Saturday, March 2, 2013

Why I was wrong...

I used to be a conservative. What changed my mind?

Just this short list of market failures...

Externalities, prisoners' dilemmas, the principal-agent problem, public goods, monopolies, oligopolies, monopsonies, market power, tragedy of the commons, rent-seeking, game theory, moral hazard, incomplete information, information asymmetry, bounded rationality, adverse selection, nepotism, cronyism, racism, sexism, homophobia, regulatory capture, human irrationality, third-party payer, deceptive marketing, non-rival goods, free-riding, non-excludable goods, transaction costs, missing markets, strategic price complexity, guilds, occupational licensure, patents, trademarks, de-merit goods, predatory lending, subsidies, regulatory arbitrage, tax arbitrage, labor arbitrage, capital controls, trade wars, currency manipulation, zero-bounded interest rates, tariffs, and last but certainly not least, a complete blindness to the needs or rights of future generations.

"Free markets" are hopelessly flawed, inevitably riddled with at least several of the market failures I noted above. While government is also flawed in its own ways, there are simply many cases where the government's flaws are smaller than the market's, or alternatively, the best option is government regulation of the market such that the major market failures can be mitigated or accounted for. Which model works best in any given circumstance is something that can only be determined empirically with carefully-collected and reviewed data, not by hand-wavy allusions to abstract theory. If your argument boils down to "Econ 101 says...", you are probably no more than half right, just like I was when I was young and stupid and overly confident in my understanding of the world.