I will let my readers separate the grain from the chaff—and there is both—in the piece of a Wall Street Journal columnist who spent a few months as a journalist in residence at the University of Chicago’s business school (James Mackintosh, “What I Learned About ‘Woke’ Capital and Milton Friedman at the University of Chicago,” June 9, 2023). I will instead focus on two sentences that reveal a methodology that naturally leads to a preference for some sort of regimented society:
Sure, it is true that free markets are the best way to run an economy that is fully competitive, has no unpriced side effects, or “externalities,” such as carbon emissions, and where contracts cover every eventuality. Unfortunately, these conditions aren’t met.
If your starting question is: what’s the best way to run the economy, you are most likely not to discover that an auto-regulated economy, an economy “run” by nobody, is the most efficient and just. Similarly, if you start with the question: “what is the best way to run religion (in society)” or “what is the best way to run marriage” or “what is the best way to run trade,” you will likely not even consider laissez-faire—that is, to let each individual make his own choices. You will see “an economy” as an organization to be managed by some individual or group of individuals.
The distinction between an organization and a spontaneous order is emphasized in Friedrich Hayek’s Law, Legislation and Liberty (notably the first volume). The idea that only unanimously accepted rules can serve as the institutional basis of a society (and an economy) is defended from a different viewpoint by James Buchanan (see his Why I, Too, Am Not a Conservative and, with Geoffrey Brennan, The Reason of Rules). I am pretty sure that my criticism of the WSJ column above would also be accepted by Milton Friedman: he did not either look at society and the economy from the perspective of a philosopher-king.
READER COMMENTS
Jon Murphy
Jun 11 2023 at 12:29pm
Also contained in that quote is an irrelevant comparison. As economists (including many from Chicago) have discussed, the case for free markets is not under idealized conditions, but “as compared to what?” Externalities, market failures, etc are irrelevant in determining whether a free market “works”
Pierre Lemieux
Jun 11 2023 at 12:36pm
You are right, Jon. I did not discuss this related point because I wanted to focus on the other one. The conditions of omniscience and benevolence of government are not met either.
Jose Pablo
Jun 12 2023 at 3:20pm
Yes, and I am always amazed by how easily people believe that the best way of doing something has to be a perfect way of doing something
The kind of thinking that goes “since A is not perfect, then “No A” has to be the best solution” has a prevalence that is not easy to explain.
A “managed” ostensibly bad solution seems to be regarded by human beings as better than a spontaneus one. Sure because it seems to provide a way of “controlling” the outputs. No matter how imperfect this way of thinking is probed over and over again.
Don’t want to be too philosophical here, but it is difficult not to establish some parallelism with religion: a world designed and ruled by a god that we humans can, somehow, manage (thru our prays or our behavior) is much preferred to a totally unpredictable world in front of which we are totally hopeless. No matter how imperfect our way of “controlling” god is probed over and over again.
Seems to be the way we are wired
Mark Cancellieri
Jun 11 2023 at 1:19pm
People like Mackintosh invariably have double standards when assessing what “works” (whatever that means) when it comes to free markets vs. government.
You will notice that he didn’t mention the conditions that must hold for government intervention to “work.”
Richard Fulmer
Jun 11 2023 at 5:35pm
Great point. Here’s my list of conditions for successful interventionist policies (that is, government actions beyond keeping the peace and enforcing the rule of law):
1- Government “experts” must have the knowledge required to devise effective policies whose benefits will outweigh their costs.
2- Policies designed by the experts must survive the congressional sausage grinder and remain relatively intact.
3- Policies enacted into law must be properly interpreted, implemented, and enforced by the relevant executive agencies.
4- Feedback mechanisms must be in place so that the “right” people receive accurate and timely information about the effects of and responses to the policies.
5- The right people must be able to adjust the policies in an effective and timely manner as conditions change.
6- Legislators must be able to end the policies when they have served their purpose and/or have proven to be either ineffective or harmful, and to do so in the face of opposition by special interests who benefit from the policies.
I believe that the odds are against any one of these conditions being met, and that the odds against all of them being met are astronomical.
Jose Pablo
Jun 12 2023 at 6:28pm
whose benefits will outweigh their costs.
In this case, why would an intervention be required? Why is this not happening “spontaneusly” (driven by benefit maximizing agents)
Richard Fulmer
Jun 12 2023 at 10:24pm
Their are public goods (e.g., national defense) whose benefits exceed their cost, but, because they are non-excludable and non-rivalrous, are not profitable for a private company to provide.
Jose Pablo
Jun 13 2023 at 11:49am
Then the first condition on your list should be:
0.- Interventions are strictly restricted to “public goods”
“Roads” and “transportation” are not public goods following your definition, so they don’t even past the pre-filter that should have been on your list.
Craig
Jun 11 2023 at 1:35pm
I think this is a major reason why governments drift inexorably to the left, there is this underlying bias to do something.
Jon Murphy
Jun 11 2023 at 1:53pm
I wouldn’t say it’s a Left tendency. The Right do it too. I mean, the Trump Administration had to “do something” about immigration, trade, COVID-19, just to name a few. DeSantis, same thing: he just has to “do something” about wokeness.
Craig
Jun 11 2023 at 2:27pm
Well the Republican Party talks a good talk but they don’t walk the walk, indeed one of the cornerstones of my support for #nationaldivorce is the concept that the federal government is an experiment in limited government that has failed to limit both the size and scope of the federal government.
Pierre Lemieux
Jun 11 2023 at 5:34pm
Craig: The Republican walk the walk as fast. Look at regulations over the past several decades. Or look at federal exenditures and deficits and the public debt under the Trump administration. On January 17, 2020, at a Republican fundraiser, Trump declared: “Who the hell cares about the budget? We’re going to have a country.” So Jon is basically right. And you have the same sort of Republicans with the same sort of “philosophy” at the state level.
Craig
Jun 11 2023 at 6:35pm
“And you have the same sort of Republicans with the same sort of “philosophy” at the state level.”
NJ v FL is still the difference between ‘the government will make the majority of economic decisions’ and ‘the individual will make the majority of economic decisions’ and I’d suggest that difference in degree makes a large difference, perhaps to a libertarian the difference in degree might not be a difference in the underlying principle.
I can look at my houses in FL and TN and I can say, “Those houses are paid for by the taxes I’m not paying to the People’s Republic of NJ” — and that’s important to me though I will readily admit taxes remain my single largest expense. By far and of course the Republicans are stained by unforgivable militarism though naturally at the state level that’s obviously less relevant.
#makeamericaflorida
Jon Murphy
Jun 11 2023 at 7:25pm
To Pierre’s point, I’m not so sure there is much a difference. I mean, DeSantis has been horrific when it comes to basic liberties and freedoms. I don’t want a Florida America for the same reason I don’t want a NY or NJ America. Both have drifted authoritarian. I’d prefer a purple state, like NH.
Craig
Jun 11 2023 at 8:37pm
I know, the liberal media would have you believe RonnieD turned das Rathaus into Auschwitz, but DeSantis is viable so now the liberals have to destroy a great man and I’m sure they’re recruiting a rape victim as I write this. Indeed liberal chagrin for FL is frequent and somehow bears absolutely no resemblance to my own personal experience living here. I attribute it to the realization that when people vote with their feet they vote for FL. FL is the future, not NY, those days are over now. When the von Trapps flee Blue America and cross the Appalachian, they’re coming to FL and the other free states. FL is surely a bad place for corporations receiving cronyist benefits. Aside from that the place is absolutely fantastic. Notwithstanding the implication of the hashtag #makeamericaflorida I actually don’t want to make CA like FL. Just for the record I unequivocally support #nationaldivorce I do not want to be in a political union with New England, the MidAtlantic and/or CA.
Nevertheless as a segue back to the original article :”If your starting question is what’s the best way to run the economy, you are most likely not to discover that an auto-regulated economy, an economy “run” by nobody, is the most efficient and just.” To expound when individuals get into government the question is somehow what they will do, indeed therein lies the bias to do something part of the reason why there’s nothing so rare as a shrinking government.
Jose Pablo
Jun 12 2023 at 4:01pm
I’m not so sure there is much a difference
Because there is none.
There is a tendency of human beings to trying to control the outputs even thru very ineffective (almost magical) interventions
Surprisingly enough, it turns out Republicans are humans too.
nobody.really
Jun 13 2023 at 12:01pm
Citation?
Monte
Jun 13 2023 at 3:29pm
None needed. Both republicans and democrats are unquestionably human because they possess the uniquely human characteristic of self-awareness. Their distinguishing feature is that they represent different cheeks on the same butt.
Craig
Jun 15 2023 at 9:00pm
“Citation?”
That stings.
spencer
Jun 11 2023 at 3:58pm
Banks are not intermediaries. If the commercial bankers are given the sovereign right to create legal tender, then the DFIs must be severely circumscribed in the management of both their assets and their liabilities – or made quasi-gov’t institutions.
David Seltzer
Jun 11 2023 at 7:46pm
“Sure, it is true that free markets are the best way to run an economy that is fully competitive, has no unpriced side effects, or “externalities,” such as carbon emissions, and where contracts cover every eventuality. Unfortunately, these conditions aren’t met.”
If by fully competitive Mackintosh means perfect competition, I understand him to mean: There are several firms, perfect information, homogeneous products, everyone is a price taker and profits do not encourage innovation. In reality, no market has an unlimited number of buyers and sellers. Economic goods in markets are heterogeneous. It is the diverse range of goods that reflect the subjective preferences of individuals in an imperfect market. Central planners can never have enough information to efficiently “run the economy” Hayek tells us, only free markets and a price system coordinate this scattered knowledge. Externalities, positive and negative, can be priced in terms of third party impact and resolved with private negotiations, civil court rulings that settle disputes between two or more parties and insurance.
Mactoul
Jun 11 2023 at 10:56pm
If spontaneous order is judged by absence of strong unifying state, then why developed economies are characterized by precisely the reverse?
Jon Murphy
Jun 12 2023 at 5:43am
What do you mean by “strong unifying state”?
Mactoul
Jun 12 2023 at 11:23am
Developed first world countries have much more centralized state compared with third world they colonized. For instance, Africa and India were very weak or even absent state relative to Britain or France.
Even now, state as fraction of GDP is probably higher in developed countries than in poor countries.
So, the absence of state didn’t do much for spontaneous order in poor countries and presence of all-encompassing state didn’t hurt prosperity of the rich countries.
Jon Murphy
Jun 12 2023 at 11:49am
This is one of those situations where the devil is in the details. Spontaneous order theorists (including Hayek, Buchanan and Adam Smith, to name a few) long argued that the rule of law is important to foster and protect spontaneous order. A government, properly restrained and constituted, helps the development of spontaneous order. But a government not properly restrained or constituted hinders it.
For example, within the broad umbrella of “strong unified” states, there’s a lot of variation in state actions. The USSR didn’t have the same results as the US or even Hong Kong (by some measures, the USSR had zero economic growth in the entirety of its existence). All this despite being a very strong and unified state.
Conversely, the US, which is highly decentralized in both governance and economic activity, was far more successful economically.
So, the details of the centralization and unification matter.
Jon Murphy
Jun 12 2023 at 11:51am
I should add:
There are anarchist spontaneous order theorists. My point of focusing on the folks I did was to show there isn’t the stark dichotomy Mactoul draws. Along certain dimensions, government and spontaneous order can be complimentary
Craig
Jun 14 2023 at 11:24am
“Conversely, the US, which WAS highly decentralized in both governance and economic activity, was far more successful economically.” FTFY 😉
Pierre Lemieux
Jun 12 2023 at 3:11pm
Mactoul: Let me add three points to Jon’s comments. First–and this is in direct continuity to Jon’s–what is more important than a “centralized” state is the degree of arbitrary power (the opposite of the rule of law). England has a centralized state, but it has less arbitrary power than most if not all poorer countries (including India).
Second, and again as Jon pointed out, there is centralization and centralization. In the United States (and in many “centralized” Western countries), the “central” government does not, like that in India, have near-absolute power over the education system–to the point, for example, of reducing everywhere the teaching of evolution and the periodic table of elements, as done in India.
Third, the reason why the Enlightenment and the Industrial Revolution and the Great Enrichment that followed. A major reason is the political anarchy that followed the crash of the crash of the Roman Empire in Europe and later the competition between states and relatively free circulation between them. In view of that, Jean Baechler wrote:
I don’t think one can really understand these phenomena without reading Walter Scheidel’s Escape from Rome and Joel Mokyr’s A Culture of Growth.
Mactoul
Jun 12 2023 at 9:00pm
This is all very true but then you are obliged to accept that there are or can be governments that are good.
For it is undeniable that prosperity took off in organized states, back onwards from prehistoric times. So there must be a well-defined and well-executed political order to complement and to foster the spontaneous order.
Jon Murphy
Jun 12 2023 at 10:58pm
A more precise way to phrase it would be that there are actions governments can take that would be good.
Atanu Dey
Jun 13 2023 at 3:10pm
Prof Lemieux:
You wrote
I am second to no one in my criticism of India’s disastrous educations system. I know it well because I was a student in — and still am a student of — that dysfunctional system. Why is it so bad? Short answer: because of the inept, stupid, and corrupt bureaucrats and politicians.
That said, it is simply not true that the Indian educational system has recently stopped — or even reduced — the teaching of evolution and the periodic table. That would be not acceptable to a significant portion of educated Indians; there would be vocal push back. Besides, the vast majority of Indians (over 80%) are Hindus who, unlike Muslims, don’t have the slightest hesitation in accepting evolution.
Allow me to take this opportunity to express my deep admiration for your opinions and scholarship. Thank you.
Mactoul
Jun 13 2023 at 9:00pm
Indeed, it is simply incorrect that “teaching of evolution has been reduced everywhere in India.
In India the school syllabi are set by different boards — which are one in each state plus there are some boards for the entire country. It is open to any school to seek affiliation from the local state board or the central board. Moreover some schools are affiliated with international boards.
It was an all-country board that has been in news. However, only a small minority of children attend schools that are affiliated with that particular board.
Pierre Lemieux
Jun 14 2023 at 11:25am
Mactoul: I did not say that the “teaching of evolution has been reduced everywhere in India,” but that the central government was “reducing everywhere the teaching of evolution.” However, my “everywhere” may have been an error, as was my claim that it was only the central government that was doing it. Thanks for pointing that out.
Is the central board you are speaking about the “India’s National Council of Educational Research & Training (NCERT)” mentioned in the Financial Times article?
Pierre Lemieux
Jun 13 2023 at 9:43pm
Atanu: Thanks for your kind words. My reflection on India is inspired by a recent Financial Times story. There was a similar one at another place (The Economist, I think). I also consulted a former compatriot of yours. Let me know if you think something is incorrect in this story as I am preparing a post on that.
nobody.really
Jun 12 2023 at 1:43pm
Thanks for the vote of confidence.
Pierre Lemieux
Jun 12 2023 at 2:11pm
Nobody: I think I don’t understand your sense of humor here. (But I would be most happy if I gave you a vote of confidence.)
Jose Pablo
Jun 12 2023 at 4:06pm
Well, you certainly proposed in your post having the economy ruled by “Nobody” as the best posible solution …
Looks like a “vote of confidence” to me, certainly is not an statement validated by the facts.
Jon Murphy
Jun 12 2023 at 4:23pm
I think the joke is that his name is nobody, and you say an economy run by nobody is efficient and just, the an economy run by him is efficient and just.
Pierre Lemieux
Jun 12 2023 at 5:45pm
Thanks, Jose and Jon. I get it now, a bit late. The problem is that, in my mind, I have been calling “our” nobody Poliphemus. I just corrected the software bug.
Comments are closed.