David B. Shemano wrote: > Markets don't make mistakes. People make mistakes. A lot of mistakes. > People acting in the market make mistakes. People acting in charitable > organizations make mistakes. People acting in governments make mistakes. > People in family and romantic relationships make mistakes. People.<
oh, if we could just replace people by markets! > Since people are flawed mistake makers, the question becomes what > institutional arrangements are best conducive to good decision-making by > people and minimizing mistakes by people? What institutional arrangements > best allow mistakes by people to be corrected by people? I think theory and > history argue in favor of markets as opposed to the alternatives on the > table.< I can't argue about "history," since there's much too much information in that category. Further, all of the lessons of history are in the eyes of the beholders. That is, "history" is based on and informed by theory. So turn to that. The theory that argues in favor of markets as the best way to organize us flawful individuals (coordinating us and encouraging us to cooperate) typically makes extremely outrageous (anti-empirical) assumptions such as that Say's Tautology actually says anything about the behavior of the real world and the absence of both technical and pecuniary externalities. The received market theory says: "if you let a large number of people seek to serve their own self-interests by buying and selling items in a competitive market, it will result in the largest quantity of those items being produced -- and their cost to buyers and others will be the lowest sustainable." The problem with that proposition can be seen in the many cases where there are non-market interactions among the individuals: there's no way that public goods such as a legal system or property rights will be provided by a market, while market competition encourages each individual to dump costs on others while grabbing all the benefits they can from others. The market costs of an item (its price) may be driven to its minimum by market competition, but the non-market costs (externalities) may be maximized. Even when property rights are well-defined, we can see adverse selection (Akerlof's market for lemons): for example, in recent years, we saw financiers competing with each other to sell assets with high returns. This involved, naturally enough, selling assets with high risks (various kinds of mortgage-backed securities, etc.) Those who did not offer high returns were punished by being unable to sell, so the Invisible Hand of the market inexorably meant that the market became dominated by the risk-peddlers (the lemon-pushers). This is why serious economists (i.e., those who have sat out the neoliberal fad) do not believe in the "market über alles" perspective. Instead, they see that (1) it's wrong to see markets, centralized control, tradition, and democracy as substitutes for each other in coordinating economic activity (as with David's weighing of the virtues of "markets" against those of "the alternatives on the table"); instead, they are _complements_. Markets require, for example, state control in the sense of forcing people to obey the rules of the game (respecting property rights, etc.) complemented by a generally-held sense of the legitimacy of both the rules and the state. The freedom of the market (enjoyed by those with money or other vendible assets) relies on the coercive state and a tradition of acceptance. (If that system doesn't mesh well with democracy, then we have problems. But that's another issue.) (2) there are many situations where the market fails so drastically that There Is No Alternative but to turn to non-market alternatives. The financial mess and global warming (for example) both require non-market solutions, pronto. The centralized powers required to deal with these disasters would likely make mistakes or succumb to the influence of vested interests (cf. T. Geithner & H. Paulson), but (to my mind) they must be subordinated to democracy, so we the citizens can make our own mistakes and learn from them. As suggested by this last sentence, "serious economists" need not be socialists. A socialist would choose a qualitatively different kind of complementarity among economic institutions than a liberal (of either sort) would. A "classical liberal" would put property-owners in charge (as with John Locke) while a socialist would put the democratically-organized citizenry in charge. A Welfare-state or "New Deal liberal" would seek a compromise. -- Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
