Daniel Bromley, Rethinking Markets (AJAE, 2001)
(Professor Emeritus, University of Wisconsin, 2011)
Bromley disagrees: markets not appropriate for social choices
1) Markets are for exchange, - choices have social consequences
2) Concern: many believe the market can be used for social choice
4 Examples to illustrate his thesis
Making social choices (K. Arrow – Stanford U. – Nobel Prize 1972)
Medicare
Welfare
Crime & Punishment
1) Politics (voting)
2) The Market
1) Future generations not represented (equity)
Who could speak for them?
2) Who should pay ? those harmed or polluter ?
reflects a value judgment on how rights should be allocated
1 Environment
concerned “free market environmentalism”
we get what we are willing to pay for
Problems with this approach (2)
3 Markets can guarantee Freedom
Milton Friedman (Chicago – Nobel 1976)
markets free people, while regulation stifles freedom
“freedom to chose” through market transactions
2 Education
Many advocate for more competition among schools (public/private)
Bromley disagrees
Use vouchers
Public schools would perform as well as private schools.Location – getting to school
Public schools can not exclude
One dimensional vision of freedom
Contrasting conceptions of freedom
Ayn Rand – Atlas Shrugged
Neil Peart – Rush – Anthem (Fly by Night)
Bromley: those who promote the market are reacting to their aversion to regulation
Amartya Sen (Nobel Economist: 1998; Harvard U.)
C.B. McPherson (U. of Toronto – Political Science - 1965 Massey Lecture)
•Freedom to choose – one can be autonomous; be a moral agent (right/wrong)
•Freedom to achieve – are the opportunities available?
•Freedom from encroachment – by others, in particular by corporate interests
- freedom includes freedom NOT to choose – supply/withdraw labour services
http://blog.sfgate.com/hottopics/2013/09/19/ron-paul-more-women-should-sacrifice-career-to-homeschool-kids/
Ron Paul - September 2013
Bromley: time to re-consider the role of markets
4 Socialism versus Capitalism
• doubts about the benefits of unbridled market development
• shortcomings may lead to an attack on markets as an institution
(1989, democracy & markets won, communism lost)
USSR – deregulation, selling of state assets
Financial crisis (2008)
• “metaphor of the market” permeates our lives
• ultimate coordinating institution in the face of scarcity - conflicts
On Markets:
1 - Creating Markets - Russia and East Block
• need to be placed within a functioning nation-state
• signaling devices (through prices)
• motivate self-interested agents to act in the social interest
Minimizing transactions costs
Getting information (search)
Negotiating contracts (exchange process)
Enforcing contracts (property rights)
“Constructed Order”
Can markets emerge on their own and lead to allocations that are socially ideal ?
Market needs to be embedded in other social institutions, a higher authority
What is necessary for transaction costs to be reasonable?
Create the legal rules through which exchange takes place
What you must or must not do, foster competition
Protect property rights (enforcement)
Ensure predictability in exchanges
Create a sense of fairness
Markets can only exist within “ordered domains of exchange” that are created by social and legal institutions
What happens when markets generate unacceptable outcomes?
2 - Adjustments in Markets (maintenance in the public interest)
• need for institutional flexibility in market design
• they can evolve as the society evolves around them
Is change needed to improve efficiency, or improve distribution ?
Bromley:
There is a role for economists so that they are useful to the public policy process
• Politicians ask the wrong question, or the question incorrectly
• Support more logic and clarity in the way problems are defined and framed
Who Decides? Using High Quality Farmland for a Solar Farm
Who Decides? Clear cutting forests to grow more corn, when the price is good
Before ---->
After ---->
There is private benefit from this activity, but the ecological services of the forest are lost.
Who Decides?
Almost, clear cutting a forest to have a nice view of the Ottawa River?
A new land owner, cuts most trees to get a view, but there is a steep slope and significant erosion is a certainty.
• proliferation of trade agreements in the post WWII era
• eliminate “trade distortions”
• what qualifies as a distortion?
3 - Relations among market economies
E.G. agriculture and the environment, and health and safety concerns
Problem 1: jointness of agr. output and other amenities (landscape preservation)
Conflict: national perceptions, policies and the demands of free markets and science
Problem 2: health and safety issues (hormone treated beef in the EU)
• consequences for the world trade system
• agreements are only as solid as the will of nation-states
• Doha round of negotiations, proliferating bilateral agreements
“the role of the market in weaving together a seamless world of trade
and commerce is a fragile thing”