Markets and morally satisfying outcomes.

I need to vent a little bit about the way the discussions under Jason’s post on markets and E.D.’s response have tended to move into debates about the merits of communism and capitalism, as if the question is whether markets can solve either all problems or none. I doubt that speaking about markets at this level of abstraction is very useful, but since we’re already doing it, I’ll toss in my opinion.

The reason that basically all large and lasting human cultures have made some space for markets (and formed black markets in the event that someone powerful tries to outlaw legal markets) is that when people trade with each other, the distribution of goods necessarily moves toward matching the map of preferences. This happens for a simple reason. If a proposed trade doesn’t alter the distribution of goods in a way that the parties to the trade prefer, then they won’t trade. In just the way that Jason described, market spaces take distributed information into account, and they’re extremely powerful and rather amazing.

So if markets work so well, why don’t we use them for everything?

There are, as I see it, three very broad classes of objection. Not being an economist, I’m going to pass over the first two as quickly as I can.

The first kind of objection is one that comes up quite often. It’s that a pure market structure is inappropriate for some domain. It may be that we can’t figure out a good way to impose a property structure on something — say, the ocean. Or it could be that there is some kind of value that a market repeatedly fails to capture. From certain philosophical standpoints, this last statement is incoherent, but I still think it’s worth mentioning, as a lot of people have something that they hold to have value regardless of how much people are willing to pay for it. Public subsidies for museums and for orchestras are examples of this. I think Rufus’s comments — that not everything should be thought of in market terms — have indicated this line of thinking.

The second objection is that there are cases where markets return really bad results. The preference map is not a fixed thing, and we humans can have a great deal of trouble figuring out how to balance our short-term desires against our long-term ones. People enter the market and make a whole bunch of bad trades, provoking some kind of boom and crash. Since no perfect government-free laberatory exists, there will always be a way to trace the problem back to government, but large market systems are highly complex dynamic systems, and such systems are often prone to weird feedback loops and destructive subsystems. An imperfect analogy would be to weather systems. Weather systems are usually peaceful, but they’re complex enough to create hugely destructive hurricanes. Destructive market events, one would think, would be even harder to predict because market actors take past events into account in their choices. Economists have identified a bunch of conditions that cause problems in market outcomes, and Nob Akimoto’s reminded us of them in his comments.

The third kind of objection is, to my way of thinking, the most subtle and the most difficult. It comes from Freddie. It’s difficult because it argues that even if the first two objections are met — if we establish workable property systems and structure the market so we avoid information asymmetries and the like — the market may still be a moral failure. Furthermore, I’m not sure there’s any empirical way to resolve it.

The major justification for market structures is that they bring distributions into line with preference patterns. One can start by observing that this doesn’t happen uniformly. If you come to the market empty-handed, you will most likely leave empty-handed. If you come to the market flush, you can leave with your every desire sated. Preference-satisfaction does not happen uniformly. Now, it’s certainly legitimate to reply that market efficiency and comparative advantage create an abundance of wealth, that even someone who comes to the market empty-handed can sell his or her labor and make a start in getting what they want, and that there should be some safety nets for those who are empty-handed and really can’t work. We should be careful not to underestimate the degree to which excluded groups have had to fight their way to a decent standard of living, but I think in general we can say that markets do satisfy more and more preferences even for people who don’t have much to begin with.

There’s a gigantic problem here. In the above paragraph, I’ve done what most economists do and what most people in this discussion have done. I’ve assumed that the basic and urgent human needs fit on a scale of preference, on the far end from idle, transient desires. What if this assumption is wrong? Freddie asserts that suffering is a fundamentally different kind of thing, a different kind of experience, from pleasure or discomfort or inconvenience. The need for food conjoined with the inability to acquire it is not at all like my desire for a Playstation conjoined with my inability to make it work in my budget. From the market perspective, a “need” is just an especially strong desire or preference.

The reason that Freddie’s argument shuts me up is that it should be immediately clear that if you accept the economist’s scale of preference as the truth of the matter, than the mild inconvenience of some large number of rich persons will outweigh the profound suffering of someone who’s not rich. If you design the scale humanely, it might take a really, really large number of inconvenienced people to tip the scales, but it has to happen at some point. To me, this is rather disturbing.

From the scale-of-preference perspective, it’s all right if human needs aren’t satisfied in the short term as long as (a) there’s some long-term prospect of satisfying them and (b) the market has moved closer to the pattern of preference, even if only for the privileged. But if Freddie’s right that human need is not just a type of strong preference, then a market that fails to satisfy human need cannot be judged morally satisfactory.

The most important thing I can say here is that judging some market-based distribution to be morally lacking does not mean that the next step is a Boshevik-style revolution, or nationalization of all resources. For the time being, I have to admit that I don’t know how to solve the problem, and I have to be on the lookout for better solutions. Actually, it would be borderline immoral for me to start advocating solutions, because if I am honest with myself I have to admit that I know nothing about the kind of suffering relevant to this discussion. So the next step, for me, is to listen.

Now, there may be some resistance to the theory that human suffering shouldn’t be placed on a utilitarian pleasure-and-pain axis. For one thing, I haven’t provided a criterion that can distinguish between inconvenience and suffering. I haven’t shown where the line is. I guess my response to that is: we can hold off on figuring out what to do with border cases until we have a world where only border cases remain.

If the utilitarian scheme (which, it seems to me, is also the only thing left over for talking about choices under a system of absolute property rights) just makes sense to you, I am not sure what I can say. When we argue about how we ought to think of ourselves in this day and age, we have no agreed-upon criteria for settling the dispute.

What I really want to preserve in this argument is my ability to yield to arguments concerning market structure and market efficiency and still say that market outcomes aren’t good enough. Accepting the value system implicit in economics would prevent me from doing this, and so I’m arguing that the scale-of-preference system isn’t the only way of thinking about things.

What’s the point of all of this? I haven’t managed to put libertarians in a terrible position. My claim in its most straighforward form is something along the lines of, “there is no necessary reason that even well-designed markets will deliver morally satisfactory outcomes for the problem of human need, unless we define ‘morally satisfactory’ in such a way that ‘market outcomes are morally satisfactory’ is a tautology.” If we descend from the clouds of abstraction to the terra firma of reality, we may well find that market distributions are morally satisfactory in most situations, or that there’s no available alternatives that are more morally satisfactory. No matter what we find, to my way of thinking it’s extremely important to be clear-sighted about how our society fails to solve problems of human need. There’s a lot more we can say about what we’re failing to do than “we’ve got the worst system except for all the others.”