8 ms·

Why Free Markets Make Fools of Us

51 points by jonathansizz 11y ago

tokenadult 11y ago
I'm glad to see that this book review is by Cass R. Sunstein, who has devoted much of his research to related issues. Human psychology works in ways not completely anticipated by classical liberal economists like Adam Smith (although Smith deserves more credit than he gets for a deep understanding of human psychology). One interesting paragraph in the review tells the tale: "To support this claim, Akerlof and Shiller point to an uncanny prediction by John Maynard Keynes in 1930. Keynes expected that by 2030, the standard of living would be eight times higher. We are on track to get in that vicinity. At the same time, Keynes made a profound mistake. He predicted that the workweek would plummet to fifteen hours and that people would struggle not with financial problems, but with a surfeit of leisure. That isn’t going to happen. What Keynes missed is that free markets generate new desires. In Akerlof and Shiller’s words, markets 'do not just produce what we really want; they also produce what we want according to our monkey-on-the-shoulder tastes.'" In other words, producers can act jointly more effectively than consumers can in exploiting weaknesses of human psychology. This seems to be a fair statement with a lot of empirical support. I think the reviewer does a good job at the end of his review of critiquing the book's view of behavioral economics by asking for more specificity about which mechanisms most lead to "phishing" (dishonest marketplace behavior to fool consumers). To say that free markets take advantage of consumers does not guarantee that making markets less free is any better for consumers, unless some new form of regulation is based on careful research and an affirmation of commonly held human values.
- afarrell 11y ago
  > What Keynes missed is that free markets generate new desires I've been curious if, as a result of the attitude toward aggregate demand that grew as a response to the Great Depression and Keynes work, we have deliberately designed our society to try to generate more and more desires.
  - notahacker 11y ago
    Most of the driving of new desires is done by individual companies in the private sector though. Apple aren't trying to stimulate aggregate demand each time they release a new phone, they're trying to increase their future profits, just like every other company before them. Keynesianism ensures these companies can borrow more cheaply in an economic downturn, as can the less-likely-to-lose-their-job consumers. But it's lubricating the process of creating new markets rather than powering it.
- deleted 11y ago
  [deleted]
- jessriedel 11y ago
  > "What Keynes missed is that free markets generate new desires. In Akerlof and Shiller’s words, markets 'do not just produce what we really want; they also produce what we want according to our monkey-on-the-shoulder tastes." In other words, producers can act jointly more effectively than consumers can in exploiting weaknesses of human psychology. This seems to be a fair statement with a lot of empirical support. An alternative theory for explaining Keynes' mistake is just that people's consumption is driven by desire for relative status, a zero-sum game, and therefore people will continue to work to consume more no matter how productive they become. But what is the evidence that free markets generate these desires rather than merely fulfill them? Yes of course marketing will have a hand in determining which goods are high-status, but I don't know much reason to believe that people would stop consuming for status in the absence of marketing. (To wit, there was plenty of conspicuous consumption historically by the rich before there was any sort of marketing industry.) They would just consume a different arbitrary basket of good.
  - kauffj 11y ago
    You are spot on. It is all about relative status and that was Keynes' big mistake (Russell makes same mistake). Relative status is also the hidden driver behind most of income inequality debate.
  - tomp 11y ago
    > An alternative theory for explaining Keynes' mistake is just that people's consumption is driven by desire for relative status, a zero-sum game, and therefore people will continue to work to consume more no matter how productive they become. I have a different explanation: that progress is uneven. (1) There has been amazing progress with electronics, where computers have increased our productivity practically unmeasurably, and in manufacturing, where new technologies and materials have made products better and cheaper. (2) On the other hand, in areas like human services (e.g. medicine, law), housing (the price of land isn't falling with technological progress), and transport (e.g. bus drivers, garbage collectors, everyone who needs to drive around) there has been very little progress from free markets, rising GDP, or technological advancement. Since people need things in (2), they need to work. And since (1) affects most of us (rising productivity => falling wages), we need to work more and more to afford (2).
- bufordsharkley 11y ago
  I think it's certainly true that human desire for more will never be sated, but I think this overlooks the fact that there are also finite resources (like land) that won't grow to match productivity, and thus a substantial part of our productivity is captured as rent. And this isn't something that we can grow our way out of...
  - oldmanjay 11y ago
    People are very definitely working to increase the available land by getting us to other planets. That means we can grow our way out of it, although it remains to be seen if we actually will.
  - AnimalMuppet 11y ago
    But productivity of land can grow. Consider the Green Revolution, for instance.
    - bufordsharkley 11y ago
      Yes, productivity of land can grow (in all sorts of ways), but if the ownership of the land is unequal, all this does is increase the rent on the land for those lucky enough to have it...
      - AnimalMuppet 11y ago
        Not so fast. If I double the productivity of my farmland, I increase the rent on my land (but typically I have to invest in it to get that, so it's not just rent in the economic sense of the word). But if everybody doubles the productivity of their farmland, the price of wheat falls through the floor, and the landowner may be even worse off than before, while consumers get a windfall.
nileshtrivedi 11y ago
Exploitation of irrationality is how rationality evolves in biological systems. In other words, if we get the government to play the role of a protective nanny, we the citizen will remain intellectual equivalent of infants.
- mikeash 11y ago
  Allowing rationality to evolve by allowing irrational actors to be exploited is going to take thousands of years at the least. I'd rather figure out some way to improve things sooner than that.
  - nostrademons 11y ago
    It doesn't have to be biological evolution or take thousands of years. Most exploitation of irrationality works by playing off subconscious desires; once that leads to a very public and consequential failure, it is very quickly brought into consciousness, where future instances can be dealt with rationally. Someone who invested their life savings in dot-coms in 1999 is probably never again going to invest in "the next big thing". That brings its own form of irrationality - once everyone believes that it's foolish to invest in the next big thing, the next big thing becomes very underpriced - but they are at least not going to make the same mistake twice.
- zzzeek 11y ago
  last I checked, nannys don't let the kids they're taking care of democratically elect their behaviors.
  - nunyabuizness 11y ago
    > nannys don't let the kids they're taking care of democratically elect their behaviors Considering they can sneak in CISA into a US budget bill after it was shot down by the public, apparently, neither does the government.
    - afarrell 11y ago
swehner 11y ago
... Microsoft also being one of those phishermen
piker 11y ago
Does the appropriation of the term "phish" disturb anyone else? To me, it confuses the distinction between auspiciously legal capitalistic behavior and the work of con artists. The appropriation equates tempting irrational actors to act against their own interests with defrauding rational actors into acting against their own interests. I also shutter at the thought of reading a 272 page book littered with various "phish", "phool", "ph"-etc'd terms. [Edit: grammar]
vezzy-fnord 11y ago
Don Boudreaux has done a reasonable job of highlighting Akerlof and Shiller's dishonesty in their latest book: http://cafehayek.com/2015/12/phoolishly-against-phreedom-of-speech.html http://cafehayek.com/2015/12/phoolishly-against-phreedom-of-... http://cafehayek.com/2015/12/a-baseless-charge.html http://cafehayek.com/2015/12/a-baseless-charge.html http://cafehayek.com/2015/12/daffy-elitists.html http://cafehayek.com/2015/12/daffy-elitists.html http://cafehayek.com/2015/12/mostly-exaggerated.html http://cafehayek.com/2015/12/mostly-exaggerated.html http://cafehayek.com/2015/12/more-on-phishing-for-phools.html http://cafehayek.com/2015/12/more-on-phishing-for-phools.htm... http://cafehayek.com/2015/12/the-role-of-market-forces-in-protecting-against-phishing.html http://cafehayek.com/2015/12/the-role-of-market-forces-in-pr... I would also like to note that anyone criticizing neoclassical economics (and it's full of dubious assumptions, don't get me wrong) based on straw men about "rationality" is fighting windmills. But don't take it from me, take it from a heterodox post-Keynesian: https://unlearningeconomics.wordpress.com/2012/06/29/how-not-to-criticise-economics/ https://unlearningeconomics.wordpress.com/2012/06/29/how-not... And, unsurprisingly, Akerlof and Shiller stop at yelling "market failure" without proposing a theory of government and ignoring the very fruitful area of government failures. Anyone who argues for intervention on basis of asymmetrical information without having read up on public choice is in no position to speak of anything, since their model is stuck in assuming government is a mystical exogenous equilibrator and that all of its constituents have virtually no expectations whatsoever (which is an even worse assumption than full rationality). Akerlof and Shiller are obviously well aware, but their book is little more than a political polemic.
- notahacker 11y ago
  I can't see where Boudreaux's comments - themselves more polemic than analysis - expose any "dishonesty". I mean, one of his posts pulls out the old libertarian canard of "every potentially harmful product will be effectively countered by competitors taking the equal and opposite opportunity to sell good honest consumer-friendly protection" by speculating that a market solution to smells designed to induce customers to over-eat could be rival entrepreneurs selling a nose-attachment[1]! And as far as I can tell, he's actually not trying to parody his own argument. If that's one of the best objections he can raise to an example in Akerlof and Shiller's book it must be remarkably good by the standards of popular economics texts. [1]Perhaps the only reason America doesn't have a penchant for nose attachments and no obesity problem is because the market isn't free enough!
alxv 11y ago
Previous discussion: https://news.ycombinator.com/item?id=10330280 https://news.ycombinator.com/item?id=10330280
will_brown 11y ago
>Very few economists foresaw the great recession of 2008–2009 I just can't get past the very first sentence. First, it ignores the realities of both economists and financial insiders who made attempts to blow the lid off of the ARM/toxic loan schemes - not unlike pre-Snowden whistle blowers who were equally ignored and erased from history. Second, even as a 17 year old kid, in 2001, I wrote an economics paper about the impending housing collapse - only I was guessing 2005 not 2008 - based on ARM's; 103% financing with 0% down; and stated income. The next thing will be people talking about how very few economists foresaw the issues with reverse home mortgages, or how no regulators foresaw the dangers of equity crowdfunding for non-accredited investors.
- dragonwriter 11y ago
  > > Very few economists foresaw the great recession of 2008–2009 > First, it ignores the realities of both economists and financial insiders who made attempts to blow the lid off of the ARM/toxic loan schemes - not unlike pre-Snowden whistle blowers who were equally ignored and erased from history. Yeah, whether it was tied specifically to those particular schemes or not, lots of economists were predicting an imminent severe recession -- including both notable Austrian-school economists and notable neo-Keynesians -- driven by a collapse in the housing market bubble.
- notahacker 11y ago
  > The next thing will be people talking about how very few economists foresaw the issues with reverse home mortgages, or how no regulators foresaw the dangers of equity crowdfunding for non-accredited investors. And some of the people writing those articles will inevitably be business journalists who spent the previous five years complaining about the regulations that remained and shilling for the crowdfunding companies...
- tryitnow 11y ago
  You should try to read past the first sentence. The simple fact is that few economists predicted a recession of that magnitude. Predicting a crash is very different than predicting a recession. And predicting a recession is very different than predicting the magnitude of that recession. Nuance matters. I'm glad you were able to foresee it, but there's always outsiders who foresee a collapse, so that data point just isn't terribly relevant.
clarkmoody 11y ago
The term "free market" is thrown around rather easily in this article, oftentimes with the assumption that consumers have absolutely no recourse in said "free market." A few places, you could replace "free market" with "freedom of speech" and it would read the same. Of course the "progressive" thing to do is to limit speech as well, for our own good. When an economy has a strong central bank meddling with the interest rates, firms and individuals receive an incorrect signal in the time-preference for money, since the interest rates are not determined by the market. Coupled with an inflationary monetary regime and Keynesian ideology throughout, the "free market" has no chance to produce optimal outcomes. Come back with a book that examines actual free markets and we'll talk.
- will_brown 11y ago
  >A few places, you could replace "free market" with "freedom of speech" Interestingly, from a legal perspective free speech does go hand in hand with what the Court's call the market place of ideas[1] which generally should act like the free market. "The marketplace of ideas is a rationale for freedom of expression based on an analogy to the economic concept of a free market. The "marketplace of ideas" holds that the truth will emerge from the competition of ideas in free, transparent public discourse." [1] https://en.wikipedia.org/wiki/Marketplace_of_ideas https://en.wikipedia.org/wiki/Marketplace_of_ideas
- jdreaver 11y ago
  Right? Any time something in the economy goes wrong, people are quick to blame it on the free market. Greed is the problem, they say. If, in fact, that problem is caused by the government, then it is the fault of "corporations meddling with government." If it is clear that a handful of politicians caused the problem, then people call for "getting money out of politics." It's almost as if the government can do no wrong. We live in such a highly regulated world that I can't help but chuckle when someone blames the "free market" for many of the problems of today.
  - ksk 11y ago
    Why can't both be true? Regulation is equally problematic as free markets.
pithic 11y ago
Along with inestimable human livelihood and wealth, the free market creates various possibilities to foolishly harm oneself. Some questions Sunstein does not raise are: 1. Does the option of self-harm have value? If such options are forcibly removed, is the human condition degraded? For example, if one is stripped of having the sense of self-ownership, is that person limited in their level of human development and functioning? 2. Can harmful products be forbidden without the threat and use of violence against their would-be producers and consumers? 3. How successful could we expect such efforts to be, based on similar past and current efforts? And how costly, monetarily, socially, and in human lives? 4. How likely are such efforts, and the institutions that exert them, to be corrupted and bent to the service of powerful interests?
- tomp 11y ago
  I think the US prohibitions, first the alcohol in the past, and the current drug prohibition, pretty resoundingly answer that restricting freedom (in this way) results in very damaging outcomes.
- jdreaver 11y ago
  > Along with inestimable human livelihood and wealth, the free market creates various possibilities to foolishly harm oneself. As opposed to the ability for the state to foolishly harm us? Sure, a free market allows humans to be human and make mistakes, but allowing others to take your freedom in the interest of self-preservation is a fool's compromise. Certainly, you raise great philosophical questions though. One of my favorite thought experiments is to imagine how many things done by the government today could be accomplished without the government. I don't mean obvious things like the postal service, I mean fundamental services like road building and a court system. I plan to read David Friedman's book soon on this topic, called "Legal Systems Very Different From Ours": http://www.daviddfriedman.com/Academic/Course_Pages/legal_systems_very_different_12/LegalSystemsDraft.html http://www.daviddfriedman.com/Academic/Course_Pages/legal_sy...
ulrikmoe 11y ago
Milton Friedman, why have you forsaken us.
dawnbreez 11y ago
The central problem of a free market is also its greatest strength: it relies on the people making the purchases to decide what constitutes a good product or service. It asks us to vote with our wallets. This works best when the individual educates him/herself about each purchase. However, when individuals make purchases based on popularity rather than merit, or based on what they're used to, their ability to vote with their wallet suffers. And when producers begin to settle into a position of comfortable mediocrity, when they refuse to compete and improve, they also hurt the consumer's ability to vote with their wallet.

51 points by jonathansizz 11y ago

I'm glad to see that this book review is by Cass R. Sunstein, who has devoted much of his research to related issues. Human psychology works in ways not completely anticipated by classical liberal economists like Adam Smith (although Smith deserves more credit than he gets for a deep understanding of human psychology). One interesting paragraph in the review tells the tale: "To support this claim, Akerlof and Shiller point to an uncanny prediction by John Maynard Keynes in 1930. Keynes expected that by 2030, the standard of living would be eight times higher. We are on track to get in that vicinity. At the same time, Keynes made a profound mistake. He predicted that the workweek would plummet to fifteen hours and that people would struggle not with financial problems, but with a surfeit of leisure. That isn’t going to happen. What Keynes missed is that free markets generate new desires. In Akerlof and Shiller’s words, markets 'do not just produce what we really want; they also produce what we want according to our monkey-on-the-shoulder tastes.'" In other words, producers can act jointly more effectively than consumers can in exploiting weaknesses of human psychology. This seems to be a fair statement with a lot of empirical support. I think the reviewer does a good job at the end of his review of critiquing the book's view of behavioral economics by asking for more specificity about which mechanisms most lead to "phishing" (dishonest marketplace behavior to fool consumers). To say that free markets take advantage of consumers does not guarantee that making markets less free is any better for consumers, unless some new form of regulation is based on careful research and an affirmation of commonly held human values.

afarrell 11y ago
> What Keynes missed is that free markets generate new desires I've been curious if, as a result of the attitude toward aggregate demand that grew as a response to the Great Depression and Keynes work, we have deliberately designed our society to try to generate more and more desires.
- notahacker 11y ago
  Most of the driving of new desires is done by individual companies in the private sector though. Apple aren't trying to stimulate aggregate demand each time they release a new phone, they're trying to increase their future profits, just like every other company before them. Keynesianism ensures these companies can borrow more cheaply in an economic downturn, as can the less-likely-to-lose-their-job consumers. But it's lubricating the process of creating new markets rather than powering it.
deleted 11y ago
[deleted]
jessriedel 11y ago
> "What Keynes missed is that free markets generate new desires. In Akerlof and Shiller’s words, markets 'do not just produce what we really want; they also produce what we want according to our monkey-on-the-shoulder tastes." In other words, producers can act jointly more effectively than consumers can in exploiting weaknesses of human psychology. This seems to be a fair statement with a lot of empirical support. An alternative theory for explaining Keynes' mistake is just that people's consumption is driven by desire for relative status, a zero-sum game, and therefore people will continue to work to consume more no matter how productive they become. But what is the evidence that free markets generate these desires rather than merely fulfill them? Yes of course marketing will have a hand in determining which goods are high-status, but I don't know much reason to believe that people would stop consuming for status in the absence of marketing. (To wit, there was plenty of conspicuous consumption historically by the rich before there was any sort of marketing industry.) They would just consume a different arbitrary basket of good.
- kauffj 11y ago
  You are spot on. It is all about relative status and that was Keynes' big mistake (Russell makes same mistake). Relative status is also the hidden driver behind most of income inequality debate.
- tomp 11y ago
  > An alternative theory for explaining Keynes' mistake is just that people's consumption is driven by desire for relative status, a zero-sum game, and therefore people will continue to work to consume more no matter how productive they become. I have a different explanation: that progress is uneven. (1) There has been amazing progress with electronics, where computers have increased our productivity practically unmeasurably, and in manufacturing, where new technologies and materials have made products better and cheaper. (2) On the other hand, in areas like human services (e.g. medicine, law), housing (the price of land isn't falling with technological progress), and transport (e.g. bus drivers, garbage collectors, everyone who needs to drive around) there has been very little progress from free markets, rising GDP, or technological advancement. Since people need things in (2), they need to work. And since (1) affects most of us (rising productivity => falling wages), we need to work more and more to afford (2).
bufordsharkley 11y ago
I think it's certainly true that human desire for more will never be sated, but I think this overlooks the fact that there are also finite resources (like land) that won't grow to match productivity, and thus a substantial part of our productivity is captured as rent. And this isn't something that we can grow our way out of...
- oldmanjay 11y ago
  People are very definitely working to increase the available land by getting us to other planets. That means we can grow our way out of it, although it remains to be seen if we actually will.
- AnimalMuppet 11y ago
  But productivity of land can grow. Consider the Green Revolution, for instance.
  - bufordsharkley 11y ago
    Yes, productivity of land can grow (in all sorts of ways), but if the ownership of the land is unequal, all this does is increase the rent on the land for those lucky enough to have it...
    - AnimalMuppet 11y ago
      Not so fast. If I double the productivity of my farmland, I increase the rent on my land (but typically I have to invest in it to get that, so it's not just rent in the economic sense of the word). But if everybody doubles the productivity of their farmland, the price of wheat falls through the floor, and the landowner may be even worse off than before, while consumers get a windfall.

nileshtrivedi 11y ago

Exploitation of irrationality is how rationality evolves in biological systems. In other words, if we get the government to play the role of a protective nanny, we the citizen will remain intellectual equivalent of infants.

mikeash 11y ago
Allowing rationality to evolve by allowing irrational actors to be exploited is going to take thousands of years at the least. I'd rather figure out some way to improve things sooner than that.
- nostrademons 11y ago
  It doesn't have to be biological evolution or take thousands of years. Most exploitation of irrationality works by playing off subconscious desires; once that leads to a very public and consequential failure, it is very quickly brought into consciousness, where future instances can be dealt with rationally. Someone who invested their life savings in dot-coms in 1999 is probably never again going to invest in "the next big thing". That brings its own form of irrationality - once everyone believes that it's foolish to invest in the next big thing, the next big thing becomes very underpriced - but they are at least not going to make the same mistake twice.
zzzeek 11y ago
last I checked, nannys don't let the kids they're taking care of democratically elect their behaviors.
- nunyabuizness 11y ago
  > nannys don't let the kids they're taking care of democratically elect their behaviors Considering they can sneak in CISA into a US budget bill after it was shot down by the public, apparently, neither does the government.
  - afarrell 11y ago

swehner 11y ago

... Microsoft also being one of those phishermen

piker 11y ago

Does the appropriation of the term "phish" disturb anyone else? To me, it confuses the distinction between auspiciously legal capitalistic behavior and the work of con artists. The appropriation equates tempting irrational actors to act against their own interests with defrauding rational actors into acting against their own interests. I also shutter at the thought of reading a 272 page book littered with various "phish", "phool", "ph"-etc'd terms. [Edit: grammar]

vezzy-fnord 11y ago

Don Boudreaux has done a reasonable job of highlighting Akerlof and Shiller's dishonesty in their latest book: http://cafehayek.com/2015/12/phoolishly-against-phreedom-of-speech.html http://cafehayek.com/2015/12/phoolishly-against-phreedom-of-... http://cafehayek.com/2015/12/a-baseless-charge.html http://cafehayek.com/2015/12/a-baseless-charge.html http://cafehayek.com/2015/12/daffy-elitists.html http://cafehayek.com/2015/12/daffy-elitists.html http://cafehayek.com/2015/12/mostly-exaggerated.html http://cafehayek.com/2015/12/mostly-exaggerated.html http://cafehayek.com/2015/12/more-on-phishing-for-phools.html http://cafehayek.com/2015/12/more-on-phishing-for-phools.htm... http://cafehayek.com/2015/12/the-role-of-market-forces-in-protecting-against-phishing.html http://cafehayek.com/2015/12/the-role-of-market-forces-in-pr... I would also like to note that anyone criticizing neoclassical economics (and it's full of dubious assumptions, don't get me wrong) based on straw men about "rationality" is fighting windmills. But don't take it from me, take it from a heterodox post-Keynesian: https://unlearningeconomics.wordpress.com/2012/06/29/how-not-to-criticise-economics/ https://unlearningeconomics.wordpress.com/2012/06/29/how-not... And, unsurprisingly, Akerlof and Shiller stop at yelling "market failure" without proposing a theory of government and ignoring the very fruitful area of government failures. Anyone who argues for intervention on basis of asymmetrical information without having read up on public choice is in no position to speak of anything, since their model is stuck in assuming government is a mystical exogenous equilibrator and that all of its constituents have virtually no expectations whatsoever (which is an even worse assumption than full rationality). Akerlof and Shiller are obviously well aware, but their book is little more than a political polemic.

notahacker 11y ago
I can't see where Boudreaux's comments - themselves more polemic than analysis - expose any "dishonesty". I mean, one of his posts pulls out the old libertarian canard of "every potentially harmful product will be effectively countered by competitors taking the equal and opposite opportunity to sell good honest consumer-friendly protection" by speculating that a market solution to smells designed to induce customers to over-eat could be rival entrepreneurs selling a nose-attachment[1]! And as far as I can tell, he's actually not trying to parody his own argument. If that's one of the best objections he can raise to an example in Akerlof and Shiller's book it must be remarkably good by the standards of popular economics texts. [1]Perhaps the only reason America doesn't have a penchant for nose attachments and no obesity problem is because the market isn't free enough!

alxv 11y ago

Previous discussion: https://news.ycombinator.com/item?id=10330280 https://news.ycombinator.com/item?id=10330280

will_brown 11y ago

>Very few economists foresaw the great recession of 2008–2009 I just can't get past the very first sentence. First, it ignores the realities of both economists and financial insiders who made attempts to blow the lid off of the ARM/toxic loan schemes - not unlike pre-Snowden whistle blowers who were equally ignored and erased from history. Second, even as a 17 year old kid, in 2001, I wrote an economics paper about the impending housing collapse - only I was guessing 2005 not 2008 - based on ARM's; 103% financing with 0% down; and stated income. The next thing will be people talking about how very few economists foresaw the issues with reverse home mortgages, or how no regulators foresaw the dangers of equity crowdfunding for non-accredited investors.

dragonwriter 11y ago
> > Very few economists foresaw the great recession of 2008–2009 > First, it ignores the realities of both economists and financial insiders who made attempts to blow the lid off of the ARM/toxic loan schemes - not unlike pre-Snowden whistle blowers who were equally ignored and erased from history. Yeah, whether it was tied specifically to those particular schemes or not, lots of economists were predicting an imminent severe recession -- including both notable Austrian-school economists and notable neo-Keynesians -- driven by a collapse in the housing market bubble.
notahacker 11y ago
> The next thing will be people talking about how very few economists foresaw the issues with reverse home mortgages, or how no regulators foresaw the dangers of equity crowdfunding for non-accredited investors. And some of the people writing those articles will inevitably be business journalists who spent the previous five years complaining about the regulations that remained and shilling for the crowdfunding companies...
tryitnow 11y ago
You should try to read past the first sentence. The simple fact is that few economists predicted a recession of that magnitude. Predicting a crash is very different than predicting a recession. And predicting a recession is very different than predicting the magnitude of that recession. Nuance matters. I'm glad you were able to foresee it, but there's always outsiders who foresee a collapse, so that data point just isn't terribly relevant.

clarkmoody 11y ago

The term "free market" is thrown around rather easily in this article, oftentimes with the assumption that consumers have absolutely no recourse in said "free market." A few places, you could replace "free market" with "freedom of speech" and it would read the same. Of course the "progressive" thing to do is to limit speech as well, for our own good. When an economy has a strong central bank meddling with the interest rates, firms and individuals receive an incorrect signal in the time-preference for money, since the interest rates are not determined by the market. Coupled with an inflationary monetary regime and Keynesian ideology throughout, the "free market" has no chance to produce optimal outcomes. Come back with a book that examines actual free markets and we'll talk.

will_brown 11y ago
>A few places, you could replace "free market" with "freedom of speech" Interestingly, from a legal perspective free speech does go hand in hand with what the Court's call the market place of ideas[1] which generally should act like the free market. "The marketplace of ideas is a rationale for freedom of expression based on an analogy to the economic concept of a free market. The "marketplace of ideas" holds that the truth will emerge from the competition of ideas in free, transparent public discourse." [1] https://en.wikipedia.org/wiki/Marketplace_of_ideas https://en.wikipedia.org/wiki/Marketplace_of_ideas
jdreaver 11y ago
Right? Any time something in the economy goes wrong, people are quick to blame it on the free market. Greed is the problem, they say. If, in fact, that problem is caused by the government, then it is the fault of "corporations meddling with government." If it is clear that a handful of politicians caused the problem, then people call for "getting money out of politics." It's almost as if the government can do no wrong. We live in such a highly regulated world that I can't help but chuckle when someone blames the "free market" for many of the problems of today.
- ksk 11y ago
  Why can't both be true? Regulation is equally problematic as free markets.

pithic 11y ago

Along with inestimable human livelihood and wealth, the free market creates various possibilities to foolishly harm oneself. Some questions Sunstein does not raise are: 1. Does the option of self-harm have value? If such options are forcibly removed, is the human condition degraded? For example, if one is stripped of having the sense of self-ownership, is that person limited in their level of human development and functioning? 2. Can harmful products be forbidden without the threat and use of violence against their would-be producers and consumers? 3. How successful could we expect such efforts to be, based on similar past and current efforts? And how costly, monetarily, socially, and in human lives? 4. How likely are such efforts, and the institutions that exert them, to be corrupted and bent to the service of powerful interests?

tomp 11y ago
I think the US prohibitions, first the alcohol in the past, and the current drug prohibition, pretty resoundingly answer that restricting freedom (in this way) results in very damaging outcomes.
jdreaver 11y ago
> Along with inestimable human livelihood and wealth, the free market creates various possibilities to foolishly harm oneself. As opposed to the ability for the state to foolishly harm us? Sure, a free market allows humans to be human and make mistakes, but allowing others to take your freedom in the interest of self-preservation is a fool's compromise. Certainly, you raise great philosophical questions though. One of my favorite thought experiments is to imagine how many things done by the government today could be accomplished without the government. I don't mean obvious things like the postal service, I mean fundamental services like road building and a court system. I plan to read David Friedman's book soon on this topic, called "Legal Systems Very Different From Ours": http://www.daviddfriedman.com/Academic/Course_Pages/legal_systems_very_different_12/LegalSystemsDraft.html http://www.daviddfriedman.com/Academic/Course_Pages/legal_sy...

ulrikmoe 11y ago

Milton Friedman, why have you forsaken us.

dawnbreez 11y ago

The central problem of a free market is also its greatest strength: it relies on the people making the purchases to decide what constitutes a good product or service. It asks us to vote with our wallets. This works best when the individual educates him/herself about each purchase. However, when individuals make purchases based on popularity rather than merit, or based on what they're used to, their ability to vote with their wallet suffers. And when producers begin to settle into a position of comfortable mediocrity, when they refuse to compete and improve, they also hurt the consumer's ability to vote with their wallet.