Nothing too deep here today. The reason to be enthusiastic about market institutions is not because there is some moral superiority that those institutions have over others (a case can be made if you wish) or that we should attempt to buy and sell as much as we can for its own sake. No, the reason to be supportive of market institutions is because there are few (if any?) other institutions on earth that first enable millions of strangers to cooperate with one another and second more important that there are few (if any) other institutions on Earth that provide as much feedback and relevant feedback that markets can deliver.
You “vote” every single time you make any decision in a market. You “vote” for the kind of products you like and you “vote” for the kinds of work you are willing to do in order to feed yourself. If you are unsatisfied in any of your choices, you may change instantly what you are doing. You may change for any reasons too – if you are frustrated, if you find better opportunities, if you simply don’t need something, if the weather dictates, and so on. And when you change your choices in a market setting, that provides instant feedback to people on BOTH sides of the market about what you think is scarce and what you think is not valuable. When I change brands of beer that will tell producers of beer what customers seem to want and not want, and it also tells other consumers of beer what sorts of things are more or less scarce. If you don’t like something in a market, not only can you change your choice now but when you do change your choice the outcomes, for you, are changed instantly. In addition, you are able to make a change in your choices without having to persuade anyone else to change their choices. If you don’t like bacon, you stop eating bacon and you stop paying for bacon NOW regardless of whether anyone else agrees with you. If you want more bacon, you get more without having to ask other consumers to provide it, or do without less, or to vote on whether you get it. The insight here is that there is a lot of feedback in markets.
Again, the feedback isn’t moral or immoral and it doesn’t guarantee that the “best” outcomes are going to result. The point here is that individuals get to exercise choices immediately and all the time and that the consequences of these choices are enjoyed by individuals immediately and that other individuals are able to react or not react to your choices immediately too.
Contrast this to your “choice” in politics. You actually don’t have “choice” in politics – you have “voice.” At best you can think of your vote as expressing your voice about what you think you may want to accomplish (or not) collectively. This voice is exercised not daily or weekly or even annually, but bi-annually or even less frequent than that. When you express your voice in politics not only can you do it only periodically, your voice essentially doesn’t matter. Now, of course, political outcomes track voter interests over time, but at any relevant margin your actual expression of voice changes nothing at all for you. If you vote to have a bridge built over the Hudson River or if you vote to end a subsidy program, your chances of the bridge being built or the subsidy ending because of your vote are zero. Furthermore it is costly to vote. It is costly not just because you have to get out and do it, but because in order to have your vote matter you’d have to spend an enormous amount of resources persuading others to do as you do. And even if you do persuade lots of other people to vote the same way that you do, but you also have to hope that the elected officials actually deliver according to your wishes. This is all quite unlikely, and we’re leaving out lots of important complications too. In short, there is virtually no feedback in political processes in either direction. Individuals cannot exercise their choices regularly nor do the officials who execute the will of the people get the feedback that people in markets get.
So on this election day, remember that the real kind of voting is that which you do dozens of times every day. And remember that the push to have markets do more and more is a push to get better information and incentives operating to deliver the goods and services we want. Political mechanisms necessarily operate with limited information, limited feedback and limited resources. As a result, we should be very careful about what things we relegate to such processes. This, again, is not a moral argument, or even an empirical one, but rather a procedural one, and one I find to be underappreciated and very important. As always there is much more to say and some extremely important caveats, but the post is already too long.
UPDATE: This totally unrelated research paper just hit my inbox (Professor Rivkin was my much loved undergraduate honors thesis adviser when I was a Lord Jeff).
The Evolution of Charter School Quality
by Patrick L. Baude, Marcus Casey, Eric A. Hanushek, Steven G. Rivkin
Studies of the charter school sector typically focus on head-to-head comparisons of charter and traditional schools at a point in time,
but the expansion of parental choice and relaxation of constraints on school operations is unlikely to raise school quality overnight.
Rather, the success of the reform depends in large part on whether parental choices induce improvements in the charter sector. We study
quality changes among Texas charter schools between 2001 and 2011. Our results suggest that the charter sector was initially
characterized by schools whose quality was highly variable and, on average, less effective than traditional public schools. However,
exits from the sector, improvement of existing charter schools, and positive selection of charter management organizations that open
additional schools raised average charter school effectiveness over time relative to traditional public schools. Moreover, the evidence
is consistent with the belief that a reduction in student turnover as the sector matures, expansion of the share of charters that adhere to
a No Excuses philosophy, and increasingly positive student selection at the times of both entry and reenrollment all contribute to the
improvement of the charter sector.
Nothing to see there of course, nothing at all. Now go vote.