Arnold Kling  

Thoughts on Market Socialism

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I am reading a draft of The Clash of Economic Ideas, by Lawrence H. White. (Googling for it landed me here). One of its topics is the socialist calculation debate, which revolved around the idea of "market socialism," an idea associated with Oskar Lange.

One way I think of market socialism is that you could have government play the role of a Walrasian auctioneer, calling out prices to firms and letting them reach an efficient allocation of resources by maximizing "profits." However government would distribute all the output. Yes, there are incentive problems. Lots of other big issues. I will get to as many of them as I can in a subsequent post. Be patient.

A point that White makes is that nobody has every tried to implement market socialism in practice--not even in Poland, where Oskar Lange had a high position. I would suggest that market socialism represents an intellectual bait-and-switch, where the reality is that socialism reverts to command and control. Note that as the political process grinds on, the approach to reducing carbon has evolved away from carbon taxes and even from cap-and-trade to more command-and-control style.

I see health care policy on the same track. If you search carefully, you will find some prominent Obama people who once supported using consumer cost-sharing as a market incentive to "bend the cost curve." No more. Even "pay for performance" is fading into the policy background. Instead, increasingly, the evolution is toward price controls, which in turn will mean command-and-control allocation of medical services.

What I am saying is that whatever the theoretical merit of having government use decentralized market mechanism to implement collectivist ideals, the trend in practice is that centralized ends wind up being pursued by command-and-control means. Again, I will explore this more in a subsequent post. What I would claim is that it is not simply a matter of people trying market mechanisms, having them fail, and reverting to command-and-control. Instead, they revert to command-and-control without trying market mechanisms. I want to speculate on why that is the case.



COMMENTS (5 to date)
Troy Camplin writes:

This health care bill is and always was a way to get us to single payer. It is designed to create even more market failures so the federal government can justify a complete takeover, arguing that the market has failed. Some haven't even been all that subtle about this fact.

Randy writes:

"Instead, they revert to command-and-control without trying market mechanisms. I want to speculate on why that is the case."

For the same reason that parents so often fall back on the tried and true "Because I said so". Its easier.

There are many aspects of government that could be voluntary, and yet government relies on force almost exclusively. Persuasion, when it occurs, is nearly always an afterthought - to allow the coerced a rationalization by which to more readily accept their subordination.

Tom West writes:

Interesting, and I suspect accurate, observation.

As an addendum, I suspect command and control are what the electorate prefer. I don't want a policy that eventually might lead to a desired outcome, I want that outcome NOW!

And since desired outcomes more usually less of this, more of that, even if the market forces do achieve the desired outcome, how does the electorate know? Maybe we would have had even *less* crime, pollution, unemployment, etc if we'd just "made it so".

While highly indirect, the last 'market' force is that you can replace the government, at least in a democracy.

Ano writes:

whatever the theoretical merit of having government use decentralized market mechanism to implement collectivist ideals...they revert to command-and-control without trying market mechanisms.

I think this is almost entirely due to the details of trying to put together a political coalition.

On the left, you have a bunch of people who have a social goal, but only some of them trust market mechanisms to accomplish that goal. On the right, you have a bunch of people who trust market mechanisms, but only some of them agree with the social goal.

Moreover, while some liberals are willing to tolerate market mechanisms to achieve the goal (with lots of rueful bellyaching about "giving corporations a right to pollute," etc.), almost all conservatives are willing to postpone pursuing the social goal to hold out for a more market-oriented approach.

In the process of coming up with a policy approach get conservatives dropping out of the coalition once actual bill-writing gets ugly. For example, you get libertarians writing helpful columns about how much better a pure carbon tax shift would be than the monstrosity before congress now. Well, duh! But no actual legislative votes are available from the right for a non-perfect bill, perhaps because the belief in (or desire to solve) the social goal is weakly held on the right.

In the end, you get liberals having to negotiate amongst themselves, with conservatives writing columns about how much better the resulting bill would be if it were more market-oriented. But if 5 GOP senators were willing to endorse, say, a carbon tax (sufficiently large to address the problem) with an offsetting mix of corporate tax cuts, demo-grants, and payroll tax cuts, President Obama would blow out both knees sprinting to their side.

When liberals are left to negotiate amongst themselves, you get a group who all agree the problem should be addressed, but not everyone trusts market mechanisms to do it. So you get cap and trade and efficiency standards and heavy regulation.

Dyer1829 writes:

The government is trying to use cost control to help the American public pay less for health care so that there is more money to be spent elsewhere. Price controls in some areas are important, and I personally don't belive that all price controls are a socialist effort. If the government had just passed a bill to control the price of gasoline, there would be a whole lot more people happy about it.

The problem is not with the bill itself, it is with the tactics that each party is using to try and get their way. The Democrats are trying to add in unnecessary things just to prove a point, and the Republicans are flat out saying no to the bill because it is from a Democratic President.

If you separate out the politics of it, price control for the medical and health field might not be such a bad thing. If people no longer have to pay thousands of dollars more than what we need to pay. Hosipitals and doctors should not be getting as wealthy as they are. Yes, they are highly skilled workers who save lives, but that does not give them the right to charge you $200 for not even an hours visit.

I do not think that Obama or anyone else in D.C. is taking the right approach to health care, but I do believe that something needs to be done to keep prices in control in the medical field.

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