From: hal@finney.org
Date: Fri Sep 01 2000 - 17:36:37 MDT
Alex writes:
> Overall, I believe markets *are* better than centralized planning. I
> doubt that at our current level of technological and economic
> development we're going to come up with something that's better accross
> the board. However, I think everything can be debugged, and that's what
> I'm trying to do with the concept of free markets. I'm not good at
> noticing bugs in this case, because I'm so immersed in free market
> think. I'm hoping to get some input from others on...
>
> a) Flaws in how other market systems were implemented.
>
> b) Problems that are inherently intractable to market solutions.
Economists have widely studied failures of markets. There are probably
hundreds or thousands of books available specifically on the subject.
In my intro economics class we were taught about two classes of market
failures, externalities and public goods.
Externalities are factors which would affect the optimal level of
production but which aren't taken into consideration by the market.
The classic example is beekeeping. Beekeepers set their level of
production based on their costs, and the price of honey. The overall
level of honey produced is optimal under standard market analysis, if
you consider only honey consumers and producers.
However there are third parties who benefit from the bees. The bees
pollinate plants and crops in the areas. The net social welfare would
be increased if there were more bees, above the level which the honey
market would set. This is an example of a positive externality.
Negative externalities would be things like pollution, side effects
of production which harm other people but which don't show up in the
market price.
Public goods are good which cannot be practically excluded. If provided
to one, they are provided to all (in some community). Classic examples
would be things like clean air, or national defense. Market systems
can be shown to underprovide public goods, compared to the optimal level.
http://www.thisnation.com/whygovt-economic-market.html is an article
describing these two plus four other forms of market failure.
> c) Is it a binary axis of markets versus central planning, or are there
> conflict resolution and resource allocation systems that are completely
> different from both approaches.
Economists do study other systems. Auctions are distinct from markets
and are used for scarce resource allocations. There are various idealized
systems in which people cooperatively agree on production/consumption
levels, such as the various generalizations on "I cut, you choose"
which get reported in the news occasionally.
I have a paper around somewhere which shows an "ideal government".
It is a set of rules for allocating spending on public goods, and setting
taxation levels, which provably makes everyone happier (or at least no
less happy) with their lot than under a pure market system.
> d) Are there any books or essays that anybody would recommend for a rational,
> constructive critique of market systems?
If you have access to a university library you could look for books on the
topic of market failure. As I said it is a very widely studied effect.
Or you can do a web search on the same phrase.
The thing to keep in mind is that centralized systems also have failures,
and those failure modes tend to be worse IMO.
Hal
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