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”