The signers also made a criticism that we often hear from critics of the free market: the idea of market failure. They wrote:
The laissez-faire model assumes that markets work perfectly if the government does not intervene. But unregulated markets are not benign—they reinforce unequal power relations that worsen inequality and hinder the application of key developmental policies—including industrial, social, and environmental policies.
Whose laissez-faire model? No economist I know of who believes in laissez-faire or something close to it also believes that “markets work perfectly.” We understand that they work imperfectly. Our argument is more sophisticated: markets work imperfectly and so do governments. Moreover, the imperfections of government, due to bad incentives, poor information, and poor incentives to get information, are typically much worse than the incentives of for-profit providers.
The economist critics also wrote:
In Argentina as in most other countries with complex economic structures and challenges of income and asset inequality, inflation, and external debt, the need is for nuanced and multifaceted policies that recognize the needs of different social groups.
Who could disagree with that? I would go further. In every country, “the need is for nuanced and multifaceted policies that recognize the needs of different social groups.” That’s what a free market or even a semi-free market is so good at handling. You want bacon. I want steak. She wants tofu. In a relatively free market, we can all get what we want. If you doubt that, then try this experiment. Next time you’re standing in line at a supermarket, check, without being too obvious, what the person in front of you and the person behind you have in their shopping carts. You already know the results of this experiment. What they have in their carts has at most a slight overlap with what you have. In the kind of Venn diagram that Vice President Kamala Harris has said she loves, the area that the three circles have in common is very tiny and might even be a null set. Now compare that to government provision. Governments, partly out of laziness, partly out of lack of information, and mainly due to lack of incentives, tends to favor “one size fits all” provision.
The above is from my latest Hoover article: David R. Henderson, “Critics of Milei’s Policies Strike Out,” Defining Ideas, January 9, 2025. It’s about Milei’s economist critics, but it also respond to their general criticisms of free markets.
Read the whole thing.
READER COMMENTS
Matthias
Jan 10 2025 at 8:33am
It’s just a bit of a shame that Miles hasn’t given up on having ‘official’ exchange rates, yet.
So the real (or ‘black market’) rate still differs from the ‘official’ rate.
Manfred
Jan 10 2025 at 3:26pm
Matthias,
yes, they differ but not much. This is from La Nacion of today:
Dólar oficial $1066,34
Dólar blue $1225,00
The reason Milei has not freed the dollar, is because when he took office the Central Bank had negative reserves, and he needed a substantial amount of time to build up the reserves.
Milei is completely aware of this – I have listened to him in several interviews in Argentinian outlets. But, according to him, the conditions of a free exchange rate are not there yet.
Matthias
Jan 11 2025 at 6:35am
Thanks for getting the numbers.
20%-ish is quite a bit of a difference? Although perhaps less than was recently the norm in Argentina?
If they need more money, I would suggest to raise it via ordinary taxation. But I guess political reality ain’t always compatible with sanity. Especially in Argentina.
robc
Jan 10 2025 at 9:51am
Is there a difference between “markets work imperfectly” and “markets work perfectly, but we don’t always like the outcome”?
Personally, I don’t like saying markets work perfectly or markets work imperfectly. Markets are an abstract concept that just are.
Jose Pablo
Jan 10 2025 at 6:00pm
Very interesting comment!
In fact, what does “perfectly” mean in “markets (or the goverment) work perfectly?”
Very likely the definition of “perfection” varies from individual to individual as much as the superrmarket cart content David was talking about.
What is really “multifaceted” is the definition of “perfection”. A neverending exercise (along the lines thar Richard starts in this comment) that allows for a more targeted discussion along the lines of every single possible “face” of “perfection”
Knut P. Heen
Jan 15 2025 at 9:02am
A perfect market is an ideal type in economics, like an ideal gas in physics. No economist thinks any real markets are exactly like the perfect market model. The question is as David points out whether real markets work better than the alternative. Real markets do not have to be perfect to be better than any of all the imperfect politicians around.
Richard W Fulmer
Jan 10 2025 at 10:16am
Point: Moving from government to private provision makes goods and services less available to the poor.
Counterpoint: Economists have a wealth of data showing that private competitive provision of goods and services is substantially less costly than government provision.
Point: That may be, but even if government provision is more costly, taxing the rich allows the poor to be provided with goods at well below the cost of production and even at no cost to them at all.
Counterpoint: Taxes reduce incentives for wealth creation which reduces economic growth and increases poverty. Government welfare reduces incentives for people to obtain job skills and employment which creates dependency and increases poverty. Also, government provides what bureaucrats and legislators – swayed by lobbyists and campaign donors – decide the poor need. Markets – driven by the need to please customers – provide what people need and want.
Roger McKinney
Jan 10 2025 at 11:46am
The main purpose of a free market is to instantiate property. Without a free market, property doesn’t exist because property requires control by the owner. If someone else controls buying and selling, property doesn’t exist and the one controlling property violates the command Thou shalt not steal.
Jon Murphy
Jan 10 2025 at 1:45pm
I guess I don’t follow this point. Wouldn’t it simply be that the person doing the buying and selling is the owner?
Mactoul
Jan 10 2025 at 9:43pm
True and this point is recognized by Catholic Church as well.
Equally, private property requires a state of laws as well. Otherwise, the private property is neither well-defined nor well-secured.
Full enjoyment of property includes a process of inheritance which requires state of law.
Property is fully enjoyed when you don’t have to secure it yourself against invaders and encroachers. The state provides this service.
Jose Pablo
Jan 10 2025 at 11:17pm
The state provides this service.
Does it? Maybe “in theory” (and you not what Yogi Berra said about “in theory”). In practice, only around 15% of crimes against property are cleared in the US (arguably one of the best states providing this service).
And sure some of the property crimes go unreported. And “clearing” doesn’t even mean that somebody is punished for that crime, much less that the lost property is recovered.
It is save to say that crimes against property go mainly unpunished, despite this great service provided “in theory” by the state.
What states do very well “in practice” is legally seizing your property with excuses based on myths similar to those you mentioned.
The mafia provides a similar service much more efficiently.
Mactoul
Jan 12 2025 at 12:40am
I was thinking more about real property ie land and not pretty thefts.
You have to live in a country where this service is not well-provided to truly appreciate this service.
Jose Pablo
Jan 14 2025 at 7:21pm
In countries with governments as functional and more expensive than America you would be suprised of how difficult is that the goverment vacate your house if it has been occupied by a third party.
Never, ever trust the functioning of a service provided by the State. They are not in the business of providing services to the citizens. That’s just a poor cover to exerting rare power uppon the individuals.
The market provides services to the citizens. They have (particularly so in the absence of government intervention) the right incentives to do so.
Comments are closed.