power awarded by markets is economically fair. If Bill Gates has several billion dollars to spend, that is only because he has added several billions of dollars of value to the economy, as validated by the free choices of millions of consumers. An unskilled high school dropout, in contrast, has little freedom to consume, because his labor offers little of value to an employer. There may be extenuating prior circumstances of birth or fortune, but each of us is ultimately responsible for our own economic destiny. Linking these two premises is the third claim—that markets are roughly efficient. The prices set by supply and demand reflect how the economy values goods and services. So the resulting allocation of investment is efficient, in the sense that an alternative allocation mandated by extra-market forces would reduce total output. This is why professional economists who have liberal social values as citizens generally argue that if we don't like the social consequences of market income distribution, we should redistribute after the fact rather than tamper with the market's pricing mechanism. Of course, each of these core claims is ultimately empirical. If in fact the freest market does not truly yield the optimal level of material output, then it follows that a pure market is neither just nor conducive of maximal liberty. A tour of the actual economy reveals that some sectors lend themselves to markets that look roughly like the market of the textbook model, while others do not. Why would markets not be efficient? The most orthodox explanation is the prevalence of what economists call "externalities." These are costs or benefits not captured by the price set by the immediate transaction. The best-known negative externality is pollution. The polluter "externalizes" the true costs of his waste products onto society by dumping them, at no personal cost, into a nearby river or spewing them into the air. If the full social cost were internalized, the price would be higher. Positive externalities include research and education. Individuals and business firms underinvest in education and research because the benefits are diffuse. The firm that trains a worker may not capture the full return on that investment, since the worker may take a job elsewhere; the fruits of technical invention, likewise, are partly appropriated by competitors. As economists put it, the private return does not equal the social return, so we cannot rely on profit- maximizing individuals for the optimal level of investment. By the same token, if we made the education of children dependent on the private resources of parents, society as a whole would underinvest in the schooling of the next generation. There is a social return on having a well-educated workforce and citizenry. As the bumper sticker sagely puts it, "If you think education is expensive, try ignorance." Standard economics sees externalities as exceptions. But a tour of economic life suggests that in a very large fraction of the total economy, markets do not price things appropriately. When we add up health, education, research, public infrastructure, plus structurally imperfect sectors of the economy like telecommunications, they quickly add up to more than half of society's total product. The issue is not whether to temper market verdicts, but how. ------------------------------------------------------- SUPER MARKETS Even realms that are close to textbook markets can actually be enhanced by extra-market interventions. Consider your local supermarket. The pricing and supply of retail food is mostly unregulated, and fiercely competitive. Somehow, the average consumer's lack of infinite time to go shopping, and less-than- perfect information about the relative prices of a thousand products in several local stores, exactly allows the supermarket to earn a normal profit. Supermarkets connect the retail market to the agricultural one. The supermarket also provides part of the local market for labor and capital. Though cashiers and meat cutters are not the most glamorous of jobs, the supermarket manages to pay just enough to attract people who are just competent enough to perform the jobs acceptably. If supermarket profits are below par over time, the price of its shares will fall. That also operates as a powerful signal—on where investors should put their capital, and on how executives must supervise their managers and managers their employees. Though there may be occasional missteps, and though some supermarkets go bankrupt, the interplay of supply and demand in all of these submarkets contributes to a dynamic equilibrium. It results in prices that are "right" most of the time. The supermarket stocks, displays, and prices thousands of different highly perishable products in response to shifting consumer tastes, with almost no price regulation. Supply and demand substitutes for elaborate systems of control that would be hopelessly cumbersome to administer. No wonder the champions of the market are almost religious in their enthusiasm. But please note that supermarkets are not perfectly efficient. Retail grocers operate on thin profit margins, but the wholesale part of the food distribution chain is famous for enormous markups. A farmer is likely to get only 10 cents out of a box of corn flakes that retails for $3.99. Secondly, even supermarkets are far from perfectly free markets. Their hygiene is regulated by government inspectors, as is most of the food they sell. Government regulations mandate the format and content of nutritional labeling. They require clear, consistent unit pricing, to rule out a variety of temptations of deceptive marketing. Moreover, many occupations in the food industry, such as meat cutter and cashier, are substantially unionized; so the labor market is not a pure free market either. Much of the food produced in the United States is grown by farmers who benefit from a variety of interferences with a laissez-faire market, contrived by government to prevent ruinous fluctuations in prices. The government also subsidizes education and technical innovation in agriculture. So even in this nearly perfect market, a modicum of regulation is entirely compatible with the basic discipline of supply and demand, and probably enhances its efficiency by making for better-informed consumers, less- opportunistic sellers, and by placing the market's most self-cannibalizing tendencies off-limits. Because of the imperfect information of consumers, it is improbable that repealing these regulations would enhance efficiency. ------------------------------------------------------- SICK MARKETS Now, however, consider a very different sector—health care. Medical care is anything but a textbook free market, yet market forces and profit motives in the health industry are rife. On the supply side, the health industry violates several conditions of a free market. Unlike the supermarket business, there is not "free entry." You cannot simply open a hospital, or hang out your shingle as a doctor. This gives health providers a degree of market power that compromises the competitive model—and raises prices. On the demand side, consumers lack the special knowledge to shop for a doctor the way they buy a car and lack perfectly free choice of health insurer. And since society has decided that nobody shall perish for lack of medical care, demand is not constrained by private purchasing power, which is inflationary. Health care also offers substantial "positive externalities." The value to society of mass vaccinations far exceeds the profits that can be captured by the doctor or drug company. If vaccinations and other public health measures were left to private supply and demand, society would seriously underinvest. Society invests in other public health measures that markets underprovide. The health care system also depends heavily on extra-market norms—the fact that physicians and nurses are guided by ethical constraints and professional values that limit the opportunism that their specialized knowledge and power might otherwise invite. See Deborah A. Stone, "Bedside Manna," page 42. The fact that health care is a far cry from a perfect market sets up a chain of perverse incentives. A generation ago, fee-for-service medicine combined with insurance reimbursement to stimulate excessive treatment and drive up costs. Today many managed care companies reverse the process and create incentives to deny necessary care. In either case, this is no free market. Indeed, as long as society stipulates that nobody shall die for lack of private purchasing power, it will never be a free market. That is why it requires regulation as well as subsidy. Here is the nub of the issue. Are most markets like supermarkets—or like health markets? The conundrum of the market for health care is a signal example of an oft-neglected insight known as the General Theory of the Second Best. The theory, propounded by the economists Richard Lipsey and Kelvin Lancaster in 1956, holds that when a particular market departs significantly from a pure market, attempts to marketize partially can leave us worse off. A Second Best market (such as health care) is not fully accountable to the market discipline of supply and demand, so typically it has acquired second- best forms of accountability—professional norms, government supervision, regulation, and subsidy—to which market forces have adapted. If the health care system is already a far cry from a free market on both the demand side and the supply side, removing one regulation and thereby making the health system more superficially market-like may well simply increase opportunism and inefficiency. In many economic realms, the second-best outcome of some price distortion offset by regulation and extra-market norms may be the best outcome practically available. Another good Second Best illustration is the banking industry. Until the early 1970s, banking in the United States was very highly regulated. Regulation limited both the price and the quantity of banking services. Bank charters were limited. So were interest rates. Banks were subject to a variety of other regulatory constraints. Of course, banks still competed fiercely for market share and profitability, based on how well they served customers and how astutely they analyzed credit risks. Partially deregulating the banking and savings and loan industries in the 1980s violated the Theory of the Second Best. It pursued greater efficiency, but led to speculative excess. Whatever gains to the efficiency of allocation were swamped by the ensuing costs of the bailout. ------------------------------------------------------- THE THREE EFFICIENCIES The saga of banking regulation raises the question of contending conceptions of efficiency. The efficiency prized by market enthusiasts is "allocative." That is, the free play of supply and demand via price signals will steer resources to the uses that provide the greatest satisfaction and the highest return. Regulation interferes with this discipline, and presumably worsens outcomes. But in markets like health care and banking, the market is far from free to begin with. Moreover, "allocative" efficiency leaves out the issues that concerned John Maynard Keynes—whether the economy as a whole has lower rates of growth and higher unemployment than it might achieve. Nor does allocative efficiency deal with the question of technical advance, which is the source of improved economic performance over time. Technical progress is the issue that concerned the other great dissenting economic theorist of the early twentieth century, Joseph Schumpeter. Standard market theory lacks a common metric to assess these three contending conceptions of efficiency. Countermanding the allocative mechanism of the price system may depress efficiency on Adam Smith's sense. But if the result is to increase Keynesian efficiency of high growth and full employment, or the Schumpeterian efficiency of technical advance, there may well be a net economic gain. Increasing allocative efficiency when unemployment is high doesn't help. It may even hurt—to the extent that intensified competition in a depressed economy may throw more people out of work, reduce overall purchasing power, and deepen the shortfall of aggregate demand. By the same token, if private market forces underinvest in technical innovation, then public investment and regulation can improve on market outcomes. Patents, trademarks, and copyrights are among the oldest regulatory interventions acknowledging market failure, and creating artificial property rights in innovation. As technology evolves, so necessarily does the regime of intellectual property regulation. In my recent book, Everything For Sale, I examined diverse sectors of the economy. Only a minority of them operated efficiently with no regulatory interference. Some sectors, such as banking and stock markets, entail both fiduciary responsibilities and systemic risks. In the absence of financial regulation, conflicts of interest and the tendency of money markets to speculative excess could bring down the entire economy, as financial panics periodically did in the era before regulation. Other sectors, such as telecommunications, are necessarily a blend of monopoly power and competition. New competitors now have the right to challenge large incumbents, but often necessarily piggyback on the infrastructure of established companies that they are trying to displace. Without regulation mandating fair play, they would be crushed. The breakup of the old AT&T monopoly allows greater innovation and competition, but if the new competition is to benefit consumers it requires careful ground rules. The 1996 Telecommunications Act, complex legislation specifying terms of fair engagement, is testament for the ongoing need for discerning regulation in big, oligopolistic industries. Similarly, in the electric power industry, where new technologies allow for new forms of competition, the old forms of regulation no longer apply. Once, a public utility was granted a monopoly; a regulatory agency guaranteed it a fair rate of return. Today, the system is evolving into one in which residential consumers and business customers will be able to choose among multiple suppliers. Yet because of the need to assure that all customers will have electric power on demand, and that incumbents will not be able to drive out new competitors, the new system still depends on regulation. A regime of regulated competition is replacing the old form of regulation of entry and price—but it is regulation nonetheless. Regulation, of course, requires regulators. But if democratic accountability is a charade, if regulators are hopeless captives of "rent-seeking" interest groups, if public-mindedness cannot be cultivated, then the regulatory impulse is doomed. Yet because capitalism requires ground rules, it is wrong to insist that the best remedy is no regulation at all. The choice is between good regulation and bad regulation. In the 1970s, many economists, including many relative liberals such as Charles Schultze, began attacking "command-and-control" regulation for overriding the market's pricing mechanism. Instead, they commended "incentive regulation," in which public goals would take advantage of the pricing system. What Schultze proposed in the area of pollution control, Alfred Kahn commended for electric power regulation and Alain Enthoven proposed for health insurance. But what all three, and others in this vein, tended to overlook is that incentive regulation is still regulation. It still requires competent, public-minded regulators. And because technology continues to evolve, regulation is not merely transitional. The 1990 Clean Air Act created an innovative acid rain program that supplanted "command-and-control" regulation of sulphur dioxide emissions with a new, "market-like" system of tradable emission permits. But before this system could operate, myriad regulatory determinations were necessary. Public policy had to specify the total permissible volume of pollutants, how the new market was to be structured, and how emissions were to be monitored. This was entirely a contrived market. So was the decision to auction off portions of the broadcast spectrum. Though hailed as more "market-like" than the previous system of administrative broadcast licensing, the creation of auctions required innumerable regulatory determinations. Unlike airline deregulation, in which the supervisory agency, the Civil Aeronautics Board, was put out of business, the Federal Communications Commission and the Environmental Protection Agency remain to monitor these experiments in incentive regulation and to make necessary course corrections. Airline deregulation has been at best a mixed success, because there is no government agency to police the results and to intervene to prevent collusive or predatory practices. Similarly, if we are to use incentives in sectors that have previously been seen as public goods, such as education, issues of distribution inevitably arise. How public policy allocates, say, vouchers, and how it structures incentives, cannot help affecting who gets the service. The ideal of a pure market solution to a public good is a mirage. The basic competitive discipline of a capitalist economy can coexist nicely with diverse extra-market forces; the market can even be rendered more efficient by them. These include both explicit regulatory interventions and the cultivation of extra-market norms, most notably trust, civility, and long-term reciprocity. Richard Vietor of the Harvard Business School observes in his 1994 book, Contrived Competition, that imperfect, partly regulated markets still are highly responsive to competitive discipline. The market turns out to be rather more resilient and adaptive than its champions admit. In markets as varied as banking, public utilities, and health care, entrepreneurs do not sicken and expire when faced with regulated competition; they simply revise their competitive strategy and go right on competing. Norms that commit society to resist short-term opportunism can make both the market and the society a healthier place. Pure markets, in contrast, commend and invite opportunism, and depress trust. ------------------------------------------------------- THE INEVITABILITY OF POLITICS A review of the virtues and limits of markets necessarily takes us back to politics. Even a fervently capitalist society, it turns out, requires prior rules. Rules govern everything from basic property rights to the fair terms of engagement in complex mixed markets such as health care and telecommunications. Even the proponents of market-like incentives—managed competition in health care, tradable emissions permits for clean air, supervised deregulation of telecommunications, compensation mandates to deter unsafe workplace practices—depend, paradoxically, on discerning, public-minded regulation to make their incentive schemes work. As new, unimagined dilemmas arise, there is no fixed constitution that governs all future cases. As new products and business strategies appear and markets evolve, so necessarily does the regime of rules. The patterns of market failure are more pervasive than most market enthusiasts acknowledge. Generally, they are the result of immutable structural characteristics of certain markets and the ubiquity of both positive and negative spillovers. In markets where the consumer is not effectively sovereign (telecommunications, public utilities, banking, airlines, pure food and drugs), or where the reliance on market verdicts would lead to socially intolerable outcomes (health care, pollution, education, gross income inequality, the buying of office or purchase of professions), a recourse purely to ineffectual market discipline would leave both consumer and society worse off than the alternative of a mix of market forces and regulatory interventions. While advocates of laissez faire presume that the regulation characteristic of an earlier stage of capitalism has been mooted by technology, competition, and better- informed consumers, they forget that the more mannered capitalism of our own era is precisely the fruit of regulation, and that the predatory tendencies persist. Contrary to the theory of perfect markets, much of economic life is not the mechanical satisfaction of preferences or the pursuit of a single best equilibrium. On the contrary, many paths are possible—many blends of different values, many mixes of market and social, many possible distributions of income and wealth—all compatible with tolerably efficient getting and spending. The grail of a perfect market, purged of illegitimate and inefficient distortions, is a fantasy. The real world displays a very broad spectrum of actual markets with diverse structural characteristics, and different degrees of separation from the textbook ideal. Some need little regulation, some a great deal—either to make the market mechanism work efficiently or to solve problems that the market cannot fix. Someone has to make such determinations, or we end up in a world very far from even the available set of Second Bests. In short, rules require rule setters. In a democracy, that enterprise entails democratic politics. The market solution does not moot politics. It only alters the dynamics of influence and the mix of winners and losers. The attempt to relegate economic issues to "nonpolitical" bodies, such as the Federal Reserve, does not rise above politics either. It only removes key financial decisions from popular debate to financial elites, and lets others take the political blame. A decision to allow markets, warts and all, free rein is just one political choice among many. There is no escape from politics. ------------------------------------------------------- QUIS CUSTODET? The issue of how precisely to govern markets arises in libertarian, democratic nations like the United States, and deferential, authoritarian ones like Singapore. It arises whether the welfare state is large or small, and whether the polity is expansive or restrained in its aspirations. Rule setting and the correction of market excess are necessarily public issues in social-democratic Sweden, in Christian Democratic Germany, in feudal-capitalist Japan, and in Tory Britain. The highly charged question of the proper rules undergirding a capitalist society pervaded political discourse and conflict throughout nineteenth-century America, even though the public sector then consumed less than 5 percent of the gross domestic product. The political process, of course, can produce good sets of rules for the market, or bad ones. Thus, the quality of political life is itself a public good—perhaps the most fundamental public good. A public good, please recall, is something that markets are not capable of valuing correctly. Trust, civility, long-term commitment, and the art of consensual deliberation are the antitheses of pure markets, and the essence of effective politics. As the economic historian Douglass North, the 1993 Nobel laureate in economics, has observed, competent public administration and governance are a source of competitive advantage for nation-states. Third-world nations and postcommunist regimes are notably disadvantaged not just by the absence of functioning markets but by the weakness of legitimate states. A vacuum of legitimate state authority does not yield efficient laissez faire; it yields mafias and militias, with whose arbitrary power would-be entrepreneurs must reckon. The marketizers advising post-Soviet Russia imagined that their challenge was to dismantle a state in order to create a market. In fact, the more difficult challenge was to constitute a state to create a market. Norms that encourage informed civic engagement increase the likelihood of competent, responsive politics and public administration, which in turn yield a more efficient mixed economy. North writes: The evolution of government from its medieval, Mafia-like character to that embodying modern legal institutions and instruments is a major part of the history of freedom. It is a part that tends to be obscured or ignored because of the myopic vision of many economists, who persist in modeling government as nothing more than a gigantic form of theft and income redistribution. Here, North is echoing Jefferson, who pointed out that property and liberty, as we know and value them, are not intrinsic to the state of nature but are fruits of effective government. The more that complex mixed markets require a blend of evolving rules, the more competent and responsive a public administration the enterprise requires. Strong civic institutions help constitute the state, and also serve as counterweights against excesses of both state and market. Lately, the real menace to a sustainable society has been the market's invasion of the polity, not vice versa. Big money has crowded out authentic participation. Commercial values have encroached on civic values. Unless we are to leave society to the tender mercies of laissez faire, we need a mixed economy. Even laissez faire, for that matter, requires rules to define property rights. Either way, capitalism entails public policies, which in turn are creatures of democratic politics. The grail of a market economy untainted by politics is the most dangerous illusion of our age. Related Resources "The Vanity of Human Markets: An Interview with Robert Kuttner," by Wen Stephenson, Atlantic Unbound, February 25, 1997. "Rethinking Capitalism, " by Marcia Stephanek, Salon, February 10, 1997. Robert Kuttner discusses his book, Everything For Sale, and the threats to democracy posed by an extreme free-market ideology. "The Invisible Fist," by Charles Handy, The Economist, February 1997. Management writer and social philosopher Charles Handy advises that Everything for Sale "ought to be compulsory reading for all politicians." Everything For Sale Copyright 1997 by The American Prospect, Inc. 14
