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Two
1. Can health insurance vouchers work?
2. Twenty myths about markets, by Tom Palmer.
Posted by Tyler Cowen on February 26, 2007 at 11:39 AM in Web/Tech | Permalink
Comments
Okay, I've just red the 'myth one' about about markets, and I am enlightened. This is why I come to this site. Now to make a cup of tea and enjoy the rest of the paper.
Thanks
Posted by: Caravaggio at Feb 26, 2007 12:46:05 PM
Okay, I've just read the 'myth one' about markets, and I'm not convinced. Here are some counter claims often made about the market that people should be wary of:
1. Markets are moral
A more false claim would be hard to image. For exchange to take place, one does not require justice, but merely respect for the law. What is exchanged and the terms of the exchange are bounded solely by that which is legal. Legality and morality are distinct concepts. The former consists of man-made rules for ordering society; the latter consists of right action and behavior that transcends legal fiat. Not all that is legal is moral; not all that is immoral is illegal.
Markets are not merely founded on what is legal. They are also founded on the ability of humans to provide for the desires of others. Media is especially adept at providing the most degrading depiction of immorality for the amusement of its customers. Herbal remedy companies peddle unproven supplements to people who want to lose weight or improve their memory. Salesman use deception, accepted by the law as puffery, in order to inflate the value of goods and services to their customer and persuade them to buy. Many companies take advantage of asymmetric information, well-known cognitive mistakes, psychological phenomena, and neural marketing to find ways to trick people into desiring something they neither want nor need.
Markets may be alternative to violence, but so are courts, where many transactions are litigated. Markets may make some people social. But they also attract the unscrupulous. Markets remind some that other people matter. They also attract the charlatans seeking to cheat and steal from others.
2. Markets don't promote greed and selfishness
Markets may not directly promote greed. But they enable it. And the lack of legislation against unscrupulous actions de facto promote it.
Business schools are the places where the current market is studied and people learn to exploit the market. B-Schools teach that the sole purpose of a corporation is to maximize shareholder value. They teach methods for maximizing the price extracted from customers. They teach methods for signaling pricing moves to competition to maintain collusion, yet skirt around anti-collusion laws. They teach every manner of psychological manipulation in customer behavior classes.
The market itself may not promote greed, but those who are greedy promote the market. It is their tool of choice to steal legally.
3. Free Markets don't lead to Monopolies
In the face of the evidence, it is amazing that people would believe this. American history is replete with evidence of monopolies and duopolies. We have had to enact laws specifically to stop monopolistic practices which businesses often naturally tend towards.
4. Markets operate well with asymmetric information
Information, like every other thing we want, can be very profitable. For instance, when the cigarette industry develops a technique for treating tobacco with ammonia to increase nicotine absorbability, addiction increases and customers get hooked harder and faster. Keeping such information from customers is key to hooking them. Another example, when an automobile company cuts costs on components (say brakes or tires) that make their cars more profitable, even after taking into account the increased cost of settling valid wrongful death claims, such information kept from customers means a fatter bottom line.
Lying to customers is a great way to insure asymmetric information is exploitable by businesses. Witness the successful attempts by the petroleum over the last few years to convince the world that global warming isn't occurring. It may only cost the survivability of the human race, but thank goodness it helped Exxon to another record profit. With a little luck, there will be future generations to laud their shrewd use of asymmetric information.
Symmetric information is not necessary for markets to operate properly. But asymmetric information can be and often is exploited by companies to the detriment of consumers. To the free market purist, dead and dying consumers may not be a problem. I assure you it is to the consumer. And ultimately it is also to the market.
Posted by: squik at Feb 26, 2007 2:54:48 PM
The "Twenty Myths" is more like "Twenty Talking Points." The writer insinuates that monopolies only come from governments while mischaracterizing the complaint that free markets leads to behemoth conglomerates controlling large portions of the economy and public discourse. (The number of companies owning the majority of media outlets in this country is amazingly small.) The writer misses the forest for the trees.
Tyler, it doesn't seem like this paper meets the usually very high standard for your blog.
Posted by: eriks at Feb 26, 2007 2:57:25 PM
From what I've read of it, a decent portion "Twenty Myths" could perhaps be summarized as:
Just because the First Welfare Theorem never holds in practice doesn't mean that we should become a Communist state.
Well, yes. I am convinced that Palmer's preferred policy choices are not the worst thing we can have. This has failed to convince me, though, that we should implement all of his preferred policy choices.
Posted by: Joel at Feb 26, 2007 3:11:05 PM
From what I've read of it, a decent portion "Twenty Myths" could perhaps be summarized as:
Just because the First Welfare Theorem never holds in practice doesn't mean that we should become a Communist state.
Well, yes. I am convinced that Palmer's preferred policy choices are not the worst thing we can have. This has failed to convince me, though, that we should implement all of his preferred policy choices.
Posted by: Joel at Feb 26, 2007 3:11:14 PM
CATO (and Palmer) are paid propagandists for corporate interests. The key to understanding this document and "Economic Freedom" is that the propagandists are promoting the government decisions that benefit multinational corporations (the first-class citizens) whether or not they benefit people (the second-class citizens.)
The whole thing is so ridiculously stilted that it's disgraceful. Strawman arguments providing opportunity for the libertarian talking points preferred by corporations.
Take for example the presentation of markets as cooperation. I could just as easily portray markets as organized systems of bribery to get desired results. And I'm sure that slave markets were wonderful examples of cooperation.
Posted by: Mike Huben at Feb 26, 2007 6:46:35 PM
CATO (and Palmer) are paid propagandists for corporate interests.
Well, we knew you were a fascist, Mike; now we know you're a dishonest one too.
Posted by: asg at Feb 26, 2007 8:35:30 PM
(By the way, if anyone wants to plead oversimplification or unfairness to the claim that Mike Huben is a fascist, or amounts to one anyway, it's clear that anyone who thinks Palmer or Cato are paid corporate propagandists has forfeited the standing to complain about those things. Sauce for the gander and all that.)
Posted by: asg at Feb 26, 2007 8:41:13 PM
Perhaps these comments came from the greedy, depraved corporations, but they would still be absolutely true. Quoted for emphasis on page 10.
"All currently wealthy countries were once very poor, some within living memory. What needs explanation is not poverty, which is the natural state of mankind, but wealth. Wealth has to be created and the best way to ensure that wealth is created is to generate the incentives for people to do so. No system better than the free market, based on well defined and legally secure property rights and legal institutions to facilitate exchange, has ever been discovered for generating incentives for wealth creation. There is one path out of poverty, and that is the path of wealth creation through the free market.
The term “developing nation” is frequently misapplied when it is applied to nations whose governments have rejected markets in favor of central planning, state ownership, mercantilism, protectionism, and special privileges. Such nations are not, in fact, developing at all. The nations that are developing, whether starting from relatively wealthy or relatively impoverished positions, are those that have created legal institutions of property and contract, freed markets, and limited the powers, the budget, and the reach of the state power."
Posted by: Matthew at Feb 26, 2007 10:29:55 PM
There's a perfect example of the propaganda.
First, there's the conflation of regulated markets in the real world with theoretic free markets.
Next, there's the deliberate confusion of "wealthy" with "path out of poverty": as the 19th century US showed, vast wealth concentrated in the hands of a few through the market, leaving vast impoverished classes. Creation of huge middle classes is the actual route out of poverty, and you don't need capitalism to do it: even the Soviets did it. The route to a middle class in a wealthy nation is through government policy, starting with public education policy in all examples.
And finally, the route to development has ALWAYS been through "mercantilism, protectionism, and special privileges" with some "central planning, state ownership". It's obvious to us in the cases of the US and Britain, and is true also in other cases. It's only when overwhelming market advantage is developed that the free market globalist religion is espoused.
Posted by: Mike Huben at Feb 27, 2007 3:47:09 AM
Sigh.
It’s such beautifully argued and entirely meaningless twaddle. I can imagine the same kind of thing written by the NRA: “Twenty Myths about Firearms”. Should I commend the author for producing a well-crafted hoax or damn them for their intellectual laziness?
Is a market ethical? Huh? Good grief! Are Guns? Is chewing gum? Without any context this and the other questions explored are entirely academic. Evidence for whatever answer suits the authors’ particular (and – oh my God; the Cato Institute: “… to broaden the parameters of public policy debate to allow consideration of the traditional American principles of limited government, individual liberty, free markets, and peace" …) fairly obvious political leaning is easily available.
Those with a lack of critical faculties will unfortunately see this waste of time and bandwidth as (more?) evidence for ‘free’ markets in all cases (but that of course was the intent, no?).
Don’t worry; I am aware the Left produces equally baseless trash.
As with all constructs within complex social environments, the value of a free market (or not) depends on the case, and on the desired ends.
Sigh.
Posted by: Matt at Feb 27, 2007 12:19:56 PM
I just want to know: how can I be "tricked into desiring something I neither want nor need"? If I choose to trade for it, doesn't that say that I either want or need it?
Posted by: LisaMarie at Feb 27, 2007 6:36:38 PM
LisaMarie- in class today my game theory professor related a story about how he once bought a car (from two high school teachers, no less) that broke down on the same day that he bought it. The car was junk, but they had managed to rig it so that it would run for the length of time that he test-drove it.
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