Statists, in contrast, seem me to suppose both that the number of margins on which private people can adjust their actions is relatively small, and that these margins are mostly detectable by outside observers.
The contrast is with what Boudreaux calls marketists, who believe that private actors can adjust along many margins, including some that are not visible to outsiders.
the large number of such margins and the invisibility of their details to everyone who is not ‘on the spot’ combine with the subjectivity of each person’s preferences to make it practically impossible for government officials to assess how well or how poorly markets are working. Too much is unseen – indeed, too much is unseeable – to render imposed collective decisions likely to improve the general welfare.
I think that it may help to consider examples. Consider a doctor, a set of patients, and an outsider, such as an insurance company or the government. The outsider has to choose a method of compensating the doctor. If the compensation is for procedures, then the margin along which the doctor will adjust is likely to be to order excessive procedures. If the compensation is per patient, then the margin of adjustment is likely to be to order insufficient procedures, in order to have time to see more patients. If the compensation is for outcomes, then the margin of adjustment is likely to select for patients who the doctor expects to have good outcomes.
A standard trope among statist economists is that patients cannot know enough to second-guess their doctors, so that there is likely to be a “market failure” with doctors exploiting the patient’s lack of knowledge. But this ignores the margin of adjustment whereby the patient can affect and be affected by the doctor’s reputation. It ignores the margin of adjustment whereby a patient can get a second opinion. It ignores the margin of adjustment whereby a patient, while not acquiring the full range of knowledge as a doctor, can read intensively about the patient’s particular condition. etc.
I believe this was also the main thesis of “Seeing Like A State” And there, Scott went a step further and argued that the state was not just blind to such complexity but actively attempted to stamp it out (causing much damage the process) in order to make things more tractable for state planners and managers.
One way to summarize the difference is that marketists are aware of Demsetz’s critique of the “Nirvana approach” and at least attempt to avoid using this approach in their analyses while statists are either not aware of the critique or prefer not to apply it (likely for ideological reasons).
The myth of markets separate from the state and that there exists a reality without collective decisions, and the myth of information, abundant, available, unambiguous, and free that no one would ever try to disguise, distort, or hide. The simple minded may think those margins don’t exist or that people believe this but the rest know they do but all have their own deficiencies and that responding to incentives leading to gaming the system is not restricted to a few margins.
So the only way to make collective decisions is via the state?
I think Elinor Ostrom would disagree.
The myth is the other way around. Arnold just explained that even if the government takes over doctors, which it doesn’t have to, it still has to make choices about hiw to incentivize them all the choices are vastly different. Different means not the same. Thus it isn’t a myth that more market is different than less market.
It is always weird when lib/progs want to argue anarchism with people who understand both anarchism and libertarianism enough to have chosen one or the other.
I realize that this post is really about markets and not about doctors, but I will just note that a while back Arnold offered up one of the most profound insights into healthcare economics that I have read.
Arnold suggested that a big part of why we like the government (and insurance companies) to be so involved in medicine is that we like thinking of doctors as offering their services as a gift, rather than a transaction.
I do think that colors a lot of how we organize healthcare, probably even more from the supplier side than from the consumer side.
Maybe, but when you go to the doctor or a hospital those people are concerned about getting (and well) paid in a way that would make their lawyers blush.
Which brings up another aspect. Subsidizing doctors so we can pretend they are altruistic has, if anything, made them extremely mercenary.
I think it’s a little complicated. I agree students go into medicine because it’s highly remunerative. And I agree that doctors respond to financial incentives in ways that may not optimize patient health.
But I also think doctors (and nurses) like to think of themselves as offering a gift to patients. Or, at the very least, they like not having to deal with pricing and billing.
I think that if healthcare professionals had be as well-versed in dollars and cents as, say, an auto repair shop, the profession would be a lot less attractive.
Interesting, that when it comes to the minimum wage Boudreau argues just the opposite that the only way firms can react is to reduce minimum wage employment.
Well, no — firms could a) impose more demanding working conditions, b) increase automation, c) increase use of self-service, d) use more outsourcing (e.g. restaurants using more preprocessed foods and fewer homemade items). Yes, all of these adaptions (and others) would result in a reduction in worker hours, but that doesn’t make them all the same thing.