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October 05, 2006
Economics And Me
I want to spend a couple minutes directing attention to this post of Ryan's, in which he attempts to defend the honor of the free market in the face of scurrilous attacks from, well, me. As a disclaimer, Ryan's a really bright guy, and he runs a great blog -- but this post happens to aptly illustrate a certain strain of thought I've been tangling with lately.
Anyone paying attention to this site will know I happily deviate from the orthodoxy favored by full-throated, anti-government, free marketeers. I routinely call for greater government intervention in health care, fret over Wal-Mart's monopsonistic might, and wonder, loudly and regularly, if the coming service economy can possibly sustain a decent society without government or union intervention. Katy bar the door!
In the post Ryan's referencing, however, I merely noted the illogic of the stock market cheering Republican elections despite doing historically better under Democrats. This spurred Ryan to write: "I don’t get this. What did the markets do to Ezra? There is a difference between being a Republican or a conservative and appreciating economics–often a very large one." Indeed there is. And it's terrifically unsettling that merely noting a political quirk within markets is enough to get one kicked out of the economics appreciation club.
There is, I think, little more beautiful or elegant in life than markets. Even Wal-Mart -- in fact, especially Wal-Mart -- is an awe-inspiring entity, gorgeously efficient and innovative and strong. But markets fail. As Ryan notes, there's a whole body of economic literature on when, why, and how that happens. And even a beautiful beast can attack if not watched and restrained. However, to note that markets have outcomes oriented towards ends not eternally or intrinsically constructive for society is somehow beyond the pale. To worry that the unceasing obsession for cost reductions by the greatest economic force in our age might harm labor standards and supplier autonomy somehow ejects you from polite company. Why?
No economist I know of would argue that the free market's primary incentive isn't profit. Few that I know of would argue that the quest for profit, at all times and conducted in all ways, benefits society. Indeed, it's a Harvard medical economist, Rashi Fein, who warned that "we live in a society, not an economy." It's a warning we may want to take a little more seriously.
There is nothing wrong with markets, but there is not everything right with them, either. Lord knows there's no more efficient way -- at least that we've thought of -- to conduct an advanced economy. But in an advanced society, or as some economists have called it, an affluent society, the common good should come before the bottom line.
That's a platitude, to be sure. What the common good is and when it transcends or conflicts with the hunt for profit is open for vigorous debate. But too often, the very act of entering that discussion, of questioning those priorities, of wondering whether H Lee Scott really has my best interests at heart and why corporate profits are skyrocketing while wages stagnate, too often such utterances are enough to close the discussion on grounds of insufficient appreciation for the awesomeness of markets. Too often, believing the interests of society are not only distinct from, but superior to, the unchecked will of the economy is considered a marginal, rather than obvious, idea.
There is, I think, a difference between appreciating economics and deifying it. Often a very large one. And often a very ignored one. I appreciate economics. I regularly interview economists, pore over articles in economic journals, and pick through reams of economic data. But I always try to retain perspective: As intellectually seductive and important as the discipline is, it is not an end in itself. Some -- like my libertarian friends -- may believe that it's pretty damn close, that the road to the good society runs through unchecked free markets. But many who disagree -- Ryan, I think, among them -- seem to forget that disagreement when a layman dares question the invisible hand's grip on society.
October 5, 2006 in Big Business, Economics, Wal-Mart | Permalink
Comments
"Anyone paying attention to this site will know I'm something less than a full-throated free marketeer, and am only becoming less so as time goes. I routinely call for greater government intervention in health care, fret over Wal-Mart's monopsonistic might, and wonder, loudly and regularly, if the coming service economy can possibly sustain a decent society without government or union intervention."
Hmmm...
I'm with you on the policy, but not with you on the rhetoric.
FDR was a proud free marketeer. But he was in favor of government intervention in old age pensions and strengthening unions.
And I'm opposed to the Wal-Mart monopsony because monolopolies and monopsonies are bad for the free market.
-----
The free market should serve society - society shouldn't serve the free market. But the free market is a great society's best friend.
Much like Jesus is actually a leftist, so is Adam Smith if you actually read the text.
Posted by: Petey | Oct 5, 2006 1:20:46 AM
And I'm baffled how anyone can be thinking about anything but Foleygate at the moment. But perhaps that's why I'm a hack instead of a wonk...
Posted by: Petey | Oct 5, 2006 1:23:21 AM
The "market" cheers the GOP because the stock market is not made up of free marketeers. Any CEO worth his salt wants what Bill Gates had for a few years -- a rapidly growing de-facto monopoly that exacted rents from substantially every enterprise in the developed world. Now that's good business.
The historical association of D's with market performance, I assert, is an omitted-variable problem. The variable in question is left as an exercise for the reader.
Posted by: wcw | Oct 5, 2006 1:35:24 AM
Ryan Avent! Whoa! I knew him from grades 6-12! Smart guy, and it's good to hear he's on our side of the aisle now.
Posted by: Neil the Ethical Werewolf | Oct 5, 2006 2:05:21 AM
wcw is pretty much spot on. Wall Street votes for Republicans because Wall Street loathes the idea of competition and loves monopolies, monopsonies, and other market failures. Wall Street doesn't love the market, they love money.
That there's a distinction is something the Republican party labors mightily to obscure.
And it's obvious why those people who do so jump so vociferously on anybody that dares utter disagreement from the 'markets are God' ideology that dominates this country's political disourse; they are terrified of having to actually defend that idea and are trying to shut down the debate before it happens. The way markets are structured in the US (being anything but free, at the moment) is incredibly harmful to the majority of US citizens and incredibly profitable to a very few, very vocal people.
Posted by: NBarnes | Oct 5, 2006 2:26:45 AM
Ezra, you're making a common mistake when you oppose the common good vs. the bottom line in the marketplace. That's because the market is only a tool for achieving profit from a seller's point of view, and a tool for achieving the common good from an idealist's point of view. From a buyer's point of view the market is not only a tool for satisfying needs, a rational enough affair, but also for satisfying desire. And when desire comes into play, rationality goes out the window. As proof, consider the fact that Roseanne Barr has been married three times, Liza Minnelli four times, and Elton John once.
This is compounded by the fact that given the choice between having what they need and having what they want, most folks will take the latter. Markets are not rational because we are not rational. That's what makes us so... lovable.
Posted by: The Right Reverend Rabbi Judah | Oct 5, 2006 5:12:47 AM
"the common good should come before the bottom line"
Isn't this just another way of saying the needs of the many outweigh the needs of the few? And hasn't that typically been the line of thought that tyrants typically use as justification?
I am certainly not a full out capital L libertarian, but telling me that I have to serve the commen good, and compelling me to do so doesn't sit well. It may be noble for me to chose such an act, but it is tyranny for you to force me into such servitude.
In the end, you want to force Wal-Mart stockholders to serve the good that you have decided is worthy, and the things that they think are good are irrellevant if you can just get the power to enforce your will.
Posted by: Dave Justus | Oct 5, 2006 5:57:45 AM
Isn't this just another way of saying the needs of the many outweigh the needs of the few? And hasn't that typically been the line of thought that tyrants typically use as justification?
I am certainly not a full out capital L libertarian, but telling me that I have to serve the commen good, and compelling me to do so doesn't sit well. It may be noble for
Oh, spare me. Check this out;
In the end, you want to force [pregnant women] to serve the good that you have decided is worthy, and the things that they think are good are irrellevant if you can just get the power to enforce your will.
In the end, you want to force [taxpayers] to serve the good that you have decided is worthy, and the things that they think are good are irrellevant if you can just get the power to enforce your will.
In the end, you want to force [pharmaceutical companies] to serve the good that you have decided is worthy, and the things that they think are good are irrellevant if you can just get the power to enforce your will.
In the end, you want to force [Democrats] to serve the good that you have decided is worthy, and the things that they think are good are irrellevant if you can just get the power to enforce your will.
In the end, you want to force [Republicans] to serve the good that you have decided is worthy, and the things that they think are good are irrellevant if you can just get the power to enforce your will.
In the end, you want to force [Osama bin Laden] to serve the good that you have decided is worthy, and the things that they think are good are irrellevant if you can just get the power to enforce your will.
*ptui*
The just state exists to create and enforce collective agreements amongst its citizens. Your choices, if you lose the deliberations that create the agreements, are, yes, to knuckle under or leave. All groups of people living together in a society make decisions that all the people in the society are expected to abide by. All societies make choices as to their 'good' and use the coercive power of the state to force compliance or exile.
Joseph de Maistre, "Behind every stable and peaceful social order stands the shadow of the executioner."
You don't disagree with the state exercising coercive power. If you did, you'd be an anarchist, not a libertarian. You're just bitter that you lost the arguments. That's what you mean when you say, 'if you can just get the power to enforce your will'. That's sore-Losertarian for, 'it's unfair that people want an activist state that distributes and insures against risk and undertakes the collective tasks that it's suited for rather than the minimalist state I'd prefer, and thus that my preferred governmental structure is permanently on the short end of elections'.
In short, every state decides what the good is, and every state enforces that decision with its monopoly on violence, and every democracy consists of opposing viewpoints attempting to impose their view of the proper policy regime upon the other. This is normal. I suggest you learn to cope.
Posted by: NBarnes | Oct 5, 2006 6:32:30 AM
"In short, every state decides what the good is, and every state enforces that decision with its monopoly on violence, and every democracy consists of opposing viewpoints attempting to impose their view of the proper policy regime upon the other. This is normal. I suggest you learn to cope."
This is certainly true. I would submit though that some decisions, even if approved of by the majority are still immoral. Slavery, for example, would be one. I prefer to argue that such things are immoral, rather than just 'cope' with them.
Minimizing the scope of the 'common good' that we are willing to use the states monopoly on violence to obtain is a defense against totalitarianism.
Posted by: Dave Justus | Oct 5, 2006 7:46:04 AM
And actually the only 'in the end' that I would personally support is the taxpayer one.
Posted by: Dave Justus | Oct 5, 2006 7:47:59 AM
"There is, I think, a difference between appreciating economics and deifying it."
Nah. Economics is God. Or at least Spinoza's God.
If in your models you encounter contradictions or discontinuities or injustices or inefficiencies it is probably due to an excluded variable or misunderstood externality or otherwise incomplete model. One of the important mistakes is somehow separating "gov't" from "free markets", "public" from "private". Umm..."property" from "power".
Economics is the reification of human social relations and interactions, viewed as a totality.
Posted by: bob mcmanus | Oct 5, 2006 9:17:25 AM
'No economist I know of would argue that the free market's primary incentive isn't profit.'
I don't think you'll find a single economist who would argue that the free market's primary incentive is profit.
The free market (better to say free markets perhaps) is not a thing which can actually have an incentive. Incentives are the things that motivate people. Now, you could say that the primary incentive for people to engage in markets is profit: but only as long as you were willing to use a very wide definition of profit, well beyond the financial one you seem to be using.
That the pursuit of that (wide definition) of profit then benefits others is well shown by Adam Smith (not from the benevolence of the butcher etc).
But neither he nor any competent economist since would argue that purely financial profit is the only important motivator. Reputation, power, love, sex, there are hundreds of other motivations.
For example, the exchange of time for the joys of being a Scout master: that's a free market isn't it? Each participant, the master and the several scouts are better off after the transaction? No money involved (although a lot of opportunity costs) and unless you use that very wide definition of profit (anything that makes humans feel better) on that you cannot explain within your constrained vision.
Posted by: Tim Worstall | Oct 5, 2006 9:35:13 AM
Ezra,
If you're interested in reading more economics, check out some of Philip Mirowski's work, especially his histories of neoclassical economics (More Heat Than Light and Machine Dreams), and his recent papers on markets as computational mechanisms, especially Markets Come to Bits. www.uq.edu.au/economics/PDF/int/Mirowski.pdf#search=%22mirowski%20markets%20come%20to%20bits%22
One of Mirowski's key insights is that markets vary: there are all kinds of different institutional make ups a market may have, which have very significant consequences for how they translate bids and asks into prices. Fixed-price markets (like your neighborhood Safeway) work differently than sealed bid markets (like real estate) which work differently than double auction markets (like the NYSE) which work diffferently than dutch auction markets (like Ebay). So I think its a mistake to buy into the illusion that "market" denotes any one thing, or that markets have general characteristics that have been discovered or modeled by economic theory. By and large, both claims are false, and the great failure of neoclassical economics stems from its insistence on attempting to model the "general case" of market abstracted from the particular institutional characteristics that facilitate price formation in the real world.
Mirowski is really setting out the terms for an alternative research program, rather than providing all the answers. But his work is a refreshing departure both from hamfisted condemnations of the market that fail to recognize the circumstances in which some markets accomplish a coordination of activity seemingly better than could be accomplished any other way, and from pangyerics to the supposed elegance and virtues of markets. He seeks to put markets in their place, so we can genuinely understand them.
Posted by: Rich C | Oct 5, 2006 10:27:51 AM
Looks like a pretty tame reading list on that table. Try adding Bob Pollin, Doug Henwood, Dean Baker, Robin Hahnel, Sam Bowles, James Galbraith . . .
Posted by: Miracle Max | Oct 5, 2006 11:10:33 AM
Perhaps Dr. Milton Friedman's 'Nobody knows how to make a pencil' story, then move into more of his work. Dr. Thomas Sowell has some good books on the basics too.
Confusing Economics with "science" is always a mistake. Accounting and Finance are sciences.
Posted by: Guy Montag | Oct 5, 2006 11:36:46 AM
telling me that I have to serve the commen good, and compelling me to do so doesn't sit well. It may be noble for me to chose such an act, but it is tyranny for you to force me into such servitude.
Minimizing the scope of the 'common good' that we are willing to use the states monopoly on violence to obtain is a defense against totalitarianism.
And actually the only 'in the end' that I would personally support is the taxpayer one.
I don't see much in the first argument for libertarianism that you gave. If you accept taxation for the purpose of public projects like roads then you accept the principle of "tyranny" you decry. Then the question becomes what purposes are beneficial enough, all things considered, to justify. I also question the fallback to minimizing the scope of the common good as a defense against totalitarianism. "Minimizing" doesn't mean as much here as it seems to. We could do without public roads. It would be foolish, but it isn't a matter of absolute need. Would minimizing do away with public roads?
The only arguments for the libertarian tendency that really hold water, or have some hope of getting off the ground (to switch metaphors), are those that are based on the claim that free markets are more efficient or just or whatever in filling some particular common desire. Which everyone believes in some cases and rejects in others. Since justice and liberty, positive and negative, are among the desires we all have, that gets weighed in the balance with the rest. Obviously different people will weigh these things differently, and the best way we've come across to deal with that is majority rule with some basic protections for minority interests.
It seems to me that the self-aware libertarian has the same general moral and theoretical views as everyone else about government and markets; he just weighs various benefits somewhat differently and/or has practical differences about the efficiencies of particular market arrangements. It's a matter of degree, not kind.
Posted by: Sanpete | Oct 5, 2006 12:01:23 PM
Why are markets equated with Economics here? Economics is the study of the material provisioning of society. Markets are on type of institution that are encountered in that process, but they are only one. Conflating Economics and Markets is like learning how to fix transmissions and declaring yourself to be a general purpose auto mechanic.
Of course, to a traditional marginalist economist, Economics is not defined in terms of a problem area, but rather in terms of the standard toolkit that we all acquire, which is for the most part a market modelling toolkit. Any question that they cannot address with their toolkit is defined as "not Economics", which is held (among traditional marginalist economists) to give them permission to duck the question.
Posted by: BruceMcF | Oct 5, 2006 4:50:25 PM
I agree with Tom. The market has no primary incentive structure. And as far as the people that interact within the market framework, this from Gary Becker's prize lecture:
"Unlike Marxian analysis, the economic approach I refer to does not assume that individuals are motivated solely by selfishness or gain. It is a method of analysis, not an assumption about particular motivations. Along with others, I have tried to pry economists away from narrow assumptions about self interest. Behavior is driven by a much richer set of values and preferences.
The analysis assumes that individuals maximize welfare as they conceive it, whether they be selfish, altruistic, loyal, spiteful, or masochistic. Their behavior is forward-looking, and it is also consistent over time."
Posted by: Jason | Oct 6, 2006 2:46:13 PM
If corporations are better at manipulating governments to rig the game in their favor (and I think few serious economists would dispute this), then wouldn't limiting the government's ability to act on behalf of the moneyed interests be just as valid a solution as advocating for government intervention on behalf of the common good? When we force Wal-Mart or another big player to reform its labor practices, could we potentially erode the barriers that limit the government's ability to act on behalf of the powerful? Or opening ourselves up for a solution that is nothing more than a hand-out to a favored powerful interest veiled in the rhetoric of the common good(Clinton's universal healthcare plan comes to mind)?
Posted by: Jason | Oct 6, 2006 3:05:59 PM
Posted by: Jason | Oct 6, 2006 11:46:13 AM I agree with Tom. The market has no primary incentive structure. And as far as the people that interact within the market framework, ...
A market is kind of institution for engaging in a particular type of transaction ... talking about "The Market" as if it was a single thing in the face of the wide range of different specific market institutions in place is a convenient but inadequate substitute for knowledge of the details in a particular market situation ... which may be why it is so popular among traditional marginalist economists.
Posted by: BruceMcF | Oct 6, 2006 7:34:51 PM
Very late to the party, but I could not resist. You contradict yourself within a short, single sentence. You write:
There is nothing wrong with markets, but there is not everything right with them
Can't have it both ways, boyo. If there is nothing wrong with markets, then it must be that everything is right with them. If not everything is right with them, then something must be wrong with them and ...
Posted by: marcel | Nov 10, 2006 2:00:16 PM
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