The benefits of utilizing markets in the U.S.
I was glad to see that Beto O’Rourke recently said, “I’m a capitalist. I don’t see how we’re able to meet any of the fundamental challenges that we have as a country without, in part, harnessing the power of the market.”
It seems like our country is turning away from markets too much these days. Democrats are proposing massive government interventions like the Green New Deal, along with much higher taxes on wealth and income. President Donald Trump is for tariffs and border walls, and issued an executive order to buy and hire American.
When economists say “markets,” we mean allowing individuals to decide who they will trade (buy and sell) with, free of bureaucratic mandates. This is a very democratic process in which millions of buyers and sellers create the outcomes.
Some of these outcomes have been very beneficial. Look at the millions of people who have been lifted out of poverty in India and China in the past 40 years as those countries instituted market reforms. Countries like Venezuela that have turned away from markets have suffered poor economic outcomes.
Markets bring benefits even in unlikely cases. In their book, “The Inner Lives of Markets,” economist Ray Fisman and novelist Tim Sullivan give some good examples.
In prisoner of war camps during World War II, when the prisoners were allowed to trade (mainly the items they got from Red Cross care packages), survival rates were much higher than in camps where the highest-ranking officers forbade trade and even “doled out food and other supplies.” The top-down approach was inferior to the democratic process of letting people trade freely, even in a highly unfavorable circumstance.
Another case was when economists suggested to food bank operators that they adopt a market-based approach using a point system. Second Harvest, a clearinghouse for food banks across the country, was basically run using central planning, offering donated food to different affiliates.
Food banks were given points that could be used to bid on the available food. This greatly enhanced efficiency, with food banks getting more of the type of food they needed in their area of the country, which cut down on wasted food.
Even North Korea is starting to harness the benefits of markets, as novelist Travis Jeppesen recently explained in the New York Times. Markets have been the main driver of economic development there the past 20 years. They emerged in response to the famine of the 1990s, and they filled in the gaps due to the failure of the central planners. Now government workers can do other jobs as long as they pay something to their supervisors, and businesses are allowed to set their own prices.
Markets can also enhance morality. This is shown in a study done on small societies by Harvard anthropologist Joe Henrich and colleagues.
They found that people became more generous the more integrated they were into the world of commerce. One co-author, economist Herbert Gintis, said, “Societies that use markets extensively develop a culture of cooperation, fairness and respect for the individual.”
One important thing that all proponents of more government intervention should remember is that the more they ask government to do, the less well it will perform its tasks. This was pointed out by philosopher John Stuart Mill in the 19th century.
Mill said, “Every additional function undertaken by the government is a fresh occupation imposed upon a body already overcharged with duties. A natural consequence is that most things are ill done.”
So, if you want government to do things well, don’t ask it to do too much.
Cyril Morong, Ph.D., is an associate professor of economics at San Antonio College.