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Marketists vs. Statists

I was pleased yesterday to participate in a panel discussion at George Mason University’s Mercatus Center – a panel discussion featuring my GMU Econ colleague Dan Klein, my Mercatus Center colleague Scott Sumner, and my GMU Law colleague Jeremy Rabkin.  The subject of the panel was survey evidence showing (unsurprisingly) that professional economists who support the welfare state also support government regulation of the economy and, on the other side, that professional economists who oppose the welfare state also oppose government regulation of the economy.  The transcript of my brief prepared remarks is below the fold.



What a great symposium! Congrats, Dan.

I qualify: this symposium is not great for me because I can find nothing worthwhile to say that hasn’t been said, or strongly implied, by at least one of the authors.

It’s unsurprising that support for the welfare state is highly and positively correlated with support for government regulation of the economy. And the reasons detailed by many of the symposiums’ authors are credible and pretty much complete.

But let me at least try to offer a take that’s somewhat different from any that I’ve encountered.

Here’s my proposed mental experiment to complement the experiment that Dan has done: Suppose that all surveyed economists were asked also to respond to Hayek’s claim that “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” What would be the ‘line-up’ of economists’ reactions to this Hayek quotation?

I’m quite confident that the more strongly an economist opposes both regulation and the welfare state, the more strongly he or she endorses Hayek’s claim.

Opposition to both the welfare state and to government regulation can – I believe typically does – reflect in large part the understanding that reality is vastly more complex than proponents of the welfare state and of regulation suppose it to be.

Call those who are skeptical of the welfare and regulatory state “marketists” and those who are supportive “statists.”

I can speak with more authority about marketists than I can about statists because, first, I am myself a life-long marketist, and because most of the colleagues that I’ve had over my career are marketists – many very prominently so. So I know marketists better than I know statists. But, of course, I read and speak to lots of statists.

Here’s one difference between marketists and statists: We marketists understand (or think we understand) that the margins are many on which private people can adjust their actions in response to changes in constraints and in opportunities – be these changes caused by the market or by the state. And not only is the number of possible margins of adjustment large, many of these margins are so small in size or fleeting in their existence that they are undetectable by outside observers.

Statists, in contrast, seem to me to suppose both that the number of margins on which private people can adjust their actions is relatively small, and that these margins are mostly detectable by outside observers.

This difference between marketists and statists results in marketists – compared to statists – being less pessimistic about markets and more pessimistic about state action.

Why more optimistic about markets? Because with many margins on which to adjust, private market actors have great scope to find or to craft market outcomes that are closely tailored to each actor’s individual preferences.

Why the pessimism about state action? Well, the large number of such margins and the invisibility of their details to everyone who is not ‘on the spot’ combine with the subjectivity of each person’s preferences to make it practically impossible for government officials to assess how well or how poorly markets are working. Too much is unseen – indeed, too much is unseeable – to render imposed collective decisions likely to improve the general welfare.

So my thesis is this: marketists understand, appreciate, and respect the enormous complexity of reality; statists do not. Statists believe reality to be far simpler than it is.

Perhaps statists are misled into such a misconception of reality by their theorizing. For example, the variables conventionally used in economic models to express economic relationships and connections are easy to mistake for being realistic and exhaustive representatives of real-world entities.

Or perhaps such people just do not think deeply. Perhaps they are misled by words used to describe collections of people – for example, “low-skilled workers”; “the steel industry”; “retailers”; “college students”; “smokers” – to miss the multitudinous differences that often separate the individual entities within any one of these categories from others within the same category.

Whatever the reason, the simpler one supposes reality to be, the greater are the prospects – one supposes – for outsiders to grasp reality fully enough to engineer it into a better state.

Here’s a related hypothesis: the simpler one supposes reality to be, the more readily one forgets Thomas Sowell’s observation that there are no ‘solutions,’ only trade-offs. Put differently, the simpler one supposes reality to be, the more prone one is to fall for a good-guy / bad-guy account of reality.

All problems are easily identifiable and are caused by evil-doers: deceitful business executives; hate-filled racist homophobes; stingy middle-class voters. The solution is to send in the good guys to defeat the bad guys; to exorcise the devil and undo his deeds, replacing Satan, if not with angels, with noble public servants bent on saving the day and doing what’s right.

When the economy is seen as a relatively simple mechanism – when society is viewed as one views a passion play or a Hollywood movie in which good and evil are unambiguous, and in which evil persists only because too few good people have yet to spring into action – then there seems to be a natural urge to call in a superhero to obliterate evil and misfortune.

Statists fail to appreciate the complexities of reality and, therefore, exhibit hubris when proposing public policies. Marketists, in contrast, do appreciate the complexities of reality and, therefore, are humble about prescribing government interventions.


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