Bryan Caplan  

A Simple Proof Not All Markets Work Well

Larry Summers's Perspective an... Foglia on Piketty and inequali...
Twenty five years ago, I interned at the Cato Institute and met Jerry Taylor.  Now he runs the Niskanen CenterHere's what Jerry says about the movement we've both inhabited for decades:
Libertarians love to preach the virtues of markets. Yet in the "marketplace of ideas," their bundled product has been regularly and thoroughly rejected for over a century. Until libertarians acknowledge that market verdict and re-think either what they're selling, how they're selling it, or both, they will remain on the margins of American political life.
Perhaps Jerry's only being poetic, but I see a deep truth within: However you cut it, all markets don't work well.  Consider these three premises:

1. All markets work well.
2. If the market for ideas works well, truth will largely win out.
3. The market for ideas strongly rejects the view that "All markets work well."

It's easy - and appropriate - to throw this argument in the face of the dogmatic libertarian.  "All markets work well?  Then how come the market rejects your ideas?"  But the thoughtful libertarian should reject dogma in favor of some combination of the following:

1'. Most markets work well, but the market for ideas doesn't.  Why not?  Because ideas have massive externalities.  The market for pollution works poorly because strangers bear almost all the cost of your pollution. The market for ideas, similarly, works poorly because strangers bear almost all the cost of your irrationality.  This is the heart of my argument in The Myth of the Rational Voter.

2'. Truth doesn't largely win out in a well-functioning market for ideas, because consumers primarily seek not truth, but comfort and entertainment.  Look at the market for religion.  No matter what your religious views, it's hard to claim truth prevails, because even the generously-defined market leader has less than half the market.  The same goes for political ideas. 

Like Jerry, I reject dogmatic libertarianism.  And I'm all for better marketing of libertarian ideas.  But no matter how true libertarianism is, we shouldn't expect it to be popular.  Why not?  Because it tells people an ocean of things they deeply resent.  Better marketing can soften the blow, but can't turn it into a pat on the head.  While this is no excuse for having a bad attitude, few markets are more perverse than the market for ideas.  Treating its verdict as a test of truth is a terrible mistake. 

COMMENTS (24 to date)
Harold Cockerill writes:

Marketing libertarianism to adults is like marketing vaccinations to two year olds. Good luck with that.

Matt Moore writes:

If we are talking marketing, I see cause for hope in the 'purchase funnel' of libertarian ideas.

I see a big spike in simple 'awareness' that there is something called libertarianism. I was listening to the Guardian's UK podcast last week and it was mentioned in connection with both major comment stories (UK EU membership and US primary elections) without any explanation as to what was meant.

I even anecdotally see an improvement in the 'opinion' of people about the ideas. Yes, they are seen as somewhat utopian, but we generally have avoided being seen as simply 'right wing', which is a major victory.

Next step is to improve 'consideration', which is the current hurdle.

Pajser writes:

Expand "works well". It seems logically possible that market for ideas works well, i.e. libertarianism is winning, it is winning faster than it would in any known alternative economy of ideas, it only doesn't win so fast as one unrealistically expects. (I do not claim it is true; only that it is logically possible.)

Enial Cattesi writes:

How about a crazy idea: there is no market place of ideas, at least not in the way presented here. Neoclassicals are very quick to compare, erroneously, all kind of activities, elections for example, with "markets." Maybe they aren't.

sam writes:

There is no marketplace of ideas.

The defining feature of the marketplace is exchange. If I want something from you, I have to exchange something to you that is finite and valuable.

This means that for every transaction, we both have some skin in the game.

In the non-marketplace of ideas, if you succeed in selling me an idea, I have to give up some of my time and energy - but you gain no time and energy from me.

casey writes:

I don't agree to your premises.

1. All markets work well.
At what? They are really good at turning human labor into food and shelter. They are OK at turning it into music recordings. They are not very good at creating ideological conformity on lots of issues.

2. If the market for ideas works well, truth will largely win out.
No. No. A million times no. Some ideas win out, and these are ideas that some group likes and is willing to propagate. If those ideas are truth or not has more to do with the people in the market than to do with the idea being true. The scientific method produces truth, and it doesn't require a market.

The marketplace for ideas is good because participating in it is good for the mental hygiene of the participants, not because it produces truth.

3. The market for ideas strongly rejects the view that "All markets work well."
OK this I agree with.

Jesse C writes:

@casey - What do you call the social mechanism by which humanity has come to largely agree that the earth is round, killing people is bad, etc? Whatever that thing is, many (most?) of us call it the "marketplace of ideas." It's not just for mental hygene - it largely selects for good ideas and against bad ones.

Also, Bryan's numbered points were presented in the form of a proof by contradiction. He was proving that (1) is false, not claiming it was true, but assuming it's true is how the proof works.

casey writes:

I call it the marketplace of ideas just like you do, but I don't agree that it largely selects for good ideas against bad ones. It selects for whatever its participants like.

  • If the participants like whatever you call a good idea, the the market selects for your good ideas.
  • If the participants care a lot about their social station, think food is a good indicator of social status, and don't particularly care for the results of hard science, they might decide organic food is good and GMO's are dangerous.
  • If the participants care a lot about having a social support structure to make hard life decisions for them and value being surrounded by people with identical moral inclinations, they might decide that a rigid hierarchical religion in charge of the laws is a good idea.
  • If the participants decide that coming home at night is more important than people's right not to get shot by cops, they might pick really aggressive use of force norms.

These are all things going on right now in America, where I live, and I think they are all terrible. But the marketplace for ideas is producing them.

I know what a proof is. But he said "Consider these three premises:" So I used his words.

marke writes:

i've come to the conclusion that most people are afraid of real freedom as they are much more into control and restriction then they let on too.

they talk a decent game about caring about "freedoms", but often the first chance they have they enact restrictions and limitations to your ability to do what you want, they do, ie homeowners groups, city councils etc etc.

also, i think ideas are much more like viruses then markets, ie richard dawkins and his "memes", and that they tend to infect people and not simply influence them, and are not as easily discarded one would like.

Two issues related to the influence of government in this marketplace:
1) How does government education distort the "marketplace of ideas"?
2) What are the incentives towards truth when it comes to political/policy discussions?

Jon Murphy writes:

Perhaps there is a time issue here? Over the past quarter-century, there have been setbacks and struggles, but it took a long time for the heliocentric POV to become accepted, too.

Of course, that then raises the question of how long one should wait before re-marketing.

Robert Schadler writes:

Markets are a practical mechanism. When they work well, they have, at best, advantages over alternatives. They don't have "virtues."
It is an easy to make the argument that markets work remarkably well most of the time.
Even when they work well, it is often the case that "improvements" can be made so they would work even better.
There are many things for which a market does not exist, for a good reason. There is no "insurance market" for burned houses and totaled cars, for example.
And for some things, there might be a market or a potential market which is precluded by the political determination of what constitutes property: one cannot sell other people, or, even baby parts most places.
Ideas (even when not "truth") is even more intriguing. When do you have a property right to an idea? Seems usually a political issue. And some ideas are only valuable if very few people have access to it; and some are only valuable if widely shared (e.g. driving on the right side of the road). Markets usually deal best with scarce goods, which ideas are -- some of the time.

Jesse C writes:

Bryan's proof (emphasis is mine):

1. All markets work well.

2. If the market for ideas works well, truth will largely win out.
3. The market for ideas strongly rejects the view that "All markets work well."

I claim that truth does "largely" win out in the marketplace of ideas, but that is not true on a per-idea basis. Some bad ideas win out, but mostly good ideas do. I guess it all depends on the meaning of "largely."

Also, imagine 100 years from now people and robots alike pretty much accept that "all markets work well." Then that idea DID finally win out. Many a historian will look back at this blog post and shake his or her or its head and/or CPU compartment.

Ben Kennedy writes:

The "marketplace of ideas" analogy is weird to begin with - real markets don't attempt to produce one "true" good, in fact it's quite the opposite. Real markets have producers that mold themselves into creating goods to satisfy the preferences of the participants, even people with niche desires. In that sense, the "marketplace of idea" is very successful - anyone can completely immerse themselves in whatever is their preferred idealogy

casey writes:

@Jesse C - I find your tongue-in-cheek reference to a future with human and robot cohabitation both naive and offensive. Everyone knows that due to a poorly planned logic interaction, the robots will lock all (surviving) humans in a zoo-like prison to keep us safe for our own good.

John Fembup writes:

"few markets are more perverse than the market for ideas. Treating its verdict as a test of truth is a terrible mistake. "

This explains a whole lotta stuff.

stargirlprincesss writes:

The "marketplace of ideas" is not a market under any sensible definition. What is being exchanged? I suppose you could argue people spend time and money (buying books?) in exchange for information. But in the sense of a "marketplace of political idea" the analogy of a marketplace falls apart almost totally.

JdL writes:

However you cut it, all markets don't work well.

The meaning of this sentence is identical to "However you cut it, no markets work well." I doubt very much that's what you meant to say. Please consider saying what you actually mean: "However you cut it, not all markets work well."

R Richard Schweitzer writes:

What this type of discourse discloses are the confusions of comparing analogies with realities.

Boris Karpa writes:

Several facts should be noted while considering this:

1. One, libertarianism is doing fairly well in the marketplace of ideas. There are far more self-identified libertarians now than there have been in the 1970s, and many libertarian ideas (say, school vouchers) have been adopted by others.

2. Adopting libertarian ideas has certain costs - for example, if I accept that heroin or cocaine should be legalized, I must accept that probably more people will be cocaine users. (The libertarians claim that this is not so horirble, and not very many people will choose to use cocaine, and anyway this will be better, safer cocaine than what's in the streets today - but what if they're wrong? And what if the better, safer cocaine is still terrible?)

Kevin writes:

I agree with others marketplace is a poor metaphor for the swamp of ideas we wade through. I am not sure what a good one is.

But if there is a market place of ideas, then there is not ONE, there are hundreds. There are ideas men are genetically inclined towards, women, maybe poor people, racial genetics may make some people favor community vs freedom. As another said, expecting one product to prevail is largely folly.

There is another possibility - the original critic is right and libertarianism is a stupid idea that is rejected because it is not true.

Jay writes:

Since when does any market come out with the best anything every time? The most popular phone at any given time isn't objectively the best, it's the one people like the most. Idea's are the same way.

Nathan W writes:

I don't disagree with any of the premises you raise for the possibility that people are just preferring bad ideas.

But shouldn't you allow yourself a pretty healthy dose of doubt if such ideas fail for so long in the market of ideas for such a very long time?

In any case, I think it is appropriate to celebrate the value of a diversity of perspectives in leading to decent outcomes, rather than to be dismayed that one's particular viewpoints does not rank number one in social preferences.

Brett writes:

One issue I'd raise is that most markets are not "winner-takes-all" - there are usually second most popular, third most popular, etc places with their own followings. Even the markets with extreme network effects can be like this, like with Youtube, Dailymotion, Vimeo, etc.

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