Musings on Why Markets Trump Politics

Politics got you down? Disillusioned with Democracy? ^Here is a suggestion for a Fall activity to take your mind off things.

As election season approaches, I am more thankful than ever that most of our lives are governed by markets, not politics. Political systems have the unfortunate quality of being exclusive. If one party dominates the political marketplace, everyone else’s parties have little say in making the laws that we all have to live by. However, in a market, there is no exclusion. If you want a ham sandwich, that does not stop me from having a salad with chicken. Everyone can get what suits them best. Politics is like a massive gathering where only one food item is served. The attendees can choose what it will be, but if your view is not the majority, tough luck. Alternatively, a market system is like a restaurant that allows each person to order based on her preferences. This is one of the reasons for keeping the scope of government as small as possible. Those who advocate for larger government always imagine that this all-powerful state will do exactly what they want it to do. But because only one set of ideas can be implemented at a time, they will certainly be disappointed in government’s inability to do what they want it to do. (Hayek discusses this issue in The Road to Serfdom, Chapter 5: “Planning and Democracy”)

All that to say, markets allow each person to make the best decision for himself, whereas the political system requires all citizens to be subject to decisions made by others. There is a place for politics, but I would like that place to be as small as possible in my life.

Coming soon: Public Choice in Plato’s Republic. If you haven’t subscribed for email alerts of new posts and would like to, there is a space on the left column of your screen where you can enter your email address. Thanks!

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Competition, Monopoly, and “Loving Mises to Pieces”

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In his treatise “Human Action”, Mises devotes a short chapter (5 pages) to explaining what competition is, and what competition is not. He combats the misunderstanding of markets that is at the root of Antitrust legislation and interventions to break up “monopolies.” The fact that monopolies exist is not a  problem as long as new competitors have the opportunity to pitch their ideas to the consumers without legal barriers. The consumer decides how successful an entrepreneur will be based on how well the entrepreneur serves the customers. As Mises puts it, a poet may have a monopoly on his own rhymes, but that doesn’t mean he can command the market for them.

You can read Mises’ excellent chapter on competition here on Liberty Fund’s Online Library of Liberty.

Obvious Wisdom from James M. Buchanan

Obvious Wisdom from James M. Buchanan

Jim Buchanan, Nobel Laureate and pioneer of Public Choice Economics, is one of my favorite economists. His keen insights into the reality of politics have reverberated through popular thought, and have changed the way many (especially economists) view the political process.

Want to learn more about his ideas? Check out “Public Choice” in Econlib’s Concise Encyclopedia of Economics.

Meddle, Meddle, Meddle: An Interventionist’s Delight

This week, the European Union Justice Commissioner Viviane Reding proposed a regulation to punish companies whose supervisory board is less than 40% female. In the name of “equality,” Reding has determined that self-regulation has failed to give women the opportunities they deserve in the management of publicly traded companies. Therefore, she concludes that government intervention in the form of a quota is necessary. This New York Times article contains details of the proposal, but this kind of interventionism is nothing new.

Quotas are old friends to the interventionist, and are often part of “social justice” and “fairness” initiatives. Though discrimination can be a serious problem, quotas are not the answer. Forcing individuals into positions that they would not have attained without intervention does both the individual and the organization a disservice. In the words of Thomas Sowell,

The assumption that there is something strange about not having different groups “represented” in various occupations and institutions in proportion to their share of the population will not stand up to the slightest scrutiny.²

Not only is it silly to expect perfect representation, but quotas also create a situation where organizations hire less qualified people than they would have otherwise, to avoid the penalties of violating the quota regulation. One of the most interesting parts of an affirmative action quota is that it can only hurt the organizations involved. Before you get upset about my black-and-white view of quotas (no pun intended), think about it this way: if a minority person is the best candidate for a job, not hiring the person (discriminating against her, in other words) will hurt the company because it is missing out on an awesome worker. If a minority person is not the best candidate for a job and gets the job simply to fill the quota, the company can’t hire a worker who would have contributed more to the company. In short, affirmative action legislation is not necessary because companies that discriminate are shooting themselves in the foot. Companies can’t afford to pass up the best people.

So where does that leave us with Reding and the misguided UN proposal? If passed, it would dramatically hinder companies’ ability to hire the best people for each job. Reding is a member of a class of bureaucrats who believe that they can arbitrarily impose the “social good” on companies and not expect any repercussions. (How do I know this? Reding also “has a track record of defending citizens’ rights by successfully lowering the cost of cellphone calls.”¹ Since when has inexpensive phone service been a right? But I digress.) It is not possible for a company to be more productive by hiring less competent workers, and if Reding thinks it will be possible for European economies to do anything but collapse under this meddling, she has another think coming.

Thanks to my classmate Megan Bowser for bringing this UN article to my attention.

¹ European Proposal Presses for Women to Join BoardsNew York Times. September 3, 2012.
² Quotas on TrialTownhall.com. January 8, 2003.