by From Peter Radford I have been reminded by Tyler Cowen of Bryan Caplan’s simplistic theory of left and right. It’s short and to the point. Leftists are, he says, “anti-market”. He is wrong. Leftists are anti-market obsession. They are anti-market fanaticism. They are anti-market worship. Specifically, they are opposed to the form of idealization used to articulate “the market” in economics. There’s a difference. And I assume Bryan Caplan knows as much. There has been a recent attempt amongst mainstream economists of various nuanced differences to soften their discipline’s unhealthy attachment to markets. This seems to be a recognition of the absurdly monotonous application of market-this or market-that to whatever problem falls within the purview of economics. The
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from Peter Radford
I have been reminded by Tyler Cowen of Bryan Caplan’s simplistic theory of left and right. It’s short and to the point. Leftists are, he says, “anti-market”.
He is wrong.
Leftists are anti-market obsession. They are anti-market fanaticism. They are anti-market worship. Specifically, they are opposed to the form of idealization used to articulate “the market” in economics.
There’s a difference. And I assume Bryan Caplan knows as much.
There has been a recent attempt amongst mainstream economists of various nuanced differences to soften their discipline’s unhealthy attachment to markets. This seems to be a recognition of the absurdly monotonous application of market-this or market-that to whatever problem falls within the purview of economics. The discipline has become trivialized by its inability to think a bit more broadly about economic problems. We all understand the urgency of the need felt by the mainstream to denigrate any form of intervention onto the hallowed ground by the sullied hands and minds of government technocrats. That ideological urgency is well known to all. Having erected its intellectual defenses around the logic of the idealized market and all the munificence derived therefrom, economics has a great difficulty in going beyond.
A problem flowing naturally, and frequently, from this homogeneity of focus, is that economists have become casual in their language. They toss around phrases including the word “market” without feeling the need to provide context, specification, notes of relevance, or any other marker suitable to situate their comment with reference to the real-world phenomenon being discussed.
This we hear frequently that “markets aggregate information”. In fact, we are told markets do this very well. So well, in fact, that there is no need to specify what any of those three words means. This brilliance at aggregation is just presented as a given. Of course, economists all know the backstory to this statement. They know the necessary proofs and so on that establish, beyond doubt, that markets are unsurpassed at aggregation. As long as the conditions that make their models produce such aggregation exist.
Which they don’t, but that’s the risk with idealization. We all know the conditions expressed in the model do not exist. That’s not the point. The point is to explore the properties of the idealization and extract bits and pieces that look useful in interpreting the real world. Where “look useful” becomes a question of judgement driven by a prior existing worldview.
Markets actually do not aggregate information. They disaggregate it in order to strip away anything that might not be associated with a price. What they are left with is a single dimension. With all that information eliminated the market, in its newfound and particular ignorance, is said to be uniquely capable of allocating scarce resources. None of that discarded information is assumed to have relevance to allocation. Not that we would ever know. It’s been discarded.
The problem with the process of idealization is that it requires exactly this elimination of what is considered to be extraneous. This, obviously, involves a great deal of value judgement. The reduction for purposes of simplicity and model specification becomes a vital component of the economist’s art.
This art is a precursor to the subsequent scientific skill. But art it still is.
It is in this conjoining of art with science that economists sometimes get especially sloppy.
For instance, in his short note on his simplistic theory of left and right, Caplan says that leftists are anti-market, and then, later on, he says that “free markets get on their nerves”. This is lazy. Are we discussing markets, or free markets? Are they different? Are the underlying models, assumptions etc different? Are the two available for different prescriptive and analytical purposes?
That’s unfair, perhaps, but it demonstrates the way in which economists mix and match phenomena with an unhealthy ease.
And even if we accept that “markets aggregate information” with each of those words fully specified to fit within the logic of price theory, we have the small problem that the obsession with prices has led to the aforementioned elimination of swathes of potentially highly relevant information.
By obsessing over prices and the act of exchange economists have reduced economics to a narrow shadow of what is needed to comprehend a real economy.
In the words of Ronald Coase:
“What happens in between the purchase of the factors of production and the sale of the goods that are produced by those factors is largely ignored … Even more surprising, given their interest in the pricing system, is the neglect of the market, or more specifically the institutional arrangements which govern the process of exchange.”
He goes on:
“This preoccupation of economists with the logic of choice … has nonetheless had, in my view serious adverse effects on economics itself. One result of this divorce of theory from its subject matter been that the entities whose decisions economists are engaged in analyzing have not been made the subject of study and in consequence lack any substance. The consumer is not a human but a consistent set of preferences. The firm to an economist … is effectively defined as a cost curve and a demand curve. Exchange takes place without any specification of its institutional setting. We have consumers without humanity, firms without organization, and exchange without markets.”
You can tell he was vexed. The ironic centerpiece of his critique is that to get price theory burnished to its ultimate extent, and thus to be able to render the statement that “markets aggregate information” as a truth, economists had to get rid of the marketplace and substitute some other, and extraordinarily idealized, object.
And it is this contradiction, or should I say sleight of hand, that leftists object to. It isn’t markets, free or otherwise, that we object to. They are real things in the real world. We cannot object to reality. That would be absurd. No. What we object to is the construct that economists call “the market” which , in all its abstract magnificence, floats midair, unmoored from reality, stylized and yet worshipped as an entity so valuable that the real world needs to be rebuilt in its image.
Bryan Caplan’s simple theory is, simply, like a lot of economic argument, a way of avoiding reality.
So, let me summarize: leftists are not anti-market. They recognize that what is called a market by economists is a rigorously simplified idealization. And that like all idealizations a lot is left out in order to render the idealization coherent. It’s what’s left out, not what’s left in, that leftists object to. And that is not trivial. Coase says so too.