Links 2024-01-08 - Use Markets

Markets work because of choice and competition

Arnold Kling likes to say something to the effect of “markets fail; therefore, use markets”. His point is that failure is a feature rather than a bug. Because in free markets buyers and sellers have choice and face competition, markets are uniquely positioned to be solution providers.

For some reason many people think this breaks down for some reason when it comes to certain goods and services like health care and education. Directly speaking to the latter with indirect applicability to the former, Kevin Corcoran gives a pithy retort to two common but poorly reasoned objections to the school choice movement including vouchers.

I like to make the case that the truly laudable goal of “public” schooling is that as reasonably as possible ALL kids should have the same opportunity for a quality education. The only means of achieving this is through markets rather than government. As Corcoran concludes:

We don’t merely find it unobjectionable that parents would take the quality of school districts into consideration when deciding on what house to buy – it’s widely viewed as a wise and appropriate consideration. If anything, failing to account for that would be viewed as irresponsible and blameworthy. It turns out that parents making “school choices” for their kids already exists and is nothing to fear. Vouchers wouldn’t be putting parents into a new position they are unqualified to handle – they would just grant more parents the ability to make the same kind of choice that many others are already exercising without issue.

As a follow up he takes on the objection that rejection of a universalist (one-size-fits-all) approach to problem solving must mean that a market solution must be rejected.

Markets are not a universal solution – markets are beneficial precisely because there is so rarely a universal solution. The market is a system that allows a great multiplicity of solutions to be offered, and the success of any given solution depends on it being voluntarily adopted by people who through direct experience find it most satisfactory compared to the alternatives. To use a government system rather than market system is to intrinsically reduce the scope of options that may be tried.

This leads to my last link. Michael Munger explains that the reason free market capitalism works rests on three principles of effectiveness: exchange, markets, and capitalism. These he argues are concentric circles working in concert. Read the short post to fully appreciate the conclusion:

That’s the story of capitalism. Exchange creates value out of difference; markets create value out of division of labor; and capitalism creates value out of the investment of liquid capital. People who say they “oppose” capitalism fail to realize, in my experience, that for all its flaws capitalism is the only system that can deliver on the promise of human flourishing and reduce poverty. It’s not even clear that there is a viable system that comes in second.

Many people seem to find markets icky. What I think they are mistaking is that they (rightfully in so many cases) find other people’s behavior and values to be icky. Markets have more openness and transparency allowing us to better see the ickiness. The icky is always there. It is just that markets almost exclusively both bring it to light and allow us to mitigate it.