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From: carnes@gargoyle.UUCP (Richard Carnes)
Newsgroups: net.politics.theory
Subject: Re: Health Care, Wonderful Market for
Message-ID: <204@gargoyle.UUCP>
Date: Sun, 29-Sep-85 20:23:40 EDT
Article-I.D.: gargoyle.204
Posted: Sun Sep 29 20:23:40 1985
Date-Received: Mon, 30-Sep-85 03:22:16 EDT
Reply-To: carnes@gargoyle.UUCP (Richard Carnes)
Organization: U. of Chicago, Computer Science Dept.
Lines: 146
Summary: The free market and optimality

First some preliminaries:

In article <10482@ucbvax.ARPA> mcgeer@ucbvax.UUCP (Rick McGeer) writes:

> Standard sophomore text in the subject [sociology]?

There is a short book by Peter Berger called *Invitation to
Sociology*.  But I think it is more important to take a course in
rigorous thinking.  I would suggest a course in analytical
philosophy.

>I really don't know much about sociology, since the only college course on
>the subject that I attended began with the instructor saying that you had
>to be a Marxist to be a sociologist.

Obviously you don't, but it helps, especially around Berkeley.

>Marxism is like smallpox: the only thing you want to
>learn about it is how to stamp it out.  

Let me rephrase that:  the only thing *you* want to learn about it is
how to stamp it out.  People with open minds want to learn how a
Marxist perspective in the social sciences might help one to
understand history and society.

>As I dimly recall, Ireland in the 19th
>Century was pretty much a colonial feudal aristocracy, which is close enough
>to socialism that a simple hacker like me can't really tell the difference.
>Anyone want to correct me?

A new libertarian equivalency!  Feudalism = socialism.  I suggest you
look up "feudalism" and "socialism" in an encyclopedia, preferably a
scholarly work such as *The International Encyclopedia of the Social
Sciences*.  If you want to learn about the Irish famine, read *The
Great Hunger* by C. Woodham-Smith.

On to the main topic:

>Finally, whether you call them "needs" or "demands", you're still
>talking about the allocation of scarce resources...which is done optimally
>in a free market.

This is well known to be false.  The Prisoner's Dilemma-type
situations that have been mentioned are just the tip of the iceberg.
We may wish to have the free market on other grounds (and I agree
that the marketplace is a highly useful institution) but not on the
grounds of the optimality of its outcome.  (This is an instance of
the general truth that there is no reason to expect that the
collective outcomes of individual choices will, in general, be
optimal (for the moment I am avoiding the question of how we define
"optimal").  To broach a rather large subject, an example is the fact
that the American political-economic system is highly suboptimal,
even though for the most part Americans freely assent to its
principal features.)

You would have a stronger case if you said that the fundamental
theorems of welfare economics show that the free market, if it
fulfills certain conditions such as perfect competition, always
results in a *Pareto-optimal* outcome.  But if you say this, you run
into some serious problems.

First of all, Pareto optimality is not identical to optimality per
se.  Let us take Brazil, where the peons starve while the cattle pig
out because the peons have little money compared to the rich
landowners.  This may well be Pareto-optimal in either the strong or
weak (potential compensation) sense, but it is certainly arguable
that it would be a more desirable outcome if the rural poor had more
to eat at the expense of the wealthy.  I do not think one has to be a
thoroughgoing utilitarian to make this argument.

More fundamentally, libertarians cannot invoke the criterion of
Pareto optimality and remain consistent libertarians.  The first
reason is that, as Amartya Sen has shown in *Collective Choice and
Social Welfare*, there is a potential conflict between libertarian
principles and the principle of Pareto optimality (the Paradox of the
Paretian Liberal), so that Libertaria would have to violate Pareto
optimality now and then.

The second reason is that libertarians are committed to judging
outcomes by the *process* through which the outcome was reached, not
by the outcome itself.  For example, if you are poor in Libertaria
and no rich person offers you any charity, and no fraud or initiation
of coercion has taken place, then tough on you, according to
libertarians.  You can rail against fate or beg for money, but you
have no legitimate grounds to complain that the situation is unjust.
All the rules have been followed, hence the outcome is just.  Now, an
individual libertarian may *prefer*, for whatever reason, a social
state that is Pareto-optimal to one that is not, but she has no
objective basis for saying that a Pareto-optimal outcome must be
better than a suboptimal outcome.  Hence, whether the free market
leads to some kind of optimality or is horribly inefficient, the
*outcome* of the market process is irrelevant to the libertarian
judgment on the free market.

>Your concern seems to be that such allocation is
>inequitable.  But that word itself is almost meaningless, since I think that
>any means of organizing the world in any way where I don't get what
>I want is inequitable.  And you know damned well that that's a pretty 
>universal definition of inequity.

This is bizarre.  I don't know of anyone who thinks that equity or
justice means "getting whatever I want."

>The trouble with your "needs" is that someone has to decide which are
>valid, and which are not -- which in turn involves cultural value
>judgements.  The great thing about demand as a measure is that you
>don't make judgements on the relative worth of A's vs B's demand --
>it all comes out in the wash.  More to the point, demand measure may
>be optimized automatically without examining the nature of the
>demand, whereas -- by definition -- that's not true of "needs".

The trouble with your "demand" is twofold:

First, you are talking about *effective* demand.  A person who has
little or no money has little or no demand in your scheme.  So the
Brazilian peon has much less demand for grain than the wealthy cattle
rancher, and it just automatically comes out in the wash that he is
malnourished.  Thank goodness we don't have to bother with any
cultural value judgments, such as that people should not starve to
death in the midst of plenty. 

Second, Arrow's Theorem proves that not all social decisions can be
rationally based on individual preferences alone.  Try doing it for
Condorcet's voting paradox.  So inevitably someone will have to
decide, either dictatorially or through the dreaded value judgment.
You can't escape the problem of "Who decides?" by means of the free
market.

>And, better put, who prevents the market from acting as
>it will?  When needs are allocated "so that the poor can receive them" -- as,
>for example, certain "staple" foods are in Mexico, or as almost everything is
>in the USSR -- the inevitable result is black markets and shortages.  *The
>market reality always makes itself felt*; when you try to prevent the market
>from working -- and I'll concede your motives -- all you manage to do is
>bollix things up terribly and hurt the people you were trying to help.

If you would carefully study Nicaragua, Cuba, and China, I think you
would be less likely to make dogmatic statements like this.  I don't
believe any of these countries is a workers' paradise, but they have
made significant improvements in the well-being of their people.  By
your logic there should be mass starvation in these countries.  Ask
the Nicaraguans themselves whether they have generally been hurt or
helped by their government's socialist policies.  Markets, BTW, have
not been abolished in these countries, nor should they be.  
-- 
Richard Carnes, ihnp4!gargoyle!carnes