The American visit of Pope Francis has reignited the debate over the morality of capitalism. (Now keep in mind I prefer Deirdre McCloskey’s “capitalism” substitute: “technological and institutional betterment at a frenetic pace, tested by unforced exchange among all the parties involved.”) The WSJ’s Grep Ip weighs in, writing “it is quite a leap between acknowledging markets sometimes fail and arguing they are inherently flawed.”
I would say that markets are not inherently flawed but inherently imperfect — and still the best economic operating system around. But behavioral economists and the policymakers they influence sometimes go a bit further, according to Ip, “seeing market failure where there is none and ignoring their own behavioral biases, in either case leaving people worse off, not better.”
That is an excellent point. It is not just consumers and investors and business executives who make economically irrational decisions. So, too, politicians and bureaucrats and regulators. The planners. Ip:
Courts and regulators assign more value to the potential harm of a new drug than its potential benefits. Politicians take actions out of proportion to the risks, for example by closing schools during the Ebola scare or imposing onerous airline-security checks to prevent terrorist hijackings. Mr. Akerlof and Mr. Shiller are certainly right that businesses sometimes profit by selling things consumers don’t really want. But more often businesses, from Starbucks to Apple, succeed by figuring out what consumers want before consumers themselves know. And while some will always profit from deceit, there is a whole new crop of businesses, from TripAdvisor and Angie’s List to Yelp, trying to profit by calling them out.
Plenty of reason for Hayekian humility all around.
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