Relay-Version: version B 2.10 5/3/83; site utzoo.UUCP Posting-Version: version B 2.10.2 9/18/84; site gargoyle.UUCP Path: utzoo!watmath!clyde!cbosgd!ihnp4!gargoyle!carnes 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