Monday, 23 September 2013

Make some time for this essay

If you're like me, the disks arrive with the latest issues of the American Economic Review, the Journal of Economic Literature, the Journal of Economic Perspectives, and you say to yourself, I really must sit down some evening and work my way through them. But things interrupt, time goes by, and life is what happens to us while we are making other plans.

But if you are minded to catch up with at least one of the recent articles, make it this one - Timothy Besley's essay, "What’s the Good of the Market? An Essay on Michael Sandel’s What Money Can’t Buy", in this June's issue of the Journal of Economic Literature (Journal of Economic Literature 2013, 51(2), 478–495, http://dx.doi.org/10.1257/jel.51.2.478). And you'll also need to pop out to the library or a bookstore for Sandel's book, if you haven't read it already.

You may well have - it created quite a stir when it came out, and it deservedly got a good reception pretty much everywhere, including from Besley in this essay ("a great book and I recommend every economist to read it even though we are not really his target audience. The book is pitched at a much wider audience of concerned citizens"). And it was of course welcomed especially warmly in the sorts of places where markets tend to be scorned in the first place. John Lanchester for example praised it in the Guardian (saying that some might even have wanted a "more sweeping, angrier book, one that is more heated about the morally debased landscape brought to us by the ubiquity of market thinking"), as did John Gray in the New Statesman ("In a culture mesmerised by the market, Sandel’s is the indispensable voice of reason").

Sandel is an internationally respected political philosopher and a professor at Harvard. His book carries the sub-title, "The Moral Limits of Markets", which is his message in a nutshell. As Besley summarises it in the JEL essay (p483), Sandel makes two main points. "First, there is an objection to market outcomes based on fairness. This is partly the standard observation that inequality in market choice is a reflection of underlying inequalities in purchasing power". And "Second, there is the corruption / degradation objection to the use of markets. This is the view that trading in markets can lead to valuable attitudes and norms being damaged or dissolved. So WMCB argues that “markets are not mere mechanisms; they embody certain values. And sometimes, market values crowd out nonmarket norms worth caring about”".

It's that second point that seems to have got most coverage, and it's an interesting one. It's the point that caught my attention, too. I have to confess that I'm a bit of a book-reading tragic, and keep a spreadsheet of books I've read and my comments on them: Sandel, I thought, made a good case that "commercialising some things changes their character for the worse, something you should think about before setting out to create markets in them or create incentives for their use". I didn't necessarily agree that there are many real-life examples that fitted the bill, but I can see the point.
Besley's essay is a terrific resource from many perspectives - it is an excellent survey of where economics has got to with its thinking about markets, as well as a thought-provoking engagement with Sandel's arguments - and I'll leave it to you to work your way through it without much further editorialising.

I will add a few observations, though.

I agree with one of Besley's conclusions, namely that Sandel does not appear to have a good answer to the question, (as Besley puts it, p489), "What are the alternatives to using the market?...If there are problems with using markets to allocate goods, then ultimately we have to say what we should do about it". And I'd just point to the quotes from Yarrow and Wheelan that I've got in the 'Welcome to my blog' sidebar.

And I was also rather baffled by the mugging that Sandel and his reviewers gave to viatical insurance, described as follows in the Guardian review: "These were insurance policies that had been taken out earlier in their lives by people who were dying of Aids. The life insurance policies of these dying patients were valuable – so a market developed in which these policies were bought by investors, who would give the Aids sufferer a lump sum and would pay for their care during the terminal illness. Then, when the patient died, the policy would pay out: kerching!"

I appreciate that this may, to some people, look a bit macabre. But for the life of me I can't see what's morally, or any other way, wrong with this market. Quite the reverse: it seems to me to be a rare example of a Pareto optimal outcome, where two groups are clearly better off (the dying people who get care they wouldn't otherwise have had, and investors, who get another option for their consideration), one group is completely unaffected (the insurance companies, who will pay out what they were always up for anyway), and nobody (that I can see) is worse off.

And I was sorry the section of the essay on "Economic Perspectives on the Achievement of Markets" (pp484 et seq) didn't give Walras at least a passing mention. I don't know what economics students get taught these days about general equilibrium, but in my undergraduate days we got a decent blast of Walras' imagined omniscient auctioneer, conducting auctions in all the markets of the economy, nudging prices up where supply was short of demand, nudging prices down where demand was short of supply, and through this 't√Ętonnement' (groping) signalling and coordinating an entire economy towards an efficient equilibrium. They say there are mathematicians who weep at the beauty of the binomial theorem: I still get the same sense of awe at Walras' model.

2 comments:

  1. You say " I didn't necessarily agree that there are many real-life examples that fitted the bill," .. One example that occurred to me straight away was the blood bank - would you rather go to a market based blood bank for blood (not you, but your doctor) or as in NZ to a volunteer based system.

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  2. Thanks for the comment, and sure, there are certainly some, and blood banks are an example. They're mentioned in the essay and, I think, in Sandel's book, too, though I don't have it beside me. And as the essay notes "There is now a growing body of experimental evidence that supports the idea that pro-social behavior may be greater when no price or incentive is offered". But I don't think we're knee deep in those kinds of transactions.

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