“There’s someone in Bangladesh who would almost surely be a better economics professor than I am and is now behind a water buffalo,” he told me. “The market economy gives me and my preferences 200 times the voice and weight of his. If that isn’t the biggest market failure of all, I don’t know what your definition of market failure could possibly be.”
This is from Annie Lowrey, “The Economist Who Knows the Miracle is Over,” The Atlantic, September 3, 2022.
Don Boudreaux has made the point that it’s hard to claim this as market failure when Bangladesh is a country whose markets are most repressed by government. He points out that in the 2022 edition of the Annual Report on Economic Freedom of the World, about which I’ll have more to say in a day or two, Bangladesh ranks a dismal 139th out of 165 countries that are rated. That’s a major contributor to the water buffalo driver’s poverty. I won’t say more about that because Don said it well.
But there’s another point to make. The Bangladesh government is not the only government preventing that water buffalo driver from being an economist: governments in richer countries such as the United States also play a huge role. Whatever you think of restrictions on immigration, they are restrictions; they are heavy regulation of the labor market. If the United States substantially relaxed its restrictions and let, say 5 million Bangladeshis into the country, that water buffalo guy might actually get here and become an economics professor.
And Brad might be right: this former water buffalo driver might well do a better job than Brad at teaching what is, and what is not, market failure.
Update: Don Boudreaux reminds me of this dialogue that cleverly covers much of the same ground I covered above. It’s former co-blogger Bryan Caplan’s response to Brad DeLong.
READER COMMENTS
Michael Makovi
Sep 8 2022 at 6:24pm
That last sentence is a wonderful burn.
Daniel
Sep 8 2022 at 9:17pm
Savage!
MarkW
Sep 8 2022 at 9:55pm
It is weird that for many on the left (DeLong included), any outcome they regard as suboptimal is invariably labeled a ‘market failure’ — there doesn’t seem to be any such thing as a ‘government failure’ (or any other kind) in their minds.
Rob Rawlings
Sep 8 2022 at 11:52pm
To be fair, I think Brad is looking to solve the right kind of problem – he is just using the term “market failure” in a way that some of us would object to.
Don Boudreaux
Sep 9 2022 at 6:43am
Rob: You’re correct that DeLong rightly decries the reality that so very many people are poor in countries such as Bangladesh, and that he seeks policies that would promote opportunity and widespread prosperity there. But language matters. When a prominent economist describes the poverty of Bangladeshis as evidence of “market failure” he plants in people’s minds the impression that markets are to blame. Because, at least as a practical matter, the obvious alternative to markets is some system of government control over the economy, the conclusion is then easily reached that the best means of reducing poverty in countries such as Bangladesh is to introduce more government control over the economy – a ‘solution’ that, of course, would only deepen the poverty.
Further, such language as DeLong here seems to justify skepticism of markets in developed countries.
Todd Kliewer
Sep 10 2022 at 11:58am
I’m unsure about this claim of the obvious. The obvious solution for market failure is to end the artificial scarcity of money/credit. I’m not sure big bad government needs to control that. We don’t need market interference with economics at all.
Matt Taylor
Sep 9 2022 at 1:35am
To talk of ‘market failure’ shows mental confusion. Market means ‘people exchanging’. What could it mean to say ‘faliure of people exchanging’? People aren’t exchanging ‘enough’ or ‘optimally’? There is no possible standard by which to judge such a claim, except the personal one that motivates every entrepreneur to act.
Knut P. Heen
Sep 9 2022 at 5:56am
One definition of market failure (often used by followers of Arrow/Samuelson) is a deviation from the ideal type “the perfect market”. The definition can therefore be used even in cases in which government is responsible for the deviation.
Market imperfection is a more precise word without any “hidden” political message. I suspect the term “market failure” has been chosen to send a particular message.
Take, for instance, Akerlof’s Market for Lemons. The guy who thinks the car is a lemon does not buy the car from the guy who thinks the car is a peach. They call it a market failure even though the car should not change hands. They call it a market failure because both guys somehow should have the same opinion of the car.
Tim
Sep 9 2022 at 10:44am
The biggest failure of market systems is that homo sapiens are driving a mass extinction event and destroying ourselves (global civilization) in the process. What does all the wealth and increase in standard of living matter if there is a 90% population decrease by the end of the century? If the majority of rhe species on the planet disappear because of our “wealth generation”? Economist would do well to become far more science literate.
David Henderson
Sep 10 2022 at 7:26pm
Are you aware that Ehrlich and others made similar predictions back in the 1970s for events 30 years later and that these predictions failed miserably?
Thomas Lee Hutcheson
Sep 9 2022 at 6:27pm
You are right. The market failure is that the water buffalo driver does not participate in the not yet established CO2 net emissions market.
David Henderson
Sep 10 2022 at 7:25pm
Huh?
Anne
Sep 10 2022 at 2:09pm
All of you are ignoring non-economic factors. Factors which some of us find important:
People are not widgets. Cultures are not interchangeable. If we allow millions of Bangladeshis into the US, we will end up with Bangladesh. People bring their culture with them. And most of us don’t want Bangladeshi culture here in the US.
Further, despite politically correct assertions to the contrary, not all demographic groups are equal in abilities. This is well-accepted when it comes to physical traits, yet vociferously denied when it comes to cognitive and behavioral traits. Guns, germs, and steel don’t really explain why some cultures produce Edison and others produce Idi Amin.
David Henderson
Sep 10 2022 at 7:24pm
You wrote:
I said nothing about guns, germs, and steel, so I’m not sure why your point is relevant.
But if it is relevant, can you really dismiss a culture because of one bad guy? And if you can, would you dismiss the German culture because it produced Adolf Eichmann, even though it also produced Albert Einstein? And if you would dismiss German culture, would you say it was a mistake to allow Germans into the United States after World War II?
Anne
Sep 10 2022 at 8:19pm
I perceive that you are a very literal thinker. You didn’t see Thomas Lee’s remark as humor, which it was. And you think that I think you referred to guns, germs, and steel–rather than seeing it as a cultural reference to Jared Diamond’s best-seller.
And I wonder if you are being deliberately obtuse.
Because not all cultures are equal, some are more inclined to produce Einstein, Edison, Shakespeare, and Musk; while others less so. Diamond’s proposition–widely shared–is that only outside factors such as … germs ….determine which cultures are phenomenally successful and which cultures are … not so productive.
But cultures are not equally valuable–and this is because demographic cohorts vary in abilities and proclivities. These small variations produce large cultural differences. So, I assert one is far less likely to find a brilliant economist in Bangladesh than in the West, even if you could equalize for environmental factors.
Further, you just ignored the patently obvious: Bangladeshi culture (in terms of norms and mores) is far different than US culture. When large numbers of members of a vastly different culture migrate, they take their culture with them. This often causes conflict. Take a gander at the no-go banlieux of Paris for a glimpse of that. Or examine the sexual assault rate in Sweden now that large numbers of Muslim immigrants have arrived.
This is a sociological phenomenon that is well-documented–once immigrants from a culture achieve a critical mass, they do not assimilate to the culture of the society they were accepted into.
It seems to me that libertarian economists–those who think labor should be “free” to move–never consider the non-economic facets of migration. As I said, people are not interchangeable widgets.
David Henderson
Sep 10 2022 at 9:55pm
You write:
I don’t think it’s a good idea to tell me what I think when you don’t know me and when a question to elicit what I think would have worked. I did understand you to be referring to Diamond’s book.
I would, though, be interested in your answers to the three questions I asked of you. Are you willing to?
Anne
Sep 10 2022 at 11:05pm
Fair enough.
My use of Idi as an example was a poor choice. Of course, no culture or civilization can be judged by one person–or even a group of malefactors. What I was trying to convey was that some demographic cohorts (e.g., Northern Europeans) have produced a disproportionate amount of what we consider to be civilization-changing innovation, transcendent art and literature, and political ideas that produce stability and promote human flourishing (contract law, protection of private property, freedom of speech, etc).
Of course, every culture has produced some really bad people–that is human nature. Broken, broken, broken. My answer is, were I somehow magically empress of the US, I would not exclude Germans because of Eichmann and Mengele. Nor would I exclude Ugandans because of Amin.
The question is not of broad-based exclusion based on villains, but of what sort of immigration limits we should have; and how we decide whom we let in in large numbers. I read enough libertarians (Ilya Somin, Don Boudreaux, et al) to know that their idea of absolutely unimpeded movement of human capital is based on the supposed economic benefits that accrue to all parties. So, too, does Mr. DeLong seem to think that the only thing preventing Bangladesh from producing Milton Friedman is the failure of the market in human capital.
You correctly noted, I think, that there is no market failure where there is no market. But I think you are all question-begging. You assume that all demographic cohorts, organized as they are into various cultures, have equal potential to produce enormously productive, innovative, and “valuable” humans. (I put that in quotes because all humans are equally valuable in absolute terms–in God’s eyes, we are all created in God’s image, all have the propensity to sin, and all far short of the mark.)
Libertarians seem to ignore the wealth of research (you have to look for it; it is considered terrible politically incorrect these days) that shows that there are meaningful differences in the cognitive and behavioral patterns/abilities of different human groups.
You also seem to ignore the also un-PC but well-documented fact that when immigrants enter a country in a certain critical mass (not very large–1-2% of a locality), they choose to impose their culture, rather than assimilating to the norms and mores of the culture into which they move. Dearborn, MI, for good or for ill, has a culture far different from most of the Midwest due to the large numbers of Muslim immigrants it attracted. Silicon Valley is now admitting that there is a caste problem arising from the large number of Brahmin Indians working there. Caste issues are not a typically American problem.
My point is that considerations beyond the economic are important when we consider the wisdom of having borders and enforcing them–and choosing which immigrants we want in large numbers and which we do not.
Anne
Sep 10 2022 at 11:12pm
I also want to note that I do not purport to know that one view is better than another when it comes to immigration and economic policy. Economic inputs are important–Don Boudreaux is fond of noting, for instance, that tariffs may seem to “help” US workers in some industries, but they hurt US consumers–which includes the group of workers supposedly helped by tariffs.
What I think the libertarian side misses is that homo economicus is not all that we are. Our milieu matters to us–probably far more than our ability to acquire material goods on the margins. To say that one prefers a certain form of “traditional” American culture is to be considered a bigot, a xenophobe, a racist. And yet those who would label much of the US population “deplorables” do not raise any objection to the vast swathes of the planet that seek to preserve their own, non-American/non-Western, culture.
David Henderson
Sep 11 2022 at 10:40am
Thanks for your thoughtful replies, Anne.
I want to point out that it’s very hard to find me accusing someone of being racist for wanting to exclude people from certain cultures. I understand the concern. On my to-do list is to go to Dearborn and just wander around for a few days and talk to people and get a feel for that situation.
My choice of 5 million Bangladeshis rather than all of them was deliberate. It wouldn’t satisfy your 1-2% of a locality criterion, which I think, given your concerns, is probably almost an order of magnitude too low–I bet you could get to 9 or 10% without many problems.
Just as I have not accused you of racism, I would appreciate your not accusing me of thinking that everyone is interchangeable.
By the way, I’m not home right now, so I don’t have Bryan Caplan’s graphic novel on immigration handy, but IIRC he does consider differences in immigrants.
Also, even though I’m an immigrant, I am a little nervous about immediate open borders. That’s why I would like to, say, triple the number of immigrants allowed into the United States annually, from about 1 million to about 3 million, and see what happens.
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