from Peter Radford
There are a few thoughts or words in a normal economics discourse that trigger what I call my ‘market reflex’. Asad Zaman just triggered it. Of course he didn’t mean to, and the sentence in question is in an article I agree with. Further, the sentence, on the surface, looks and sounds so innocuous. Here it is:
“Free market economists believe that markets work best when left alone, and any type of government intervention to help the economy can only have harmful effects”
See what I mean? Innocuous. Asad is totally correct, they do think that. Worse: they mean it. And even more worse: they teach it.
Which gets me truly bothered.
The entire enterprise of contemporary economics, aside from its fringes, is built on this shady and unsubstantiated premiss. It’s shady because it is laden with ideological bias, and it’s unsubstantiated because, well, its unsubstantiated.
Which gets me even more annoyed.
The supremacy of markets sitting at the heart of contemporary economics is a faith based notion not an empirically based fact. It is the result of economists of a certain ilk having vivid imaginations and strong biases. When you push a little on the idea you find that it relies on a set of thought experiments rather than on research of the real world. It requires superhuman and distinctly otherworldly computational skills, flows of information, and ironclad willpower, not to mention a total lack of real choice on the part of the denizens of this imaginary market, for it to work smoothly and to find its way to the happy land called a utility maximizing equilibrium. Only within such ridiculous constraints is the so-called superiority ever exhibited.
The rest of the time stuff happens and who knows what’s best?
It is the obsession with sanitizing the economy and thus rendering it unreal that has led economics astray over the years. And this article of faith about free markets working best when left alone, is sheer tosh.
Just to press my point further: for the dream land of economists to display such a characteristic it would have to be inhabited by two sets of parallel and never interesting people. One would be the superb calculating machines of the erstwhile free market. The other would be the foolish idiots of the political system.
You see, and this bugs me most of all, the ‘agents’ of the economy that economists model and who, in those models, produce such startling efficiency – so startling that it cannot be improved upon – are the same ‘voters’ who support government intervention to soften the edges of the economic machine. Apparently economists are oblivious to this rather salient fact. I suspect they are oblivious on purpose. For to acknowledge the reality of democracy and voter involvement in government treads heavily on the pristine ground economists have carved out for themselves. By separating the economy, or, rather, the ‘market system’ from society as a whole they can pretend that it is a self-enclosed entity bereft of outside influences that might muddy their simple models. And it means that they can indulge in anti-democratic theorizing without actually being anti-democratic: democracy is a dirty government thing, it isn’t part of the market system.
I remember reading Hayek’s famous paper on knowledge in the economy in which he lays out the argument about central planning being a hopeless adventure and asking myself how, if the world is that complex, anyone can know whether any system is better than any other. You can’t. If the information is so difficult to gather and compete for a centrally planned system, on what basis do we have to conclude that a decent rally planned system cannot be improved upon?
Well, it turns out, we can make that determination if we rig the model and the calculations upon which we rest our argument.
Which is what Friedman and the other followers of Hayek have done.
They have no ‘proof’ other than an artificial test tube model that they created especially to produce their proof. Garbage in, garbage out.
Or, as Friedman so famously argued, it really doesn’t matter how insane your assumptions are as long as they produce the ‘right’ results. Friedman, of course, knew what result he wanted:
Free market economists believe that markets work best when left alone, and any type of government intervention to help the economy can only have harmful effects.
Scientists at work.