June 26, 2023
Over at his blog, John Cochrane takes on the implicit utopianism and tired cliches of free market critics:
“I'll give away the punchline. The case for free markets never was their perfection. The case for free markets always was centuries of experience with the failures of the only alternative, state control. Free markets are, as the saying goes, the worst system; except for all the others.”
I’d only add that good theory also recognizes this point. The argument for markets has never been that they transport us to nirvana, that they eliminate human foibles, or instantaneously alleviate all social problems in this vale of tears.
On masks during the pandemic:
“The free market has a plan, imperfect as it might be, for masks in a pandemic. Prices rise. People who really want and need masks -- doctors, nurses, police -- pay what it takes to get them. People who don't really need them -- nursery schools -- look at the price, think about the benefit, and say, "maybe not," or take other measures. People reuse masks. Producers, seeing high prices, work day and night to produce more masks. Others, knowing that every 10 years there is a spike in prices, pay the costs of storing masks to make great profits when the time comes.
The actual story of masks in the pandemic is the exact opposite. Price controls, of course. Instantly, governments started prosecuting businesses for "price gouging" who dared to raise the price of toilet paper. Governments redistribute income; markets allocate resources efficiently. As usual, the desire to redistribute tiny amounts of income to those willing to stand in line to get toilet paper won out. An entrepreneur tried to start producing masks. The FDA shut him down. (I hope I recall that story right, send comments if not.) China wanted to ship us masks. Yes, China the new villain of globalization gone mad. But their masks were certified and labeled by EU rules, not US rules, so like baby formula they couldn't be imported and sold.”
I’d only add that describing “the” market as having a “plan” runs the risk of obscuring that a market is really the aggregation of countless people’s plans.
After commenting on Acemoglu and Johnson’s new book, Cochrane writes:
“The theme uniting the two essays: If there is one lesson of the last 20 years it is this: The catastrophic failure of our government institutions. From bungled wars, a snafu of financial regulation in 2008 just now repeated in FTX, SVB, and inflation the evident collapse of the FDA CDC and plain commonsense in the pandemic, the free market is bravely forestalling a collapse of government (and associated, i.e. universities) institutions.
This is, in fact, the central question dividing free-marketers and others. Private power being subject to competition, we worry more about state power. The essence of state power is monopoly, and a monopoly of coercion, fundamentally violence.”
The whole thing is worth a thoughtful read. There are shades of James Buchanan who famously argued that “It is this becoming process, brought about by the continuous pressure of human behavior in exchange, that is the central part of our discipline, if we have one, not the dry rot of postulated perfection.”