Markets Do the Good Things That Sound Bad

Greetings from Kyoto, Japan! Here’s an excerpt from Unbeatable’s last chapter.

[from Chapter 6: Four Candid Conversations]

This is the dialogue chapter, where I argue against a wide variety of fictional archetypes. Besides me, the characters in this segment are:

The Cast

Bryan Caplan, professor of economics at George Mason University

Cyrus Haghani, Iranian-American economic journalist for American Compass

Joseph Kruglitz, Nobel-prize-winning professor of economics at Princeton University

Sam Remington, founder of the Effective Altruism Amiable Rationalist blog

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Sam: Gentlemen, please, let’s get back on track. Bryan, so far you’ve mostly been defending markets against mainstream criticism. Don’t you claim to have some novel arguments in favor of free markets?

Bryan: [excited] Right you are, Sam. [pause] To start: The most popular arguments against free markets are, in fact, arguments in their favor.

Sam: [puzzled] Intractable externalities are arguments in favor of free markets?

Bryan: “Intractable externalities” is not a popular argument against free markets. Normal people don’t know the meaning of the words. Popular arguments are more like: “Businesses are downsizing their workforce!,” “Developers are turning the old farm into condos!,” and “The managers didn’t get the best safety equipment because it was too expensive!” The general pattern: Popular arguments attack markets for being cost-conscious, consumer-conscious, and risk-conscious.

Sam: [nodding] All of which you would call “good things that sound bad”?

Bryan: Exactly. If we listened to anti-market activists, we’d live in dire poverty. The ugly truth: When you ignore costs, ignore consumers, and ignore risk, you make inane decisions. Putting a price on human life really is part of a life well-lived.

Cyrus: [chuckling] And I thought “Greed is good” was an awful slogan! Are we seriously supposed to celebrate when a “cost-conscious,” “risk-conscious” firm like Union Carbide slaughters thousands of people through managerial incompetence?

Bryan: Wait, is the problem that Union Carbide was profit-maximizing, or that it was incompetent?

Cyrus: It barely matters. The business killed thousands of people. Who cares about the quality of the number-crunching?

Bryan: All of us should care. Profit-maximizing businesses take small risks for large gains, which is socially beneficial; incompetent businesses take large risks for small gains, which is socially harmful. The Bhopal disaster you’re referencing very much looks like the latter.[i] In any case, we shouldn’t judge any system by infamous anecdotes. Instead, we should look at overall track records. If you do, you’ll see that rich countries are very safe, even when there’s little regulation – and poor countries are much more dangerous, even when there’s lots of regulation.

Joseph: You’re both wrong. Cyrus, our whole civilization rests on number crunching. “100% safety, whatever the cost” is a recipe for disaster. But Bryan is wrong to praise business for number crunching.

Bryan: Why?

Joseph: Both business and government crunch numbers. How does this show that business is in any way superior than government?

Bryan: You’ve worked at the highest levels of government as an economic advisor. Suppose you found that the social return to programs for disabled veterans was low. Would you even bother telling the politicians you were working for?

Joseph: [scowling] You’ve got to pick your battles.

Bryan: Indeed. So why not pick this battle?

Joseph: [sighs and rolls his eyes]

Bryan: [smug] OK, suppose you were working for a major corporation, and you found that automating their assembly line would save a lot of money. Would you keep that to yourself?

Joseph: [reluctant] Probably not.

Bryan: The reason is clear. Markets do the good things that sound bad. Governments do the bad things that sound good. Does your textbook ever mentions these facts?

Joseph: [defensive] I have a whole chapter on profit-maximization and cost-minimization.

Bryan: So you do. Students who master that chapter will correctly draw your diagrams. But will they correctly draw the policy lesson that what normal people regard as “market failures” are in fact “market successes”?

Joseph: Probably not. Unlike you, I don’t treat Econ 1 as an opportunity to indoctrinate impressionable students with my personal political philosophy.

Bryan: Is that so, Joe? How many times does your textbook remind students that markets “only work well with perfect competition, perfect information, and no externalities?” How many times does your textbook assure readers that “government regulation exists to solve market failures”? You’re happy to underscore anti-market conclusions. But when markets excel, you refuse to connect the dots.

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[i] Cites